Vince Farrell: Hey Europe, It's Time for Action
Chief Investment Officer, Soleil Securities
The 17 families meeting the last few days — and I can't remember if it was the EU, the ECB, the IMF , the EIB, CIA, FBI or what- decided to make no decision except to cancel the meeting scheduled for October 13, and meet in November. They'll decide about Greek aid then.
Sure. It can wait.
The financial world is going to hell wondering the way out of this maze.
The proposed 21 percent discount on Greek bond holdings that has been proposed to effect the bond swap part of the July deal is clearly not realistic.
To argue about what it should be is borderline absurd.
The market will tell you, as markets usually do, and the boys that are supposed to be in charge are in complete denial. The boys here are actually the Finance Ministers of their respective countries. I was just kidding it was maybe the FBI or the CIA. The Finance Ministers are sort of like the consigliere's of the finance world.
Perhaps the legend that Nero fiddled while Rome burned is true.
But I am being overly critical. The Troika and the minister's did decide they needed a few "technical revisions" to more effectively move along the private sector involvement in the bond swap and to jump start the privatization of Greek assets (which will not ever happen — ever). This is really the gang that can't shoot straight.
The latest stumbling block is Greece has missed, or will miss, it's deficit target for this year.
Gee, what a surprise.
But even if they were able to come to a decision on what to do, Portugal is right behind Greece with a deficit of almost 9 percent of GDP in June when their year end goal is 5.9 percent of GDP.
A bit further north, a Belgium/French bank, Dexia, is in trouble. But the governments have said they would cover it. All well and good, or not depending on you feel about moral hazard. But if the French have to step in and bail out their banks, they could lose their AAA rating. If so, the EFSF portion they are standing behind shifts to the other five AAAmembers of the zone. In effect, that is Germany.
If that happens:
1) the Germans can't love the prospect,
2) at what point does the German AAA get threatened?
Smarter guys than I have said to use the EFSF as a TARP type vehicle, leverage it to get to 2 trillion or so, and recapitalize the banks. You could let Greece go bankrupt, which it actually is, and probably ring-fence the disease to just them. I remember a long ago coach yelling at me (they all yelled at me and in hindsight with very good cause) "Damn it Farrell, do something. Don't just stand there"
Well, time for the Europeans to do something. This is not going away.
Our government has done precious little, or precious little good. But to salvage the cause we now have a group wanting to start a trade war with China. The Senate is likely to pass the Currency Exchange Rate Oversight Reform Act. Tempers are flaring that the yuan's 30 percent appreciation against the dollar the last six years (thanks Syd Williams for the accuracy of that) is not enough. The House will likely kill it, but fellas! China is our largest creditor, our third largest export market, and our second largest trading partner. Protectionism has its emotional appeal. It certainly has electoral appeal. But it is not a good idea at any time, but especially now. Remember Smoot- Hawley? If you don't, what the hell are you doing in Congress?
A buddy sent me the following (thanks Conrad); yesterday, 10/3/11, the S&Pclose at 1099.23. Three years ago, 10/3/08, the S&P closed at exactly 1099.23. Spooky. The Tigers beat the Yankees that year in the ALDS. Oh no ! Even worse, the market fell 18 percent the next five days in 2008.
Clearly, the world has to root for the Yankees! Vincent Farrell, Jr. is chief investment officer at Ticonderoga Securities and a regular contributor to CNBC.
Vincent Farrell, Jr. is chief investment officer at Ticonderoga Securities and a regular contributor to CNBC.