Friday, September 09, 2011
We mentioned yesterday that the hopes of the world were resting upon the actions this week of the central banks and policy makers. A day later we have had the results in from the BOE, the ECB and Obama's job package with only the G7 to come.
ECB - TMM's take was that JCT spent the first 15 mins trawling through the usual numbers associated to CPI and other price stability measures to justify their "no move" stance. Meanwhile the market was starting to mumble "errr.. and? Does the guy really not get it?" The growing "does he not get it" then manifested itself in the more and more pointed questioning along the lines of "do you not get it?" to which he more and more violently expressed the view that it wasn't his job to "get it" as the only stupid piddling target he had been given to play with was "price stability" - Which TMM think he felt is like being told you are in charge of the cup holder in the Millennium Falcon as you take on the Empire's Deathstar. Mind you, he did put a very convincing case for what a wonderful job he had done with the cup holder and how he was amazed that no one had called him into the Federation's Galactic headquarters to give him a medal. Unfortunately TMM didn't quite see it that way and think his reading from the start of his forthcoming memoires has instead just highlighted the rift between the ECB and the politicians at a time when unity of response is needed. Lagarde, even this morning, is saying that monetary policy needs to be more accommodative but until they change the ECB's mandate TMM think it will probably take until December before the rear-view mirror of the ECB 12 yr old quants picks up enough historic data to trigger an inevitable rate cut. -1 Point.
BoE - Think they must have had McKinsey Consultants in to advise on their policy announcement having obviously been told just to photocopy the last one and send it out again. Nil Points
Obama - Better advised (probably by Simon Cowell) having already teed up the market for a $300bil plus from an earlier $250bil, he went for $447bn (why not $450bn?!). TMM didn't actually hear the announcement but would not have been surprised if it had been accompanied by the "sentimental rising success of underdog to winner" music, so overused in X-Factor style shows, after brief background interviews with his friends and family all saying how much he REALLY REALLY wants this to work, it's his dream, how it will change his life should he win and how he really hopes the Republicans will give him their votes. TMM think that him holding out the olive branch of $245bn of tax cuts mean the bulk of the stimulus should be enacted. Not the viewers' favourite, but having Simon Cowell behind him means through to the next round. +2 points.
The net effect of the above has been to make Eur/usd the litmus paper of Austerity vs Stimulus policies and it's now trading on a 1.38 handle.
As a quick aside on another function that TMM is being told to sell Eur/usd on - There has been plenty of muttering out there about a possible announcement of HIA2, a sort of super HIA where repatriated funds are conditional upon "good" investment. TMM however think the likelihood of such an announcement in the short term is neither likely nor advisable because all it does is encourage corporates to keep cash abroad for the future, on the expectation that there will be another future tax holiday with result being that corporation tax receipts fall structurally. Bad idea.
We now await G7 - Whereas the results of the other announcements appear to be parochial, the response to this one should be global. Interesting that we had the first glimmer of agenda with Geithner's piece yesterday in the FT. Not exactly earth shattering in its novelty but if they actually get any of this done then it will be seen as a seismic shift relieving some of the stresses in the plate tectonics of imbalances. TMM's reading of punters is that little is expected ."What can they do?", which means they start a point up. TMM would like to see something a little more punchy and wonder what the chances of the following happening are:
1) G7 propose global bank stress test administered by the IMF, and commit to forcibly recapitalise banks either directly (for those governments that can afford it) or via EFSF (for those that can't).
2) G7 and China state they are ready to support the Eurozone by explicit purchases of government debt from Exchange Stabilisation Funds.
3) G7 agree to extend the scope and attractiveness of central bank swap facilities and explicitly encourage their use by banks.
4) G7 reiterate commitment to "No More Lehmans".
5) G7 reintroduce bank liability guarantee schemes (e.g. TLGP).
6) G7 announce a new round of gold sales in order to recapitalise banks.
7) G7 central banks agree to purchase bank bonds
And finally, this has been out for a bit but considering the Lagarde comments and those she made at Jackson Hole and pre-G7, TMM wonder if this paper first pubished in March could form the basis for a new Marseille Accord creating a new system for Global Capital Markets and FX?
TMM have over the past year experienced first hand the absurdities of Greek economics and now hold up as exhibit A this latest piece of data.
"Data released by the Hellenic Statistical Authority (ELSTAT) suggested that Greece imported 1.5 million euros worth of olive oil -- once a staple of its agricultural production -- from Germany in 2010"