End of the bond boom, mind your pension

The US has finally raised interest rates from a measly 0.5% to a paltry 0.75%.


As ever though with these things is it the direction of travel that matters. When Japan tried this after wrecking its economy of with excessive quantitative easing it realised that it could not longer raise rates fare before inhibiting any real growth. The Country has remained moribund ever since.


With the USA, there is more hope than Japan, the economy has several inflation generating activities (like shale oil and gas) which also boost growth at a low cost. If the Fed makes this rise stick then European Bonds and UK gilts are in for a sharp price drop.


In Europe there is no sign of a recovery similar to that of the US, bar the UK and Germany. The EU central bank is still pumping the QE poison merrily into the system in the hope that it will soothe all the ills. Like gambling addict, the result is the constant doubling down of all bets.


If you have a long-term pension it is possible to see this turn (which is immense after nearly 10 years of one way bets) as a positive in that lower bond prices beget higher yields. But if you bought those bonds at high prices your actual investment hit will be as bad or worse than any income accumulation.


Bizarrely, this will juice the stock market instead, which is already quite fully priced.


Reality needs to return to economic to try and save the Western world, that does not mean the road will not be bumpy, mind.

The "O'crapalypse"

It's really hard to see how Greece can stay in the Eurozone and even the EU from here on in:

1. There is only around €500 million of cash in Greek banks  and even with allowances of €60 euros per person that is only 1 days supply left.

2. The ECB is not a political unit and Draghi hates being seen as partisan so it will not do anything ahead of agreement by the EU leaders.

3. The EU leaders are not meeting until tomorrow - so good luck in Greece trying to live for at least 48 hours with no money.

4. The IMF loans are sub-ordinate to the EU ones and the Greeks have defaulted anyway.

Basically, by the middle of this week Greece will have no money left, let alone trying to pay €3.5 billion in a couple of weeks time to the EU.

So, even if the Euro leaders try hard - which initial reactions suggest they are not minded too anyway, the chances are that Greece will have to issue its own scrip sometime this week in order to keep any semblance of the economy going. Medicines and food are running low with the Banks shut - the Country maybe struggling but ordinary Greeks can afford to buy goods - it is the EU via the ECB that is creating an artificial shortage.

As I have maintained for years, the sooner they do this, bite the bullet of a hefty devaluation and get on with it the better - The Country will be a much better place in 3 years, versus the 7 years of disaster that have accompanied trying to pay the debts.

As for the Eurozone, ECB and all that - there is nothing positive to be said at all. The actions to create the crisis in Greece are sickening, the lack of vision and judgement to design an easy path to exit or a parallel 'soft euro' for Italy, Spain and Portugal too is pathetic. The UK can also see clearly where attempts to negotiate or change the will of Germany get you - nowhere and worse.

The sooner we can leave the better, when is that Referendum?

Grexit looms into view

RBS puts Grexit at 20% risk after today.

I think in reality this is much higher now. The offer from the IMF/EU is simply not what Syriza can stand in Parliament or get passed. As such a bill will either fail or lead to new elections.

How can Greece organise elections and still make around €3.2 billion of payments by the middle of July is beyond me.
I really hope Syriza go for it and have elections, then campaign to leave the Euro as a last chance to convince the EU to take their democratic (if not fiscal) claims seriously.

With each passing day it appears that the classic Euro-fudge is off the menu - the Germans just won't wear it and the IMF has an eye on other debtors globally and can't be seen to let an EU country escape its grasp due to special pleading.

Developing and Interesting.

Those immigrants pooring onto the Greek Islands are making a lot less progress than they think they are!

QE Works!

So some years after the Uk and US did QE, the Eurozone has tried the same. And to no ones surprise it has had the same effect.

Along with the currency crisis, the launch of QE has seen the Euro plummet in value versus the dollar. To the point at which is is not below 1.08 to the dollar and so veyr near to parity - with the direction of travel suggesting that parity maybe reached. With the Pound hitting 1.40 to the Euro, my summer holiday to France is looking that bit cheaper too.

In the main, this is good news for Europe, a lower currency will help Europe be more competitive against Asian and American economies and help it climb out of its long slump.
Also QE has pushed down bond rates, even for Greece, averting a return of the Debt crisis of 2011, for now.

However, there are dark clouds, Germany benefits the most as it exports the most - A D-Mark would surely have parity with a Pound Sterling by now. Thus the Southern European nations cannot export internally in the Eurozone at good rates and this is a big challenge to the Eurozone periphery.

Also, it suggests the long-term 'austerity' (also known as sanity and being able to sack people for underperforming) is unlikely to be followed through. Of course too, if you are a saver in Europe then this trend is not your friend.

Overall though, the best thing to say is its about time...

The Euro strangle hold continues for Greece

I very much doubt, whatever they thought previously, that the new Finance Minister and Prime Minister of Greece knew what they were getting into.

After a week of 'negotiations' with their European paymasters, they are now scrabbling around trying to find a way of remaining in the Euro and indeed, remaining in the bailout programme that they were elected to leave.

This is not a happy situation for Syriza and you would have to have a heart of stone not to laugh at the uselessness of the polemic negotiation style which ended up cutting no ice with the Germans.

So now, very desperately, they are reduced to trying to find ways of re-naming the 'Troika' to try and pretend it is something else - typical left-wring approach, same as we have here in the UK with numerous elements of political correctness, where language alteration is used as cover for power and control.

The sad element is that really, the Greeks have more power than they realise. The future of a happy Greek people lies outside of the Euro. Even Germany has really acknowledged this by making it clear Greece can leave. Not an easy decision for the Euro's foundation stone member, but for last week to have happened and to have had such an effect on Syriza, the conversations were clearly very blunt.

The worst outcome will be for a muddle-through solution that allows Greece to remain in the Euro whilst it continues to be consumed by its outlandish and growing debts. These communists, never quite a strong as they like to pretend they are. Real leaders in Greece would walk away from the German terms.

Tsipras gives a big hint of the stitch up on Day 2

"We don't want to go to mutually assured destruction [with the eurozone] but we won't continue being subservient"

So already of the Greek nightmare and already the enormity of the situation facing the Syriza Government has dawned on its hapless leader, Alex Tsipras. Greece won't default on its debts nor exit the Eurozone....but nor will it be subservient according to reports of his first cabinet meeting.

If I was a more cynical person I would think this is all a set up.

Last week The ECB announced QE, €60 billion a month of Government bonds to be bought. Then Syriza is elected and now they are already moving towards just asking for a bit of debt forgiveness to placate the populace.

The QE until July will push $240 billion of debt onto the ECB balance sheet - the holdings of Greek debt by Eurozone countries are, err, $240 billion. What a strange co-incidence!

It is almost as if Merkel has stitched up to accept QE in exchange for only forgiving Greece say 30% of its debt and it continuing in the Euro. This 30% will allow for a little more spending to keep Tsipras happy.

Life is good in the democratic Eurozone. Less so for Greek people trapped in the Euro nightmare perhaps, but hey, they are only little people after all?

Will this dastardly plan work...

 ....There's many a slip 'twixt the cup and the lip

One week left for the Euro?

It was interesting to see the currency traders panic last week when the Swiss National Bank suddenly decided to end its policy of shadowing the Euro for the Swiss Franc (CHF). A net +30% revaluation was not a trade to be on the wrong side of - which of course the Swiss National Bank was.

Noticeable for me too was the supposed surprise of the move and the lack of understanding of why the Bank had given up the peg so suddenly. There was some thoughts of it getting to expensive to maintain.

But the reality is twofold. There is imminent Quantitative Easing for Euroland being loaded up. €550 billion euro's of it in theory. This will push down the value of the Euro (so beware a UK Sterling appreciation event on a smaller, but similar path to the CHF). Whay hang around with a a peg when your neighbours are about to ruin you. The SNB made the sane choice.

However, the second issue is the more important one, albeit related. Syriza are very likely to be in Power in Greece in one weeks time from now. It is even possible that they will have an outright majority.

Their, leader Alex Tsiparas, has declared that his policy is to negotiate a huge debt write down for Greece and to end the Troika imposed austerity that has so ruined the Country. Either Greece or Germany will win, even a compromise will be a victory for Greece really.

Syriza are maintaining that they do no want Greece to leave the Eurozone, however it is highly likely that Germany will try to force this through. otherwise the principles of sound money, if there is such a thing, are for the birds as far as the Euro is concerned.

To me, it is clear that the QE that is being revved up is being put in place to help manage the euro crisis that will out in a better manner than was possible in 2011. Back then the whole continent was plunged into a terrible crisis which could have wrecked many of its economies. This time it seems better preparations are being put in place. It will still be a roller-coaster rise no doubt.

As for poor Greece, there is no good end to the story. Tsiparas will be deeply unpopular if he leads Greece back to the drachma as this will entail the savings of the Country being wiped out entirely. Neither will be be popular if he negotiates only a partial deal with Europe that still leaves Greece with an untenable debt burden. So, as with most radicals, he will be forced to become centrist or mad. My bet would be on centrist which will come as a shock to many of his followers.

The European Economic Zombie Commuity

Zombies are all the rage these days, what with popular shows like 'The Walking Dead'  - not my cup of tea as I am not keen on gore and horror, enough of that in the day job.

But the Eurozone economy is something else, after a sclerotic recovery that was barely, even in the Northern States, better than the UK's and hardly above inflation, all the main economic indicators are falling again. Business activity has slowed in May, Manufacturing output has slowed in May and inflation is also falling.

All the while there is QE in the background and record low interest rates. But today will see the European Central Bank cut from 0.25% to 0.1%. How this is supposed to make a difference is beyond me. Rates at that level are a signal not a tool.

The European banks are not lending and companies are not investing - as we can see from unemployment being at an 11.5% average across the Eurozone.

It really is a tale of woe and hard to see a way out when the economy is straightjacketed into the Euro. Spain, Italy and Greece desperately need a devaluation to write-off the debt and pain of recession and grow once more, albeit from a lower base - confidence is the name of the game and that is what the euro currency shreds. With markets so subdued even the German powerhouse is in trouble and a weakening China also means that Germany is not in the next 2-3 years going to lead some economic charge.

Of course in the UK we did not have the euro. A devaluation occurred, although that has now been made up in currency terms, QE was undertaken on a wide scale and the Bank of England pushed Funding for Lending and other such programmes to try and re-start the economic engine. It took a while but it seems to have been partially successful (the cancelling of austerity will be seen as the main failure in years to come).

The Euro crisis of 2011 seems like distant history now, but the reality of its malign influence is still with us and will be for years to come; The politicians of Europe have so much capital invested in the project that they will bankrupt the economy of the EZ before letting the Euro go. We maybe here sometime.

Good news from Eurozone - rare edition!

In a rare foray into looking at economic measures, here is some more good news for a Friday. Not only do a we have strong housing growth in the UK which is helping prime the recovery, but also even in the sickly Eurozone the two key measures are turning positive.

Firstly, unemployment has fallen by 61,000 - the first time it has fallen since January 2011. That is a long wait, it may yet be a blip, but it should be a good sign that economies are stabilising.

Secondly, inflation has risen from 0.7% to 0.9%. There was a big chance that the Eurozone was headed towards outright deflation - a total disaster for Greece and periphery countries laden with debt.

Even a small rise and trend change is a good thing, if sustained, then growing inflation and falling employment will mean a better year next year. Of course the fundamental issues with the Eurozone have not really been addressed and the whole Euro area will be at risk for years to come with instability at its core, but at least in the short term there maybe respite from a long crisis.

The dangerous power of political lies

When I started this blog in 2006, one of the main drivers was to discuss the intersection of business and politics. With hindsight, in the midst of a leveraged fulled boom and several years of stable Labour government in the UK, this was not a topic high on many peoples' agendas.

How much has changed since, here we are 6 years later and there is a visceral fight to the death between politicians and the markets. In Europe, populist politicians, ignorant of anything economic, have led a campaign of 'anti-austerity'. As if there is some kind of valid choice. Of course, the people are also not well informed and it is part of human nature to hope there is a better answer to all life's challenges - the cancer can be cured, the relationship saved, the house afforded etc.

But now to peddle this fantasy is a dangerous lie. There is a simple choice, repay debts or default. Promising instead 'Growth' is a nonsense. Governments cannot create growth, only can they create the environment for it. Of course, this does nto stop Governments trying, which is why the size of the state rises inexorably across European countries as Governments try to deliver on their impossible promises.

The limits of this attempt have now been discovered. Vast monies have been spent on welfare states with 50% of GDP coming from Governments who at most raise 40% in taxes. No more can this be sustained without the reductions in Government spending. This is of course very painful for the populations.

The alternative though is default and Euro exit, not some dreamland 'third way.' Thus this promise of an end to austerity is the worst kind of fantasy - lying to gain votes and then potentially tipping countries into an economic darkness for which they are unprepared. Here sits the Greek Party Syriza. Europe has a history of this, the last great depression of the 1930's also led to populist, nationalist, socialist governments to come to power. Promising people an economic fairy tale they could not deliver on.

The collapse in Greece is however, sadly, to be expected. Too far gone are the debt dynamics to save Greece and too incompetent the Government structures to be trusted with another bailout (but, yet it may come in one scenario).

With all this populist outrage across the channel, the UK has its own promoters too. The siren calls of the Labour party and its Union masters mimic the same tune - no cuts! no austerity! nothing to change! tax the rich! create growth with greater debt!

For many people, this is the nirvana mix in the current economic dark days. Why should we have worse schools, hospitals etc, why can't things be different?

Yet of course, Labour have no alternative, no different policy. Darling's predictions pre-election 2010 and Osborne's response have been similar to within a few percentage points. So this outrage is entirely manufactured - the job of opposition, perhaps one might say with a shrug of the shoulders.

The Tories for their part, with the Lib Dems, have a terrible hand to play and are doing an average job - when we needed an excellent Government. But even so, the damage caused by Labour lies is telling. The people believe in wishful fantasy alternative, not aware that Britain and Greece share many of the same, frightening, economic statistics. Only the Pound and the Printing presses (and the City, able to secure money for its host nation whilst turning a blind eye in a way that Eurozone states could not expect) keep the UK relatively afloat.

So finally, the Great Lie; The Euro. A political project without economic merit, which has sunk the periphery nations of Europe and enriched Germany and the northern states. A credible plan to end the currency area over a 2 year period is needed. The markets and economics cry out for this. Instead, Politicians proceed as if this is impossible - when even now discussing kicking out Greece. A Grexit will lead to a run on Portugal and Spain - so bad is this end that another bailout would be much cheaper. The lie though must continue, Europe is a single currency area and countries and adjust internally, even whilst demand collapses. A complete fantasy - but an acceptable one. Greeks still want Euro's, even after the tragedy it has inflicted on the Country - there we have it in pure essence, the power of political lies.

OK, maybe we can have an Italy crisis in July.

FTSE-100


AAL -74.50 ABF -15.00 ADM -35.00 AGK -33.00

AMEC -29.00 ANTO -39.00 ARM -28.50 AU. -52.00

AV. -14.30 AZN -47.50 BA. -7.00 BARC -9.70

BATS -28.00 BG. -41.50 BLND -8.00 BLT -64.17

BP. -7.10 BRBY -41.00 BSY -13.50 BT.A -3.70

CCL -72.00 CNA -5.90 CNE -12.00 CPG -10.50

CPI -11.50 CSCG -6.30 DGE -19.00 EMG -11.40

ENRC -24.50 ESSR -7.00 EXPN -17.50 FRES -19.00

GFS -4.60 GKN -9.50 GLEN -9.35 GSK -6.50

HL. -16.50 HMSO -3.20 HSBA -11.00 IAG -10.20

IAP -13.70 IHG -37.00 III -8.70 IMI -27.00

IMT -32.00 INVP -12.90 IPR -5.50 ISAT -10.50

ITRK -39.00 ITV -2.25 JMAT -33.00 KAZ -40.00

KGF -5.50 LAND -9.00 LGEN -3.20 LLOY -1.92

LMI -45.00 MKS -5.70 MRW -4.60 NG. -9.00

NXT -38.00 OML -4.00 PFC -47.00 PRU -22.50

PSON -20.00 RB. -43.00 RBS -1.14 RDSA -57.00

RDSB -54.50 REL -9.50 REX -9.20 RIO -130.00

RR. -15.00 RRS -60.00 RSA -1.60 RSL -7.80

SAB -36.00 SBRY -5.00 SDR -23.00 SDRC -18.00

SGE -5.80 SHP -14.00 SL. -4.90 SMIN -20.00

SN. -12.50 SRP -8.00 SSE -25.20 STAN -36.50

SVT -30.00 TATE -17.50 TLW -45.15 TSCO -5.40

ULVR -40.00 UU. -8.50 VED -52.00 VOD -2.05

WEIR -46.00 WG. -21.00 WOS -58.00 WPP -15.00

WTB -60.00 XTA -48.00

Winners 102 Losers

That is a really nasty wake-up call, the Italian Bourse is down 4.5% this morning. That is even worse.

The Euro 'Elite' really need to get going or else there is big trouble Don;t they remember just two weeks ago uncle Wen visited to say he would help out - did anyone write down his phone number?

Also I am changing my opinion on can-kicking, that Greek rally did not last very long did it? This is in itself a bad sign that there is no long term confidence. Without that, there can be no market led recovery. Either more QE is needed to flush the system with inflation or the banks need to be killed as debt is written off - a nice terrible or disastrous set of options. I wonder what Oil Rehn is thinking today...

No way to run a currency

After all weekend talks to try and resolve the Greek situation, the net result is nothing today. Instead we will have a week or two delay whilst he Greek Government tries to hold together and agree some sort of acceptable plan.

All this demonstrates the fundamental weakness of the Euro when in a crisis situation. Politics is now the driver and politics takes days and week; but markets are open daily.

A sub-plot being worked out here is that I perceive that the Western banks in the City and elsewhere are liquidating their PIGS and European assets as quickly as they can; they know the end game is a default and probably exit from the Euro for Greece. If I was being conspiratorial I would suggest that the European leaders have left this gap open just long enough for the banks to try and save themselves (not that convinced by that line though, it has been obvious this was going to happen for 18 months).

When there is a crisis you need strong leadership and decisive action; the Euro currency leaders provide the diametric opposite. Weak and confused leadership and a variety of not quite satisfactory solutions to any problem.

Indeed, it will be a wonder if the Euro survives the next few years of Sovereign insolvency crises.

Return of the Pound; Get your summer holiday money now!

The UK Pound Sterling, long-suffering under the control of Mr. A Darling and Mr. M. King, has staged something of a rally these past few weeks.

Not long ago sinking below parity with the Euro was the talk of the town and reaching parity with the US Dollar. But like a phoenix from the flames, the pound has reached nearly 1.15 to the Euro and the US Dollar rate is a mighty 1.64 today.

Behind the rises are a big move in closing short positions on the Pound and also a flight away from the dollar into more risky assets. As such demand for dollars goes down and so the currency falls.

However, there is no sign as to whether this is a longer-term trend coming into play. More likely, this currency reversal will itself reverse when the equity markets end their rally in the next couple of months.

As such, if you are planning a trip abroad over the summer, think carefully about when you buy your currency. Now may be a good time if you can afford to put the money aside. Alternatively, watch the global markets, if there is a strong downturn the currencies will follow quickly, so don't dither.

Scoop:Is Britain planning on joining the Euro?

C@W have had a source emailing data for the last few weeks. This source, within the Royal Mint has been privy to some secret high level discussions that have recently taken place.
Although the whole picture has yet to emerge it looks increasingly likely that the United kingdom will abandon Sterling and join the Euro before the end of this parliament.

It is expected that Prime Minister Brown wishes to make the announcement during the G-20 meeting of world leaders to demonstrate his commitment to finding global solutions and his belief that nations must join and work together and forgo protectionism.
This is the price that Germany and France have demanded for endorsing and carrying out the fiscal stimulus package.

	British 2 Euro Pattern Coin
	British 5 Euro Cent Pattern Coin

British 1 Euro Pattern Coin

We obviously cannot reveal too much detail, but from another, separate source at the Bank of England it appears that the meeting between Mervyn King and Her Majesty, Queen Elizabeth II, was to approve the prototype design of the new Euro currency for the UK. Samples of these coins have been sent to us here. The enormous task of replacing the currency has been proceeding in secret ever since Sterling began falling in October 2008.

We have a final piece of evidence, currently being flown in from Munich by CU and we hope to see it arrive shortly, when we will do an update, before turning some of the evidence over to the BBC and other mainstream media outlets.

Remember.
You read it here first.

No government target for the pound

"Sunny Jim" Callaghan must be spinning in his armchair. After a long struggle with Harold Wilson, who refused to even discuss the matter, Callaghan was forced to devalue the pound in November 1967. The devaluation of the pound ended his time as Chancellor of the Exchequer. He went on to make matters worse elsewhere, especially in Northern Ireland and with the Trades Union reforms that never materialised. And he had to get the IMF to bail out the country too. Forced to hold an election after losing a vote of no confidence in his Premiership in 1978, he lost heavily to Margaret Thatcher.

So poor old Jim must be fuming that the sterling crisis that began his ruin has become such a non story. His cut of around 14% forced him from his office. Today the pound is already below the Euro {£0.99} at any bureau de change, and has lost around 25% of value, yet it seems few seem to mind. Least of all the government who don't even acknowledge that the weakness of sterling is in any way a bad thing.

Yvette Cooper said "We've never had a policy of targeting the pound. Our policy is to target inflation. And that I think has been the right one." David Cameron agreed.

No doubt the strategy is a bit Fawlty Towers, "Don't mention the Euro." Then options remain open, unlike 'Big Jim' who had promised no devaluation. Defending the currency would be near impossible anyway.
What other options there are is unclear. What could happen when the next interest rate cut is announced?

This is the sale advert of a major furniture retailer in the newspaper. It is 1/4 page on the front and a full colour, full page, on the back.

Massive Savings
beat the $ price rise
As well as our legendary claim to be "the best prices in the UK" by forward buying certain ranges, for a short while, we can "beat the significant rise" following the currency fluctuations.
BUT ONLY WHILE STOCKS LAST!

Whatever the wisdom of this sales campaign I have never seen a January sale advert that says "buy it now because it will be more expensive later."

We will all see much more of this sort of thing in the new year.
Will a public, who are enjoying a level of price cuts not seen for years, be tempted into the spending our way out of debt policy, when prices not only revert to their pre-sale levels, but actually increase?

As James Callaghan himself said
""We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists"

EU really mad; Official

There is a lot of discussion about weirdo's and madness on the internet today, so perhaps I can join in....


The US Dollar fell from its six month highs today (phew, fingers crossed for me as I am going to NYC in a couple of weeks), but get this - here is why:

"The U.S. dollar tumbled from six-month peaks against the euro on Wednesday, as comments by a European Central bank official rekindled speculation about an interest rate increase in the euro zone to quell persistent inflation pressure."

Just for fun, go read Ambrose Evans-Pritchard in today's Telegrpah discussing the economic situation across Europe. Collapse everywhere, even Germany hurt by the strong currency, and the idea is to raise interest rates?

This 'inflation' we are suffering will end in tears for us all. As oil has dropped 20% in a month and money supply has dried up it is not so hard to predict a sharp drop in inflation - it is a lagging indicator in any event.

If the EU raise interest rates it will utterly wreck Spain, Denmark, the Baltics and Italy. Why would they do this unless they wanted to ruin the eurozone. They can't possibly want to do this, so the 'EU Official' who said this must be mad.

UPDATE: From a Bank of England MPC member today in the Guardian...

Blanchflower described the BoE's forecast earlier this month of the economy standing still over the next year as "wishful thinking" and said things could be easily a lot worse.

"We are going to see much more dramatic drops in output," Blanchflower said. "The way to get out of it is to act, by interest rate cuts and fiscal stimulus and other things to try help people who are hurt through this."

"Sitting by doing nothing is not going to get us out of this and hoping that a knight in shining armour will come and lift us out of this is optimistic in the extreme."

And he said that an expected boost to exports from a weaker pound was unlikely to prove the "great rescuer" of the economy.