In a day where the risk on trades were back in vogue, we saw metals, commodities, equities and all currencies except the DOLLAR and YEN stage a rally. With Asia closed for Chinese New Year, all eyes were focused on the European debt situation and the politics that kept negotiations at center stage.
A new ECB vice-president was named, Vitor Constancio of Portugal, considered by ECB watchers to be a dove on money and credit policy as would befit a past socialist leader of the debt-stressed Portugal. Whatever happened to Magellan? It is now conjuctured that Germany will certainly get Axel Weber as the next ECB president, as it will be important to have a hard money man at the helm. The Italians still believe that Mario Draghi, their choice for the top position, still has a prayer but we would go all in on that bet. We remember the Germans being less than lukewarm on the Italians entrance into the EURO on its initial formation. (As the Greeks are taken to task on the manipulation of their books to meet the Massstricht requirements, the Italians will certainly be under the microscope.) In addition, Chancellor Merkel would be viewed as a weak leader if she failed to grab the stop ECB spot for a German. The polls recently taken in Germany on a Greek bailout have been less than supportive and the only possibility of getting voter acceptance is if Merkel brings home some political trophy.
Our favorite pot stirrer was back in the kitchen today. Vladimir Putin told Greek Prime Minister Papandreou that Greece’s problem was not that great relative to that of the U.S. Putin reminded us that the global crisis didn’t start in Europe, Russia or Greece, but that it came from the U.S.
“There we can see similar problems, massive external debt,budget deficits.” The global economic crisis,”it came to us from across the ocean.”
The Russians have moved their foreign exchange reserves to 48% EUROs and only 42% DOLLARS and have been making noises about buying CANADIAN DOLLARS. They have also been building the GOLD portion of their reserves thusly having the most diversified reserve portfolio of major central banks. (Russia has the third largest base of foreign reserves). By creating a little noise about the role of the U.S. DOLLAR in fomenting the global financial crisis, Putin can tweat not only the U.S. but China as well.
The Swedes, who are not part of the EURO, also made some overtures on aiding the debt-stressed nations of Europe. However, they were seeking some type of IMF oversight before committing their KRONERS. It will be interesting if the Chinese show some renewed interest after feigning interest in Greek debt now that interest rates are considerably higher and the EURO is lower. Today’s TIC data revealed that the Chinese had sold some of their U.S. BOND holdings, thus freeing up capital for possible investment elsewhere. The sovereign wealth funds have been quiet of late but we expect them to weigh in with their global investment strategies for they have an immense amount of money to invest.
In the U.S. today, we heard news of the Simon Property Group’s attempted buyout of General Growth Properties. In a commercial property market that is deemed to be severly weak, it is interesting that the largest player is stepping up to acquire a struggling competitor. This helped put a bid to the equity markets for anything that lifts the most stressed parts of the economy is deemed a positive. We previously stated that a barometer for the equity markets would be when the private equity firms like Blackstone and Ochs-Ziff took out technical resistance levels. The private equity players have been the worst practitioners of too much debt and if they were starting to experience some positive signs it would be healthy for equities. This is why the Simon Properties move has caught interest. We will watch this for something positive about the debt markets. It’s early but it deserves our attention.