(MENAFN- ProactiveInvestors) Germany Will Have to Yield In Dangerous Game of Chicken With Greece
Here is the opening from this informative article by Ambrose Evans-Pritchard for The Telegraph: George Osborne has warned that the escalating showdown between Greece and the eurozone has become the “greatest risk to the global economy”.
In this the Chancellor is right. North European politicians assert with remarkable insouciance that EMU is now strong enough to withstand the effects of contagion if Greece is forced out of the euro and some say it may even emerge stronger. This is courting fate.
It is true that QE by the European Central Bank has anaesthetised the bond markets. Yet Grexit would convert the eurozone into a fixed exchange rate system overnight a sort of 'ERM3' in the words of . Portugal would be a sitting duck. Whether Europe’s leaders could stop the EU itself from disintegrating after such a breach of political solidarity is an open question.
Mr Osborne pointedly refused to take sides and came very close to rebuking the EMU authorities for carelessness after his meeting with the Greek finance minister Yanis Varoufakis.
“I urge the Greek finance minister to act responsibly but it’s also important that the eurozone has a better plan for jobs and growth. We have got to make sure that in Europe as in Britain we choose competence over chaos.”
In Washington President Barack Obama tilted even further towards the Greeks. “You cannot keep on squeezing countries that are in the midst of depression. When you have an economy that is in freefall there has to be a growth strategy and not simply an effort to squeeze more and more out of a population that is hurting worse and worse.”
This should be a cautionary warning to Brussels Frankfurt and Berlin that they do not have a green light from the rest of the world to do as they like with Greece – however irritated they may feel by the provocations of Alexis Tsipras. There are larger diplomatic and strategic matters at stake.
David Fuller's view
The best guess seems to be that Greece will get an acceptable agreement of perhaps 50 year’s duration and very low interest rates to pay off its debts. This would be far less risky than ‘Grexit’ and conveniently all parties to the agreement would be long gone by 2055.
This item continues in the Subscribers’ Area where a PDF of the article is also posted.
For Germany a Worst Nightmare Has Come True
Here is the opening of this interesting and topical column by Jeremy Warner for The Telegraph: It’s Germany’s worst nightmare. Increasingly isolated ganged up on and even hated by much of southern Europe it is fast losing the argument over the future of the euro.
Even the Governor of the Bank of England Mark Carney has been at it. This week he joined in the German bashing with a full-frontal attack on Berlin’s austerity agenda. And it’s causing confusion dismay and resentment in equal measure in this most stable disciplined and civilised of nations.
To understand the decisive shift in narrative that has taken place in Europe over the last couple of weeks – from the defeat Germany has suffered at the hands of the European Central Bank to the Syriza victory in Greece and its demands for debt forgiveness – you have to go back to the euro’s origins and Germany’s place in it.
Germans never wanted the single currency in the first place for like Britain they instinctively understood where it would lead – to a fiscal or transfer union which Germany as Europe’s dominant economy would be forced to bankroll. If given a referendum they’d have said no.
But European monetary union was the price Germany had to pay for reunification; it was a way other European nations naively believed of containing the newly enlarged country and ensuring that it was properly integrated into the rest of Europe. To them it seemed the answer to Europe's historic problem - Germany was too large and economically powerful ever to be properly defeated but the potential threat it poses to the rest of Europe could perhaps be defused through economic integration. Most Germans now a peace loving people broadly go along with this "solution" to the problem. The point of dispute is rather about the degree of integration.
To buttress itself against economic pollution from the south Germany surrounded the new currency and its institutions with safeguards. Fiscal and monetary transfers between nations were specifically banned and rules were put in place that would supposedly ensure fiscal discipline. None of them has proved equal to the task and none of them is ultimately compatible with a single currency that actually works.
Since the onset of the financial crisis Germany has suffered one defeat after another. Every line in the sand has been breached culminating last week in the Bundesbank’s failure to block ECB money printing a remedy which may or may not have some merit for the beleaguered economies of the south but is culturally anathema to Germans as well as largely inappropriate for their economy. It's also a money transfer by the backdoor.
The bottom line is that the single currency hasn’t worked for anyone. It’s proved as unsatisfactory for Germany as it has for Greece Spain and Italy. Happy families are all alike begins Tolstoy’s Anna Karenina; every unhappy family is unhappy in its own way. The observation could have been written for Europe’s experiment in monetary union.
David Fuller's view
The establishment of Europe’s single currency was a political rather than economic decision from Brussels. It was also undemocratic because the EU’s leaders many of them unelected had no intention of allowing citizens to vote on such an important decision. They knew that citizens in Germany and may other EU countries would have voted against the single currency.
That decision made on behalf of independent nations without the approval of their citizens was a bad omen in terms of the EU’s potential. Only Swiss political leaders had the foresight within Europe to agree unanimously on staying outside the EU at least until it had proved to be a success as one pragmatic subscriber from Switzerland explained to me at the time.
I commend the rest of this article to readers.
A PDF version of the article is also posted in the Subscribers’ Area.
Implications of the current rally in crude oil prices
David Fuller's view
This item is in the Subscribers’ Area.
The Markets Now
Monday 23rd February at the East India Club 16 St. James Square London SW1Y 4LH
David Fuller's view
If you live near London and attend our next seminar on 23rd February you will meet another subscriber David Brown who has attended Markets Now and will return next month as our guest speaker. He is a fascinating visionary and accomplished individual whose subject will be The Third Industrial Revolution.
You will find the speakers’ short bios in the latest brochure and if Bruce Albrecht can join us once again in London he will also participate. Delegates will be limited to 35 so I would not delay if you are interested in this event. At approximately 8:30pm following the presentations speakers and many delegates adjourn to the East India Club’s American Bar for refreshments and further conversation. I hope you can stay on and join us if you have the time.
Oil Bears Miss Biggest Rally Since 2012 as Rigs Withdraw
This article by Moming Zhou for Bloomberg may be of interest to subscribers. Here is a section: The United Steelworkers union which represents employees at more than 200 U.S. oil refineries terminals pipelines and chemical plants began a strike at nine sites on Sunday the biggest walkout called since 1980. A full walkout of USW workers would threaten to disrupt as much as 64 percent of U.S. fuel production.
The U.S. oil rig count dropped to a three-year low of 1223 said Jan. 30. Drillers idled 352 oil rigs in eight weeks.
Plc Occidental Petroleum Corp. and alone said they would reduce spending by almost $10 billion this year.
Chevron Corp. cut its drilling budget by the most in 12 years and said it may delay some shale projects. The company is targeting $35 billion in capital projects this year from $40.3 billion in 2014.
“Oil production growth should be flat or declining by May or June unless there’s some substantial recovery in oil prices” James Williams an economist at WTRG Economics an energy-research firm in London Arkansas said by phone Jan. 30.
Eoin Treacy's view
Falling prices necessitate that those heavily impacted by the decline act. Oil companies cutting investment is an expected response and they will be slow to ramp back up now that they have relearned how swiftly prices can fall when supply exceeds demand. Striking union workers introduces a fresh dynamic and could act as a bullish catalyst if they succeed in withholding supply from the market.
Brent Crude rallied by an additional $1.80 today to take the bounce to almost $10 from the mid- January low. This is the largest rally since the onset of the decline in June and suggests short covering is underway. Considering the speed and depth of the decline there is ample room for mean reversion and an unwind of the short-term oversold condition. However once this rally has run its course a potentially lengthy period of support building will probably be required before a return to medium-term demand dominance will be in evidence.
New Rules in China Upset Western Tech Companies
This article by Paul Mozur may be of interest to subscribers. Here is a section: The groups which include the U.S. Chamber of Commerce called for “urgent discussion and dialogue” about what they said was a “growing trend” toward policies that cite cybersecurity in requiring companies to use only technology products and services that are developed and controlled by Chinese companies.
The letter is the latest salvo in an intensifying tit-for-tat between China and the United States over online security and technology policy. While the United States has accused Chinese military personnel of hacking and stealing from American companies China has pointed to recent disclosures of United States snooping in foreign countries as a reason to get rid of American technology as quickly as possible.
Although it is unclear to what extent the new rules result from security concerns and to what extent they are cover for building up the Chinese tech industry the Chinese regulations go far beyond measures taken by most other countries lending some credibility to industry claims that they are protectionist. Beijing also has long used the Internet to keep tabs on its citizens and ensure the Communist Party’s hold on power.
Chinese companies must also follow the new regulations though they will find it easier since for most their core customers are in China.
Eoin Treacy's view
China has unabashed ambitions of becoming a global economic and military superpower large enough to rival the USA. However if it is to close the technological gap with the USA it will have to invest a great deal of money time and effort into technological development. Investment in science is already impressive but the commercialisation of ideas takes time.
Like other emerging countries that have come before it China has copied what it could not develop itself. Insisting companies that wish to do business in China to sign technology sharing agreements and engaging in corporate espionage are both aimed at achieving the goal of rapidly narrowing technological gaps.
Forcing government agencies and state owned companies to buy from Chinese vendors almost certainly sets the country on course for discourse with the WTO. However by the time a judgement is reached much of the transition will probably have been completed. The majority of China’s leading technology companies have sought listings in either Hong Kong or the USA which creates a challenge when judging the performance of the sector
Obama Proposes Nearly $4 Trillion Budget for Fiscal 2016
This article by Nick Timiraos for the Wall Street Journal may be of interest to subscribers. Here is a section: Lawmakers and Mr. Obama have also expressed hope of reaching an agreement on an overhaul of the tax code but have shown few signs of being able to forge the politically difficult compromises required. Business groups reacted coolly to initial details of the proposal on Sunday which would impose a one-time 14% tax on approximately $2 trillion in accumulated foreign earnings. They would also face a 19% minimum tax on future foreign profits.
Congressional Republicans have rejected many of the spending proposals underpinning Mr. Obama’s budget when many in the GOP remain focused on reducing the budget deficit.
“If he comes with a serious [budget] proposal that meets those principles of lowering the deficit and starts to deal with our long-term spending I know Republicans would be glad to have that dialogue—but he’s got to come within those parameters” said Rep. Marlin Stutzman (R. Ind.).
The White House still says it can reduce the deficit by $1.8 trillion over the next decade relative to current levels. Some of the steps to get there such as $638 billion in tax increases on top earners are a nonstarter with Republicans and haven’t moved anywhere when proposed in the past. It also presumes $160 billion in savings from better economic growth from a comprehensive immigration overhaul that faces long odds in Co
Eoin Treacy's view
One of the costs of success is that accumulated profits become the target of politicians eager to fund pet projects or to plug holes in their budgets left by profligate spending. This is as true of private individuals as of corporations. For global companies that have expanded beyond the confines of their domestic markets the tactics of both the US and Eurozone governments represent a challenge. To date they have used tax efficient strategies to avoid taxes but loopholes are steadily being closed. So far corporate inversions have been mostly between the USA Canada and Europe but there is no reason that large companies cannot decamp elsewhere if the tax structure is more favourable. This is a topic which is likely to gain increasing coverage not least because government actions mean corporations will respond.
Speaking Engagements 2015
Eoin Treacy's view
The Global Corporate Autonomies Fund will be launching in March and I will be in London on the week of February 9th to meet with prospective investors and to give a talk “The Big Picture and the Autonomies” at the East India Club from 6:30pm on February 10th. If you would like to attend or have any questions please contact Chris Moore at chris@wmcapitalmanagement.com. Here also is a link to yesterday’s piece on the Autonomies and here is a link to the fund brochure.
I have also accepted an invitation to speak at the annual MTA Symposium in New York on March 26th and 27th. The topic of my talk will be Quality Trends: Bet on quality and monitor consistency
The Chart Seminar 2015
Eoin Treacy's view
Following a productive collaboration last year we have agreed to co-host another Chart Seminar with the CFA Institute in Singapore. This is provisionally booked for April 16th and 17th.
This year we only intend to hold one seminar in the UK so please let us know whether you would prefer a May or November schedule. Additionally if you are interested in attending a seminar in either Australia or the USA this year please let us know. If we have critical mass we would be happy to arrange one.
The full rate for The Chart Seminar is £950 + VAT. (Please note US Australian and Asian delegates as non EU residents are not liable for VAT). The early booking rate of £875 for non-subscribers expires two months ahead of the event start date. Subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.
Private Seminars and Partnering Opportunities
We are also available to conduct private seminars and occasionally agree to speaking engagements at investment conferences and professional societies.
Eoin Treacy's view
FullerTreacyMoney set up a feed in December but I didn’t start updating it until yesterday. In the era of social media many people tend to look more at their accounts than free daily emails so we will post content both on our website and via .
Additionally I will post interesting charts on a daily basis when I have completed by morning click though of markets. Today I posted charts of the historical oil price Canadian Dollar Singapore Dollar / Swiss France cross rate Check Point Software and Veolia.
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