In a comment directed toward the European peripherals, Pimco’s Bill Gross said that Greece was a zit, Portugal a boil, and Spain a tumor. Readers of NOTES FROM UNDERGROUND know that Spain has been on the radar for a long time. The growth numbers or lack of growth, rather, hampered by severe austerity budgets have generated ADVERSE FEEDBACK LOOPS that have rendered all economic projections null and void. When austerity bites, all growth forecasts are cast asunder. Staying with Gross’s almost biblical references, I suggest looking at Europe though the lens of the TEN PLAGUES.
Posts Tagged ‘PIMCO’
Dominique Strauss-Kahn delivered a speech today in Beijing, lambasting the leadership of Europe for its “state of denial” about the severity of the credit crisis. It seems that an angry DSK is speaking his mind now that he has no official capacity and can lash out at European leaders. The former IMF managing director was well received by his Chinese hosts who showed their appreciation for all the work DSK did to elevate the status of the Chinese in the IMF.
It has been the best of times. It has been the worst of times. President Sarkozy began the year with such high hopes and aspirations as he desired to raise his stature on the world stage. He won his early skirmishes against Chancellor Angela Merkel by first defeating Germany’s desire for Axel Weber to attain the ECB Presidency and then forcing the German Chancellor’s hand for a larger pool of capital for the European Financial Stability Facility. But the taste of victory has now faded as the FRENCH BOND MARKET is suffering under the weight of its deeply troubled banks and the GERMAN/FRENCH 10-YEAR BOND SPREAD CONTINUES TO WIDEN. France is deemed to be very vulnerable for its banks own so much EURO SOVEREIGN DEBT that of course is deemed to be riskless and require no haircut or capital to support it.
Last week, the Eurocrats tried to persuade the markets that it has gathered the strength to deal with the DEBT CRISIS IN earnest. But even with three days to analyze and digest the statements it is still not clear as to how the actual bailout will work. The ultimate question: Who will guarantee all the good credit being established that will allow the EFSF to do its job to insure the markets against sovereign default??
The market’s attention turns to the ECB and BOE rate decisions. Any rate change would be a surprise as the U.K.‘s data has been weak of late as the austerity budget is beginning to be a drag on the British economy. The policy makers in England are content to let rates stay on hold as it helps to weaken the POUND against the EURO. It will be more interesting to hear from the ECB through Trichet to see if the Europeans are content with the present inflation situation, especially as the EURO has made new highs for the last 18 months. The recent strength of the EURO is a problem for the debt-stressed countries and with the U.S. on hold for an “extended period” any move by the ECB would put more upward pressure on the EURO currency. Let’s see if Trichet surprises us by discussing the recent strength of the EURO. The post-meeting press conference will be waiting to hear if Trichet loses the vigilant language.
Two central banks issued their statements on interest rate policy. First, the FED STAID the course and left QE2 as it was/is and the language of the FOMC statement was almost verbatim from the December meeting. I am greatly bothered by the second paragraph again and the emphasis on “CONSISTENT WITH ITS STATUTORY MANDATE” (emphasis mine). The FED continues to hide behind the legislative directive of price stability and maximum employment. The FED reiterated that price pressures were negligible but that unemployment is elevated. So for all those in Congress, stop complaining for the Bernanke group is merely fulfilling its legal obligations.
Notes From Underground: Pimco calls for some of the PIIGS to leave the STRAW HOUSE AND HIT THE BRICSDecember 20, 2010
A note from Andrew Bosomworth, head of Pimco’s European Portfolio, suggests that Greece, Ireland and Portugal would be better off leaving the euro currency until they get their houses in order. Bosomworth wrote it will be difficult but it can be done and the currency devaluations that will be part of exit will aid the PIG in its attempt at economic recovery.
The RBNZ–KIWI CENTRAL BANK–announced they were holding rates at 3 percent and awaiting further news on the global economy before they would move again. Also, South Korea said it was considering more capital controls to halt the appreciation of the WON. The South Koreans offered up several possibilities for exchange controls but it appears they will follow upon the heels of the Brazilians. In two weeks the G-20 leaders will meet in Seoul and yet we have the hosts promoting the use of currency controls. Several G-20 members have thrown down the gauntlet in an effort to prevent the U.S. from embarking on depreciation of the DOLLAR by stealth.
The developing nations are none too happy to be the recipients of the hot money flows being fostered by the FED‘s zero interest rate policy, making it mandatory for China and the U.S. to reach some type of agreement on the YUAN in order to slow down the FED‘s backdoor effort at DOLLAR depreciation.
In another bout of political antagonism, Angela Merkel threw some water on the recent German/French agreement concerning the penalties to be invoked for violating budgetary rules of the Growth and Stability Pact. Going into the European summit, Merkel announced that Germany is going to push for a reopening of the Lisbon Treaty in order to harden budgetary rules and put some real teeth in the law.
Sarkozy felt strong that by backing Merkel down on the issue of severe punishment for excessive profligacy that Germany would be in a much more subdued mood going into the European summit. It seems that Merkel is playing to the fiscal conservatives in Germany by demanding a hardened “crisis resolution mechanism” to replace the present European Fianacial Stability Facility (EFSF). We will watch this carefully as Frau Merkel is toughening her stance for the homefront after been seen as very soft in defending German interests within Europe.
It seems to me that, today, Bill Gross removed Ben’s testicles by coming out against further quantitative easing. He openly called QE2 a Ponzi Scheme, although he renamed it a”Sammy Scheme” in honor of Uncle Sam. When the largest bond fund comes out against such action, the FED Chairman cannot be happy. Gross acknowledges that the FED has little choice but warns that going down this unmapped road can result in hellacious outcomes for bond holders.
Jeremy Grantham also weighed in with a similar note but was even more forceful in warning of the repercussions of another round of massive liquidity injection by the Bernanke Bunch. However, Grantham laid the blame heavily on the shoulders of Greenspan but takes Bernanke to task for following the same “green brick road” of monetary stimulus to maintain the illusionary power of equity gains in acting as the driver of the wealth effect. It was not a good day for the FED in its push for QE, as the FED has put a lot on the line with its constant drumbeat of the need to do everything to halt the onslaught of deflation. Hmmmm, we may have some new voices in the Tabernacle Choir.
Notes From Underground: Notes From Underground: Bill Gross calls for “full nationalization”of the mortgage finance system (REPOST)October 18, 2010
In the wake of the recent housing foreclosure issues, we bring you this piece from August about Bill Gross and his call to fully nationalize the mortgage finance system.