Wednesday, September 28, 2011
As Tom Jones would sing ..
"Tape Bomb, Tape Bomb , you're my Tape Bomb.
You can give it to me when I have just gone long"
Today it's pretty quiet in the minefield of the market, which is somewhat deflated by a turn in the RORO (risk on risk off) mood spoiling the bears' party. The cries of "well, it went up on nothing changing, so it is not valid" is just as easily countered with "well, it went down on nothing changing last week too, so plus ca change". However, the market is now attuned to "no news is bad news". We are running into quarter-end now and have the new "month-end flows" excuse to throw into the blame game of short term losses. Especially handy if it goes against whatever trade you have on (it's not my fault! it's all a conspiracy!).
We have out-analysed ourselves yesterday, so are sitting back today staring at the potential tape bombs as they weave by through the minefields of the news screens.
ECB ALLOTS 500 MLN DOLLARS IN 7-DAY OPERATION - one bank only again. Not much different to last week and not indicative of any USD funding crisis - Fuse nearly fully retracted soon to be labelled "safe"
*EU PROPOSES FINANCIAL TRANSACTION TAX TO START IN 2014
*EU PROPOSES 0.1% TAX RATE FOR STOCK, BOND TRANSACTIONS
*EU PROPOSES 0.01% TAX RATE FOR DERIVATIVES CONTRACTS
*EU SAYS TAX WOULD BE PAID BY INSTITUTIONS, NOT HOUSEHOLDS
*EU INTENDS TO PRESENT TRANSACTIONS-TAX PLAN TO G-20 IN NOVEMBER
*EU ESTIMATES NEGATIVE IMPACT OF TAX PLAN WOULD BE 0.5% OF GDP
FX .. Land of the (tax) Free. Well, the numbers don't stack up to start with. With nominal GDP of €12trn: 0.5% GDP = €60bn COST of tax plan vs €57bn revenue. Nice one, boys! This is just making us feel like buying cheap Libyan property and setting up a Singapore equivalent in European timezone, as there are more reasons for financial markets and multi national corporate treasuries to leave. "We don't need 'em anyway", - cry the baying mob whipped up by Alessio Imatwati's interview. We will see.
*EU SAYS TROIKA TO RETURN TO ATHENS - Must be modelled on a UK schools exam, where you are allowed to redo the modules until you get a pass. "D minus, please redo". Which has TMM going one stage further and recommending that the TROIKA fully adopt the hallowed Oxford and Cambridge exam regulations, whereby if you die during the exams you are deemed to have passed. Interesting. They would also be allowed to demand "cakes and ale" during the examinations, but must remember to be wearing their swords at the time or else will be liable for fines. These sorts of rules must be right up Germany's Strasse.
THE EURECA PLAN - Now this is interesting.
1. Bundling the assets into a holding company and selling it to the EU for €125bn would represent a fiscal transfer of around €100bn, given that Greece is struggling to raise €25bn through privatizations, and will probably only get around €15bn, given it is a distressed seller.
2. The paper is optimistic about the potential for these assets to recover value, but we would guess this would be the main sticking point for France/Germany. That said, it is a very similar model to the one that was applied for East Germany. Some opposition to the sales is bound to occur in Greece, but it seems like the EU would be massively overpaying in our view. Papandreou/Venizelos should be able to sell this to PASOK relatively easily ("Guys, this is a lay up... Let's sell them this stuff and then when we can just build a new welfare state afterwards", etc...). Moreover, in light of the EU being a buyer (rather than Alessio Imatwati-type evil capitalist speculators), it should be significantly easier for the Greeks to swallow.
3. It contains an 8% GDP stimulus over 3yrs, which will make this a lot easier to sell in Greece and will also support the economy. This growth strategy is important in breaking the debt-deflation trap.
4. CDS spreads would collapse and burn speculators, reducing the probability of further contagion to Spain/Italy and creating a model for what a sustainable package might look like.
5. It will be difficult to sell this to the Germans, but it is promising that Roland Berger have credibility on their side, given their involvement, if we recall correctly, in the East German transformation.
6. Risks would involve the Greeks selling their national assets to their new German overlords only to re-nationalise them once they are over the stress (would have to be governed by strong international law, not Greek)
7. And, last but not least, would the British Museum have to arrange transport of items to Luxembourg?
Of course Europe is on the F-Plan Diet. A new F'in plan every day designed to reduce debt corpulence; works really well for a month but you've put it all back on by Xmas.
Back to sleep.