EM storms could spread to Europe Post author By Philip Lane Post date August 20, 2013 This FT article points out the potential impact of the shift in global bond markets for the euro periphery. Categories In Uncategorized 23 Comments on EM storms could spread to Europe ← Senior Economist Vacancy at IBEC → Health and Recessions Again 23 replies on “EM storms could spread to Europe” “Glencore Xstrata have had $7.7bn knocked off the value of their mining assets following the complex merger that created the diversified commodities trader and miner this year. This shows the gloom in the mining industry as commodity prices have fallen due to oversupply and slowing demand” (Financial Times). So who is going to buy all the peripheral exports that drive the recovery ? The UK! “Tapering” has now entered the lexicon of international finance. The law of unintended consequences would, however, appear to apply. For an entirely objective view (!), that of Bill Gross. http://www.bloomberg.com/video/gross-80-likely-fed-tapers-next-month-H5A9gYJvTJm9BUKVGKrBcg.html There is an awful lot of money tied up in crap both in the EMs and in core countries for the sake of a few dozen bps of extra yield. Irish bonds may be included. Markets are inclined to panic at times like this. It could get very messy. Volcker ” I have long argued that concern for “stability” by central banks must range beyond prices for goods and services to the stability and strength of financial markets and institutions generally. I am afraid we collectively lost sight of the importance of banks and markets that would robustly be able to maintain efficient and orderly functioning in time of stress” Below is the link to the podcast of Professor Robert Cooper at the LSE on the subject– Europe on the Brink:From Crisis to Collapse? http://www.lse.ac.uk/newsAndMedia/videoAndAudio/channels/publicLecturesAndEvents/player.aspx?id=1988 @ DOCM It doesn’t look like Bill can do much if rates go up. There is a lot of money chasing limited options. @all – Der Spiegel The German bond market and ‘odious’ capital flow backs – with Ireland picking up 40% of the EZ tab! “…. the crisis has only cost Germany a mere 599 million euros thus far. According to figures made available by the Finance Ministry, Germany will save a total of €40.9 billion ($55 billion) in interest payments in the years 2010 to 2014. The number results from the difference between actual and budgeted interest payments. http://www.spiegel.de/international/europe/germany-profiting-from-euro-crisis-through-low-interest-rates-a-917296.html#ref=nl-international I have also seen figures in the range 100-120 billilon cited: German policy – protect Deutsche Financial System at all costs no matter the cost to the rest of the EZ. RealPolitik @ seafóid FYI http://www.ibtimes.com/pimcos-bill-gross-admits-error-us-treasury-securities-323665 Forecasting in present global financial circumstances is the equivalent IMHO of pin the tail on the donkey. @ DOCM Indeed. I wonder if the Fed change is due to the ineffectiveness of QE rather than any fundamental change in the exit velocity of the US economy. @ Seafoid ineffectiveness of QE? Well, depends on what ur measuring. It was ineffective at raising growth back to trend (per SF Fed), but it was effective at restoring and repairing balance sheet solvency at many levels in the economy (property, equities, bonds). Future growth will without doubt rely on that recuperative work. I would suggest we won’t understand the real benefits (or drawbacks) of QE until five years time. @ BEB Maybe sooner? http://www.irishtimes.com/business/economy/world/jackson-hole-flying-little-lower-this-year-as-bernanke-decides-not-to-attend-1.1500166 @ BEB Bill Gross above in DOCM’s video has another way of looking at QE- it inflated asset values but left real growth at 2% so wasn’t effective. Another point – “investors” became addicted . Bal sheet solvency is panic dependent, really. Fasten your seatbelts http://www.ft.com/intl/cms/s/0/d78c7162-064b-11e3-9bd9-00144feab7de.html Anyone hazzard a guess as to why Irish yields have not moved much in the past month when many of our peers have done so? Is our bond market that illiquid or does our status as ward of the Troika insulate us to a degree from what is happening to other bond markets? And no, I do not have the answer, just genuinely curious. fyi More Aid? Greece Funding May Come from EU Budget Greece needs more aid, German Finance Minister Wolfgang Schäuble said on Tuesday, putting the euro crisis at the forefront of an otherwise languid election campaign. A news report on Wednesday indicates the aid might come from the EU budget. That Greece will ultimately need more money to stave off insolvency has largely become common knowledge in the halls of power in Brussels. Indeed, SPIEGEL reported ona financing shortfall of up to €11 billion ($14.7 billion) back in early July. The hope in Berlin, though, was that this uncomfortable truth could be somehow avoided until after the September general election in Germany so as not to endanger Chancellor Angela Merkel’s bid for a third term. http://www.spiegel.de/international/europe/german-report-new-greece-aid-package-could-come-from-eu-budget-a-917762.html#ref=nl-international Krisis over! Graphic Gallery http://www.spiegel.de/fotostrecke/graphic-gallery-the-euro-crisis-refuses-to-let-go-fotostrecke-98717.html @ Johnny M Neither do I! However, I will hazard a guess. We are not a Mediterranean country. fyi II What Was the Real Cost of the Great Recession? by Andrew Sheng on August 19, 2013 Last month, the Federal Reserve Bank of Dallas published a staff paper estimating the costs of the 2007-2009 financial crisis. The conservative estimate came out at 40 to 90 per cent of 2007 output, roughly US$6 to US$14 trillion. […] The data showed that the household sector lost US$12.7 trillion in 2008, mostly through the decline in share prices and real estate value. The business sector lost US$1.6 trillion in 2008 and US$6.1 trillion in 2009. The government sector went into deficit by US$0.7 trillion in 2008, and has lost roughly US$1.3 to US$1.5 trillion yearly since then. How much did the financial business sector lose? Its net worth rose US$1.6 trillion in 2008, lost US$0.7 trillion in 2009 and US$0.5 trillion in 2010, and was in the black again by 2011. In sum, almost everyone lost during the financial crisis, with households losing most, but Wall Street lost least. The reason is that its losses were covered by capital injection by the corporate and household sector, and there was huge government support. No wonder there was an Occupy Wall Street movement. http://ineteconomics.org/blog/institute/what-was-real-cost-great-recession Wall Street lost LEAST! Hmmmm @Johnny M Some might argue that it would be better if we were! http://www.ft.com/intl/cms/s/0/faf31c14-0a5b-11e3-9cec-00144feabdc0.html?siteedition=intl#axzz2cLLe4QEu CARTOON OF THE DAY German elections 2013: Out of the bag 22 August 2013 Süddeutsche Zeitung Munich http://www.presseurop.eu/en/content/cartoon/4078561-out-bag German elections 2013: Island of happy people 22 August 2013 Frankfurter Allgemeine Zeitung Frankfurt A month ahead of elections, Germans are fine and unconcerned at their neighbours’ problems. It is in this climate of satisfaction and buoyed by good polls that Angela Merkel is leading a campaign designed not to antagonise her countrymen, jokes Frankfurter Allgemeine Zeitung. […] Looking at Germany from above, the country, despite its borders being firmly on the continent, resembles an island. A balmy island where living is a breeze. nonethelesss, it’s in the middle of a choppy ocean. On the neighbouring islands people are not doing so well, as if they’re feeling a little seasick; their islands lie a bit lower than the island of Germany. There, the waves thunder in over the sands and the fields, and some of these islands are at risk of being washed over entirely. The inhabitants of the island of Germany can probably see that, or they read about it in their newspapers. But those other islands seem so far away that the islanders of Germany need not worry about their balmy lives, scented by sea breezes.” http://www.presseurop.eu/en/content/article/4078341-island-happy-people “A month ahead of elections, Germans are fine and unconcerned at their neighbours’ problems” so many decisions have been deferred to the post election period. Q4 will be a hoot. I bet the VIX will be back on tranquillisers. @seafóid UK boom getting boomier… revised up to +0.7% in Q2 “The details show a very encouraging picture of a broad-based upturn across almost all sectors of the economy (the exception being falling energy output). Importantly, the upturn was not simply fueled by surging spending by households. Instead, exports and business investment were key drivers of the expansion, pointing to a rebalancing of the economy away from domestic consumption.” Great news for Ireland of course, but it always feels like the Irish media report good news for the UK through gritted teeth. Better news, Johnny. But can they keep it up? From the same feed http://www.theguardian.com/business/2013/aug/23/german-economic-growth-confirmed-as-strongest-for-more-than-a-year-live Chris Leslie MP, shadow financial secretary to the Treasury says: “These figures confirm that after three wasted years of flatlining we finally have some welcome but long overdue growth. But for all George Osborne’s complacent claims that the economy is now fixed, for ordinary people things are getting harder. While millionaires have been given a huge tax cut most people are still seeing prices rising much faster than wages. And real risks remain. The Governor of the Bank of England is right to warn that the recovery is weak, and it is the slowest on record.” https://twitter.com/EdConwaySky/status/370829616711499776/photo/1 Well known Marxist Bill Gross on capital vs labour – interesting given the millionaire tax breaks in the UK… http://www.pimco.com/en/insights/pages/sixpackin.aspx “It is obvious that “capital” as opposed to “labor” – – moving from 8 to 13% of GNI over the past three or even 30 years – – has been the cyclical and secular champion. Why one or the other should be policy and politically advantaged is not commonsensically clear. Granted, the return on capital as opposed to the return to labor should logically be higher if only to encourage savings. But once an historical midpoint or range has been established, a relative equilibrium should be observed. Even conservatives must acknowledge that return on capital investment, and the liquid stocks and bonds that mimic it, are ultimately dependent on returns to labor in the form of jobs and real wage gains. If Main Street is unemployed and undercompensated, capital can only travel so far down Prosperity Road” http://macro-man.blogspot.co.uk/2013/06/bens-book-on-monetary-medicine.html Comments are closed.