BEHIND YOUR BACK: Greece, Italy, China and Davos

Greece’s Yanis Varoufakis has been talking about efforts while he was Finance Minister to secure funding from China, a project that did eventually produce an agreement with Beijing regarding a massive investment – mainly in Greek bonds.This would’ve had a hugely stabilising effect.

“This agreement was overturned, though, with a phone call from Berlin,” he claimed.
As one prominent Greek blogger puts it, “Which shows that the European Financial Dictatorship will do whatever it takes to keep the eurozone members under its hegemony”.

Not to mention Schauble secretly persuading Papandreou to big up the original Greek debt, or indeed Gary Cohn of Goldman Sachs who headed up the project designed to hide the Greek deficits from Brussels over several years.

Cohn was to be seen on the Davos panel this morning, seated just three away from Fifi ‘Undercloud’ Lagarde. The possibilities for mutual blackmail between these two are, I would think, infinite.

It was sad to see Tsipras at Davos last night. Not just the fact that he goes there (that’s bad enough) but to hear him mouthing banalities about the ‘great opportunities’ facing Greece in the future. Obviously Alexis was a model student during his time in Room 101.


Earlier this week, Italian regulators suspended trading in bank stocks, after they had fallen 5.5% for the day. The declines were led by two of the biggest, Monte dei Paschi di Siena (MPS) and Banca Intesa San Paolo. Later, a specific ban on shorting the stock of these two  white elephants banks was introduced.

This is the new élite soccer defence now, whereby if things get to 2-0 down in the first half, a couple of brickies rush onto the pitch and wall up the goal. Things are slightly worse in China, where the opponents are all sent off and the crowd is told to go home. Each according to his needs, and all that.

I didn’t see the Italian Job covered anywhere in the old media, but the Reuters site
noted that “Investors are growing increasingly nervous about how the [banking] sector will cope with lower interest rates and a €200 billion mountain of loans that are unlikely to be repaid.”

Later, Bloomberg did write about funds starvation in a piece headlined “Italy Banks Lose over $82 Billion from Savers”, a trend that has been well-established among bank customers for some time in Italy. It is of course the reaction to obvious moves by the EC to prepare everyone for The Big Bailin.

These opening BYB stories are reasons no 61 and 62 to Vote Leave. But as the global crisis deepens, the “safer in” line will become a dominant theme from Camerlot.


Today we are three weeks into the new year, and China has already spent 16bn Yuan on direct intervention in its equity markets. As we’re being told the Shanghai composite only covers 3% of the ‘real’ economy, that would mean spending three quarters of a trillion a year just to make one allegedly small and unrepresentative aperture look better than it really is. Either the politburo can’t count, or its fallen off a cliff of excess, or the markets are a little more important than we’re being told. My money’s on the last one.

This would be bad enough without the fact that the PBOC is also having to deal with China’s biggest post-Mao capital outflow, and an offshore Yuan where short-term profit-makers are getting in the way of export currency policy.

The straightforward extrapolation is this: China can’t ‘afford’ to keep this up and lose both volume and world share in its export markets at the same time. Already we are seeing 1-2 days in every ten where intervention appears to have been minimal. The PBOC piled in overnight, but the Shanghai still lost 3.2%.

So either the markets decide that the superoptimists are right and simply ignore China; or the global downward movement in stock and commodity prices will continue. But what we’re seeing now (which could still produce a degree of rally before long) suggests that the market mainstream no longer believes the AOK line.


And so to Davos, where – if I may use the lingua franca of the moment – things are in an unpanic, but the narrative is turning darker to the downside.

In the Davos space, those jetting in over the last 24 hours are saying “lower than we thought for longer than we thought”. This is the sort of Larry Summers heresy we heard during his interview ten days ago; and whatever you may think of our Lawrence, he has called this one right on the button right on time.

The emerging Newspeak this morning is disinflation and transition. As nobody knows what to do about the insistent deflation, and we know that they don’t know, and they know that we know that they don’t know, and nobody knows WTF is going on in China, the targets look like they’re going to change: if you can’t hit one target, put another in a different place and start hitting that. It’s an old trick, but it’s worked for George Osborne…so far.

So we’re going to be holding back disinflation rather than eradicating deflation. Bear in mind that we’re already some way down the rabbit hole here because we ‘need’ to create inflation, an outlook that would have got you certified thirty years ago. This  nonsense stems from one of the few truly profound terms of the last ten years, the financialisation of capitalism.

Which leads me directly into China, because as we now know, China is going through a transition. It’s transitioning into being a service economy apparently, although the services within which are as yet unidentified. On a rather silly Davos panel this morning, IMF boss Christine ‘can’t do Sums’ Lagarde – having already spotted that the services transition narrative was getting blown – upped the ante to “many kinds of transition”. She got a little hazy on the question of what the suddenly discovered new transitions were; which means that we’ve now gone from unclarityness about the services to disclarity about the transitions.

Having demonstrated that she didn’t know where China was going or why, Investment firm Chairman Ray Dalio leapt onto the opportunity and said “The West doesn’t understand Chinese markets” and developed a line of argument proposing that this is why we were all being too pessimistic. His one shot at explaining why we should be more optimistic was “Hey yer know, a bad year in China would be a great year anywhere else”. If Ray had to spend a year in China outside the 8% econo-political élite, I doubt if he’d come out saying it had been a great year.

Lots of conspiracists remain convinced that behind our backs in Davos, despicable things are being planned. I’ve never believed this, not least because I’ve rarely heard anything intelligent said at a corporate conference anywhere. Davos is an onanistic ritual during which the superrich and megapowerful take over half a mountain and lick each other all over. It has nothing to do with reality. Never has that been more obvious than this week: the mismatch between Davositania-sur-neige and the trading-investment-business nexus sur terre has at times been cringe-inducing.

You see, I think the problem here is reality. We don’t need any more unrealities like trickle down wealth; oh no – what we need is some disreality to more accurately understand the transition from disguised to lascivious greed taking place.

What we face is a classic case of commentators and uppity radicals not understanding the wealth market, where 65 people own 0.4% of global wealth. These uninformed Leftist unfortunates need to reset the moral compass from its default position at zero to a new one whereby the compass becomes a magnet. Then they’ll see how all the owners of the magnet (us) can attract all the subsequently magnetised wealth. And thus we shall restore the natural order of things.

Mr Fang from China has just tried to explain to the panel that the answer in China is to have an economy based more on domestic consumption and less on exports. Nobody was impolite enough to point out that their last attempt to do this was dubbed the Icarus Project, in that it fell to earth in flames.

Lots of ideology and ideal worlds, no new ideas. Oh dear.

Yesterday at The Slog: Bears shitting in the markets sets off global connectivity