Britain at the crossroads

The standoff between Britain and the rest of Europe at the financial summit held on 8 and 9 Dec marked yet another bitter departure of the UK from Europe.

Continental Europeans may blast Britain for being opportunistic – turning away in time of economic woes faced by the union and siding back when it sees benefit from solidarity necessitated by cross-continent negotiations.

Declining to sign the fiscal treaty at the hardly fruitful summit is just a move consistent with the opting out from the Maastricht Treaty in 1992.

Sometimes strained and sometimes amalgamated, the relations between the UK and the continent, of course, has its historical root grown largely out of their geographical separation that had emerged before history began.

While it is in Britain’s national interest this time for its prime minister Cameron to reject closer fiscal integration, such an interest could be jeopardised next time, most likely a couple of years later, when the unified Europe’s economical health is again back on track.

Hopefully, ex Tory prime minister Margaret Thatcher who was pulled out of power by agreeing to the Maastricht terms would be able to see this day coming?! (the iron lady is reportedly approving plans for her state funeral)

So, saying NO to the call to enforce more fiscal discipline in the capacity of a member of the European Union and a non-member of the euro area will be a big bet for Cameron, the rightists of the Conservatives as well as Britain.

Monies are smarter and more rational than humans. So are some bold investors! Retiring but untiring hedge fund manager George Soros has led how money by announcing his purchase last week of $2 billion worth Europe’s debt assets held by the defaulted MF Global. Soros made windfall gains from speculation of sterling in early 1990s.

If history is any guide, follow it! Even though the road to winning may be long.

Still far from real job recovery

The market was thrilled by the sudden drop of unemployment rate to 8.6% in Nov from 9% in the previous month that followed the coordinated efforts of six nations to add liquidity to the US dollars.

It seems to suggest while Europe is soaked in boiling water, the US may be gradually bottoming out. True, I doubt.

When one unwraps the gift paper, the so-called positive American job figures would be found to have confused the market as much as when they were negative. Over the past tens of months, the figures ebbed and flew like waves, misleading the market again and again.

Taking a closer look this time, the slash in unemployment actually arose from a shrinking pool as a result of more people giving up the search for a job.

About half of the 0.4 percentage point decline came from 300,000 plus people leaving the work force. The work force participation rate had fallen further by 0.2 percentage point in November. Of those considered as officially employed, the portion of the prolonged jobless climbed to 43%, indicating that the US will lose certain types of jobs, for good.

With just one eye rather than two opening wide, one can expect more “good” news about US employment in the upcoming months and therefore blow the proclaim that the world’s largest economy will be safe again.

Apart from job shortage, not to forget about America is also a long wish list: Cutting huge fiscal expenditure, adding tax, regaining trade imbalance and hence borrowing less and repaying more.

Nevertheless, the temporary instillation of illusory report on job prospects at least has cooled people’s expectation of QE3 that went high when the debt crisis pushed Europe to the brink weeks ago. The weapon, if used, would best serve to help the incumbent administration in seeking a re-election.

Nouriel Roubini’s 2006 Speech at Davos-WEF Warning That Italy and PIGS May Experience Debt Crisis and EZ Break-Up in 5 years; and Tremonti’s Reaction to the Speech

Looking back, the arguments presented by Roubini five years back are not extradordinary and can well be developed by honest economic academics who took skeptical views about the European Monetary Union. Sigh...
http://www.economonitor.com/nouriel/2011/11/08/from-the-archives-jan-28-06-italy%E2%80%99s-tremonti%E2%80%99s-temper-tantrums-on-emu-in-davos%E2%80%A6a-sad-embarrassing-episode-for-italy%E2%80%A6/

European-turned Asian debt crisis

What does it mean by last resort?

If you are not asking a Catholic or Christian who cares only for his or her religion a month or so ago, the answer may be the European Financial Stability Facility (EFSF) remained the one.

From a few weeks earlier on, there have been calls for the European Central Bank (ECB) to take this seat by printing more paper notes. The ultimate guarantee that backed these calls was said to be France and Germany, the two biggest pillars of the economy in Europe.

Last week, we saw France, among other European nations that boost the highest sovereign credit rating, coming under threat of escalating borrowing costs due to its potential downgrade by rating agencies.

What about Germany? This week, despite its relatively sound financial health, it failed to secure enough support for its debt auction of 6 billion Euro, leaving the country’s central bank to underwrite the remaining 2 billion Euro debt.

With none of the European nations being able to guard themselves from a meltdown, let’s set the eyes onto the US and Japan whose currencies are considered the last safe havens for investors. While US dollars continues to be the reserve currency for most settlements around the world, America itself is still very much haunted by always above 9% rates of unemployment which have deterred the country from taking a breath, let alone a real recovery. A third time of quantitative easing is just a matter of time.

Amid an ever-appreciating yen, Japan is deeply troubled by export contraction which is in turn pushing the country to the brink. Meanwhile, anyone who wants to bet on the rise of yen should beware of the possible intervention of the Japan Central Bank (JSB) urged by exporters suffering from the loss of competitiveness. Very lately, Standard &Poor’s said Japan is close to a further downgrade from the second best rating caused by the administration’s failure to tackle public debt burden.

You may say “hasn’t China stayed unscathed” and we should no doubt park our monies into renminbi or RMB-denominated assets. As soon as we form this opinion comes the HSBC-released Purchasing Manager’s Index (PMI) for China that fell from 51 in Oct to 48 Nov, with a below-50 PMI being generally interpreted as an advanced indicator of a recession of the manufacturing sector.

Given the inter-dependence and inter-connections between states in terms of trade and finance, no economy can stand alone from the debt crisis. In the 2008 crisis, financial institutions got bailout from the governments.

This time is worse as the governments are in trouble. Their lack of fiscal discipline and their delay to face the real problems have made normal courses of remedy not functioning and may put others who come to rescue in economic danger.

A savior, a villain or both?

Sentiments about Germany among its European counterparts should be mixed at the moment.

In a debt crisis that is growing deeper, the influence of Germany whose economy and finance are in good shape has reached a new level.

With signs that the credit rating of France, the second largest economy of the continent, may also be downgraded and the US on the other side of Atlantic being hardly able to help out, Germany is taken to the centre stage of this grand rescue show and at the same time, has drawn the anger of the weak economies hit hardest by the debt turmoil.

Protests against the International Monetary Fund (IMF) which has imposed conditions to require indebted countries to implement austerity measures in exchange for loans to deter bankruptcy took place in Greece, Italy and Spain. Fingers of discontent are also pointed to Germany’s harsh domination of the agenda and so-called solutions on the table.

Such an elevation of role of Germany, in both the political and economic arenas, is to a large extent inevitable.

It took the central European giant several decades to re-emerge from being the most condemned historical culprit of the World War II and another decade or so to recover from the costly reunification with West Germany and East Germany.

Die Deutschen have a name of self-discipline and endurance. While people in most of the rest of Europe are borrowing to live, spend and retire early, die Deutschen has been highly self-restrained in spending more than their treasury can afford them to and quietly proactive in enhancing the nation’s competitiveness.

Germany’s sound fiscal health has proven crucial for the European Central Bank to be nominated as the ultimate gatekeeper against a potentially catastrophic financial collapse in Europe.

An accumulation of fortune is no miracle for Germany. Every single cent of reserve has to be saved and this has to be done in a prolonged period. Asians share most of such experience, in part due to the equally, if not exceedingly, strict requirements set forth on them by IMF in the late 90s financial crisis, in addition to their saving culture and lack of a trusted social welfare system at home. The calls from IMF to cut spending and even add tax were perceived as a conspiracy of the West to topple Asia.

This time comes with the rescuer being Germany and the rescued being its neighbours.

Having led a laid back and carefree life in most of the post-war years, people of the economically fragile European countries might have found it harder to adapt to a meagre, deprived life style as a result of IMF loans than Asians who had been troubled by poverty.

However, simply looking a bit more forward would find the crux of the issue no longer lies at whether they should accept the game plan or not. It has become whether the giant would break down as well with all the angels falling. Beware of a sinking Titanic.

S&P's Freudian slip

I tend to believe that Standard & Poor’s withdrew yesterday a credit rating downgrade of France out of minor, rather than serious, technical errors.

The key assumptions and historical data that suggest downgrading the European country is sensible are in place. The question is when this should be done.

S&P and maybe other credit rating agencies (CRAs) if I remember correctly have fore-warned again and again that not only Greece, Spain, Portugal, Ireland, Ireland and Italy are under threat of a deep debt crisis, big economies like France will also be assigned a lower grade if it fails to resolve its fiscal deficit and reduce government and corporate debt levels within a certain period of time.

The CRAs should be analysing the data about the financial health of France on a daily basis. They should have pre-set some parameters in assessing the country’s portfolio. Signs of deterioration are there. The direction of rating the country downward is also fixed. The CRAs are just “waiting” for the threshold to be reached.

Like a patient whose temperature has broken the normal 37.8 degrees. Yesterday, a nurse turned on the heating too early and the slightly erroneous measurement read a temperature of 30 and triggered the bell. We can criticise the nurse for adding anxiety to those concerned about the patient. We can't reverse the trend that the patient is getting fragile and the 39 celsius will be reached soon and a major surgery warranted.

If not yesterday, when? May next week or next month. Even if next year won’t be too far from now.

The market has long questioned France’s ability to be a saviour. Just because it is stronger than the dying patients that it took up this role with neighbour Germany. S&P may be careless. But don’t jump to the bandwagon of blasting the CRA hastily. They might simply forget to round up a percentage point of a non-crucial figure and thus ring a false alarm that may become true soon.

Traditional blog: An alternative to FB

I had my first blog in 2002. Since around 2008, i have been using Facebook heavily to update on my status. While Facebook has the advantage of allowing users to keep track of the activities of the peers, it is trying to play an omni-potent role that may threat users' right to privacy. What makes people unfortable is its attempt to record every bit of Facebookers' footprint. It imposes restrictions on users' rights to share and to limit the extent of sharing.

The new privacy settings created by Facebook are considered to be tools for the social media to re-use and re-sell users' information for commercial purposes, which would in turn boast a claim for a higher valuation should the dominant network be ready to go public.

For an exit to the dominance of Facebook, i am pondering a comeback to Paperback Writer, my blog on Blogspot, in addition to a presence on Twitter and Weibo / Sina microblog, that prvide room for brief comments.

Given my career in the financial services industry, the content of my Blogspot will be focused on financial market developments and regulations. Meanwhile, I will also write on anything about freedom of expression, due to the gene planted since the time i was journalist.

I hope i can persist and look forward to response and encouragement by fellow bloggers.