It is a timing thing
When the Euro zone Debt driven financial crises – yes, it has been dragging on for a little while now; lurching from one convulsion to the next tremor – is headline news across most traditional newspapers in Britain, it is worth pausing briefly to consider the overall ‘management efforts’ of the European leadership and senior bureaucratic establishment and the potential outcomes.
The interesting point to observe today is the development of the crises from one of ‘consolidated rhetoric’ to save the Euro zone and Euro project, to a slow and it now seems inevitable conclusion that certain ‘none performing’ members will have to leave the Euro monetary union. This ‘orderly exit’ is now overdue because the political will, fiscal consolidation and Euro zone wide risk sharing necessary to ensure continued membership, on an equal footing, has been and is being rejected by the electorate as incumbent political leaders and governments stumble and fall as each political reflection point at the ballot box looms.
What is not being openly discussed?
What is currently not part of the popular discourse is the fact that the risk has moved on from a political, credit and market risk to one of a social or socio-economic dimension. Because ‘austerity proper‘ has not yet begun to bite and embed itself firmly in the economies of most European countries, as part of the process of climbing the stairway on the upward leg of addressing the mountain of sovereign debt built up over the last few years, nobody has really, except for Greece (and a blip in August 2011 in Britain), had to deal with large-scale and continued civil unrest. Yet, this is exactly the scenario we need to prepare for as a few conversations we have been having with analysts and pundits has openly started raising this spectre as another risk factor to add to the volatile cocktail we are already expected to swallow.
The next step?
Is a full-scale exit by the weaker Euro zone nation states on the cards and the possibility of a wholesale devaluation of the Euro? Well, that depends on where the financial and fiscal power and discipline lies and we believe that most observers of the European Debt Crisis known the instinctive answer to that question…
A final thought is to start preparing yourself for debates and contingency planning around a disorderly exist by weaker Euro zone members. And have large-scale civil unrest as part of the scenarios you need to consider…
- Lagarde says orderly Greece euro exit possible..bank withdrawals surge (seeker401.wordpress.com)
- Greece On The Brink Of Collapse As Bank Runs Hit Athens (blacklistednews.com)
- AUDIO: ‘Sheer chaos’ if Greece leaves euro (news.bbc.co.uk)
- “Engineering an Orderly Greek Debt Restructuring” (marginalrevolution.com)
- IMF: Exit from euro could be orderly (ekathimerini.com)
- IMF chief raises possibility of Greece’s ‘orderly exit’ from eurozone (business.financialpost.com)
- Eurozone finance ministers to meet amid Greek and Spanish crises (telegraph.co.uk)
- Greece Run on its Banks on the Brink of Collapse (doctoramarthacastro.wordpress.com)
- Greece could exit eurozone – IMF chief (rt.com)
- Pound to Euro, US Dollar exchange rate: Sterling is currently holding above 1.2500 on interbank against the Euro (torfx.com)
- EURO GOVT-Bund yields edge up as euro zone avoids recession (vancouverdesi.com)
- Euro zone finance ministers dismiss Greek exit “propaganda” (vancouverdesi.com)
- Euro Markets (todayonline.com)
- Economic Scene: Leaving the Euro May Be Better Than the Alternative (nytimes.com)
- Eurozone in turmoil: Chaos is good for the man in the strasse (dailymail.co.uk)
- Greece faces stark election choice – in or out of the euro (guardian.co.uk)
- Greece on brink of collapse (refreshingnews99.blogspot.com)
- Cameron: eurozone must make up or break-up (timesofmalta.com)
- The final death throes of the euro (todayonline.com)
- Euro zone finance ministers dismiss Greek exit “propaganda” (news.yahoo.com)
- Greek default and exit from Eurozone impacting markets and Eurozone strategy (worldviewtonight.com)
After the conclusion to what some pundits called a ‘tumultuous week’ for Europe (week ending 11 May 2012), we still find ourselves asking some important questions.
We all know that the question is not around what growth, where growth or why growth. The fundamental question in Europe now is:
For way too long Europe and its leadership had taken its eye off the growth ball. They had taken their eye off that ball focussing instead on creating the conditions for a ‘stable’ internal market, forgetting that it was all actually centred on competitiveness and growth creation!
Too much needless bureaucratically driven regulation, not creating the sustainable conditions for growth, but rather the spiral into debt driven oblivion…and therefore leading to the volatility and the instability we currently experience!
So the choice now comes down to how do we drive growth, in the face of an electorate that favours public sector driven growth, rather than private sector led growth.
It must make common (or at the very least common enough) sense for private sector growth incentives being created, rather than debt fuelled public sector or even Keynesian focused supply side stimulus. But no, the discourse in Europe has not been around stimulating demand by creating the conditions for competitive led export fuelled growth! Instead, the in-fighting and constant politicking around balanced budgets and debt to GDP ratio targets and endless pacts to patch the patient with half-baked policy sticky plasters has contributed to exactly the opposite outcome the leadership tried to create in Europe, namely a stable platform for internal market competitiveness. They forgot about the world changing outside the ‘Chinese wall’ of an expanded 27 member union.
And now the electorate has firmly rejected the austerity programmes, in both Greece and France, because they have not been educated in the dangers of public sector excesses. Nobody in Europe (except for maybe Sweden) realised that giving the “Engine of Growth”, namely enterprise and entrepreneurs an incentive to create businesses and employment opportunities, is actually tax reductions and not increases, combined with tempering public sector growth and reducing labour market inflexibility. Most European countries have youth unemployment; the hungry, tech-savvy and street smart under 25’s, running in double digits, of anywhere between 15 – 50%, depending on which country or statistics you want to believe…
We beg you Europe
For the sake of yourselves and the rest of the world, we beg you Europe (and off course we mean the leaders of Europe) to think about the following key growth criteria, as part of any ‘Growth Pact’ you might negotiate in the coming months:
- Reduce the size of your bloated public sectors
- Introduce private property ownership incentives and pension reforms
- Lower your punitive tax rates
- Reform your burdensome and needless regulation, opting for streamlined market driven regulatory stabilisers
- Introduce labour market reforms and encourage flexibility and mobility
- Encourage and actually treat your citizens like the responsible ‘conduits of growth’ and employment creators they are and can be
- Encourage personal and community based accountability
- Be tough on crime, but fair on punishment and reform
And above all believe, think, do, act and (if you must) enact economic GROWTH!
- Public sector protests – in pictures (icrindia.wordpress.com)
- Q&A: End of austerity? (bbc.co.uk)
- Given the unrelenting stream of negative domestic economic news and the crisis of confidence in Europe, it is reasonable to ask where UK growth is going to come from in the coming years. (lloydsbankwholesale.com)
- The Left’s anti-austerity message is delusional (telegraph.co.uk)
- Europe’s delusional search for growth (telegraph.co.uk)
- Is this the end of ’1 Europe’? (wnd.com)
- Is This the End of ‘One Europe’? (lewrockwell.com)
- Europe’s Voters Say “No” to Economic Reality (whiskeyandgunpowder.com)
- Draghi’s “growth pact” = Internal devaluation (superbullinvestor.com)
- Is This the End of “One Europe”? (theamericanconservative.com)
- The Insanity of Austerity (counterpunch.org)
We take a brief look at two interesting Treasury Yield curves today.
The first Yield Curve takes a snapshot view of the yield curves at the end of Q1 2011 and Q1 2012.
What is very noticeable is the fact that the overall yields for the end of Q1 2012 is significantly lower than a year ago. Taking a look at the at the 5 year T-Note yields as an example, the spread between the end of March 2011 (5Yr T-Notes at 2.24% ) and the end of March 2012 (5Yr T-Notes at 1.04%) was 1.20% down. The question is what factors drove down the ‘risk-free’ rate on US Treasuries?
However, turning our attention to the second graph below, indicates a slightly different perspective; and hence the title of this post. Has and is risk returning to the capital and stock markets to levels we previously experienced?
Not quite, is the short answer, because the spread between 31 December 2011 (0.83%) versus the 1.04% rate at the end of March 2012, only indicates an uptick of 21 basis points in the yield rate. The significance is not the percentage spread, but rather the direction of movement and we will continue our analysis at the end of Q2 2012 to establish whether the direction in Q1 2012 will be maintained into Q2 and beyond.
The final question to ponder is this:
Are we finally seeing the corner turned, or are there still significant risks in the global economy and sovereign debt markets to cause a few further after shocks in the months to come?
- Where will all the new money come from? (themarketsoul.com)
- The BIG Sovereign Debt Structure cliff – Part 1 (themarketsoul.com)
- The Fed’s Undistinguished Macro Discussions Circa Jan 2006 (wallstreetpit.com)
- The Real Yield Curve and a Double-Dip Recession (yelnick.typepad.com)
- Pricing of liquidity (jrvarma.wordpress.com)
- Rates are rising! Oh wait, scratch that. (theglobeandmail.com)
- Treasurys bounce back as European debt falters (sfgate.com)
- Analysts see more gradual rise in U.S. Treasury yields (theglobeandmail.com)
- Is the bond market tightening for the Fed? (superbullinvestor.com)
- Surging U.S. Treasury yields set to take a breather (theglobeandmail.com)
Or is this the beginning of what we will call ‘Austerity Anarchy’?
As a case study in behavioural economics goes, the last week in March 2012, in the UK must go down as a classic…
What sparked the ‘run on petrol and filling stations’ is not the aim of our analysis, but rather the deeper underlying cultural psychosis affecting Austerity Britain. However, the austerity is not driven by the current revenue expenditure austerity, but rather the culture of Investment Austerity over many decades that has created a supply chain time bomb in the UK.
There is generally a severe lack of investment in any form of storage capacity. Not as a risk management concept, but rather as a pure short sighted cost management issue.
Yes, land capacity is limited on a small (in places patchily overcrowded; especially down in the South East of England) island and the cost of owning a vast storage network must seem prohibitive; yet having so little risk management or rather ‘buffer’ and shock absorption capacity available must be the vast hidden opportunity cost ‘time bomb’ waiting to derail a sustained or sustainable short run upturn in the economy?
Hidden or in the economists parlance ‘Opportunity Cost’ is generally not an item on any policy maker’s agenda, yet in it lies the ‘unintended consequences’ element that so seldom gets factored into the equation. Yet opportunity cost highlights the risk element we have to factor in. And in this sense we use the word RISK in its proper intended format, namely a quantifiable probabilistic evaluation of the downside of a transaction. Yes, threats are more closely aligned to ‘unintended consequences’ and are the issues we can only subjectively be aware of, but cannot quantify with any degree of accuracy.
Hence, ‘Austerity Anarchy’ is what we believe an angst and siege mentally is, when decision-making (or rather calculus driven decision-making) gets ‘suspended’ and the irrationality of “mankind’s mind” and the mainstream misinformation distribution takes over, creating PANIC in Little Britain and the commentators at theMarketSoul ©1999 – 2012 ask themselves:
“I wonder to myself; could life ever be sane again?” – with thanks to The Smiths
- Don’t Panic! Don’t Panic! (1stepup2stepsback.wordpress.com)
- Fuel Frenzy: Petrol pump panic grips UK drivers (1oneday.wordpress.com)
- Petrol panic buying… Complete morons (nickspearing.wordpress.com)
- United Kingdom petrol panic over? (davidwestern.wordpress.com)
- Running on Empty: Petrol Panic in UK (markamerica.com)
- Gas stations close in UK after fuel panic-buying (seattletimes.nwsource.com)
- English police ask gas stations to close amid panic-buying (ctv.ca)
- | UK Panicking over petrol: The silliest country in the world! (truthaholics.wordpress.com)
- Anger erupts as drivers queue for hours in sweltering heat… and the strike hasn’t even begun yet! (dailymail.co.uk)
- Government under fire over panic buying of petrol (guardian.co.uk)
No investor can or should trust institutions without conducting their own due diligence and risk profile / risk appetite assessment first. In the past investors could possibly rely on professional ‘trusted’ advisors to help then navigate the due diligence part, at least in theory. Risk and risk appetite assessment was the more tricky part and not even the professionals had sophisticated enough tools to help their clients through this quagmire landscape.
We believe this is the unintended consequence of over regulation or an over regulated environment. Relational trust has been eroded in favour of ‘legislative trust’ and therefore the impersonal ‘hand of public scrutiny’ is supposed to protect the innocents.
We need to ensure the pendulum swings back to a happy balance between relationship and legislative trust, unburden ourselves from the over regulated and expensive compliance environment we have allowed to engulf and overwhelm us, not adding any value, but stifling innovation instead.
- David Hunter: From Roman market to flea market, caveat emptor (knoxnews.com)
- Q & A: How Do I Evaluate This Business? Real-World Due Diligence (upandrunning.bplans.com)
- What Do You Call A Salesman You Can Trust (frontofficebox.com)
- Buyer Seller Beware (madhatters.me.uk)
- Due Diligence Training Course (sellingprivatecompanies.com)
- Start-up due diligence is not mysterious (finance.fortune.cnn.com)
- Rumour helping improve general risk appetite a little (forexlive.com)
- What is Due Diligence? (sellingprivatecompanies.com)
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.
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.
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?
- 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)
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.
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.
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.
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)
We are currently investigating sources of information for Eurozone Sovereign Debt Bond auctions and will return to this theme in very near future.
- 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)
Doing business anywhere, anytime is never easy!
That is a stark commercial reality, that most business people will accept as a given. But how? now? does is work in a climate of AUSTERITY???
(Apologies for the blatant confusion and poetic licence taken in the previous sentence).
Public and private sectors mostly have an uneasy symbiotic relationship with each other. If the public sector cannot deliver a solution, they have to procure it from a private provider and a private provider (generally, but not always) rub their hands with glee, as it is relatively speaking ‘easy money’ provided you meet and exceed certain framework thresholds.
All nice and cosy, when we are in a growth cycle of the economy; yet ever so tricky when those Framework Procurement Agreements come up for tender during the down slope side of the cycle…
It is odd how the ‘staccato’ relationship between private and public sectors work at different periods during the business cycle. And this is exactly where the public sector, with an astute “commercial hat” on, can take advantage of it’s perceived negotiating strength during the down cycle agreement drafting / tendering process.
Yet, do they take advantage of this?
Our view is that any Public Sector Procurement Framework Agreement with private sector providers will always be a FLOOR, thereby setting the minimum expectations and requirements, without ever really driving proper continuous INNOVATION and COMPETITIVE DYNAMICS to ensure players with ‘skin in the game’ continue to understand and manage their businesses with the proper risk attitude (never mind risk appetite). Rather than act as a (“floor price”) barrier to entry, they should act as ceiling, or rather more ‘bluish sky’ REACH or STRETCH agreements, setting the rules of the game, but not acting as the default pricing mechanism , meaning that the private sector provider must continue to be innovative, rather than wait and ‘cream-off’ the best bits whilst seeing out the agreement time period until the next time anyone bothers to ‘tamper with the height’ of the limbo bar…
Our summary take away from this article:
The Public Sector Procurement Framework Agreement therefore should act as an incentive to compete and have fair access, but never as the default pricing mechanism.
- Austerity budget is coming, but is this the right time? (theglobeandmail.com)
- Keynesians on austerity – predictably wrong (samizdata.net)
- Government outsourced more than 1,100 jobs to private sector in 2011 (guardian.co.uk)
- Unemployment likely to worsen as private sector resorts to redundancies (guardian.co.uk)
- UK | Public sector workers ‘would sacrifice pensions for private sector security’ (skillsinfo.wordpress.com)
- IMF’s Lagarde: Equilibrium between private and public sector in Greek debt negotiation is a “concerning question” (forexlive.com)
- Pension gap increases between private and public sector (moneyexpert.com)
Are the European and more specifically the Euro-zone problems purely a matter of cultural differences, engrained in generations of ‘Nation Staters’ or something deeper in each nation-people’s psychology?
It cannot purely be a difference of political ideology between the leaders and individual nations of European that has lead us to the brink of the Euro abyss. But, yet maybe the way the debate and challenges facing Europe are being framed, has a great part to play in it.
Europe always seemed to be a halfway house between cultures, trade, ideologies, beliefs and norms. And the fact that the Euro single currency zone was stitched together based on these ‘halfway house’ ideas should therefore not have been a surprise.
How long does it take to build a vision? Or rather, why did Europe take so long to get to the chasm, build a rickety Monetary Union bridge, without firming up the foundations that holds together the infrastructure once the traffic crossing that bridge started increasing in volume?
If there is something Trade theory should have taught us, it must be that once opportunity (to trade and create wealth) is established, the trickle would eventually turn to a steady stream and the steady stream to an eventual throng. Yet not one European leader or institution foresaw this? Takes us full circle to the original question, namely: “How long does it take to build a VISION?”
The truth might lie somewhere in the nature, establishment and deep rooted psyches of the Europeans themselves. Europe might be the collective noun; yet staunch nation state individualism (the communities we all hunker after) is the actual bedrock and foundation of the people who live in Europe. Unlike the USA, with a common language, full monetary and federal fiscal union, Europe is and will always remain a loosely led together community (but not a collective) of nation states and peoples.
Fairness, freedom, equality and openness, some of the most fundamental tenets of a market and community to function properly, are not necessarily on the agendas when ideological political, rather than economic (for the greater good), issues are considered by both politicians, technocrats and bureaucrats in the institutions and fabric at the heart of a (dis)United Europe.
Therefore, until and unless we can prize Europeans from there deeply held ‘national interest’ debates and frames of reference, in terms of establishing a common and united front; we feel that there is no hope of sustainably solving the Euro-zone sovereign debt and monetary union problems.
A possible mechanism might have to be the establishment of a ‘fourth branch’ of governance, outside the Executive, Legislature and Judiciary, being an outside force or rather an Adjudicator comprised of non dominant European member countries and quite possibly with an Advisory Board consisting of non Europeans themselves, to allow for the establishment of a fair, free and an open implementation of the Legislature’s policy decisions, hence and overseer of the Executive, but an equal to the Judiciary, with a final veto by the citizenry of Europe themselves, as a balancing mechanism, should a stalemate ever arise.
The enabling driver of such an European Adjudicator must surely be the Digital Economy with its various platforms and reach extending now and in the future across the ‘Net’ that is European integration.
- Crisis On The Continent (thedailybeast.com)
- What S&P’s Downgrades Mean for the Euro’s Future (curiouscapitalist.blogs.time.com)
- No Country Will Exit the Euro Zone This Year: Jim Rogers (wallstreetpit.com)
- “Euro Zone Crisis is Germany’s Fault” (twistedeconotwist.wordpress.com)
- Euro zone jobless hits highest level since birth of euro – Reuters (reuters.com)
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:
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.
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
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!
- 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)
We decided to summarise our learning from 2011 into two brief thoughts:
- The pains and strains of the economic sovereign debt melt-down in 2011, should stand us in good stead to deal with even more debt and sovereign strain in 2012, as More and Bigger Europe continue to miss the point; this being that more bureaucracy and more government and regulation will not get the INNOVATION engine started again to Recapitalise Europe!
- Translational differences will matter. The CLOUD is a huge business and business model transformation opportunity. IT ‘Geekery’ and language could scupper this potential opportunity and we need to develop more ‘CLOUD TRANSLATION’ services so that a broader community and eco-system can get involved in an aspect of “INNOVATION ignition” in 2012.
All the best and good luck in 2012.
- ‘In the Real World Creditors will Always Have the Whip Hand with Debtors’ (wallstreetpit.com)
- Europe sovereign debt crisis: A lot of bad ideas, a few good ones. (livinginpp.wordpress.com)
- Ruminations on Greece’s Sovereign Debt Crisis (zerohedge.com)
- Aaron Hing: In a debt-swamped world investment caution is key (nzherald.co.nz)
Continuing the conversation and analysis on the ‘fall-out’ of the British Veto being exercised at the most recent EU Leaders (crisis) summit, it is interesting to observe two specific angles to this:
Our article on ‘Recapitalising Europe’ kicked off the discussion around Innovation. It appears that the leaders of Europe (a summary of Angela Merckel defending the Brittish position – see this link) have cottoned on to Innovation as a driver of value, because as the Today programme on Radio 4 reported on Wednesday 14 December 2011; the Czech president stated today, as the details of the agreement slowly start to trickle out, the agreement 26 ‘insider’ European countries signed up to early on Friday morning (minus Brittain), is ‘nothing but a blank sheet of paper’.
Fantastic we say, this is exactly where innovation can begin; not building crooked structures on the existing legacy of half baked institutional solutions, however, starting with fresh new ideas. Something European leaders will find an unfamiliar exercise.
Fear, Uncertainty and Doubt (a great big FUDge).
It is amazing to observe some of the conversations by pundits, stakeholders and other interested parties on the supposed damage this veto has done to Britains standing in Europe. And our brief analysis on this is that the commentators are mostly all adding to the FUDge factor of sowing fear, uncertainty and doubt in the minds of the general public, in order to NOT address the fundamental issues, but rather play the old politically and ideologically motivated games of CONFUSING the argument.
Caveat (beware) the public, the answers are more complex and interwoven than the fuzzy analysis and explanations offered to us at the moment…
It is worth remembering that the crisis or rather series of crises over the Euro is not over yet. The work has merely begun to try to save the common currency. The fall out and potential consequences is discussed in an article by Bruce Crumley in “As the Crisis Refuses to Calm, Scenarios of Euro Collapse Appear”
- Recapitalising Europe (themarketsoul.com)
- More and Bigger Europe…Is that what we really want? (themarketsoul.com)
- More and Bigger Europe – Part 2 – It is MORE… (themarketsoul.com)
- East Europe balks at helping indebted richer West (seattlepi.com)
We pick up from the introductory article by expanding on the issue of MORE Europe, which we did not cover in enough depth.
It is without a shadow of doubt that belonging to an enlarged common market has huge beneficial advantages to all its participants.
However, the question of the Cost / Benefit analysis dynamics is never really explored in more detail. Perhaps it is easier to focus on just one or the other of the two interlinked dynamics, but for it to be a balanced appraisal; we need to focus on the interactions of both COST and BENEFITS.
And when the leaders of Europe cannot tell anymore what the difference is between a COST and a BENEFIT of being in a single currency Eurozone, then what chance do the rest of us have? Is our COST the misplaced belief that leaders will make decisions in our best interest that will BENEFIT us in the long run?
But if the COST is the lesson of Moral Hazard, why have they not learnt yet that working towards an orderly default is better than raiding the futures of millions of current and future taxpayers in Europe. The COST of an uncompetitive and stagnating Europe (which has been brewing and developing for a few decades now), is that we have lost the ‘child like’ curiosity of inventing and innovating our why towards sustainable economic development and growth.
Rather than embrace the opportunity to learn from the younger cultural of the Eastern European and Baltic States integration onto Europe, we are in danger of smothering their youthful exuberance with a bureaucratic Welfare State super-state, with a healthy dose of Welfare and Debt dependency for decades to come.
No-one is saying that the transition will be painless, but it seems that most leaders in Europe have forgotten to keep an eye on both the COST and BENEFIT dynamics. Except for the brave decision made by David Cameron on Friday morning.
Veto the madness and risk what some call isolation, but we here at theMarketSoul call the grasp for our economic sanity.
We can still be part of a common market and then there is still a Common Wealth to leverage, should both the EU and the USA decide to marginalise Britain on the international stage, as some commentators are fearing.
Maybe a true third balancing force and alliance will help us move out of the doldrums of the CRISES of 2008 – 2011 (and quite possibly beyond).
- More and Bigger Europe…Is that what we really want? (themarketsoul.com)
- Robert Reich: The Remarkable Political Stupidity of the Street (huffingtonpost.com)
- The Remarkable Political Stupidity of the Street (robertreich.org)
- Lessons From Europe (krugman.blogs.nytimes.com)
Yes, it will be more bureaucracy and bigger financial problems down the line…
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?
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.
- Steen’s Chronicle: Europe’s disease – sagging growth (tradingfloor.com)
- No IMF aid for eurozone: Canada (business.financialpost.com)
- Time to confront the repercussions of the European crisis (seattletimes.nwsource.com)
- 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)
Adding further value to our conversation on The Market eQuation we introduce the concept of the:
RISKed RETURN on MARKET (RdROM) today on 11.11.11.
More detail to follow in due course…
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.
- 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)
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:
theMarketSoul © 2011
- Synthesizers wanted…to cross the crises divide… (themarketsoul.com)
- How industries react to crises (scripting.com)
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.
- ECB Preparing Italy Bailout, Massive Inflation Coming – National Inflation Association (jansurvivalgear.wordpress.com)
- Preview: BOE Inflation Report To Leave Scope For More QE (forexlive.com)
- Should we celebrate falling inflation? (blogs.telegraph.co.uk)
- Analysts See ECB In Wait-See Mode; May Cede On Greek Bonds (forexlive.com)
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,
- 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)
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…
- New EU Legal Privacy Framework: We’re Not Kidding (yro.slashdot.org)
- SECP introduces regulatory framework (nation.com.pk)
- Open Modular Controller Framework (makezine.com)
- From fragment to framework: a live EU initiative (ipkitten.blogspot.com)
- Europeana Licensing Framework published (creativecommons.org)
It strikes us that managing IT Service delivery maturity is a bit like the ‘Clouds’ before the major storm.
Everyone is rushing around battening down the hatches, because the frameworks and tools are so rigid and require protecting; rather than having ‘modular’ solutions available that are both flexible enough to withstand the battering of the storm; yet can be re-instated very quickly and efficiently, should the storm have managed to ‘flatten’ the landscape.
We will begin to explore some of the Cloud Computing economic and philosophical issues in a series of new articles to follow.
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