Daily Archives: April 29, 2010 @ 3:58 pm (Thursday)

Moody’s likely to downgrade Greece and Brazil buying more $

Posted on by

Seems no one wants a strong currency anymore, but instead wants to keep their real wages down.

So fears of a dollar crash seem again to be overblown.

Nor is there any immediate risk of inflation from excess demand.

The cost push risk from the Saudis hiking prices remains, and so price is unpredictable with demand relatively flat

The situation in Greece seems to be binary, based on political decisions.

Also markets are already discounting maybe a third of what happens if they get it wrong.
So betting one way or the other has a lower risk/reward than a few weeks ago.

US economy looking internally ok with risks remaining external- greece, china, etc.

On Thu, Apr 29, 2010 at 3:09 PM, EDWARD wrote:
BBG:
‘ Moody’s said it has previously indicated that a “multi-
notch downgrade” is likely and the specific lowering “will
depend on the level of ambition of the multi-year economic and
fiscal program.”’

BRL:
*BRAZIL’S TREASURY DOLLAR PURCHASES HINGE ON REAL STRENGTH
*BRAZIL’S TREASURY MAY DOUBLE DOLLAR PURCHASES TO PAY DEBT
*BRAZIL DOLLAR PURCHASES TO STEM CURRENCY’S RALLY, AUGUSTIN SAYS
*CORRECT: BRAZIL TREASURY MAY STEP UP DOLLAR PURCHASES
*BRAZIL SOVEREIGN FUND TO BE USED WHEN NECESSARY, AUGUSTIN SAYS
*BRAZIL SOVEREIGN FUND MAY BUY FOREIGN CURRENCY, AUGUSTIN SAYS

It appears that the sovereign fund will be used as a mechanism to affect the BRL and thus policy tool of the government from these headlines (which seems a little odd for sovereign wealth fund whose assets were acquired by foreign exchange policy implementation, unless they are talking about investing in USD assets along with USD buying). More details/clarification to follow.

Share

Claims/Eur Gwth Surprise?

Posted on by


Karim writes:
Initial claims fell 11k to 448k, lowest level in 1mth.
Anecdotes supporting further declines ahead:

  • VIACOM CEO SAYS ECONOMY IS GROWING STRONGER EACH DAY
  • Caterpillar CEO: “We enjoy hiring people and growing our business, and we’re delighted to see that opportunity coming back”

EU Sentiment and Manufacturing surveys for April out today and quite strong (except for Greece)

  • Of note is stock of inventories at all-time low while new orders and production are rising
  • Wouldn’t be surprised to see 5-6% GDP growth in Q2 for Europe; of course may not be sustainable due to fiscal issues,etc, but should still be a surprise

Yes, if the ECB, for example, simply guaranteed the national govt debt it would work reasonably well. The automatic stabilizers would get the deficits to as high as needed to restore growth and employment.

But that would introduce the moral hazard issue, as whoever ran the largest deficit would be the winner in real terms, in an inflationary race to the bottom.

So they don’t want to remove the ‘market discipline’ aspect even though a nation can become insolvent before the deficit has a chance to get high enough to turn things around.

Share

Re: Run on European Banks?

Posted on by

>   
>   (email exchange)
>   
>   On Wed, Apr 28, 2010 at 8:23 AM, wrote:
>   
>   Given this view warren, do you think Natl Bk of Greece goes to zero here?
>   Or do you think Europe will do a “shock an awe” 100b package that makes
>   greek banks a buying opportunity?
>   

Wish I knew!

They might like to, but they still don’t have an answer to the moral hazard issue or popular support for a ‘bailout’

What’ they’d like to do is figure out a way to isolate Greece, hence the presumed proposals from yesterday, but those aren’t satisfying either.

And any major package weakens the others who have to fund it in the market place.

Nor do they have a way to enforce their austerity demands and keep them from being reversed once it’s known they’ve taken the position that it’s too risky to let any one nation fail.

They are still in a bind, and their austerity measures mean they don’t keep up with a world recovery

Also, a Greek restructure that reduces outstanding debt is a force that strengthens the euro as it reduces outstanding euro financial assets.

The negative is that it further reduces euro ‘savings desires’ and drives more portfolios to shift away from euro.

And domestic taxes are still payable in euro, so there is that fundamental support .

Again, could go either way from here.

Sometimes that’s how it is!

Share