In a recent meeting, German Chancellor Angela Merkel is reported as having been unprepared to address Greece’s plea for more time.
Concurrently:
- the European Central Bank is reported as planning to delay progress with respect to its expected bond-buying program until Germany approves the so-called European Stability Mechanism (ESM) plan. However, ECB President Mario Draghi yesterday spoke to a so-called Outright Monetary Transactions Program which would see the ECB buy ‘unlimited quantities’ of 1 -3 year government bonds – see reference to this later in this Newsletter;
- the ESM plan is waiting on a German court ruling on its legitimacy – scheduled for release September 12; and,
- reports suggest more than one country is preparing for the possibility of a Greek Eurozone exit and, as one report says, “a subsequent domino effect”.
Greece is a comparative small problem when measured against that of Spain (and Italy), and in recent days Spain’s bailout requirements have been a topic of escalated interest.
That said, remember Dr. H. Albertus Boli’s fable of the little Dutch boy who saved Holland by sticking his finger in the dyke. If you are not familiar with that short story, or are familiar with it but haven’t read it in a while, you ought to consider
reading it. In summary, it is a fable about a little boy who, seeing a hole in a faltering dyke, sticks his finger in it. The dyke springs more leaks, and the Burghers (read for purposes of the fable ‘the ruling class’) find other little boys to stick their fingers in those holes – and so the story goes.
It will take you about 3 minutes to
read the fable. No doubt the fable will bring a smile to your face, and may bring a larger smile to your face as you consider whether many politicians and central bankers ought to drop their ‘fancy suit disguises’ and don centuries old Dutch garb, thereby not just acting like the ‘Burghers’ in the fable who postponed their problem, but looking like them as well.
In summary:
- I think time is running out for both Greece and for Germany (and perhaps for Spain), in the case of Germany in the context of the ‘support’ or ‘no support’ decision it will have to make with respect to Greece;
- I give credit to German’s for generally being able to recognize a ‘leaking dyke’ for what it is, and to deal with it in a practical and unemotional way in the end. Stated differently, in the end I don’t think Germans will behave like the ‘Burghers’ in the fable;
- I think in the end Germany will act on what it assesses to be its own self-interest, and will not simply be focusing on Greece when it does that. That may mean that Germany proves to be prepared to ‘bite the bullet on Greece’ given its comparatively small size, and postpone the ‘big Eurozone financing question’ until it has to deal with Spain; and,
- it just may prove to be that the number 13 – being the percentage of required bailout increase recently announced by Greece – may prove to be a further bad omen of things to come in the Eurozone.
Again, I suggest you take 3 minutes out of your day to
read or re-read Dr. Boli’s fable.
Topical Reference:
Debt crisis: Merkel says Greece will stay in the eurozone but trader fret over more delays, from
The Telegraph, Louise Armistead, August 24, 2012 – reading time 3 minutes.
Financial Markets: SEC study concludes on U.S. retail investor
And then there was the U.S. Securities and Exchange Commission study that concluded “U.S. retail investors lack basic financial literacy … have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud”.
As a generality that statement may be worth thinking about. There are always exceptions to generalities. If you are not one of those exceptions, I urge you to work to become one. This is because I believe those who take the most responsibility in connection with their direct and indirectly held investments will be those ‘best off’ in our ever more complex economic and financial markets world.
Topical References:
SEC Study Proves That Stock-Picking Should Probably Be Left to the Professionals, from
New York News and Features, August 30, 2012 – reading time 2 minutes.
North America >> Canada: Importance of increased third-party Canadian oil sands activity?
Readers no doubt are well aware of the interest by China and others in Western Canada’s oil sands. Consider whether you agree that the pace at which that interest is being expressed has been increasing in recent months – the latest expression of that interest being a letter of intent signed last Friday between Athabasca Oil Corp. and state-owned Kuwait Petroleum Corp.
Canada’s oil sands constitute a world-class asset, where ownership of that asset may well influence world economic dynamics in future decades. Consider the importance to Canada, to Alberta and Saskatchewan, and to the countries and companies that want to acquire interests and partner in the oil sands of decisions made today by both Canadian oil sands participants and the Canadian Government.
I think this is a big deal. If you are a Canadian, consider letting your politician know how you feel about Canadian oil sands ownership issues.
Topical Reference:
Athabasca Oil ‘contemplating a joint venture, from
The Financial Post, Jameson Barlow, August 31, 2012 – reading time 3 minutes.
Brief Commentaries prompted by world headlines (collective reading time 2 minutes)
Asia >> China: China one trillion yuan stimulus (quantitative easing) plan
China is reported to have just announced a one trillion yuan (about U.S.$150 billion) infrastructure stimulus package, presumably to support ongoing economic growth.
Topical Reference:
Chinese Market Goes Wild After 1 Trillion Yuan Stimulus Plan, from
Business Insider, from the Guardian, Josephine Moulds, September 7, 2012 – reading time 2 minutes.
Europe >> United Kingdom: UK industrial output, inflation, up in July
United Kingdom industrial output and inflation are both reported this morning to have increased in July, with the industrial output increase being the highest in 25 years. This is said possibly to imply the United Kingdom may be showing signs of returning to technical economic recovery from technical recession. Something to continue to watch, but likely not as yet ready to ‘be taken to the bank’.
Topical Reference:
UK industrial output rises most in 25 years, from
The Telegraph, September 7, 2012 – reading time 3 minutes.
Eurozone >> General: ECB introduces Outright Monetary Transactions Program
Mario Draghi, European Central Bank (ECB) President, is reported as having said yesterday that the ECB is prepared to buy 1 – 3 year (Eurozone?) government bonds ‘in unlimited quantities’ so long as ‘participating countries’ abide by strict (austerity measure?) conditions.
This so-called ‘Outright Monetary Transactions Program’, which needs to be monitored as it develops, strikes me as raising a number of open questions, not the least of which is: what is the source(s) of the ‘unlimited funds’ that may be required by the ECB under this program?
Topical References:
Draghi unveils ECB bond-buying plan, from
MarketWatch, William L. Watts, September 6, 2012 – reading time 2 minutes. Also see
Experts unsure ECB bond buying secures euro, from
Deutsche Welle, John Blau, September 7, 2012 – reading time 3 minutes.
Eurozone >> Germany: German exports strong in July
A report this morning says that German exports rose in July, and suggests this is an indicator of German economy resilience to Eurozone issues, given Germany’s success in alternate (China and U.S.) markets.
Topical Reference:
German exports rebound in July despite eurozone slump, from
Deutsche Welle, from Reuters, September 7, 2012 – reading time 2 minutes.
Important Snippets From Today’s Commentaries
Snippet #1: Greece will have great difficulty meeting the austerity commitments required under its months-ago agreed bailout arrangements.
Snippet #2: Germany is the key player in any and all Eurozone bailouts.
Snippet #3: What happens in the end in Greece may well be ‘precedent setting’ with respect to what subsequently happens in other Eurozone countries that require bailouts.
Snippet #4: Greece is a comparative small problem when measured against that of Spain (and Italy), and in recent days Spain’s bailout requirements have been a topic of escalated interest.
Snippet #5: In the end Germany will act on what it assesses to be its own self-interest, and will not simply be focusing on Greece when it does that.
Snippet #6: Canada’s oil sands constitute a world-class asset, where ownership of that asset may well influence world economic dynamics in future decades.
