A Disconnected World – The Information Age Irony
As economic beings we are extremely ‘short-sighted’ by nature. We don’t fully appreciate the differences and interactions between the short-, medium- and long-term.
Image via Wikipedia
It was Burns & Mitchell (1946) who tried to measure the economic cycles. Today there are four broad classifications of business cycles as follows:
- Kitchin cycle (3 – 5 years) – The rate at which businesses build up their inventories
- Juglar cycle (7 – 11 years) – Related to Investment flows into Capital such as factories and other capital means of production
- Kuznets cycle (15 – 25 years) – Period between booms in corporate or governmental spending on large scale Infrastructure projects, such as rail, roads, etc.
- Kondratiev wave / cycle (45 – 60 years) – The ‘super-cycle’ referring to the phases of capitalism. Crises such as the Great Depression and the current Financial & Sovereign Debt driven contraction.
But the Information Age has undermined these cycles? Or only undermined our understanding of these cycles? That is the key distinction we need to draw.
Are there any longer-term term cycles, which are beginning to contract with advances in Technology.
The Dark Ages (lets say from the collapse of the Roman Empire) until the enlightenment lasted around 1,000 years. The Enlightenment (approximately 1650s) through to the First Industrial Revolution (from mid 1700’s to mid 1800s) lasted around 200 years. The Second Industrial Revolution (driven by electricity from around mid 1800s) lasted another 100 years.
Image via Wikipedia
The Third Industrial Revolution, or rather the Digital Revolution is the COMPUTER or DIGITAL AGE.
However, interesting this brief synopsis of economic history is, the actual relevant issue is recognising the length of the TRANSITION period between these ‘Leapfrog’ Technological advances.
We are not very good (yet) at recognising, never mind managing these tectonic shifts in the economic landscape.
Is this were we found ourselves today?
Image via Wikipedia
theMarketSoul ©2012
Related articles
- End of the Industrial Revolution (larajla.com)
- We’re still going through the Industrial Revolution…Backwards! (asystemofrandomtangents.wordpress.com)
- Econ 210a: Spring 2012: U.C. Berkeley: The Industrial Revolution: February 15, 2012 (delong.typepad.com)
- Robert Allen: The British Industrial Revolution in Global Perspective (delong.typepad.com)
- The jobless digital revolution (japantimes.co.jp)
The BIG Sovereign Debt Structure cliff – Part 1
In yesterday’s article, “Where will all the new money come from?” we concluded the brief analysis with the Sovereign Debt Maturity profiles (otherwise known as the Debt Structure) of both the USA and Italy, noting how similar the two profiles looked at first glance.
Image via Wikipedia
Digging a bit deeper today, we would like to compare those charts to cliff edges. We trust that the sentiment of the article is that we perceive Central Banks across the globe fretting about the ‘New Money’ we were referring to. With general economic confidence waning and the outlook for a sustainable long-term solution to sovereign over (indulgence) spending fading, the landscape is looking very bleak at moment.
New money will have to be printed (Quantitative Easing or QE) if investors in the capital markets cannot be found to bear the burden of purchasing new Bond and Treasury issues.
Image via Wikipedia
Some headlines over the few weeks alluded to Bond auctions in Portugal, Italy and Spain being well supported (see related article at the bottom of this post), but these were not major refunding and roll-over exercises. Greece is continuing to be a welcome distraction for politicians and Central Bankers in both taking investor’s eye off the bigger problems coming along the line in Q2 2012 and in winning time to hopefully come up with a credible longer-term plan to reduce debt levels and then return to growth.
Auction Calendars
Let’s take a look at some of the crucial Sovereign Debt auctions coming up in the next few months:
The link below provides a time table schedule issued by the US Treasury for T-Bills, T-Notes, T-Bonds and TIPS, for at least the next six months.
To get the equivalent Eurozone calendar is not so easy. (Partly because each individual country issues Bonds, as there is no Central Eurozone issuer of Bonds, but at least a central purchaser, namely the ECB – European Central Bank)
Image via Wikipedia
We are currently investigating sources of information for Eurozone Sovereign Debt Bond auctions and will return to this theme in very near future.
theMarketSoul ©2012
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- Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (fool.com)
- Investors eye European bond auctions (bbc.co.uk)
- Successful debt auctions give boost to Spain and Italy (independent.co.uk)
- Italy borrowing rates drop again in bond auction (newsok.com)
- Italy sells more bonds as Greece struggles with debt (ctv.ca)
- Italian Debt Auction Sends Yields Tumbling: What Investors Need to Know (dailyfinance.com)
- Stock Market To Cast Confidence Vote On Eurozone Monday After Disastrous German Debt Auction (jhaines6.wordpress.com)
- Italy’s borrowing costs tumble after debt auction (guardian.co.uk)
- S&P cuts French rating to AA, hurting eurozone confidence (ctv.ca)
- Eurozone faces tough hurdles early in 2012 (sfgate.com)
- EU Faces Debt Hurdles Early in 2012 (abcnews.go.com)
- The road ahead for the struggling eurozone economy (oregonlive.com)
- Eurozone faces tough hurdles early in 2012 (seattletimes.nwsource.com)
- The eurozone’s borrowing costs may stay lethally high (bbc.co.uk)
- Buba’s Jens Weidmann Voted Against ECB’s Decision To Undermine The Sovereign Bond Market (zerohedge.com)
- Eurozone will pivot on Italy in 2012 (cbc.ca)
- Eurozone faces tough hurdles early in 2012 (ctv.ca)
- Stock Market Plunges On German Debt Concerns (huffingtonpost.com)
Where will all the new money come from?
Image via Wikipedia
Today’s brief analysis of US Treasury Yield curves and the Debt profiles of both the USA and Italy highlights the enduring question in the title of this post.
The first graphic highlights one important issue. We chose 2 August 2011 versus 17 February 2012 as key dates to compare the US Treasury Yield curve. If we cast our minds back to 2 August 2012 two key facts emerge:
- This was the D-Day of the US Debt Ceiling vote
- The US still had a Triple A credit rating
The key take-away from the Yield Curve comparison is that even with a ratings downgrade, the US is actually able to borrow new capital at a lower rate of interest 6 months on.
However, to pour a bit of realism into the analysis, we highlight two interesting Debt profile graphics below.
The first one is the USA Treasury Maturity curve (admittedly 6 months out of date), highlighting when the current debt will need to be redeemed or rolled over. The second is the Italian Bond Maturity curve. You will notice just how similar the USA and Italy Debt Maturity profiles are.
From this comparison, the critical question currently for us is:
Where will all the new money come from to roll over the debt maturing during the next 3 – 12 months? QE is one option, but investors still need to be convinced that their capital is safe and relatively risk-free. It is the Risk-free equation (or investor risk appetites) that needs to be explored in more detail.
theMarketSoul ©2012
Related articles
- Raymond James Weekly Bond Market Commentary (learnbonds.com)
- The Fed’s Undistinguished Macro Discussions Circa Jan 2006 (wallstreetpit.com)
- S&P on Italy: Borrowing is Going to Be Tough for a While (blogs.wsj.com)
- Not Making Sense Of The Economy (lezgetreal.com)
- The Italian Yield Curve Vs The Euro Basis Swap (zerohedge.com)
- Bond Report: Treasurys stay down after 10-year auction (marketwatch.com)
- Bill Gross Exposes “The New Paranormal” In Which “The Financial Markets And Global Economies Are At Great Risk” (zerohedge.com)
- Are western central banks having an existential crisis? (ftalphaville.ft.com)
- Vickers: Italy’s Debt Looks More Sustainable (businessweek.com)
- PIMCO’s Bill Gross’ New Bet On Treasuries: Roll Down The Yield Curve (forbes.com)
Risk Management Ideas
Risk has as one of its essential elements TRUST as a foundation. Trust on the other hand has many other factors that interplay and interact on it. Markets are created when there are needs that are not immediately met from you local environment and therefore scarcity exists. Market participants step in to fill this ‘needs’ void. As for any subset of Risk, either Operational, Market, Liquidity, Interest, etc. a big part of the assessment process it not just about looking inward and assessing the risk …
Reflections on January 2012
The team at theMarketSoul have not been busy enough putting blog article out during January 2012; however, it has given us the opportunity to reflect on the goings on in the various regions around the globe.
The themes of this article are:
- Taxation
- Collaboration
The USA
Image via Wikipedia
The only great point of interest was the State of the Union address by President Barack Obama. Again as a liberal statist the theme of taxation and MORE taxation to come down the road for the ‘more’ well-off in society raised its ugly [spectre] head again.
Image by President of the European Council via Flickr
Oh dear! Let us think very hard about something positive to reflect on this month during the kick-off to 2012…
Enough said. Unfortunately the Eurozone crises (yes, several on different fronts) are still dragging on.
We see yet again how difficult it is to undo a few decades worth of the nation state experiments in Europe and bring everyone together under the guide of collaboration, but with no formal overall governance framework in place. The Eurozone crisis, as well as being one of sovereign over indulgence, is also one of a twisted underground power struggle between the European traditional heavy weights.
But, alas, it is all politics in the end and with Standard and Poor and Fitch getting on the downgrade bandwagon during the month, angering politically challenged politicians like Monsieur Sarkozy (French presidential elections coming up in April and May 2012 [two rounds scheduled, if necessary]).
The Middle East
Image by barnoid via Flickr
One matter of interest raised during a panel discussion on the BBC programme DateLine London on 28/01/2012 regarding the tension in the Straits of Hormuz, by Adbel Bari Atwan, is the fact that the entire Iranian issue around nuclear armament is a ‘manufactured’ threat by the USA and Europe. True, with Pakistan, India, Israel, China and Russia being nuclear enabled nations in the region, what difference will one more nation make to this perilous equation? Perception seems to be everything, both in the discourse and actions taken in reshaping the Geo-political order of the post ‘Arabian spring’ Middle East.
Please, just keep collaborating in OPEC; pumping the Black Gold and thus keeping prices lower and stable, for the sake of a stable Global Economy!
theMarketSoul ©2012
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- Fitch downgrades Italy and Spain (bbc.co.uk)
- Brussels takes control of taxation and spending in eurozone countries (telegraph.co.uk)
- Roundup: Obama’s address focuses on the economy (globalpublicsquare.blogs.cnn.com)
- Middle East Presidential Advisor To Four Presidents Bruce Riedel: Iran Is Not an Existential Threat to Israel or the United States! (politicalvelcraft.org)
- What Eurozone Crisis? (ritholtz.com)
- Report: US to Send “Mothership” to Middle East – Voice of America (blog) (blogs.voanews.com)
- Eurozone crisis: ratings agency downgrades nine countries (newstatesman.com)
More and Bigger Europe…Is that what we really want?
Image via Wikipedia
Yes, it will be more bureaucracy and bigger financial problems down the line…
We pick up our analysis this week in the dusky glint of the aftermath of the (latest) EU Leader summit to put together a rescue package for the Euro.
More bureaucracy?
The inspiration for this comes for the ‘people pulling the wagon versus the people in the wagon’ analogy utilised by Dan Mitchell of International Liberty.
In an article we wrote earlier this year we very clearly called for INNOVATION as an engine of growth in Europe, yet all the politicians and bureaucrats can deliver are bigger EU institutions, hence, more and more people piling into the wagon! Aren’t some of us getting not just tired of pulling the wagon, but frustrated and exhausted too. Are these not some of the ingredients necessary to breed and incubate extremism?
Image via Wikipedia
Bigger financial problems?
In another of our earlier articles we mentioned the dangers of Moral Hazard. By not addressing the fundamental problems of big bureaucracy (we are in danger of starting a circular argument here), debt accumulation, regulatory stifling, the ‘EFFICIENCY’ drive will permanently drive INNOVATION (and hence future growth) out of Europe. Let’s face it, if it was not for the expansion of the EU towards the vigour of the Eastern and Baltic states, there would be no growth and opportunity and Europe would not be an attractive place to do business.
Europe’s maturity (and risk averse cultural norms) are now so engrained and an anchor and drag on innovation that attracting Foreign Direct Investment (FDI) (and purchasers of sovereign debt) will come more and more of a challenge in future.
The brave thing to do, in our opinion, was to stand up for a fragmented Europe, as David Cameron was prepared to do, because to be lead blindly down the alley, just to be beaten and bruised by the rest of Europe, would not only be folly, but a disaster for Britain.
Image via Wikipedia
Only time will tell, but the Eurozone and sovereign debt crisis has dominated the headlines for long enough, and will continue to do so for some time to come…
theMarketSoul ©2011
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- No IMF aid for eurozone: Canada (business.financialpost.com)
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- WAIT! Is Europe About To Do ‘The Single Worst Thing It Can Do’? (businessinsider.com)
- Canada urges EU to carry own debt, refuses to help IMF plea (vancouversun.com)
The Big Design: Moral Hazard, and the EU
Irrespective of how the twists and turns of the Greek political system plays out over the next few days and weeks, we believe that the Big EU (Eurozone more specifically) players and their leaders only have themselves to blame for Greece‘s seemingly petulant behaviour.
If at the fundamental level we cannot understand that ANY form of bail-out will always support and lead to Moral Hazard, then we have learnt nothing from the past and the more recent debt and financial crisis of the 2008.
Previously we mentioned the ‘Credit Quake’ with lots of after tremors (attributed to Dennis Cox of Risk Reward), will last for a number of years and this is exactly what we have playing out as daily deadlines in front of our eyes at the moment.
However, to return to the point at hand: The age of economic dilemma of Moral Hazard has reared its monstrous head again and is in danger of ‘nabbing us in the butt’ (yet again), because the leaders of the EU (more specifically the Eurozone 17) do not want to understand that all their actions in supporting Greece is only leading to a more dangerous form of Moral Hazard and flies in the face of the Austrian School‘s ideas of ‘Creative Destruction‘.
Without effective mechanisms in place to deal with European regions at different cycles of development (not even to mention the basic lack of sound fiscal management), is to ask for problems (on a continuous basis).
Until a sound framework of either full fiscal and monetary union with appropriate checks and balances are rolled out in Europe, with a single capital market instrument (Gilt / Bond or EuroBond) and mechanisms for dealing with localised ‘failures’ of the market to clear itself effectively (never mind efficiently); we will continue to wretch and lurch about with market confidence eroded and leaders running around like headless chickens trying and implementing inappropriate tools for the job a sound framework is supposed to deal with.
It is not more regulation we want. It is simply BETTER regulation. It is that simple.
theMarketSoul ©2011
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- The ECB’s Trillion Euro Bet (wallstreetpit.com)
- Remember Black Wednesday and Be Happy, Greeks (adamcollyer.wordpress.com)
- How Moral Hazard Learned to Stop Worrying and Hate Santorum (esquire.com)
- The Global Moral Hazard Dawns: Merkel Says “It Must Be Prevented That Others Come Seeking A Haircut” As Ireland Cuts GDP Forecast (zerohedge.com)
- Eurozone: Why does the crisis linger, deepen and spread? (wallstreetpit.com)
Synthesizers wanted…to cross the crises divide…
Image via Wikipedia
Today we are reposting a blog article originally posted in April 2010.
We believe the sentiments are still valid and should resonate across the various crises we are experiencing currently. Please click on the link below:
http://themarketsoul.com/2010/04/25/221/
theMarketSoul © 2011
Related articles
- Synthesizers wanted…to cross the crises divide… (themarketsoul.com)
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Peak Debt – What Peak Debt?
Peak Debt is in essence the point at which a sovereign nation reaches its maximum indebtedness and cannot afford to service the debt anymore, thus prompting a reduction in the debt (principal).
So, Europe proved yesterday with the uplift of the EFSF (European Financial Stability Fund) from its current base of €440bn to €1tr (boosting it by 127%), that it certainly has nowhere nearly reached European Peak Debt.
Well, as long as the Capital Markets buy this solution, can make a profit and move on to the next wave of Debt delusion, who are we mere citizens and commentators to criticise the massive instability Big Government and a BIGGER EU causes?
We argued back in 2009 that you cannot solve a “debt crisis with more debt” and this sentiment still rings true today. So when will they ever learn?
Yours forever indebted,
theMark(debt)etSoul ©2011
Related articles
- Where will all the new money come from? (themarketsoul.com)
- Eurozone bail-out fund has to resort to buying its own debt (jhaines6.wordpress.com)
- UK’s public debt is about to exceed that of the US for the first time (leftfootforward.org)
- Everyone Is Starting To Realize The Size Of Britain’s Debt Crisis (businessinsider.com)
- ESM, EFSF, Or EB. Will Any Of It Work? (zerohedge.com)
- In The Meantime Iceland Is #Winning (zerohedge.com)
- We’re Not Getting Out of This in One Piece (lewrockwell.com)
Frameworks, frameworks, frameworks…
Today (26 October 2011) is an important watershed date (or not) for Europe.
Will our leaders and the politicians be able to agree an all encompassing Framework to rescue the Euro, or will we need to think about a more modular approach for the future?
We believe that it might be in the Euro’s short-term best interest to look for a more flexible, yet fragmented modular approach. However, the capital markets might not appreciate the continuous uncertainty and political wrangling whilst we keep on looking for a ‘best fit’ modular solution and what that might entail…
theMarketSoul (c)2011
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In the Cloud, Structure is everything!
We have been having several conversations with colleagues and practitioners in both the Enterprise Strategy and Architecture space around both Cloud Computing and the Integrated Service IT delivery space.
Our brief conclusion is that Organisational Structure is everything.
We believe that you cannot effectively move IT Service delivery into the ‘Cloud’ and / or integrate some of the hybrid Cloud solutions and other architecture requirements, without fundamentally adjusting / realigning your organisational structure to fit the new model or modus operandi.
Therefore, the first item on the IT Change Management agenda should be a fundamental rethink and adjustment of Structure.
What usually happens is that once IT Services gets delivered into divisionalised organisations, the service quality and cost gets fragmented and ‘scope drag’ and loss of focus and control occurs.
This makes us conclude that maybe the same approach utilised in Natural Gas extraction, namely ‘Fraking’ should be utilised in IT Service delivery, in the absence of Organisational Structure change:
Go in deep and then cut across the silos in order to get to the core solution (service) delivery, because in the absence of structural service alignment, the only other option is to be as scientific and innovative as you possibly can.
theMarketSoul ©2011
Quantitative Easing – Here we go again
A reminder of what we wrote on 22 September 2011 about Quantitative Easing: “QE – Our take on the Bell Curve Effect” (Please click on the link for the full article).
Expect Mervin King to continue writing letters to the Chancellor to explain the Inflation target gap and the worsening economic landscape. It begs the question: Are the Central Bankers competent enough to sterr us through troubled waters again?
The key issue really is the lag effects before QE starts working…
theMarketSoul ©2011
Rest in Peace – Steve Jobs
A great Innovator, Integrator and iCon died yesterday, 5 October 2011.
Steve Jobs really epitomised the i3P framework and we wish his departed soul rest and our sympathies go to his family, friends and colleagues.
He will be dearly missed.
RIP – Steve Jobs
The Seven Deadly Sins of the Market
As if last week’s (week ending 23 September 2011) turbulence on the world’s stock markets wasn’t enough of an emotional rollercoaster for millions of mark participant’s, we will offer only one bit of reflection this morning on the market conditions.
Remember, the markets live, breath and die by the age old human conditions (seven deadly sins) of:
- Greed / Avarice (Avaritia)
- Envy (invidia)
- Gluttony (gula)
- Sloth (acedia)
- Wrath (ira)
- Pride (superbia)
- Lust (luxuria
Therefore, the markets are Harsh, as we have written about before, however markets are still the most open, free and fair way to allocate resources, as we are reaching out to establish with our ‘The Market eQuation’, investigation.
All this activity we hope and trust will lead to a new understanding of the market which we will call:
Unbounded Market Rationality
theMarketSoul ©2011
The behavioural impacts of Just in Time (JIT) in the Interim & Gap Management market
The inspiration for today’s thought piece is a small and medium sized enterprise (SME) and now our new definition namely MELE (Medium Enterprise to Large Enterprise) decision making styles and abilities.
Our enquiry runs along the lines of discussions and conversations we have observed in the Interim and Gap Management market.
If decision-making and more importantly the ‘pre-engagement life-cycle’ time has shrunk, is that why some Interim and Gap Managers (I&G) are extremely busy and run off their feet and others not?
Is it a pure marketing and reputation effect the busy I&G Managers are facing versus the ones ‘on the bench’ or is it because SME, MELE and to some extent large corporate clients have delayed resourcing and strategic decisions to the extent of jeopardising the normal pre-engagement fact finding life-cycle?
Finally, if JIT and agile decision-making is here to stay, will the client community still allow the I&G Manager enough time to do the really value-added stuff, which is spend enough time understanding the culture, environment and agenda of the organisation in order to help shape the changed future state?
Was Kurt Lewin wrong with his Change Management Model of ‘Unfreeze – Change – Re-Freeze’ cycle that in an agile planning and development world, there is just no more time to ‘Re-Freeze’ the changed organisational state?
theMarketSoul ©2011
The economics of Gap (Interim) or Freelance Management
We thought it about time to write an opinion piece on the dynamics (economics) around the Interim Management market, delivered from a UK perspective.
This is a purely thought piece and opinion, not support by empirical research, but grounded in economic theory and an observation of the ‘state of the current market’.
The inspiration for this is an article we published last year entitled “Increased Friction Costs“. For background on the meaning and usage of Friction Costs, please refer to the definitions used in the original article.
Let’s face facts. Interim Management was borne out of the margins of Friction Costs. Filling the gap that naturally exists where ‘full employment’ is just never possible. Highly skilled and mobile individuals. However, this is also exactly where the rub sits. IM was borne on the ‘margins’ of the bell curve and not in the middle of that curve. Whether it is natural friction or crisis friction that drives it, the fundamental principle of IM is scarcity, flexibility and mobility. Items that typically cannot be addressed in rigid Labour Market framework and market conditions.
So what has changed?
Well, that scarcity has become mainstream. Evidence for this is the IIM survey results, listing at least 600 ‘claimed’ Interim Service Providers in the REC Directory. Or, maybe the definitions have become blurred. Plenty of anecdotal evidence for this exists on and in discussions in this forum.
Too many Interim Service Providers (ISPs) and too many would be Interim Managers (IMs) have flocked to the margins of the bell curve and confused the message, for both would be clients, ISPs and IM themselves.
Calls for the EIM (Executive Interim Management) label are attempts to create another differentiator. Accreditation itself is another differentiator and this is something the IIM supports and is seeking to grow, particularly with the Agency Workers Regulations in mind.
Basically, in order to add value, we need to realise that there is a ‘natural market’ for IMs, but at the moment that natural market is flooded with confused messages, symbols, participants, etc.
Any comments and opposing views are welcomed.
theMarketSoul ©1999 – 2011
The Market Equation
Image via CrunchBase
Please note: This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/ or send a letter to Creative Commons, 444 Castro Street, Suite 900, Mountain View, California, 94041, USA. If you would like to speak to the author about any aspect of this work, or in order to contribute towards developing the framework and ideas further, please click on the Contact Us link. (We acknowledge and reward valued contributions).
The Market eQuation (MeQ):
Today we are commencing our investigation and outreach to discover what we will call the Market Equation.
Basically the idea is to come up with a mathematical equation and rating or ranking system to assess the state and status of various markets.
Whether this will lead to a theory of Markets that can compete with some of the other theories in existence is open to debate.
The basic premise is this:
There should be a methodology to access the Openness and Fairness of any given market versus other comparable markets. This specific ratio or result should therefore determine the individual participant’s level of engagement and commitment to that specific market. The result should also be able to be repeatable over time in order to elicit trends and movements of particular markets relative to each other.
The basic equation can be expressed as MA2R4K2E3T3 = OF outcome (Open & Fair).
Therefore:
OF = (A)2 x (R)4 x (K)2 x (E)3 x (T)3
And derives from the Market Equation Table listed below:
The Market Equation Table
| O | Open | |||||
| F | Fair | |||||
| M | Multiple | |||||
| A | Accessible | Adjoining | ||||
| R | Random | Rapid | Regular | Repeated | Regulated | Risk |
| K | Complex | Connected | Competitive | |||
| E | Effective | Efficient | Equilibrium | |||
| T | Technology | Time | Trade |
Key:
| Subjective measure |
| Objective (External) measure |
MA2R4K2E3T3 = OF outcome
Therefore: OF = (A)2 x (R)4 x (K)2 x (E)3 x (T)3
Our astute readers might already seen through this equation?
By dropping the M (which will always be 1) the letters that remain result in the word raket. RA(C)KET?
With the additional C, being the complex bit, ultimately the Market Equation becomes a COMPLEX RACKET.
theMarketSoul ©2011
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Recapitalising Europe
Forget about recapitalising the French Banks, saving Greece, (or the Euro)….
Euro Dominoes
Continuing our conversation on Innovation
Yes, we admit it! The headline statement above is all about grabbing your attention. We are not advocating any disorderly default crises.
What we believe is that the ‘agricultural’ economic base and the semi-integration of Europe, via market and monetary union, without going the full circle of political and fiscal union as well, has at this point failed.
Not that a major concerted (and concentrated) effort to ensure it does not fail will end in failure itself. But has anyone really asked the question: At what financial cost?
If an US Treasury Secretary, Timothy Greitner, has to take the unprecedented step of flying across the Atlantic to come and join a European Union Finance Ministers meeting, then something big must be on the cards!
Is he going to come and tell Germany and France in person to just let Greece go?
This reminds us of a stanza from Felix Dennis’ poem “How to Get Rich” about timing:
“Good timing? To win it You gotta be in it. Just never be late To quit or cut bait.
This might just as well be the message for Europe: How not to get Poor. The key words are “Never be late to quit or cut bait”.
What we believe is happening behind the scenes is the planning for an orderly default mechanism and Euro ‘disbanding’.
The more Angela Merckel’s resolve hardens around saving the Euro, the less we believe Europeans themselves are warming to this concept.
So what about Innovation then?
We started this article with the intention of continuing our conversation on Innovation.
So, what we mean by Recapitalising Europe actually is related to addressing the culture of decay that has enveloped Europeover the last few decades. If Europe is referred to as the ‘Sick Man’, then there must be something behind that statement.
And we believe that it is the general lack of support for invigorating Europe that is a key driver.
What do you mean, we hear you ask?
In the quest to unite Europe, we have built a framework of a European parliament, a Council of Europe, a judicial system, etc.
With these institutions have come regulation, rules and edicts. Sometimes messy, sometimes helpful. But at this juncture, we are so overrun by nonsensical regulation that the will and spirit to be creative and innovative has drained away from the general citizenry.
This is a very, very sad state of affairs. The young European citizens have lost their ‘psychological contract’ with the wider Europe and European integration goal. High rates of youth unemployment across Europe is breeding a generation of disengaged European citizens and ultimately is an opportunity and efficiency waste in the medium term.
But how do we Recapitalise a spirit of Innovation in Europe?
This is a key question we are going to ask of our network and as part of our general ‘outreach series’ and report back on our progress towards establishing an Innovation Framework for Recapitalising Europe.
Please ‘tune-in’ again soon for a status and progress up date.
theMarketSoul ©2011
Related articles
- German Chancellor Angela Merkel backs moves to recapitalise eurozone banks (telegraph.co.uk)
- More and Confused Europe? – Part 3 – It is Uncertain… (themarketsoul.com)
- £250,000 get-out-of-the-euro prize (independent.co.uk)
- Europe: The land of promise (tradingfloor.com)
Get your calculators out
Yesterday the Independent Commission on Banking (Vickers Commission) published its long anticipated, yet low in surprises report on Banking Reform in the UK.
See:
Rather than rehash the analysis already performed, we only have two items to add at this stage:
- Get your calculators out, or at least keep the Quants busy, because unravelling and implementing reforms are going to cost a lot of money (and we all know who pays for that at the end of the day)
- How do we create the ‘Imperfect Competitive’ markets or at least address Oligopolistic Competition more effectively?
In a fiercely competitive international market space the desire to aggregate banks and financial institutions and hence reduce cost economies of scale at the expense of risk accumulation is overwhelming. (Which the discredited Sir Fred Goodwin ex Chief Executive of Royal Bank of Scotland [RBS] can testify to only too well)
Let’s hope the Vickers Report is not the start of the death knell of the UK financial services sector; or perhaps in a cynical way, that is exactly what is (intended) needed to address the UK’s long-term structural reliance on the financial services sector at the expense of a more balanced portfolio of productive output and activity.
theMarketSoul ©2011
I blame John Maynard Keynes (JMK)
Ever since the Great Depression and JMK’s ‘The General Theory of Employment, Interest and Money (1936)‘, have we had more intense government interference and hence taxation in most advanced economies. Thank you JMK.
But seriously, how much is too much? There must be value in controlling fiscal policy, monetary policy and (social) employment policy, but is this being done in an integrated fashion and with ‘value maximising’ principles?
We at theMarketSoul Limited believe this not to be the case.
We prefer to take a leaf out of Joseph Schumpeter’s book and view the economic cycle as either short (1 – 2 years), medium (around a decade) and long-term (many decades).
The trouble with any form of economic analysis is that taking any temperature readings during any specific cycle is just that – A temperature reading. Meaningless without being set in its proper context. We generally have a major problem in identifying where we are in any given long-term cycle.
It is only with hindsight and the historical perspective that we can truly determine where we were and where we thought we were heading.
It is our belief that we are (still) in the midst of a major paradigm shift, triggered by the innovation wave of the ICT revolution over the last 20 years.
We still have not fully grasped the consequences and full extent of this ‘drift’ to a new equilibrium.
As one of the unintended consequences we are currently facing up to a sovereign Debt balloon and are desperately trying to determine when we will encounter ‘Peak Debt’.
One of the popular libertarian ideals is to cut government’s stake as a percentage of total output of GDP. We endorse this view, but it appears that at the end of the day (because we have forgotten what Laissez faire looks like); we’ll still need someone to keep the lights on, adjust the interest rates and collect our taxes. All this in the name of job creation…
theMarketSoul ©2011
The Flight – Keeping an eye on the real 30 Year Treasury Yield Rates
The real (inflation adjusted) 30 Year T-Bill rates have since the beginning of the year averaged 1.72% (simple averaging).
Since the beginning of September 2011 the average real rate has dipped to below 1.00% to 0.99%. (Our measurement).
Does this mean that the flight to other asset classes is now in full-swing or rather; where on the ‘flight to safety’ trajectory do we believe we are now?
We offer no opinion, but keep your beady eye on the T-Bill rates in the months to come, especially when the election process officially kicks off in the USA.
theMarketSoul ©2011
The Credit Quake of 2008 – 2009 (Revisited)
We were reminded today of a blog post we made on 21 October 2009 we made regarding the Credit Crisis of 2008 – 2009, at the time.
Some of the lessons learnt and discussed there are still relevant today, especially our comment regarding the fact that the Credit Quake would have ‘after shocks’ for a few years to come:
“…we are still in the midst of a major equilibrium adjustment and the ‘step down’ or up from the previous level will continue to be uncomfortable for many years to come.”
Please follow this link for the full article detail:
http://themarketsoul.blogspot.com/2009/10/comments-from-lay-economist-on-credit.html
theMarketSoul ©2011
Do we value everything and understand nothing?
On reflection, the ‘mechanism’ established to rescue or save the Euro is indicative of the fact that we still understand very little and can control and short-circuit systems to some extent, yet we think we value everything.
Inflation, and dare we state it openly, serious inflation of double-digit proportions must now surely be back on the cards?
We realise that we are not the only and first publication to come up with this analysis.
Bloomberg reported on 30 September 2011 that European Inflation had unexpectedly jumped to 3%, up from 2.5% in August. Yet, this is still a long way off a double digit scenario, however, the factors mentioned in the Bloomberg report included, the Greek Default (possibility) and the ECB actions still possible in terms of containing European wide inflation.
Although most economists predict that inflation will start to wane next year, we believe that actions like the Greek Debt haircut and the increase in the EFSF’s bailout fund to €1tr sends signals to the market that the value of money is now seriously ‘delinked’ from operational reality.
We will not comment here in depth on monetary policy, as it is currently applied, however, we are beginning to get the impression that inflation as ‘the silent and stealth’ taxation it really is, is now firmly (yet behind closed committee room doors) on the agenda to help “manage” the size of the European Debt mountain.
It is worth keeping an eye on the real drivers of inflation and then there is some value in keeping an open mind.
theMarketSoul ©2011
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October 28, 2011 | Categories: 2011, Analysis, Capital Markets, Economics, Free Market, Governance, Ideas, Market Economy, Monetary Economics, Opinion, theMarketSoul ©2011, Value | Tags: 2011, Analysis, article, Articles, Blogging, Blogs, Commentary, Compliance, Compliance Regimes, Debt crisis, ECB, Economics, Economy, EFSF, Euro, Europe, European Central Bank, European Debt, European Financial Stability Facility, European Inflation, European sovereign debt crisis, Financial Regulation, Free Market, Greek Debt, Greek Debt haircut, Inflation, Market Analysis, Market commentary, market confidence, Monetary policy, Opinion, Political Economy, Politics, Principles, Risk, Synthesis, theMarketSoul, Thoughts, value | Leave A Comment »