Chillin' out till it needs to be funded
The weekend was again busy with US fiscal deficit trumping Bernanke’s extended FOMC meeting starting tomorrow and Europe busy watching the ECB buy more Italian and Spanish yield to keep the spreads in control a Euro 10 billion operation considered par for the course. Those hoping for a wider dispersal of investment interest including the tsunami hit Japanese and the embattled Swiss National Bank remained mortified and the world’s attention remained stuck on China’s investing and the troubles of Europe with Greece leaving the EU or not.
From Korea to Brazil and from Australia and even New zealand to Canada , including Russia, Brazil, Turkey and India or the Frontier Economies, all Financial assets in Cash or Derivatives or Fixed Income and even commodities gyrated to only these 2-3 stories.
A single ETF desk person playing with naked derivatives for a 10X magnification of gain on underlying international assets from Gold and Coffee to Chinese banks and other such risks playing thru ETFs not sticking to gains corresponding to the asset but to the derivative designed to capture the bet on gains or losses on top giving each trading desk unlimited risk with visions of unlimited upside. That one person trumped the Vickers commissions seemingly long tenure and the media circus that followed failed to realise the real issues looking at European governments to right the tilted ship. The Europeans are at best in a hurry and at worst thoroughly self obsessed with layered regulation already stifling most business but failing to discuss the glaring deficit in popular opinion and fiscal discipline vis-a-vis Greece , Italy and Spain as the only creditworthy risk on the Continent gets spread around across the 17 , now 1 member nations and the bigger nations struggle with failing banks. Not a pretty picture but one crystal clear in more minds today as only Global investor flows stay of interest to all developed and emerging economies, welcomes duly dampened by hot money issues in Brazil and Korea, India and China to patriotic and Chinese ownership and market economy status issues in Europe and AA rated USA
Even as French banks’ failures become as inevitable as that of Greece ( 65% PD), the downturn is the only reason why there is a sudden bunched up correlation in Global markets, Once markets start performing differentiation between markets and companies as well as assets from FRontier Markets to USA will again be torn apart threadbare on their individual characteristics. Right now, it even romantically seems like all markets are united in facing up the same fiscal enemies and even as slow growth becomes the bugbear of 95% of the world’s GDP and the other 5% seemingly not worth the call based on risk, Obama’s Buffet plan seems hardly a matter of debate. Yet for Americans, the higher taxes on the wealthy may be an out they have not explored and their vengeance on the Congress that divides up that plan might be a tough turn for the Republicans” future or that of the Tea Party.
Similarly, all things considered, Europe needs to allow Greece to fail and one month later allow the FRench banks probably to fail or recapitalize with or without bankruptcy protection. The Mortgage czars again maybe able to recapitalize after failing their sub prime units esp BofA which is carrying most of its default risk outside the provisioned $37 bln in Country wide mortgages. Employment and growth plans of many banks proceeding even in the face of job cuts however may soon run out of steam if so much of international growth is put at risk. Whether India and China could have followed in the footsteps of Turkey and Brazil may not even be w worthwhile question till this ship straightens out and crosses the channel.