In a famous exchange between Chou En Lai and Henry Kissinger, the U.S. Secretary of State asked Chou what he thought of the French Revolution. Being 1972, Chou answered it was too early to tell.
The reason we bring this up is as the Greek tragedy unfolds, it will take a German-led bailout to keep the Greek government from defaulting. Today, the German/Greek 10-year-note spread widened to 245 basis points and the German/Irish 10-year-note spread widened out 20 basis points to 200 basis points. Being that the European Union has no statue for a bailout, it will take a massive amount of transfers to show up the Greek economy, let alone the rest of the PIGS. Several pundits have imagined that the Greeks will cut public sector wages to get their debt situation under control,but they seem to forget that this is a democratically elected socialist government. The chances of squeezing the unions has as much chance as going a day without seeing Obama making a speech on television. From a trading perspective, the only way to play in this arena is to use the bund futures and the recently re-listed Italian bond futures, both at the Eurex and denominated in EUROs. Check your system provider for the appropriate symbols–and no this is not a paid advertisement but a public service message. The question facing Europe is what political price the Germans will exact for any aid they may provide. So maybe it is too soon to determine who in fact was victorious in World War II.
The calendar is heavy tomorrow with three central bank meetings. The Kiwi bank has already announced and they stayed at 2.5% but changed some language to suggest that they move earlier to tighten then previously thought. The KIWI went bid against all the crosses but we think that this is an overreaction. The BANK of ENGLAND and The SWISS NATIONAL BANK both meet in the early morning but no change is expected from either. The Brits presented the pre-budget plan and it had to do with raising taxes and few budget cuts. The middle class in Britain will carry the brunt of the hike but some red meat was tossed to the torch and pitchfork crowd by supertaxing bank bonuses more than 25,000 pounds.
We will never defend the pay of bankers but this tax will go a long way toward subverting the role of London as a financial center. French President Nicholas Sarkozy and German Chancellor Angela Merkel are laughing in their Reisling. Europe is a mess and not getting out of this predictament anytime soon, yet the EURO held up fairly well today.
It really makes one wonder where the safe havens are–we know the DOLLAR for lack of any where else but the news from the U.S. today was not helpful. The Obama administration moved to extend TARP until Oct. 3,2010. This cannot be a positive event as this program was meant to be for the insurance of systemic financial solvency. But with the banks rushing to repay TARP funds what can the real purpose be–this is Paulson’s ghost as he jammed this through with little thought and much malice. Remember his three-page missive that demanded there could be no judicial review of Treasury’s actions? Oh,Expediency what has thou wrought! So risk may be declining but where does one go for wealth and capital preservation–the gold/currency crosses seem to be the last bastion of financial rectitude.
Tomorrow morning brings us the jobless claim number–463,000 is the guesstimate and that is followed with the trade number. The trade report was always a centerpiece for the currency world but because markets are dynamic this data has little relevance. If something out of the ordinary is reported, it could have a minor impact but most probably a yawner–just to prepare you negative 36 billion is projected. Tonight the Aussie employment report came out and it was much stronger then estimated putting a bid to the AUSSIE DOLLAR. Also, S&P gave Spain a negative outlook presenting Europe with on more problem–something more to think about.
Tags: Aussie Dollar, Bank of England, Dollar, Euro, Kiwi, TARP
January 7, 2015 at 8:12 pm |
[…] has just begun and we’re still consumed with the Greek tragedy, which we first wrote about on December 9, 2009, a little more than five years after we started blogging. (The old entry is also posted […]