There will be no use from now on of the F-word at The Slog. I’m referring of course to F for Fundamentals, which will now by dropped from the lexicon here, and replaced with the C word – Counterintuitive. Also featured will be the O phrase, short for OhmyGod we’re contradicting each other – quick, distract them with something else.
The other O word of course is oil, and that’s the place at the moment where everything and everyone is a complete counterintuitor. There are some crackers on display this morning, but one can’t really appreciate the profound depth of fibbing going on until you examine the other C word, China.
For the first time this century, China’s consumption of coal dropped by 2.4% in 2014. Beijing is hailing it as a triumph for the clean-air fantasy, but there is also a fall-off in demand involved: this is confirmed by latest data which have to be the worst China has produced to date.
Among these was the fourth house-price drop in a row, a growth rate slowing dramatically to 7.2%, and the biggest shock of all – a 10.8% fall in foreign trade by value.
Oil prices were dipping overnight on this news, but oddly enough, Australia won’t be needing the Lone Ranger and Tonto, because everything there is just fine – yessir. Apparently. The Sydney Morning Herald runs today with a piece probably dictated word for word by Mining industry: Oz is going to be OK, you see, because Shale oil will soon be needed to make up for production declines around the world. Not quite sure where the SMH sees these declines, so let’s investigate: cut now to Reuters last night confirming record oil output from Iraq alongside what it called ‘a darkening global output’. As a result, oil prices fell further. The Saudis are pumping away in Beheading City, and the Americans are fracking away ready for the coming war in Ukraine, but the SMH sees a decline. Keep lying guys: don’t let the truth get in the way of a good story.
Which surely means that gold must be getting closer and closer to breakout point yes? Because that’s what the f….. oops sorry, this site is PG rated, so no F words. Just say No: the gold price has dropped $60 in the last month, so the destruction game is still on.
Mosey through Italy now, ignore the anarchy there, and arrive in Greece where there is clearly solidarity behind Tsipras – 70% support his tough stance on austerity reversal – but everything else to do with what happens next is a bewildering contradiction of dates, policies, positions and bollocks. Varoufakis, having jetted his way around Europe last week, says without further bridging Greece will default on February 25th. The EC and the Greek Banks say March is more likely, and the big players in the eurozone say crunch day is a week today – February 16th. Or rather, Dutch lightweight Man at Curly’s Barber Shop Jereboam Drivelboom says that’s their last chance to ask for a further bailout. It pains me to see this utter fool swanning about the EU with the title Eurogroup Chairman, but sadly he’s there and unlikely to be assassinated before next week.
The Greeks, of course, don’t want further bailout monies: they want to leave the serfdom of the Troika with a bridging loan and reconfigured bonds. You will see roughly 0% of that published in the West in the coming days – and -56% in Germany.
But all is not lost, “Greece runs out of money in March or April, and its negotiating position with its international partners will be severely weakened when this happens,” says Megan Greene, chief economist at Manulife Asset Management. Hmm – wrong on both counts, I’m afraid.
It runs out of money on February 25th, and the country’s negotiating power will increase with time, not decrease. The key thing no commentator is asking in this whole charade is what is it exactly that will bring the German God Thor down on Greece when the money runs out? And the answer is nothing: Germany still has everything to lose from Grexit.
Here too, the cost estimates vary wildly – the IFO Institute published a calculation suggesting that a Greek default combined with an exit from the euro would cost Berlin €75.8 billion. Business Insider says the figure is closer to €59 billion, and Eric Dor, director of economics research at France’s IESEG School of Management, estimates a bill of €56 billion.
But in my view, these costings are irrelevant for two reasons. First, none of them take into account the gigantically increased cost of borrowing that would ensue for ezone countries two seconds after Grexit; and second – in a way connected – what the upfront cost might be for a “rich” country like Germany pales into insignificance when one observes the catastrophe for even more indebted and smaller economies.
We forget too easily, for example, that France too faces a serious caning from the FinMins in March over deficit size…and no solution to the problem. The initial cost of Grexit to France would weigh in at €42.4bn. Even more seriously, the Italians would have to stump up €37.3bn, and Spain €24.8bn. I very seriously doubt whether the Italians would pay up: they might even decide to default too. I doubt if Spain could pay up, their Treasury being empty an’ all.
However, equally I do not believe that the tug of war here is simply eurozone FinMins v Greece. While the major Sovereigns outside Greece have everything to lose, Mario Draghi doesn’t: and at the moment, he and he alone is the man with the unelected power to do WTF he wants. That, I’m certain, remains the Wild Deuce in this mess.
Were the sole issue the survival of the eurozone, I’d say there is no way Greece will be driven out. But with Draghi added to the equation, there’s no way of telling. Yes, it’s that clear.
So there you have it: a complete post with no F words, too many C words, and lots of people silently mouthing the O words in the background. What on Earth could go wrong?