Tuesday, September 13, 2011
Today is the fifth birthday of this Blog. Macro Man couldn’t have picked a more torrid 5 years and perhaps one day a lump of magnetic material will be dug up from a bog, analysed and found to contain the financial equivalent of the iridium that pointed to an explanation for the death of the dinosaurs. The Macro Man diaries could be pawed over by academics of the future to then be held up in business schools, philosophy, psychology and history classes as proof of how NOT to run an economy, financial institution, monetary system, political system, society or world.
Or, more likely, held up as an example of how in the past people had nothing better to do with their lives than invest man-years developing complex technologies so that they could waste more man-years filling them with complete rubbish, (if they don’t find Facebook and Twitter first).
In the past five years we have spectacularly seen the western hegemony go from boom to bust. The complexities of economic theory proved, E=MC2 like, to be nothing more complex than a meld of "live within your means" and "if someone else is willing to do your job for less, you are screwed", leaving us at this very moment unemployed with the debt collector at the door.
Today's story is once again that the debt will be paid off by a massive infusion of money from China, the type O universal money donor to all the type AB universal money recipients of Europe.
"Nothing changed there over the last 5 years."
Meanwhile the second wave banking crisis appears to have come to fruition. The mighty French banks that appeared unscathed by the 2007/8 sub-prime mortgage disaster are currently suffering from their own sub-prime sovereign disaster. To the point that the vigilantes are marking BNP's market cap at EUR29bio... This, for a company that has 50bil of tier one capital, made E7.8bio profit last year, had assets last year of 3.1 trillion and most importantly, is the pride of a government proved to be interventionist in the protection of its national treasures and whose demise would make Lehman Brothers look like a Buckingham Palace tea party, TMM think that it has all gone too far and refer you to Andy Haldane’s superb speech. Especially the part:
“Asset prices are guesses about the future. Faced with uncertainty about the future, market participants form these guesses using their own heuristics. One such heuristic is the “popular narrative” – a simple story that aims to make sense of reality. Risk on/risk off is precisely such a popular narrative. The effect of popular narratives is to increase psychological contagion in financial markets. Simple stories generate market mood swings. The greater the uncertainty, the more compelling the simple story and the greater the amplitude of these mood swings...
...All of these behavioural elements have come together in today’s financial markets – disaster myopia, intrinsic uncertainty and deep trauma. This may help explain why risk-takers have their foot poised on both brake and accelerator, why risk capital is in stop-start mode. That implies a risk of heavy and persistent financial congestion in the period ahead. With hindsight, Roosevelt’s fear (of fear) in 1933 was well-founded,
economically and psychologically. It may also be being repeated."
Roughly paraphrased as "MAN UP!".
This is particularly apt today where simple story 1, the “we are saved” FT story, has been replaced within a couple of hours by the “we are doomed” story written by a proven euro shock jock trying to whip up panic over BNP using the well known and innocuous ECB/FED swap lines.
TMM urge the market in true scouser style to please “CAAAAALM DOWN”. Which is really not their job as it should have been enforced by a stern hand and clip around the ear from the Eurocrats. But, like a ginger haired teacher in a Peckham Comprehensive school, they appear to have lost complete control of the class.
The rest of the world is steadily losing patience with the lack of European control too. The US’s Timmy G is being airlifted in to sit in on the EU finance ministers gathering in Poland on Friday which to TMM smacks of early 2010 when he taught the Eurostriches the one trick of STFU which worked so well throughout the summer of 2010. Unfortunately it is now completely inappropriate and is having the wrong effect. Now they urgently need to be taught how to speak again, but with one voice. So TMM are hoping that a new era of SWOV will be forthcoming.
That’s enough of the heavy stuff. Normally at school on your birthday you get a cake and are allowed to play games so to celebrate we would offer up the chance to expand TMM’s glossary of TMMisms and invite suggestions. The top 5 will be added. More if thought apt. We know this is pretty pathetic but as we don't have any TMM T-shirts, mugs or financial bailouts to hand out its the best we could come up with.