The Policymaker Draft

Monday, April 26, 2010

Macro Man was struck by two things over the weekend: the ongoing meltdown in Greece, where public sector workers continue to demonstrate for their right to remain bone-idle, and the orgy of attention lavished on the NFL draft.

The Greek crisis should reach some sort of denouement this week; 1yr CDS are now trading at 1200, which isn't far off the yield on the 2 year GGB. The Germans continue to play hardball, which to a degree is understandable; one would presume that the Greek government is working overtime to hash out a deal with the IMF (well, at least those that aren't marching to protect the 12 hour workweek, or whatever it is that the Greek public sector slogs through.)

The NFL draft, meanwhile, is a nonpareil example of American (champagne) sporting socialism. Rather than a free market of new players, such as one finds in world soccer, American sports allocate new talent via a draft process, wherein the worst team from the previous year gets first choice of the incoming talent pool. The system is designed to ensure relative parity amongst the teams; it tends to work quite well in the NFL but less so in sports like baseball where the development trajectory of young players is less certain.

In any event, the NFL draft has morphed into a 3 day extravaganza, where an industry of full-time analysts has emerged to break down the physical minutiae of hundreds of young college students. It would make for entertaining viewing if it wasn't so drawn-out; still, it generally serves the purpose of allowing wretched teams to improve themselves through shrewd player selections. (As an aside, the draft has generated a quite interesting market in microeconomic analysis; given the often extravagant salary demands of the first pick, it carries less expected economic value than second round picks.)

Anyhow, the juxtaposition of the Greek crisis and the draft caused Macro Man to wonder: what if there was an annual "policymaker draft" for the world's countries? Those deepest in the mire could have first choice of any policymaker of recent vintage, with the draft proceeding in order of relative economic outcomes.

We can probably assume that Greece would have first choice...but who would they choose? They'd need someone committed to smaller government, someone willing to stand up to the civil servants and unions, someone who wouldn't be afraid to be unpopular.

Macro Man can just imagine Dominique Strauss-Kahn approaching the podium and intoning "With the first pick in the 2010 policymaker draft, the Hellenic Republic chooses Margaret Thatcher, prime minister, Oxford University."

Who would the rest of the PIGS choose? The US? The UK? China? Who would countries like Canada and Norway be left with? 'Twould be a fascinating endeavour, and surely cure the economic sciences of their "dismal" reputation.

Moreoever, it's not at all clear that such a draft would substantially alter the nature of popular analysis one whit. Imagine Mel Kiper breaking down the policymaker draft ("Greenspan's really sliding down the Big Board on character concerns...")

...while the CNBC clowns break down which quarterback the hapless Browns should take....

Macro Man for one can't really tell them apart....

Posted by Macro Man at 9:45 AM  


Is anyone else surprised that a likely debt restructuring (default) within the euro is not having a greater impact on risk assets in Europe? It kinda feels like early 2007 when sub-prime was 'contained' ...Or am I missing something?

Skippy said...
12:54 PM  

Oh, it's totally climbing a wall of worry at this point. And Greece? That's so yesterday. Check out Portugal now. 5 yr.....wheee..

Strangely enough, my "word verification" below is "cheatemu".

Ivanovich71 said...
1:21 PM  

Perception Is Very Positive Again to Start New Week ----- The call on Friday was to remain short post Europe’s close and not respect an early new high stop, that proved painful and I have moved to the sidelines. The framework to begin the week is very constructive, both Asia and European risk assets trade strong. A noted sell side house raised their SP500 target to 1350 based on 13.5x 2011 earnings of $100 that includes a positive top line sales argument. Earnings – Whirlpool + 10% and Caterpillar +3% -- echo the u/g and suggest more are coming. Three noted M&A deals alongside the Citigroup announcement highlight that capital markets are wide open. SP Emini positioning per the CFTC data late Friday illustrate the largest index short since Oct 2008 (Lehman collapse) and trading volume was the highest of the year last week. Point being, the concern of tightening (FOMC meeting Wed), Sovereign spread widening or immanent Financial reform is falling on deaf ears again. As a reminder, Monday is the strongest day of the week over the last quarter and includes the most index point contribution.

PS -- Left Back, there should be no confusion. I did not change my trading bias. I was stopped out of a view and moved to a sideline. The above note is reporting the news, i.e. repeating what professionals are talking about today.

Right Field said...
1:35 PM  

That's kinda my point - sub-prime was also well flagged in 2007. Under the circumstances, I am not sure why the EUR is still trading at a 10% to 15% valuation premium to the dollar.

US earnings have been surprisingly good over the past few quarters, but it will be interesting to see how profits fare once the inventory and fiscal contribution fades.

Skippy said...
1:46 PM  

Maybe its just because Voldemort has not pulled his bid yet.

Nic said...
2:57 PM  

You don't like Dennis "Kneale and Squeal"...?

RF - duly noted, agreed on short term outlook.

Skippy - Greece definitely seems "contained", doesn't it? We'll see whether Portugal stays "contained". The big kahuna is Spain, and exposure to its housing market and banking sector. Someone is selling dollars and yen to support the Euro. For the time being, at least...

Leftback said...
2:59 PM  

I find myself wondering about tangential phenomena; that perhaps it is not only the public but hedge funds that are finding the U.S. (equities) more interesting than the Greek tradgedy or pardon, the Brits upcoming mashup. I'm seeing the US long-only funds have used almost all of their cash to go long; I find myself asking "who exactly is buying" in the meltup now? Carry unwind? (which rationally should have the opposite effect) Or is it that the CNBC permabulls are just so entertaining that the world is throwing their money at the US markets?

RiverTrader said...
3:18 PM  

On the Monday comment; I can't wait to see what the talking heads say when one of these mondays breaks the streak and we have a significantly down Monday

RiverTrader said...
3:34 PM  

I'm surprised the EUR hasn't plummeted more than it already has. Should be an interesting couple of weeks to say the least.


Chris said...
6:00 PM  

Give Maggie Thatcher a break, she's already nearing the last stages of Alzheimer's. As for the Greek crisis, erm, in typical European fashion, everyone's shrugging shoulders and throwing their hands up - think French crossed with Italian and some steely German determination not to be dragged down. Second the Portugal alert, in fact, add Spain and a host of Eastern European ??? and you have a terrible summer coming up , terrible for Europe, may be play time for predators elsewhere.

judyjl said...
2:52 AM  

Post a Comment