Posts by "ridenredeem"

MONEY TALKS





Trust Greece - To Default

By ALEN MATTICH
A DOW JONES NEWSWIRES COLUMN


In a not very subtle way, the Greek government is blackmailing the euro zone.

To paraphrase, the Greek finance minister said that if the Germans don't continue to bail Greece out, Greece will destroy the single currency.

George Papaconstantinou's actual words to the Financial Times were:

"Restructuring [of Greek debt] is not going to happen.. It would be a fundamental break to the unity of the euro zone."

But the message is the same. That's because, notwithstanding Greek promises to bring the country's finances under control, it is beyond belief that the Greek government can, or is even willing to, enforce the sort of austerity necessary to do so. As long as it cannot or will not, the rest of Europe--which, in effect, means Germany--will have to keep pumping money into the country. Otherwise, Greece will default on its debt. Given that a default of an individual member state is unworkable within the single-currency regime, this means a Greek withdrawal from the euro. And if Greece drops out, the markets are likely to force other "peripheral" European members out.

But how do we know the Greeks can't and won't meet the stringent criteria set out by the International Monetary Fund and the European Union?

Michael Lewis, the author and financial journalist, gives a good account in the latest issue of Vanity Fair. Bear in mind the Greek government, by its own admission, routinely lied about just about every relevant statistic it published, while Transparency International rates Greece, together with Romania, as the most corrupt European Union country, ranking it lower than Ghana, Montenegro, Georgia and Tunisia. So because Greek statistics are so untrustworthy, anecdotal accounts are as good as you're going to get.

Lewis points out that it is reasonable to assume that almost everyone in Greece, including members of Parliament, lies about their tax position. Indeed, not paying taxes is endemic and cultural and unlikely to change soon, not least because the legal process of pursuing tax cheats is so endless, routinely lasting more than a decade, that the authorities don't bother. And because bribery is so much part of the system, on those occasions when tax cheats are caught, they can usually buy their way out of trouble.

For the Greek tax system to be restructured, the country first has to restructure its legal system and somehow end its culture of corruption. No Greek government has a hope in hell of forcing these changes.

Even if you do believe Greek statistics--a very, very foolish proposition for someone investing his own money, though easier to do if you're, say, the European Union and are spending taxpayers' funds--they don't look particularly attractive.

During the first eight months of this year, tax revenues rose 3.3% year-on-year against an official target of 13.7%. True, part of that shortfall will have been caused by a deeper-than-expected economic downturn, triggered by the sovereign-debt crisis. But a third of the Greek economy is underground, unidentified, much less subject to tax. It is a safe bet that the more taxes the government demands, the more the productive part of the economy will hide.

But wait, say supporters, what about the fact that Greece has cut public-sector wages by 15% and operating expenditure by 50%.

First, it would be unrealistic to assume that the Greek government is not massaging these figures to look good. Greeks have always sought the easy way to credibility: trust me, they say. And then they've turned around and lied and, historically, defaulted.

A safe assumption would be that revenues are even lower than reported and that expenditure is even higher. Never mind audits by the European Union and the IMF. It is not in either's interest to force a Greek default. So they will play along with fudges and even outright lies as long as they're not too egregious. But what are acceptable grey areas to them are unlikely to be so for prudent investors.

Second, even with enormous rescue schemes and preferential interest rates, the Greek debt load is proving impossible to contain. The interest bill on its debt during the first eight months of this year was 7% up on the same period last year. Unless the Greek government manages to somehow run a surplus in the not-too-distant future (which is unlikely for the reasons listed above) it will have to continue to be bailed out. The alternative is a debt death spiral and default.

So given the Greek government faces an impossible situation, what incentive does it have to offer much more than cosmetic changes--especially if it believes that the German commitment to the euro is greater than its revulsion at having to keep bailing Greece out? In a word, none.

Clear

BEAT WATCH





Signs That Fear May Make A Comeback Soon

By KEN ODELUGA
Of DOW JONES NEWSWIRES


LONDON -- After the heady days at the height of summer, volatility, like the weather, has cooled off sharply, leading some market watchers to suggest the time is ripe for a rebound in risk aversion indicators.

Judging by the recent trajectory of the Chicago Board of Exchange's CBOE Volatility Index, or VIX, also known as the "fear index," one could say the "fears' that it measures have fallen markedly in the space of the last four months.

In fact, given that VIX mathematically expresses market expectations of near-term volatility conveyed by S&P 500 stock index option prices, it's clear that at the very least, equity market players have become more sanguine of late.

The VIX's 52-week high is 48.20, which it hit May 21, 2010. Since May, VIX has recovered to its current level of just over 22.

Since the start of the summer, marked roughly by deep concerns about the fiscal issues in "peripheral" European countries, such as Greece, several developments have served to calm the risk picture somewhat.

In July, most major European banks were judged to have passed "stress tests." Even amid doubts about the tests' validity, the calming effect on markets was real enough.

And there has been a steady series of reasonably well taken-up bond auctions in Greece, Spain, Portugal and elsewhere, including Thursday's sale of EUR4 billion worth of Spanish ultra-long government bonds, the maximum Spain's treasury had intended to sell.

More recently, noted Manuel Oliveri, currency strategist at UBS, "our risk index has moved back into negative territory (i.e. positive on risk), suggesting that risk aversion has decreased markedly during the last few weeks." He cited data showing an improvement in U.S. labor market conditions as signalled by the latest monthly payrolls, decreasing "expectations for a double-dip recession."

However, he cautioned that signs this week could be taken as a warning. "The BOJ's stance on intervention policy [and the BOJ's actual intervention this week] supported some of the observed market behavior. Stocks and crude oil, however, have failed to benefit strongly from the renewed increase in easing expectations....this may provide a first warning signal to risk assets for the weeks to come, and speaks against becoming to bullish on risk sentiment."

Oliveri notes, under such conditions, the USD/CAD pair "would be one way to play a return of risk aversion. USD/CAD indeed keeps a strong correlation to risk sentiment and hence USD/CAD upside would be the result of a renewed rise of risk aversion."

At 1400 GMT, USD/CAD traded at 1.0263.

---By Ken Odeluga, Dow Jones Newswires; +44-20-7842-9297; ken.odeluga@dowjones.com

THE WALL STREET JOURNAL





Waning Recovery Fuels Global Uncertainty

By MARK WHITEHOUSE, MARCUS WALKER AND JOANN S. LUBLIN
Of THE WALL STREET JOURNAL


The global recovery is still on track, but it's looking increasingly likely to be a long slog for much of the developed world.

Just over a year after the recovery started, its initial vigor has abruptly subsided, thrusting the world into a new period of uncertainty. Hopes of a U.S.-led recovery have faded as American consumers retrench. Bursts of growth in Japan and Germany are waning or expected to do so. China and other big developing nations are still growing strongly, but at a slower rate than they were not long ago.

"We were waiting for the second stage of the rocket, and it just fizzled out," says Ethan Harris, head of developed economics research at Bank of America Merrill Lynch in New York.

Two early boosters of the recovery -- stimulus spending by governments and inventory rebuilding by businesses -- are fading fast. Policy makers have limited options for providing further stimulus. The big question is whether, and when, consumer spending and business investment will pick up the slack.

So far, the evidence is mixed. The burgeoning ranks of consumers in developing economies could provide a boost. But companies in the U.S. and Europe remain reluctant to do the kind of hiring needed to fuel a revival of consumer spending.

"I don't think anything positive is going to happen this year," says Carol Bartz, chief executive of Internet company Yahoo Inc., which hasn't increased its staff in the past couple of quarters. "Unless the U.S. settles down, the globe can't settle down."

Reflecting the uncertainty, most countries' stock markets are well below their peaks in the spring. The Global Dow index, which tracks the performance of 200 blue-chip companies world-wide, closed at 1871.81 Friday, down 10.3% from its April high of 2087.12.

The dominant outlook for the global economy: A long period of lackluster growth, with little progress in bringing down unemployment in the hardest-hit advanced economies such as the U.S., Ireland and Spain. Some parts of the world most likely will do fine. But the chances of a much better outcome have become more remote, while the risk that things could get worse is significant.

Here are three scenarios for the global economy over the coming year:

Feeble Growth

In recent weeks, data from around the world reveal a growth downshift. Companies that had been rushing to restock their inventories are now ordering only what they need to meet existing demand, affecting the entire global supply chain.

A measure of business activity compiled by J.P. Morgan Chase & Co. fell to 53.9 in August, above the 50 mark that signals growth but below the April peak of 57.7. Growth in world exports slowed to an annualized rate of 7.4% in this year's first half, down from a spectacular 47.5% in last year's second half.

At Duke Energy Corp., which supplies electricity to many manufacturers in the Midwest and Southeast, Chief Executive Jim Rogers says that despite an initial rebound, he doesn't expect industrial sales to "claw back" to prerecession levels until 2014. Over the past 30 years, he says, "there has never been a recession where the recovery has been so anemic as this one."

The stalling growth comes as policy makers are curtailing stimulus spending or, in the case of China and other Asian countries, tightening credit to avoid overheating. Economists at Goldman Sachs Group Inc. estimate that, in the U.S., the declining flow of government money will subtract about one-half percentage point from annualized growth in the three quarters to come, and more later.

In Europe, governments from Greece to the United Kingdom have begun cutting spending and raising taxes to reduce budget deficits. Even fiscally stronger Germany plans to trim spending next year. The belt tightening is likely to slow growth in the 16-nation euro zone economy, which grew at a brisk 3.9% annualized rate in the second quarter thanks to strong domestic demand and stellar German exports.

"The elephant in the room is fiscal tightening," says Julian Callow, an economist at Barclays Capital in London.

The European economy tends to lag behind the U.S., which suggests more weakness to come. German exports and new industrial orders fell in July, a first sign that the slowdown in world trade is affecting Europe's biggest economy.

Nancy McKinstry, the American-born chief executive of Wolters Kluwer NV, a global information-services company based in the Netherlands, says she expects the tepid growth to last through next year. "It will really be into 2012 and 2013 before we see things recover on a global scale," she says.

In the U.S., it is consumers who are retrenching. U.S. retail sales

euro will still be in the bleaks as at now, still awaiting the Major test on 14/9/2010.

TOP STORIES





Merkel Calls For EU Common Energy Policy


AFP

RIGA, Latvia -- The European Union needs a common energy policy that would take into account smaller nations, German chancellor Angela Merkel said during a visit to Latvia on Tuesday.

"We need to do a common energy policy which will take in account everyone," Merkel told reporters.

"This may be beneficial to talk about closer co-operation between eastern and central European countries and Russia," she said.

On her official visit to Latvia, Merkel met Latvia's Prime Minister Valdis Dombrovskis Tuesday to discuss issues of energy, economic and scientific co-operation, and the relationship with Russia.

Latvia, along with Estonia and Lithuania, are the "energy islands' within the 27-nation European Union, all dependent on the Russian energy supplies.

The nations have been working on establishing energy connections with Sweden and Poland. The three Baltic nations fear that Moscow could use its gas domination to push forward its foreign policy in the region scarred by the 50 years of the Soviet occupation.

"I think that in any case, the time has come for Latvia, Russia, and Germany to intensively work on the intensification of the relationships," Merkel said after a meeting with Latvia's President Valdis Zatlers.

A Baltic nation of 2.2 million people, Latvia broke free from the Soviet Union in 1991. In 2004, it joined the EU and the North Atlantic Treaty Organization.