The Portuguese DEBT AUCTION today went as well as could be contrived. While the EURO initially stuttered, by days end it had rallied and ended the day up 1 percent. Tomorrow, the Spanish raise cash through a DEBT AUCTION and the market there has been well set up to take what the Spanish government offers. Interestingly, it was the GREEK DEBT markets that had the largest rally as the GREEK TWO-YEAR NOTE dropped to 10.09 percent from 11.44 percent. The BUNDS were sold off as the safe haven status of German debt eased.
Posts Tagged ‘VAT’
Notes From Underground: Risk on is not the trade it used to be–and the algorithms will be not so self-assuredJuly 13, 2010
Bob Pisani’s cheerleading outfit is back from the cleaners and all is well in the world. The talking heads are building pyramids of potential as the early earnings reports are giving reason for the recent rally to sustain itself. Has the earnings season changed the picture so dramatically since ALCOA came in with better earnings? We sincerely doubt it but as our readers know all too well, we don’t argue with the market but rather try to find profit potential in all its actions. Notes from Underground is always trying to make sense of 2+2=5.
Some are making a big deal out of Alcoa as a precursor of growth, but we notice that ALCOA is more than 60 percent off its early January highs and that is with the recent rally included. Our goal is not to be negative but rather to give some perspective to counter the screaming of the buy-side purveyors of illogical positivism. When the S&Ps were on their highs, we remained unconvinced until the private equity firms broke out of the sideways pattern. But the price action of Blackstone and Ochs-Ziff failed to establish any upside momentum. The private equity model has been broken since the global financial system has been in stress. Converting equity to debt could not have been a worse place to be and we still watch to see if the PE firms confirm a true turnaround in the credit markets.
On June 23, we put out a piece in which we noted that the British pound was rallying with the announcement of Chancellor’s Osborne’s AUSTERITY BUDGET. We noted that if the POUND was strengthening on austerity, then the DOLLAR was vulnerable as GEITHNER and company were furthering greater stimulus to stabilize the fragile U.S. and global recovery. Since then, the DOLLAR has weakened as the previous DOLLAR bulls were chased from their haven.
Today, we read an opinion piece from BLOOMBERG that caught our attention and alerts us to the British pound. David Blanchflower, aka the Dartmouth Dove, who was previously a member of the Bank Of England’s monetary board, admonished the Chancellor of the Exchequer for playing politics with the Office for Budgetary Responsibility (OBR). In pushing the recent austerity budget, Blanchflower claims that the chancellor played with the OBR’s analysis to soften the negative impact on jobs. The exchequer claimed that the increase in the VAT to 20 percent from 17.5 percent, plus cuts in public spending would not hurt employment as the private sector would create enough jobs to offset the governments cuts–fiscal austerity begets economic growth.
A leaked document showed that the OBR actually projected that job losses would be more than 1.0 million.The fudging of the data–our words–supposedly led to the resignation of the present head of the OBR, Sir Alan Budd. Regardless, this story needs to be watched to see if it halts the recent rally in the POUND STERLING. We have been bullish on the POUND, but our recent enthusiasm is tempered until the market brings some clarity. The DOLLAR may be weak enough to make this a tempest in a teapot.
The biggest story from the weekend was the release of the Chinese trade numbers and surprisingly the export component rose 44 percent year-over-year, while the imports slowed resulting in an increase in the trade surplus.We know that this will not play well in Washington and will provide fresh fodder for the protectionist drumbeat that is looking for more participants to march along.
Notes From Underground: The G-20 is in disarray no matter how much spin is applied (but it’s making us dizzy)June 22, 2010
The British released their budget today and it was pretty much as advertised. George Osborne, the U.K.’s chancellor of the exchequer, announced VAT tax raises and other revenue enhancers in an attempt to trim the British budget. The discussion now turns to whether the budget will be too AUSTERE for the times. The fact that economic growth in the developed nations is anemic, at best, is raising concerns that the Brits and Europeans are removing fiscal stimulus at a time when the economic recovery is still too fragile.