There was an emergency summit in Brussels this weekend which I was watching closely. The headlines are not good such as Financial Times headline that "EU rejects eastern Europe rescue plan." I don't think you can slice this as a positive for the markets but I am not sure it is a total blow up either. I just don't know enough abotu European politics to make an absolute judgment.
http://www.ft.com/cms/s/0/fdac296e-0682-11de-ab0f-000077b07658.html
Article starts out with this:
European Union governments vowed on Sunday to conquer the financial crisis and recession gripping their economies by extending help to beleaguered eastern European states on a country-by-country basis and respecting the rules of the single European market.
Well lets imagine those countries are banks. That is what the United States is doing so far instead of taking over the entire banking system. In European political speak, what does that mean?
Then you read this:
While recognising the need to stop financial contagion spreading from east to west, the leaders rejected an appeal from Hungary for a €180bn aid programme to recapitalise the banking systems of central and eastern Europe and reschedule foreign currency debt.
Okay, so was there an agreement and plan or just a rejection of everything and then political lip surface mumbling about doing it on a country by country basis?
Well some of the Eastern Europe countries apparently weren't on board.
The Hungarian proposal ran into objections not just from Germany, the largest contributor to the EU budget, and other rich western European states, but from former communist countries such as the Czech Republic and Poland.
They contended that, in contrast to Hungary, which received an emergency $25bn aid package last year from the International Monetary Fund, the World Bank and the EU, their economies were fundamentally sound and did not need emergency help.
Now back to the bank analogy - it sounds like Hungary is the Citigroup who need help and Poland is Wells Fargo who doesn't need help until it does.
Anyway, I am not sure how this plays out. Find out about 3:00 a.m. when the Europeans markets are trading. This may be really bad or there may be more good than meets the eye. I just don't have a feel on European Politics and what yes means yes and what yes means no and vice versa.
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5 comments:
From my point of view is positive no matter that euro is decreasing at the opening of the markets, there cant be huge fiscal deficits to help reckless countries such as Hungary which received that aid from IMF 2 years ago and did not do any reform. I think in macro terms Europe is in much netter shape than USA , having USA the advantage to print money till now. Treasuries yields are increasing since two months ago and dollar is revaluing against most of the currencies? It doesnt seem logic. I have gold, and german bonds, and cash, mainly in euros and swiss francs.
I agree with on certain points. The bigger problem is that Europe is a full year behind in recognizing the problems in the banks. The accounting keeps things hidden much better than U.S. accounting so the recoginition of the problem has been slow. You had German officials as recently as October saying there wasn't going to be any problem. I would disagree that Europe is in much better shape than the U.S. In fact, as horrific it is in the U.S., I think it is much worse in Europe. You have banks bigger than the entire country. On top of that the U.S. banking problem is primarily isolated in the U.S. In Europe that have huge exposure in the U.S., huge exposure in bad loans in Europe, and huge exposure to emerging markets outside of Europe. On top of that several years ago when I worked on some European bank deals (corporate debt referred to as bank debt as opposed to bonds) they were always much more aggressive in leverage and projections. As an investor in U.S. securities, I start my day reading European newspapers. I think the U.S. unraveling is mostly priced into U.S. stocks but if Europe unravels than the U.S. stock market has another leg down. That is what keeps me up at night.
Maybe european banks are delaying their cleansing. Although there are european banks highly leveraged (mostly british and swiss),many us banks are hiding it through derivatives and special purpose vehicles. Just looking at the fall of fannie, Freddi, Indymac, Lehman, AIG it is clear that us has been living beyond its means. Us debt to GDP is 350% compared to 170% in Europe. AIG, Fanny and cousin Freddy need 50-100 billions per year to cover losses and the counting goes on. I disagree regarding that us stocks will recover sooner than european ones, this is a global crisis and growth will be lower for next years, moreover us economy considering that it must reduce its leveraging and at the same time bear huge fiscal deficits. No sure the outcome but i'd rather have gold than currencies(I am starting to like again cads) and one day i will short treasuries. I read many blogs and i follow european issues through sites like eurointelligence and a fistful of euros or William Buitler at FTimes.
Oh no - not saying that U.S. stocks will go up before Europe. In fact I don't think they will but the U.S. stock market is now down 6 months in row. We had the worst January in U.S. history followed by the worst February in U.S. history. We are due for a bear market bounce. We just can't keep going down at this pace. We won't get this "bounce" if a shoe drops in Europe.
Completely agree on Gold. I have been buying for months both for my fund and personally.
Where are you getting that US debt to GDP is 350%? What are you defining as US debt? US government debt to GDP is currently around 70% of GDP. Japan is over 130% (forget the exact number) to GDP.
Your exactly right about AIG, Lehman, Fannie, etc. The problem is the companies like HSBC and UBS have the same problems. These banks have sort of addressed the issues but European banks that do not have ADRs also have these problems but have not addressed them. The accounting hides it much better.
Thanks for the blog sights. If you look through the this crises there have been a few major shoes to drop. Bear Stearns, then Lehman, than Citigroup, etc. etc. I started thinking that a major shoe will drop in Europe and have been reading alot of European financial news as a result. I'll glance at those websites.
sorry my mistake, I mean total us debt , a figure released in the H1 flow of funds by FED, and the data from europe is higher 245% (ecb site.
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