I couldn’t be more delighted than to see the DAX get tagged for 2.5% today. This is a consequence of the “Successful” vote yesterday in the German Parliament to throw more good money after bad. The hit (so far) to German investors comes to $40b. That should make them happy this weekend.
It’s not just investors that a giving the raspberry. According to this WSJ article yesterday, 75% of the folks in German are fed up with more bailouts.
A poll for national German broadcaster ZDF earlier this month shows three-quarters of Germans are against the expanded European rescue fund.
How can this happen? Politicians are doing what the voters don’t want. It can only mean that new politicians are coming and the bailouts will be curtailed.
Keep in mind that the expanded EFSF is still woefully inadequate to address the debt problem in the EU. There has to be a much bigger effort. In my view, anything less than Euro $2 Trillion is not going to work. A big bazooka is required, a popgun is being offered.
This brings us to the speculation this week about a Euro SPV. There was the “Leisman Plan” (I wanna puke) and the EURECA Plan. These are confusing to most people. Let me make it easy. What is being proposed are Euro Bonds in disguise. This is just financial engineering to cosmetically create a joint and several EU debt obligation.
This won’t work. The ratings agencies and investors will see through this. If something silly like this is going to come I would anticipate that Moody’s and S&P will downgrade both France and Germany within weeks.
Everything that is being offered is just a half-assed effort to deal with a very big problem. The conclusion for me is that the Euro has to continue to suffer on the crosses as a result.
I see the dollar as the backbone for the markets in general. In a “perfect” world an orderly depreciation of the dollar (5% a year) is a “good thing”. It supports US inflation (that makes debt look smaller). A weak dollar is beneficial for tourism, and encourages foreigners to buy real assets like real estate. It gives US manufacturers of big-ticket items (planes/construction equipment) a pricing advantage. It also provides a big boost to translated earnings for the S&P multinationals.
The very worst thing that could happen to the US economy in the 4th quarter is that the dollar gains 10% against the Euro. That looks like what is coming to me. Don’t buy the dips, sell the rallies.
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BLATANT BREACHES
On the subject of the EU and the banks, an interesting speech by Hans Hoogervorst, Chair of the International Accounting Standards Board (IASB). He spoke at an investors conference in Boston yesterday. I wasn’t there. But someone who was, quoted him as saying:
European banks carried out "blatant breaches" of IFRS in valuing their holdings of Greek debt.
Mr. Hoogervorst’s comments were consistent with his letter to the European Securities and Markets Authority. Some tidbits from that letter:
There have been indications in the market that some European companies are applying the accounting requirements for fair value measurement and impairment losses in a way that seems to differ from the objective of IAS 39 Financial Instruments: Recognition and Measurement.
This is evident particularly in their accounting for distressed sovereign debt, including Greek government bonds.
The bottom line from the chair of the International Standards Board is that the European banks are fudging their books. This is not the Blogs making this assertion. It’s coming from the highest authority that exists.
This conflict can’t be ignored much longer. It’s possible that the EU banks will try to wash this over one more time in their third quarter statements. I think it will be damn near impossible for them to issue annual reports for 2011 without full disclose. In other words, don’t load up on the EU banks just yet…
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You've posted this piece twice...
ReplyDeleteHoogervorst and Maijoor both being Dutch names, I checked the latter, whom I didn't know. (Being Dutch myself, I already knew Hoogervorst, who was the Dutch Secretary of the Treasury some years ago, and later on Scy of the Dutch Dept. of Health.) Interestingly, it turned out Hoogervorst was Maijoor's boss in both their prior jobs. From 2007-2011 Hoogervorst was chief of the Dutch Financial Markets Authority (AFM) and Maijoor, who was at the AFM from 2004-2011, was one of his deputies.
ReplyDeletehttp://en.wikipedia.org/wiki/Hans_Hoogervorst
I can't find an English link for Maijoor, but here's the Dutch announcement by the AFM that Maijoor was leaving for ESMA:
http://www.afm.nl/nl/professionals/afm-actueel/nieuws/2011/jan/maijoor-voorzitter-esma.aspx
Equally interesting is that as one of the AFM's directors under Hoogervorst, Maijoor was [translating from the Dutch link:] "responsible for [the AFM's] oversight of financial reporting, accounting firms and the integrity of {Dutch] financial markets"
So it looks like Hoogervorst at the IASB is now, roughly, doing at an internartional level what Maijoor used to do under Hoogervorst on the national level.
Hoogervorst's comments, as AFM-chief, on Maijoor leaving for ESMA [again from the Dutch link]: "We're very proud that one of the AFM's directors has been appointed in this prestigious position"
Like I said, I know nothing about Maijoor, but I would count Hoogervorst in the camp of people like Weber, Issing and Stark (at, or rather, no longer at the ECB).
I've seen Hoogervorst earlier this year, shortly after he had been appointed at the IASB, in the Dutch sunday morning politics talkshow "Buitenhof" and he was extremely critical of the banks. I don't recall exactly what he said, but I do vividly remember thinking that he went to the brink of what criticism he could possibly make in his position without being fired before he had actually started in his new job.
So, summarizing, it seems like we have two Dutch guys of the German hardliner type in charge of both the IASB and ESMA. Perhaps the letter you mentioned is them starting to play ball. And Hoogervorst is definitely not the kind of man who will let his IASB be run over by the banks like the FASB in the US had itself outdone in 2009.
Addendum:
ReplyDeleteJust found the English version of the AFM announcement about Maijoor:
http://www.afm.nl/en/professionals/afm-actueel/nieuws/2011/jan/maijoor-voorzitter-esma.aspx
Needless to say, it seems extremely unlikely that Maijoor would have any intentions whatsoever to ignore Hoogervorst in the first place.
One final update:
ReplyDeleteI just learned there are in fact three EU Authorities watching over the financial markets. (Amazing how burocrats can never get enough of a good thing.) As The Telegraph reports:...
http://www.telegraph.co.uk/finance/markets/8257839/AFM-director-Steven-Maijoor-to-head-EU-super-regulator.html
...there's not just Maijoor's ESMA (Securities&Markets, in Paris) but also the EBA (Banking, in London) and the EIOPA (Insurance&Pensions, in Frankfurt). They'll probably waist much of their resources competing among themselves, but that's another issue.
The point to note is of course that Hoogervorst sent his letter, which is basically regarding financial institutions (banks, insurers and pension funds), NOT to the EU banking watchdog (led by an Italian) and NOT to the EU Insurance & Pensions watchdog (led by a Portugese), but, well, ONLY to his old pal Maijoor at the EU watchdog for basically all non-financial companies and institutions!
Ergo: H+M are definitely playing ball here.
Walter,
ReplyDeleteThank you for connecting these dots.
I never believe in coincidence. So this looks wrong.
Yes, I had to do this twice. I'm having a hell of a time with emags. The two articles are the same, but are set up a bit differently to accommodate the platforms of the mags.
Driving me nuts!
The landscape does appear to be the same vista everywhere, of the trend to go against the will of the people. But it will catch up in every country. The central banks and their world takeover days are numbered.
ReplyDeleteSure, I'd to accomplish this twice. I am developing a nightmare of your occasion together with emags. The two content articles are the identical, but they are set up a little differently to allow for the particular programs of the mags.
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