Monday, 13 July 2015

Deadline devaluation - Quick thoughts on the procrastinations

Deadlines come and deadlines go. But deadlines really aren't what they used to be. Much as red lines in Greek economic policy are as flakey as dry chalk on an old wall, EU deadlines are as dead and liney as a snake on speed. Sunday is past and there is no deal. The Greeks have two days to implement changes as lack of trust means that reforms now come before the money. Once in place there will be a further deadlines before which to complete new agreements in time for further payment dates towards the end of July.

Meanwhile the stranglehold on the banks via ELA will keep the pressure on the Greeks to do something. Delay is no longer a negotiating advantage to Greece. It now works in the EU’s favour.

I am still waiting for it all to boot off on the streets of Greece. So far material supply shocks with respect to imported goods haven’t filtered through to the shops (well in any meaningful way) but it can’t be long. The video of Tsipras going home to have his own Neville Chamberlain moment with a piece of paper even more onerous than the one Varoufakis returned with, is going to become a classic in future ‘how to sell’ courses. We are yet to see whether it's a success or failure example, but either way it’s going to be a corker.

France - Germany rift widens. As discussed many times in this space France has vested interests and frightening Deja Vus to defuse. France going behind the Germans' backs to ‘help’ the Greeks with their proposal (read as ‘cheat at their homework’) has done nothing to foster trust between the two. We know that France will do anything to protect its Eurobaby, but what is less understood is that so will the Germans. Even if it requires an amputation.

Hard response to Greece fits in with any German plan to use Greece as an example to the other villagers southern countries. A rotting corpse from a lamp post. Whilst this may focus the minds of the politicians and populace of the peripheries, it will have a destabilising effect on their debt. If Greece is hung out to dry then the threat function of what can happen is equally reflected through their bonds markets. These now have to reflect the additional risk of being cut adrift so yields will jump higher. If you are constantly threatened at gun point, you may well be more willing to comply, but your life insurance premium is going to rocket.

It also means that at the first hint of slowdown, recession or budget squeezes the vigilantes are going to really go for the peripheries with less fear of meeting a coordinated EU defence.


Markets - Friday had all but discounted an agreement, let's say 90%, the highest hope function of the past 3 weeks. The ship is back on the rocks and pricing of equity and European bond markets should be heading back to the disaster style levels but they have opened up on the futures as I write only marginally down (Spoos down 12). But Eur/usd is steady and no-one really seems to care that much. Odd. Odd to the point I am shorting index futures on a feeling that the move lower will be pretty sharp.

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Post script - 8.30am Ldn
I wake to find a deal has been done, it may be a classic European fudge based deal but the markets love it and I m sitting on losses.  But even if there is a deal between the Greek Government and the creditors there still has to be a deal between the Greek Government and the Greek people. As the Kaiser Chiefs sang "I predict a riot"

DIJSSELBLOEM: ASSETS WILL BE TRANSFERRED TO FUND TO BE RUN FOR PROFIT AND USED TO PAY DOWN DEBT; TO CONTRIBUTE TO BANKS RECAPITALISATION. That sounds like asset stripping into a non sovereign entity controlled by Creditors. There is monetisation of assets. In other words leasebacks. Like a few islands? Mykonostadt? Corfurt? Rhodesterdam?

And finally, the latest picture of the deal signing with Mr Tsipras and Mr Tsakolotos about to take their seats (left) .


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