Quote of the Day:
No one is preventing Hollande going ahead with joint bonds for France and Monti for Italy
Michael Meister – Merkel’s Christian Democratic Union Party Member
Macro Overview
Hollande Is The Canary In The Eurozone Mine
- Did you read the Pettis article I highlighted in yesterday’s macro piece? A couple of little sentences have been bugging me all day:
As an aside I will add that France is for me the dividing line between countries that will be forced into devaluation and restructuring and those that won’t – in my opinion France could go either way and we will get a much better sense of this in the first year of Hollande’s presidency.
There are two reasons why I was and am fairly sure that Spain cannot stay in the euro (or, which amounts to the same thing, that Germany will leave the euro instead of Spain).
- Pettis remarks are almost nonchalant, but it’s not the first time I’ve heard this kind of strangely apathetic acceptance. Check out this CNBC article asking whether France should be in the PIIGS category. Concurrently, as the Death of “Merkozy” has not been consummated with the birth of “Merllande”, Germany has become suddenly quite isolated. Still clutching onto the support of political minnows like Finland and the Netherlands, Germany must now seek to confront a rather more formidable, more radical Greek political opponent seemingly happy to pursue a policy of economic brinkmanship, a French president with a distinctly anti-austerity/pro-growth philosophy and a young and disgruntled Spanish and Italian population literally seething beneath the surface.
- This is a trying time for Germany’s pan-Eurozone diplomacy and like Pettis, I too see France, specifically Hollande, as the political fulrum point. He’s the man to watch because he is in the unique situation of being the only person who has both the desire and ability to challenge the Germanic fiscal constraint being imposed on the Eurozone. In this respect, we should listen to what he says very carefully. If he remains silent, obviously this has the most uncertainty. Not because he is not communicating, silence is a form of communication to all investors. Rather it is communicating two potential outcomes which are very polarized:
- The Eurozone dream is in tact. There is genuinely no talk or consideration whatsoever about a Eurozone break up or exit of any nation. Merkel and Hollande agree on most aspects of the fiscal compact and general philosophy on austerity.
- The Eurozone dream is in tatters. There is such a wide chasm between their respective views, that to communicate anything like this to the markets would result in carnage.
- I do not believe that the Eurozone can remain as it is right now, nor do I believe it will disintegrate. Rather, something sort-of-in-between will happen… perhaps that is another discussion for another day.
- But mark my words, Hollande is the canary in the Eurozone mine. When Hollande truly breaks his silence it is likely that his rhetoric will lie between these two extremes, and it will be crucial to understanding the future shape of Europe and the investment consequences.
- He’s just got his feet under the desk, so let’s give him a little time. But, he will soon learn that he is to be the middleman, the broker-in-chief between the “Germanic North” and the “Profligate South”, but first he will think of France, and France is right on the North/South dividing line. Watch his lips very carefully dear reader, they will tell all…
Market Overview
Facebook And Other Things…
- Well after yesterday’s long comment on Facebook I’m not going to say much, other than how astounded I was that we did not get any significant dead-cat bounce today. At this rate my prediction will come true way sooner than I had thought!
- Those “long term investors” can’t seem to stand the stock even at $32 and it’s trading rather badly into the close as we speak – it could end up with a 30-handle before the day is out.
- Anyway, the banks did have a big bounce today, even the UK banks, which surprised me a little, largely because Eurozone spreads are only going one way… wider. And my Chart of the Day is the Irish CDS – to which the UK banking system is highly exposed. Thought I’d throw in another chart just to get the old grey cells buzzin’ … cotton… at a 2 year low… and down 67% from its peak last year. This China slow down is for real, huh?
Chart of the Day
Ireland CDS (Source: Bloomberg)
Cotton (Source: Bloomberg)
Events
Macro Events:
Update:
- UK Inflation slightly below consensus – more fuel for the BoE doves
Alerts:
- Malaysian GDP
Corporate Events:
Results:
- Hewlett Packard [HPQ]
Dividends:
- Costco [COST]
Reading, Links:
Nothing Significant
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Tags: Economy, EU, Europe, Eurozone, Facebook (FB), France, Francois Hollande, Macroeconomic News, Merkel, Michael Pettis, PIIGS, Politics, TIPSTER
Michael Kudrna
