Flip a Rolo – April 4th 2015

Something different this month dear readers. Firstly a request to donate some of your hard earned cash to a charity walk I am doing – the link is here Walking_for_Dorset_Wildlife and there is more info at the end of this piece. Secondly, instead of the interminable diatribe from your scribe this month, a guest post from the inimitable Slog, whose website – The_Slog – is full of treasures such as this. Just a word of warning he is of my vintage and equally grumpy so those of you with a delicate constitution need not apply. I think you will enjoy this topical piece though. Here it is!

The fast-growing sport of Flip a Rolo – promoted in Europe by the Nestlé company – has taken the EU’s over 50’s by storm in recent weeks. Reviving the old slogan, “Would you give a friend your last Rolo?”, the new campaign extends the idea by inviting Rolo addicts to flip a Rolo to decide who gets the last one. Rolo sales have rocketed since its introduction, and now the media-savvy Syriza leader plans to capitalise on its success by calling the German Chancellor out.

Frau Doktor Merkel’s heavily guarded fridge is alleged to contain at least 240 packets of Rolo as a hedge against Germany’s gold never turning up from Fort Knox. So it was fitting that Tsipras should feature the brand as he addressed the nation in a dramatic broadcast earlier today.

“Fellow Greeks, it is time to see what these plundering Krauts are made of,” he began in a spirit of honest compliance. The silence in the chamber was broken only by the sound of Benny Veryzealous munching Rolos. “We have run out of ways to reach an honourable compromise, and so now there is but one way left: the bold gamble. Last night I sent an email to Gelifridge@Berlin.kom to make one last offer: let’s Flip a Rolo for it…double or quits – heads up, we cancel the debt, heads down you double the debt and we default. We cannot say fairer than that”.

German finance minister Wolfgang im Wheelchair has since said he would need to get the heads up on how often a Rolo lands heads up or heads down, but once he was sure Germany would win hands down, he would be only too happy to take the bet.

But already, the gamble has proved a winner for cash-strapped Syriza. In a bid for exclusive live television rights to the flip, Rupert Murdoch has expressed a willingness to pay off the IMF debt tranche currently scheduled for April 8th. Responding in his classically cagey Game Theorist mode, Yanis Varoufakis responded by texting to Turdoch, “Where do I sign?”

Paris-Match is also in negotiations to feature an eight-page colour spread detailing the clothes each contestant will wear – to include shots of the never-before-seen Gelifridge inside Merkel’s bunker, and Alexis on his 750 cc BSA motor bike with the Acropolis in the background. The fee is thought to be enough to keep Greece going until early July. But the chocolate on the caramel re this one is the decision by Nestlé to sponsor the Greek debt for a period not exceeding five years, or a default.

Although shares in the Swiss chocolatier leapt $7.20 on the news, other markets displayed concern that the repercussions of the idea hadn’t been fully thought-through.

“There could be dire consequences,” suggested top Wall Street Banker Earle E. Bankfine, “if derivative bets on the result go bad, a lot of folks will have chocolate eggs on their face”. Conservative Party Chairman and experienced fraudster Farquinelle Warwick-Hunte said he was “deeply concerned about the consequences of the Rolo becoming a reserve currency” as that would “possibly threaten the Special Relationship we have with the United States”.

“The Swiss have enough money as it is,” commented Eunatic Control Bank Chairman Mario Lanza, “this could easily upset the balance that is currently in my favour, meaning I may have to buy 700 trillion SFr in a not completely legal but acceptable manner, and thus screw their export performance.”

But global reaction so far has been generally positive, and the idea is spreading to other conflict areas around the globe: China and Japan have tentatively agreed to Frip a Lolo about seven islands in the Pacific, and Vladimir Rasputin said he was “quite relaxed” about flipping a Rolo to decide whether to set the Ukraine’s surrounded army free, just so long as he could have the rest of Ukraine plus Poland if he lost. Finally, speaking from North Africa, John Kerry told a hastily arranged news conference, “This Flip a Rolo thing has come at just the right time to break the Iran nuclear talk’s deadlock. My people are currently working on a minor rebalancing of the chocolate-to-caramel balance as a way to ensuring that the flip result produces the right outcome going forward”.

The sun is out here at last. Enjoy the rest of April.

And finally a very small request for you to act on or ignore as appropriate. I am walking a half marathon – 13 miles – up and down the Purbeck Hills to raise money for the Dorset Wildlife Trust on April 12th. Any contributions very gratefully received.

Click this link to be relieved of any unwanted cash – sterling only – no euros thank you very much! http://www.dorsetwildlifetrust.org.uk/Walking_for_Dorset_Wildlife


 

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Perchance to dream – March 7th 2015

This week has seen an acceleration of dollar strength, and its opposite, emerging currency weakness, along with a further rise in the yield of US Treasuries. Gold has been given another bath and has closed under $1,200. The euro has taken the brunt of western economy currency weakness, ending the week at a 12 year low, yet European stock markets are on a tear. The up trend in US equities is still very strong and US unemployment is approaching the “natural rate”, which is in the low 5% range.

These are just a few of the many variables we have to factor in to our assessments of the global economy and financial markets and where to invest our money. That there are more opinions than there are inputs says much about the statistical probability of successful forecasting! We just don’t know with any accuracy what is in store, other than that buying value on a long term basis is the only strategy worth pursuing over the long term.

And where is the value today? If you turn over a few rocks in unlikely places you might find a morsel or two, Japanese REITs maybe or some of the junior gold miners, but where is mainstream money going to find a home? When you can’t determine the risk free rate of investing with any certainty because central banks have manipulated the rate via QE or just plain skulduggery in the LIBOR “fixings”, then it becomes even more dangerous to make assumptions. The rate proxy used to be the yield on 10 year Treasuries and given the explosive rise in said yield this week it may be making a comeback!

The spread between Treasuries and Bunds is at a significant high and should be corrected shouldn’t it? Well maybe not a while. The ECB in its “infinite” wisdom (they are subject to the same statistical probabilities of success as we mere mortals) have decreed that buying sovereign bonds down to yields equal to the ECB facility rate of minus 0.20% is allowable. So with 10 year Bunds currently yielding a positive 0.40% there is still a way to go! Along with a continuing decimation of the euro, which is driving up the cost of imports for those forced down the austerity road while giving a free ride to the major exporters, the champion which just happens to be…wait for it…Germany!

Like so many things today, it just doesn’t make any sense does it? The rise and rise of the dollar has been reinforced by comments from she who must be listened to at the Fed (repeat observation about statistical probability at least twice in this case for emphasis…) that their “patient” stance on the slow economic recovery may well transform into “OMG have you seen the unemployment numbers” by the middle of the summer and we have the first rate rise. This is causing havoc in emerging economies, and others closer to home (Austria anyone?), with huge dollar loan obligations that are getting harder and harder to service – shades of 1994? In the short term there might be a pause for breath, but longer term history suggest that when the dollar gets moving it can travel a long way. But what might impede its progress?

It is hurting countries with a dollar peg and the significant “other” in that scenario is of course China. Might they let the peg go? Well they will have to at some time and the “lets abandon the dollar as the global reserve” rhetoric is gathering more adherents. A recent bill board in down town Shanghai eulogised the yuan as the “next world currency”. China has been adding gold to its reserves as fast as it can go with the suggestion that some sort of gold backed currency would provide a very satisfactory alternative to the “worthless” dollar not to mention the quite “euseless” euro. Since Nixon abandoned the gold standard in 1971, fiat currencies have been running on borrowed time.

Why then is the price of gold falling? Well if you were a large central bank and all the items on your balance sheet were bits of paper and your “competitors” were swapping their paper holdings, mostly yours, for the barbarous relic, then wouldn’t you want to see the price fall for at least two reasons. Firstly to force people out of the only store of value left to them and secondly to accumulate that gold at a much lower price to make your balance sheet more respectable.

Central bankers understand value it would seem, but only when it suits them. This still doesn’t answer the question of where to invest today. Value managers are finding it increasingly tough, if not impossible, to find what they are looking for and equity markets are generally looking stretched although still in up trends for the time being. Bonds, which traditionally have been the safe haven, risk-off investments in today’s parlance, are now taking on what looks like equity downside characteristics. Gold is being bludgeoned, but may be worth picking up in “baby steps” as it trends lower and commercial property, whilst not as expensive as its residential neighbour, isn’t cheap either. Oh that there were a yield from cash! “Perchance to dream, ay there’s the rub”.

Clive Hale –The View from the Bridge – March 7th 2015

To read in pdf format click HERE


 

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Beware Greeks bearing spanners February 8th 2015

“A clueless political personnel, in denial of the systemic nature of the crisis, is pursuing policies akin to carpet-bombing the economy of proud European nations in order to save them.” Yanis Varoufakis the current Greek finance minister on ECB, EU, German (take you pick) economic policy.

 This guy, and his boss Alexis Tsipras, are being portrayed in the massively manipulated “main stream press” as Marxist tyrants who will lead the Greek economy into ruin. Varoufakis’ argument is that, courtesy of the Troika, Greece is already in that condition, but the root of the problem goes back much further. To get to join the euro club in the first place “convergence” had to take place.

 By 2001, the year in which the first wave of Euroistas adopted the blighted currency as their own, even the Germans had worked out that interest rates across the member state would have to converge – to the rate enjoyed by Germany of course. Greek 10 year bond yields went from well over double digits to around 5% by the time the euro became a reality and hit a low around 3% in 2005.

 Not quite down to German levels, but borrowing costs had fallen dramatically to the point where every Greek shepherd boy was driving around in a Porsche Cayenne. German industry cannot be supported by its domestic economy, so it has to be a global exporter and by having a hand in lowering interest rates across Europe the great machine is thus fed.

 We are now rapidly approaching the day of reckoning. Like the shepherd boy the Greek government is not, and never was, in a position to repay the “generous” loans that were expeditiously foisted upon it. The correct medicine would have resulted in some serious problems for the banking system and not just in Greece. But instead of swallowing the red pill the good doctors prescribed the blue pill for loose weight fast when you buy phentermine online.
www.buyphenterminetoday.com and everyone happily relaxed into a state of acquiescence and denial.

 Varoufakis is now saying, not too subtly, that the German emperor has no clothes. The body language displayed at his meeting with Wolfgang Schauble was a picture! Wolfie said that they had “agreed to disagree”; Varoufakis said that, “they hadn’t even begun to agree to disagree.” He has written two books on game theory and whilst that doesn’t make him an expert, in much the same way that a doctorate in economics doesn’t bestow on him all the answers, at least he understands the rules of the game which the euronauts quite patently don’t.

 The Germans have said stick to the agreement or we stick it to you. The French on the other hand, realising that breaking the rules is usually their prerogative, have at least acknowledged that the Greeks might have a point. So the two major powers in Europe are starting to face in different directions. Then the Americans weigh in and line up with France. Not because they like the French (French fries are still off the menu State side) but because Greece – and little Cyprus – have a ton of oil and gas reserves and have always been a buffer zone in the Balkans.

 The ECB has already cast the first stone by denying the use of Greek sovereign debt (which does not have investment grade status) as collateral in loan transactions. This means that they will, for the time being, have to go down a more expensive route (translating into an additional €60 million a month in interest payments) to borrow cash to prop up their banks. If there is no agreement by February 25th then even this facility will be withdrawn and Greece could be unceremoniously booted out of the club.

 In the past, resolution of euro “conflicts” has been achieved by a mixture of fudge, obfuscation and outright lying. This time around the Germans potentially have more to lose than the Greeks so get out your books on game theory and place your bets.

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A conspiracy of central bankers – January 18th 2015

It is way past time that we had a collective noun for central bankers? So how about a “conspiracy”? Don’t believe me then read on…

Hey Mario it’s the Milky Bar Kid here and I need a bit of help. You see I have been selling chocolate for euros and seem to have accumulated rather a lot of them.

Well Kid I am rather busy right now with the Greek hummus trade warming up a bit and there’s also going to be a bit of trouble with the frankfurters in Germany. The Greeks can’t pay and the Germans won’t pay.

Then of course the whole European economy, which the unelected chocolatiers in Brussels tell us is doing fine, is heading for a deflationary bust. Your defence of the CHF/EUR peg hasn’t helped me either and this week I’m supposed to get off my butt and actually practise what I preach by announcing a humongous tranche of QE that will make everything right. And you think you have got problems Kid!

Well Mario I guess one too many cuckoos have flown your nest then! The gnomes over here are getting rather restless about the size of my balance sheet and the quality of the chocolate and there doesn’t seem any point in both of us trying to run mission impossible so I am going to pull the plug on the peg and let’s see if that helps at all.

Kid I thought it was the Brits that did the complete fruit and nut case thing when it came to monetary policy? You know green shoots and ramping rates three times in a day. Now you know I’ve been wanting to massage our beloved euro down, but do you have any idea what will happen if you do this? It will start behaving like the drachma or dare I say it the lira and you’ll just end up with more Russian laundry into the bargain. The rouble is rubble, the swissie’s been rolled and the euro will be toast – French toast quite likely.

Mario you worry too much, leave that to your mama. You tell me all your banks have reserves coming out of their ears so a little currency vol won’t play much havoc with their nice cosy VaR numbers and when you have told the Wideman at the Bundesbank that you are going to let the Greeks go hang, which should of course bury that nasty undemocratic socialist Tsipras’s chances in the election next Sunday, then you can take all this crappy euro paper off me I can start buying something useful like …oh I don’t know…gold…

Kid that sounds like a plan. Ciao good buddy. Super Mario signing off until Thursday when all the milky bars will be on me!

To read in pdf format please click here

 


 

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