Euro-dollar parity!

There's a thing, eh?

You'll see it described as "pound collapses" - but against the EUR, Sterling is where it was back in 2013, and higher than has been across most of 2017-2021.  OK, not as high as the blip in 2015, but still ... "despite Brexit" ... 

Nope: this is about the USD.  Always the safe haven.  Never underestimate ... etc etc.

OK - now back to all your favourite Ukraine themes. 

ND

People. Fear. Change.

Some years ago when I was a councillor, I attended a big public meeting called by London Transport, as it was then. The occasion was 'Consultation' on a plan to improve the bus services for a huge, sprawling, isolated council estate (covering 2 entire electoral wards, if that helps to convey the scale) that was fairly dependent on said buses.  LT's plan was radical but clever and - history records - was in due course implemented with great success.

But that was all in the future. At the meeting, speaker after speaker rose from the floor to thunderous applause, and they each the same two points: (1) the current bus service is crap;  (2) nothing must be fundamentally changed.  As Einstein said:  "Insanity is doing the same thing, over and over again, but expecting different results".

This, then, is the human condition, the very basic stuff of politics.

Michael Portillo's TV essay on the Great Euro Crisis (Wednesday of last week) brought all this to mind**.  There he was, interviewing every Greek and German citizen high and low that he could lay his camera on, getting them to illustrate his thesis and, sometimes, to agree with it flat out; namely that current euro set-up lay at the root of their problems.  But with a single and non-representative exception, none of them would abandon the Euro.

Innate conservatism ? Fear of something worse ? Expression of deep-seated support for the federast euro-project ?  

Probably not quite the last of those; although we in this island have very little intuitive grasp of how far enthusiasm for that project runs in many quarters.  But the humano-political condition was on full display.

And something else, which is fairly germane to these considerations: no-one was particularly exercised over the anti-democratic aspects of the major political interventions of the last 9 months' and more.  Oh yes, democracy comes a pretty poor third, or worse, after 'jam tomorrow' and 'grass is greener'.  The senior German minister interviewed, Wolfgang Schäuble was particularly sinister on this: MEPs are elected, he beamed - what more do you want ?

Not hard to see how demagogues play their hands in such circumstances, and how Europe ended up under the totalitarians in the 1930's.  One way or the other.  Yes, London Transport simply ignored all those speeches from the floor.

Well. What else could they do ?

N

** Literary allusion: geddit ? small prize for correct answer 

UPDATE  Purplepangolin  was on this like a shot, identifying it as Yeats (and jolly apposite, too as I think you'll agree).  As prize, he has nominated that we give publicity for this good deed - which we hasten to do.  Support Martin House Hospice and Alastair Green's run ! 

Always Pleased To Help

This gets my weekend off on the right footing. The Telegraph reports that "Athens has launched the biggest sovereign bond restructuring in history". Ah yes, part of the Euro rescue plan from which Cameron so rudely opted out, leaving the UK a pariah and dooming the City to irrelevance.

But wait, what's this a the foot of the article ?

"The bond swap will be run from London by Deutsche Bank and HSBC."

Too right! Because with the best will in the world they really don't understand these things in Brussels, Luxembourg, Paris or even Frankfurt. (I particularly enjoy the idea they will require that Euro-denominated derivatives must be settled in Euroland: do these people actually know what a derivative is ?)

Now for the rest of the weekend: let's see what the much-vaunted Welsh back line can manage at Twickers.

ND

Mr Drew Takes a Haircut

Being a big believer in diversification, and having no great faith in the FTSE, four years ago I invested one of those structured products: Protected Capital and Growth, meaning a guaranteed minimum 21% return - or more, if the FTSE over-performs - and my original investment is secure. Note how I didn't use inverted commas there, trusting soul that I am. You know what's coming.

So. Today Legal and General write to me. It starts innocently enough.

"We'd like to let you know ... oh? that's kind ... about an important change we've made to your investment ... and how it will affect what you get back when your plan ends ... but isn't that, err, 'secure', to use your word ? ... Your investment works by investing in a fund, which in turn invests in a number of financial institutions ... go on, I am beginning to get the picture ... These provide the return of your original investment plus growth potential."

OK, so by now I am guessing that the next bit will effectively read: "Or not, as the case may be." Right?

"The institutions invested in were: A, B, C, D, E, F, and ... wait for it ... Irish Life & Permanent plc."

Bastards !

"As you can see, one of the institutions was Irish Life & Permanent... Irish financial institutions are less likely to be able to pay back what they owe. We've sold this investment earlier than intended and received less than the original value ..."

16% less, in fact, resulting in a net haircut of 2.63%. AND it is not covered by the Financial Services Compo Scheme, it seems, because Legal & General itself has not failed to meet its obligations. Or so they tell me.

And this, I suspect, is increasingly what we will all be confronting as the postman makes his daily deliveries.

Still, good old A, B, C, D, E & F; and praise the Lord for diversification, eh? Until the next letter hits the mat...

ND

How to play the end of the Euro?

For many years, indeed, since before the thing even came into existence, lots of us have decried the possibility that the euro might work. The "Great Moderation" (i.e. monetary cyanide) of 2001-2007 hid the effects, but this latest recession has brought home the truth.

The Gordon Brown answer to the financial crisis in 2008 was to move the Bank debt to the public sector and this has hastened the end of the Euro as many for many Euroland countries, notably Ireland, this exposed the level of debts as far to high for the Country to ever pay off. Look at Greece today, 24% of GDP going on debt repayment; that is GDP not Government spending - and this is with the bail-out.

Unsustainable. With Germany's Mr Wulf and others decrying throwing good money after bad then this is the endgame. It may take another few months, but I am convinced the Euro won't see the Olympics. Germany is not going to bale it out and the current situation will end in a disastrous crisis.

So what will happen:

1. The German, French and UK banks are going to go bust as they hold much of the foreign debt of the PIIGS. So I guess we need to find a Eurobanks short ETF - difficult to find one as many are run by Duetsche Bank which will be one of the first to go down in the crunch, but perhaps Germany will save its own banks so this one will get paid?

2. Gold - not a hard choice to be long gold, paper or physical. With currencies in a mess Gold will go up...however only after a mass liquidation event has pushed the price right down, possibly below $1000. This is why short positions are my top pick. In 2008 Gold hit $600 briefly (that is when I bought it, thought I was clever selling at $900)

3. Currencies, clearly the Euro will be suspended, so no positions here can be predicted. CHF is very over-bought already, so I where do we go, Long Norwegian Krona. There will be a flight to safety to the dollar too so that will be a short-term trade. The British Pound will go down with our banks, sadly.

4. Commodities - Again, a crash will signal a global downturn so I expect a big sell-off, but a re-bound here will be quicker as the rest of world adjusts to Europe and the USA's reduced place in the world and our growing population globally sucks up more demand - still that is a 1 to 2 year view and will be no good in the short term.

5. Cash and out - I am unsure about the idea of watching from the sidelines. There will be no QE next time to boost the economy (if so, then hyperinflation and total wipeout unless all your money is abroad which unless there are some Hedgies and global wealthy class people reading this is unlikely). With the UK pound collapsing real value cash could lose 25% easily. It may be more prudent to be diversified elsewhere.

6. Next steps. Clearly things are going to get tough, one thing even Missus Cityunslicker has picked up on maybe the chance to buy some very cheap PIIGS holiday property as their currencies get whacked. At least we can drive there if we can't afford flights anymore...

OK, so what about that as a strategy - any other ideas? What are you going to do?