April 9, 2014

Global Macro 360 - Daily Note - Greeks are back, markets definitely have no memory

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Here is an extract from today’s Global Macro 360 Daily Note. To read the full content click here to sign up for a One Week Free Trial.

The thinker

Summary

  • Europe: Greeks are back at the table, amazingly
  • United States: Are wages rising?
  • United Kingdom: Boomtime, rates to rise sooner than later
  • Australian: Bubble, bubble, toil and trouble
  • Eurozone: New French government – all smiles for now!

Good morning,

Just back from a quick visit to London yesterday where I had fun on CNBC’s Squawk Box in the morning talking about my Irish Pub Index and how you can use it as an emerging market leading indicator (see original article here). I finished the day back in Dublin on Prime Time on RTE, analysing whether Irish property will again take off in a stratospheric direction (here).

Briefly, regarding Irish property, for those who believe it won’t reach bubble proportions again have a look at our chart here on the Minsky cycle. We are at the early stages. In fact, Irish property is likely to be the Greek 10 year bond of European property markets – it should rally, but it will on the back of Mario’s cheap money.

The fact that the Greeks can raise money shows the markets have absolutely no memory. Two years after the biggest sovereign default in history, they are back at it. Now I appreciate that the balance sheet is immeasurably better after the default than before, but still.

Athens’ debt is still almost 180 percent of GDP. But the bulk of the debt is owed to other euro zone governments as a result of its two bailouts. Not only do these loans pay a low interest rate of a little over 2 percent, Athens doesn’t need to start repaying them until 2022 and then has another 20 years to complete the job.

Greece shows you just how quickly things can turn about. Note also that its 10-year bond yield, which hit 30 percent after the debt default two years ago, is now 6.2 percent.

Two of the country’s big four banks – Piraeus and Alpha – have raised €3 billion of equity between them in recent weeks and Eurobank, another big lender, is planning to follow with a €3 billion issue later this month.

Yesterday, equities did all they could to fight back from their recent pullback. Utilities did well (100% of names in the green) while healthcare was led lower by weakness in drug producers. SPXended at 1851.96 +0.4%; DJIA 16,256.14 +0.1%; NASDAQ 4112.99 +0.8%. In general however, Ukraine kept the lid on risk assets. For Ukraine, read yesterday’s piece on out-sourcing nationalism . The tech crunch, which I called here on the day Candy Crunch got crunced continues.

 

 

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