January 13th 2012 – There’s a new wave coming I warn you

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Thus far 2012 has started with a relative whimper, but as I write rumours are afoot suggesting that S&P are about to consign FrAAAnce’s sovereign bond rating to the bin (which have since come to pass – FrAA+nce). One notch down, or two, hardly matters in terms of the likelihood of default, but Gallic pride will suffer its worst battering since England triumphed over them in the 2007 rugby world cup semi-finals in Paris. The European Financial Stability Fund (EFSF) will almost certainly lose its AAA rating as a consequence, which would be a major embarrassment – although thoroughly deserved – for the perpetrators of this “Eurozone Bail Out Looting Agreement”; Ebola for short…and twice as deadly.

In an attempt to prove that they are not complete morons, the EU have decided to delay any decision on the Iranian oil embargo, when it was pointed out to them that crude oil north of $120 would push the European economy further into recession. Iran will quite likely implode under its own steam. Inflation is rampant, the rial is reeling (I was going to say that I don’t write this stuff, but then of course I do…) and interest rates are now over 20%. If the Ayatollahs decide that Ahmadinejad is making a pig’s breakfast of it all – unlikely in a Muslim country you might think – they might want to replace him with one of their own giving the US the perfect “excuse” to open yet another theatre of horrors.

Talking of theatre of horrors the land of the “free” is currently subjecting itself to the torture of eliciting a candidate to run against Obama in November. Last time around we had the spectacle of Sarah Palin, who would have been slaughtered by Dan Quayle in a spelling bee. Today we have a Mitt, a Newt, two Ricks and a Ron. (Yes yes I know we have a lot of quaint names over here. Whenever I visit the States I introduce myself as “Clyde”; it saves an awful lot of hassle…) Their televised debates are like watching Big Brother on LSD – is there any other state to be in to watch it? My vote, if I had one, would be for Ron Paul. He is the only candidate with a genuine proposal to reduce the budget deficit and he understands how dangerous the world is with an unchecked and unaudited Federal Reserve hell bent on printing its way to oblivion…

Sadly he seems unelectable as the powers that be – Wall Street and the military complex to name but two – deem him to be “dangerous”. Although he, himself, is a spritely 76 he does have youth on his side; the youth of America. It is all very reminiscent of the 60s, my own formative years, when the post war hierarchy started to be challenged. There is a similar if not more pressing feeling that all is not right with the world and the “Kids in America” get that. To quote from Kim Wilde’s hit single – “Outside a new day is dawning. There’s a new wave coming I warn you.” Does the world really have to wait another four years?


 

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December 21st 2011 – Christmas Special

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At this time of year it is traditional to peer into the future to see what the New Year might bring, but, like you dear reader, I haven’t got a clue so here are some random quotes I have come across over the past year that I hope you will enjoy instead.

Dear Noah, We could have sworn you said the Ark wasn’t leaving till 5.
Sincerely, Unicorns

In my many years I have come to a conclusion that one useless man is a shame, two is a law firm, and three or more is a parliament. John Adams

A liberal is someone who feels a great debt to his fellow man, which debt he proposes to pay off with your money. G. Gordon Liddy

Democracy must be something more than two wolves and a sheep voting on what to have for dinner. James Bovard

Men occasionally stumble over the truth, but most of them pick themselves up and hurry off as if nothing ever happened. Sir Winston Churchill

Either you repeat the same conventional doctrines everybody is saying, or else you say something true and it will sound like it’s from Neptune. Noam Chomsky

If you don’t trust gold, do you trust the logic of taking a pine tree, worth $4,000-$5,000, cutting it up, turning it into pulp, putting some ink on it and then calling it one billion dollars? Kenneth J Gerbino

I predict future happiness for Americans if they can prevent the government from wasting the labours of the people under the pretence of taking care of them. Thomas Jefferson

I don’t make jokes. I just watch the government and report the facts. Will Rogers

Some little known Zen teachings
• No one is listening until you pass wind.
• Experience is something you don’t get until just after you need it.
• Light travels faster than sound. This is why some people appear bright until you hear them speak.
• There are two excellent theories for arguing with women. Neither one works.

And finally – “The trouble with quotes on the internet is that it’s difficult to determine whether or not they are genuine” Abraham Lincoln

A very Merry Christmas to all of you who have put up with my diatribes during 2011 and may you continue to do so and prosper, but not necessarily as a result, in 2012.

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December 17th 2011 – ParaNoyer

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The gloves are off! As the French prepare for the loss of their AAA status, the governor of the Bank of France, Christian Noyer, suggests that the UK should be first in the firing line as the data for inflation, real GDP growth and government deficit to GDP are worse across la Manche from where he sits. A month ago French 10 year yields were 3.8%. Today they are just above 3%, so maybe the markets are giving him the benefit of the doubt, but let us not forget that the maturity timeline of French bonds is considerably shorter than the UK. They are about to have a funding problem and that is one of the many issues that the much maligned ratings agencies are concerned about.

This is a problem that they share with Italy and Spain, two struggling euro nations, whose debt, along with a toxic pile of “lesser” Club Med paper, is well represented on the balance sheets of French banks, although almost certainly at highly unrealistic valuations. Eurozone bond yields have had some pressure taken off them by the ECB that is now offering 3 year money, at 1%, to eurobanks, who can then buy Spitalian debt at yields of around 6% (for now…), locking in a very decent return, unless those debt instruments become subject to a proper Grecian haircut down the road. In that case the banks would find themselves in exactly the same situation they now find themselves in, ie insolvent, only more so.

The other factor that Noyer has chosen to ignore is that the UK banks have been through a recapitalisation process, which the French and eurozone banks have avoided so far, ex Dexia and shortly, one assumes, Commerzbank. Let’s not kid ourselves that UK Banking plc is a totally robust picture of health, but it has to be said, so I will, that France has significantly greater problems. On Friday the Basel Committee on Banking Supervision confirmed that French banks such as Soc Gen and Credit Agricole could not double count assets in their insurance company subsidiaries for Tier 1 capital purposes. This less than gallant Gallic attempt, to dilute the rules requiring the banks to hold more capital against “unexpected” losses, was thwarted by the Mexican representatives, who know a thing or two about a good currency crisis. Even more damning was the following statement, on the same day, by the rating agency, Fitch.

“Relative to other ‘AAA’ Euro Area Member States, France is in Fitch’s judgement the most exposed to a further intensification of the crisis. It has a larger structural budget deficit and higher government debt burden relative to Euro Area ‘AAA’ peers. Moreover, relative to non-Euro Area ‘AAA’ peers, notably the US (‘AAA’/Negative Outlook) and the UK (‘AAA’/Stable Outlook), the risk from contingent liabilities from an intensification of the Eurozone crisis is greater in light of its commitments to the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), as well as indirectly from French banks that are less strong than previously assessed as reflected in recent negative rating actions by Fitch.”

“Para Noyer” might like to reflect on the “stable outlook” for the UK’s AAA rating and the fact that Fitch’s parent company Fimalac is, would you believe it, French, before he next thinks about calling the kettle black.

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December 10th 2011 – Rule Britannia

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If you have never heard the rendition of this anthem of anthems (up there with “Jerusalem”) at the Last Night of the Proms you will not understand the British psyche and the glue that binds this nation together. We have been branded the pariah of Europe for rejecting the treaty amendments, proposed by Germany and reluctantly seconded by France, which, in the great scheme of things, will achieve the square root of very little.

Alexander Graf Lambsdorff, head of Germany’s FDP group, part of the European Liberals, says it was “a mistake to let the British into the EU”. Over here some of us would lay the blame for accession at Edward Heath’s door… “Britain must now renegotiate its relationship with the EU,” he said. “Either they do it on their own initiative, or the EU refounds (sic) itself – without Great Britain. Switzerland is a model towards which Britain can turn itself.” Bring it on!

Meanwhile Daniel Cohen-Bendit, joint leader of the Greens in the European Parliament has labelled Mr Cameron “a weakling”. That’s up there with being savaged by a lamb Geoffrey Howe style, although Danny la Vert is in all probability a vegetarian…

Surprisingly it was the French newspaper Le Monde, seemingly keen to avoid further damaging relations between the French and English, which spoke to its readers of all the things they love about the UK, which, it said, are “impossible to number”; but they gave it their best shot. “From the concept of habeas corpus to the BBC, to Elizabethan poetry to John Le Carre, from rock to the invention of the Sixties, from London springtime concerts to Wimbledon, via Liverpool FC.” And all that from a French newspaper! Well one thing is for sure; we will “never walk alone”!

That this meeting of small minds has been hailed as a triumph – German Chancellor Angela Merkel said that the European Union summit achieved a “breakthrough” to a “lastingly stable euro” – leaves me lost for words, but not expletives, although I will spare your blushes dear reader.

She would like you to believe, as obviously she does and presumably along with the 25 other governments that can find no other place to hide, that by March the “fiscal compact” will be in place. This includes a cap of 0.5% of GDP on countries’ annual structural deficits and “automatic consequences” for countries whose public deficit exceeds 3% of GDP. As of now, including Germany, not one EU country matches up to these targets and it’s all going to get resolved in three months?

The markets, expecting something approaching a frisson of decisiveness, spent Friday like stunned mullets. And with Christmas rapidly approaching may well take to the mulled wine and other festive “remedies” and call it a day until the New Year. At which time they will all realise that nothing, absolutely nothing has been done to address the solvency of the European banking system.

Which anthem will they play at the Last Night of the Euro I wonder? How about the Doobie Brothers and “What a fool believes”?

“But what a fool believes … (s)he sees” – a lastingly stable euro?

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