Farrell: I Always Did Like the Italian Lira
Having had a son live in Italy for four years some time ago I got very comfortable with the lira. I loved spending a million or two for a cup of coffee. It was an out of mind experience to think in lira type numbers. It looks like there might be a chance to go back to the good old days. The euro crisis is intensifying and you have to wonder if Germany wouldn't be just as happy to have it blow up and return to the mark. Lorenzo Bini Smaghi, a Central Bank policymaker, was quoted in the Financial Times as saying an International Monetary Fund bailout for Greece would undermine the euro. "If the IMF steps in, the image of the euro would be that of a currency that is able to survive only with the external support of an international organization" he said. Well, as it is the image of the euro is that of a currency that is able to survive only with the support of Germany.
Greeks work fewer hours than Germans, have more days off, and retire at an earlier age. Germany is going to step in and rescue this? Germany has said it would consider participating in a program if it included a "substantial" IMF contribution and if it were apparent Greece could no longer borrow in the international markets. If that were to be the case the situation could well be too far gone since at some yield you would figure bonds could be sold. Should there be an EU only rescue, it could be presumed that every euro zone country would have the backing of Germany (and France perhaps) and fiscal discipline would constantly be called into question. Moral hazard would reign. The possibility of a Greek default has to be considered.
The People's Bank of China Vice Governor, Zhu Min, got into the mix yesterday when he said, "Greece is only one case, but it's the tip of the iceberg...the main concern today obviously is Spain and Italy." Portugal must feel left out since they just had a debt downgrade and they didn't even get an honorable mention from Zhu Min. I think the Bank of Italy might want to start up the lira printing press.
The international tension between Israel and the US seems personal to me. Netanyahu perhaps thought he had enough influence in the Congress to help him get his way. The President skillfully outmaneuvered him on his recent 90 minute visit with no photo ops, no reporters and no final statement. Stratfor Intelligence Services feels the President purposely controlled the outcome to "drive home..to the Israeli people..just how bad relations are." They continue, the President wants to make it appear the problem is "Netanyahu's unwillingness to forego 1600 apartments at a time when the US needs an Israeli-Palestinian peace process in place to decrease anti-American sentiment in Iraq and particularly Afghanistan." So part of the President's "black-out" around the visit was to demonstrate that Netanyahu does not have the influence he hoped.
The US is "indispensible" to Israel and it's surprising to think the Israeli leader is willing to go all in with housing in East Jerusalem that the US doesn't have a real interest in. Plus, the President just showed how good a poker player he is with his all-in bet on health care. Obama has the chips here. But the recently announced sanctions by Russia, China, and the US are, to the Israeli viewpoint, no sanctions at all. The Russians sell the Iranians all sorts of stuff and the Chinese get over 10% of their oil from Iran. Could the Israeli's be distancing themselves from the US to prepare for a strike against the nuclear reactors?
The front page of the NY Times heralded the fact that Social Security will pay out more this year than it will take in. That wasn't supposed to happen until 2016. But since jobs disappeared and people applied for benefits earlier than expected we are, as the Times says, at the tipping point - "the first step of a long, slow march to insolvency." I hope it's long and slow, but these things have a way of accelerating. Bill Gross, the bond guru at PIMCO, reminded us the present value of the future unfunded social insurance expenditures (Social Security and Medicare primarily) is $46 trillion.
Friday I will be on a plane to Puerto Rice for a long weekend with Mrs. Farrell (She who must be obeyed!). The GDP announcement scheduled for tomorrow should show little or no change from the preliminary estimate of 5.9%. The fun number comes next Friday with the non farm payroll report. We should finally break through to a big number of jobs created. There should be a rebound after February's bad weather. Census hiring ought to add 75,000 temp jobs, and there is an underlying trend that shows improvement in the economy. Estimates range from +150,000 to +300,000. I'll then be marketing Monday through Wednesday so Perspective might be a hit or miss for a few days, depending on flights and connections. There are actually some people who care so I thought I would mention it.