"How did Greece actually get there however? Well, Wikipedia suggests that government expenditures rose 87 percent in the period 2004 to 2009, taxes only increased by 31 percent and output in nominal terms increased by 40 percent. There was also an issue with the statistics supplied on entry to the Eurozone. In other words, they lied."
To market, to market to buy a fat pig. OK, what are the main stories on the go? Surely the one that continued to grab headlines were the Greeks and their debt woes, "luckily" for them 80 percent of the debt is in actual fact owned by outsiders. I say luckily, sometimes there is a little more leverage over external funders. In this case, when the Euro area was in crisis mode, restructuring was done, heavy panel beating and indeed the Greeks were given what many would call favourable terms. In return, they signed and agreed to terms, including reforms and austerity. It always turns out that austerity in your personal capacity sucks, it is always much easier to suck up when someone else has to endure economic hardships.
Those economic hardships are always relative too, relative to what you enjoyed in the past, even if those were inflated. All the peripheral countries joining the Eurozone were able to borrow at cheaper rates than ever before. Nobody wants to go backwards. Austerity implies that you have to enter into a period where you cut up your credit cards, you cut back your spend, you live more frugally than at any time in the recent past. forget how your grandparents experienced economic hardships, that was in a time when there was no television, there was war and people still made their own clothes. Some call those the good old days, I suspect often it just depends whether they were your good old days, or if they really were good old days.
The funding crunch for Greece is imminent. It is three weeks away. That is the time horizon, it might be easy to blame the rich tax dodgers, the media (always) and avoid privatising state assets which would irk your support base. This is the deal, the Greeks want to renegotiate with the troika and seek an extension to June, Brussels, through Jeroen Dijsselbloem (the Dutch finance minister) who represents all finance ministers in the Eurozone said that they (the rest) do not do bridge loans. The current extension as it is in place now is due to expire on the 28th of February. Either Greece complies or the taps turn off. The extra 8.2 billion in loans was (under the old conditions) expected to be transferred this year through to March next year, that might not be the case now.
How did Greece actually get there however? Well, Wikipedia suggests that government expenditures rose 87 percent in the period 2004 to 2009, taxes only increased by 31 percent and output in nominal terms increased by 40 percent. There was also an issue with the statistics supplied on entry to the Eurozone. In other words, they lied. It is not a problem only of Greece, the black market is a large part of the economy, as much as a quarter. There is also a large correlation (same Wiki page) between self employed people and tax evasion, nearly one on three Greek people work for themselves. Competitiveness and productivity, that is what the Germans want more of. Should you let it worry your equity investments? No. I think not. We have no equity exposure to Greece, the market is tiny. The debt is a huge problem, the fact that it is an asset in the hands of others is definitely a reason to pay huge attention. European markets have sold off sharply on the notion that this could cause yet another wave of posturing and that is bad for all inside the zone.
And then the small matter of the non-farm payrolls numbers, which are regularly released on the first Friday of the month, data for the prior month. You must remember that this data is backwards looking and most importantly, prone to sharp revisions. Here we go, the last report: Employment Situation Summary. First, and I get asked this a lot, why is the US employment number so important to you and I? Well, the biggest economy in the world employed arguably the most dynamic workforce in the world, still at the epicentre of innovation arguably. So it matters to the rest of us around what the state of their economy is, it has been well reported that the pendulum of economic power is swinging back East towards India and China and the rest of the region (population count matters), on a per capita basis it is going to take time.
We all want the same things, better communication with our friends, family and loved ones (I hope they are all inside of that grouping) as well as improved standards of living relative to the prior generation. Good numbers equals on track, Mr. Market may interpret this as rising interest rates sooner. You however should interpret the ongoing good job data as good news. Nothing yet in terms of job losses in the broader oil and gas sector, marginal attritions when compared to the overall number.
Sasol released a trading statement on Friday that made for "interesting" reading. You can catch the whole thing here: Trading statement for the six months ended 31 December 2014. At face value the trading update looks decent, especially in light of the falling oil prices. In fact, as Sasol points out in the trading update: "profitability was negatively impacted by 19% lower average Brent crude oil prices (average dated Brent was US$89/barrel for the six months ended 31 December 2014 compared to US$109,83 in the prior comparable period)." If you needed reminding, if the average price of Brent was 89 Dollars for the half ended December 31, we are over 20 percent higher from the late January lows right now, yet Brent is still below 60 Dollars a barrel. There are several accounting changes that have led to some write backs, some write downs, a monster reversal of a share based payment expense (of 2.5 billion Rand), many moving parts. Guidance given for the full year will be when the results are released, which is expected to be Monday the 9th of March. 4 weeks today.
Things that we are reading, you should too
Some very interesting graphs that I came across on twitter - DJIA, 1789 to 12/2014 - monthly chart. The interesting thing is how small the pullbacks look when you take a very long run view on stock prices.
Interest rates since 1285 - yearly chart and Yield on 10-year US Treasuries, 1791 to 10/2014 - monthly chart, we are at record lows and if you believe in the theory of "mean reversion" interest rates will go up in the future. If they do, by how much and when are the key questions.
Here is another "mean reversion" graph - Oil prices, 1860 to 12/2014 - monthly chart
E-cigarettes are still "new" in the grand scheme of things. Here is some of the first health research coming through - E-cigarette vapor damages the immune system of mice, study finds
An interesting look at how car companies are turning into software companies - Tesla knocks on Apple's door when it wants new employees.
Uber gets another accolade, great to see technology pushing things forward - Uber Wins The 2014 Crunchie For Best Overall Startup
Home again, home again, jiggety-jog. Some negative trade data from China is pushing markets slightly down, especially in the commodity space. All eyes still on Greece.
Sasha Naryshkine, Byron Lotter and Michael Treherne
Follow Sasha, Byron and Michael on Twitter
087 985 0939
No comments:
Post a Comment