There is a wonderful headline in the FT today, which asserts indecisively that ‘Stocks rise as sense of calm prevails, investors remain wary as euro’s recent rally stalls’. I suppose these days you have to cover all the bases in all the colours, but that one was a peach even for the FT.
In fact, as I write the FTSE is bobbling nervously along at 5,050. The Volatility Index (VIX) magic number is 5,000 – so there’ll be some large institution and taxpayer money buying here and there for a bit until the up/down issue looks clearer. It looks perfectly clear to me, but then allegedly I’m just an old misery – so ‘whatever’ as the young folks say. Here are today’s bits of evidence to support my case….
In this, the spirit of rising calm, the Spanish Government intervened over the weekend to bail out its huge regional lender Cajasur, where things aren’t looking very sur at all. This cost the men in Madrid half a billion Pounds, but if that sounds a lot then remember: the total owed by Spanish property companies is 880 times as much….or 45% of the entire Spanish gdp. The property companies owe most of it to…..yup, the cajas like Cajasur. At the last year end, the total number of unsold haciendas had reached nearly one million. I think most of us can see where this is going. Spanish property isn’t a sub-prime sector, it’s half a sub-prime economy: and far bigger than the Greek version.
On the far side of the planet, Secretary Clinton managed to extract a conciliatory note from China on the subjects of selling more of its output domestically, and letting the Chinese currency (the Yuan) float to its real value. Nobody’s seen the note yet, and knowing President Hu Jintao we never will.
The US has probably missed the boat on this one, because it is gradually dawning on the Beijing leadership that they have problems with runaway domestic consumption and inflation as it is: the last thing they’re going to do is knobble exports and light a flame under domestic lending just to suit the fat fangwois of America. The reality is, China is already doing the opposite of what Washington wants – hence Hu’s not entirely inscrutable avoidance of any commitment.
Still, not to worry – there’s always Frau Merkel to rely on….or not. As predicted here two weeks ago (and on lots of other sites too) the German in the strasse has decided he’s not at all keen on all this free money for Greeks business. A survey published in the Bundesrepublik over the weekend showed 3 in 5 Germans disapproving of Geli’s leadership; I suspect by ‘leadership’ they mean ‘not rewarding failure’. It goes without saying that Merkel losing power would be catastrophic for those who fear euro meltdown: the resultant Government after hers would make Nigel Farage look like a federal enthusiast.
The Slog has taken a bit of stick recently about my ignorance of the German plot to go into the Euro purely to keep their dastardly exports cheap. The general tenor of this correspondence is one of the krauts getting economic success via the eurozone, but now not wanting to pay into its rescue. This is almost complete bollocks for two reasons:
1. When the euro was launched, it was open to every member to work as hard as the Germans do, and perform the same actions in relation to sovereign fiscal expenditure. A good half of the German banking sector was eurosceptic, and had to be talked round by Helmut Kohl, the man who sold all that milk to Romano Prodi.
2. In just twenty years since 1990, the Bundesrepublik has absorbed an enormous crock of garbage, the State formally known as the DDR – a Communist republic raped and then left to rot by the old USSR. Berlin has invested in it, made the Osties grasp the sky/floor relationship, and produced what is now an enormous power-house of output. Yes, had they stayed with the Mark, that Mark would now be far more expensive than most other currencies. And no, had the Germans not accepted currency Union, the nutters throughout the EU would not have rushed off and spent all that cheap money given to the central bank run by….a French person.
The point German leaders are making now is simple: had the Germans overruled the French in 1998, and pushed for political and fiscal union rather than just currency alignment, the EU would not now be in this mess. And let’s face it, they have a point. I wouldn’t fancy a German-run Europe either, but the 2000 Eurodecision was neither fish nor fowl: every thinking person (including the much-maligned William Hague) knew this at the time.
So in short, I’m as sure as I’ll ever be that in the immediate and longer term, the FTSE must go fall below the magic 5,000…and much further in relatively short order. But as a I write now, it’s still at around 5,050 – so what do I know?
We shall see.
The Slog 