Notes From Underground: Pimco calls for some of the PIIGS to leave the STRAW HOUSE AND HIT THE BRICS

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 machinations of such a strategy are mind-boggling but it can be done, just at great cost to the BANKS that are holding the outcasts’ sovereign debt. Pimco believes that Spain, Belgium and Italy will be able to muddle though the present crisis so the damage to European financial institutions won’t be overwhelming. This is an interesting recommendation and many others have suggested it but no group with the firepower of PIMCO. Bosomworth warned if the PIIGS aren’t dealt with soon, then his firm would huff and puff and blow the European financial house down, forcing all the PIIGS under duress to look for a BRIC HOUSE.

The biggest story in the U.S. was the FED announcement that it would limit its purchases of any single Treasury issue to “just” 70 percent as it continues its quantitative easing program. Before suspending the previous guidelines last month, the FED had always limited itself to 35 percent of any Treasury issue. The FED stance is going to lead to many games being played by broker-dealers and sophisticated trading who will monitor the SOMA positions closely. BOND trading is going to become more volatile as thresholds are approached. An interesting aside: Solomon Brothers was fined heavily for cornering Treasury auctions so I am left to ponder how the FED‘s actions will be perceived by the SEC and the Justice Department.

Sarcasm aside, readers of NOTES should take five minutes to read the RBA‘s minutes of its recent MONETARY POLICY meeting. The Aussie Central Bank is very much like the Canadians: clear, concise and heavily oriented to the global-macro picture.

Also, there are two stories about Russia in the financials. First, Novartis is putting a large amount of capital into developing drug manufacturing in a very underserved part of the Russian economy, thus following PEPSICO as multinationals seek to profit from serving the growing Russian middle class.

The second story has huge ramifications for the global agricultural markets as two Russian fertilizer groups have agreed to merge and form the world’s largest POTASH producer. The two companies, URALKALI and SILVINIT, result in two cartels–Canada’s CANPOTEX and the BELARUSIAN POTASH CO.–controlling more than 60 percent of POTASH production. It is noted that the three biggest importers of potash are Brazil,India and China, so be aware that three of the BRICS will be searching to secure fertilizer investments to ensure they aren’t squeezed by the cartels.

The decision makers of the three emerging economies cannot sit by and watch such a valuable agricultural be subject to contrived shortages. This deal makes BHP look like a failed genius and the POTASH CORP. management successful geniuses as they realized the greater value of the Canadian fertilizer giant. More importantly, Russia is becoming a formidable source in more than energy. The BEAR is waking from its self-induced hibernation.

Tags: Andrew Bosomworth, BHP, BRIC, Canada, EU, Euro, Fed, Justice Department, Novartis, PepsiCo, PIIGS, PIMCO, Potash, RBA, Russia, SEC, Silvinit, SOMA, Uralkali

This entry was posted on December 20, 2010 at 9:27 pm and is filed under Australia, Currency, Europe, Federal Reserve, Russia, Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “Notes From Underground: Pimco calls for some of the PIIGS to leave the STRAW HOUSE AND HIT THE BRICS”

Arthur Says:
December 21, 2010 at 3:21 am | Reply
About Pimco & Co. I have always the same thought, are they naïve about politics?

Great job following Russia. Fully agree.

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Joe Says:
December 21, 2010 at 7:02 am | Reply
” First, Novartis is putting a large amount of capital into developing drug manufacturing in a very underserved part of the Russian economy, ”

Maybe under-developed….underserved reminds me of those edicts handed down from some Treasury Under Secretary trying to force banks to lend in “underserved” communities. We all know how that worked out. 🙂

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Notes From Underground