In his inimitable style, Alex Moffatt of Joseph Palmer & Sons in Melbourne summed up the week in his morning summary today, Friday, in writing: “We had one of those rare occurrences yesterday when we saw bonds and equities weaken together. Those charged with shifting the big money around should be exhausted by the close of the week since they have had to move piles of cash from starboard to port and back four times so far. Today it will be moved across the decks again.”
The fairly consistent, though not spectacular, improvement in the economies of those countries damaged by the collapse of 2007/2008 and the ensuing recession is undeniable. When it comes to the unspectacular, Greece still takes the prize as S&P affirmed its rating at B- citing the economy which is, in its words, “gradually rebalancing”. According to the definition, B- means “More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.”
If you want to know who handed the loaded gun to Vladimir Putin, look no further than Berlin.
With estimated gross borrowing needs of about €45bn in 2014 and €34bn in 2015 we might well wonder what language, if not German, is spoken by those with the capacity to meet Greece’s financial commitments but I learnt a long time ago that if you don’t want to know the answer, it’s best not to ask the question. I digress.
Underlying US economics might not be at all bad – both the Philly Fed and the Conference Board readings which were released yesterday looked sprightly – but the uncertainty over China and the Crimean situation have markets dealing with an attack of schizophrenia. The former isn’t all that awful as the questions are directed towards a fairly simple and binary outcome. Will the Peking administration massage the economy to meet the numbers or the numbers to meet the economy? Case closed. The Russian issue is far more complex.
Miscalculation
History is littered with cases of Western Europeans and Americans underestimating the geographical reach of the Russian bear and, more to the point, its value judgements in exercising that reach. The simple rules which apply in America with its long coastlines to the East and West, with a friendly ally with the long border to the North who also speaks English, eats burgers and drinks weak beer and an economically and politically relatively weak provider of cheap domestic help to the South life is simple. The impact of 9/11 bears witness as to how remote America can be from the realities which face other peoples.
Russia is surrounded by minorities of which it presumes, whether rightly or wrongly is a matter of interpretation, that it either dominates them or is endlessly threatened by them. America’s sharp and fairly immediate military response in “liberating” Afghanistan from the Taleban after 9/11 was not all that much different from what the Russians would have done except that the Russians can drive there overland.
Although I most fervently disapprove of the annexation of the Crimea in terms of how it was executed, I still believe that if it comes to “rightful claims” over the territory, the Russians might well have the stronger hand of cards than do the Ukrainians. But that is not the point. If you want to know who handed the loaded gun to Vladimir Putin, look no further than Berlin.
Chancellor Merkel would appear to be, believe it or not, the real villain of the piece as was kindly pointed out to me by Achim Duebel of FinPolConsult in Berlin. In her rush to appease the anti-nuclear lobby which has always been extremely potent in Germany – not without reason is it the birth place of the Green Party and of green politics – she launched the totally mad policy of closing down her country’s entire nuclear energy generating capacity. The bet on wind and solar is noble but misguided and unfathomably expensive. Russian gas is cheap and plentiful but in making her economy dependent on the political winds of fortune in Moscow she effectively neutralised Germany as an East facing political power, thus handing Putin the get-out-of-jail-free card to geographically manoeuvre with impunity.
As I noted in my very first column after the Russians moved into the Crimea three weeks ago, Russia gets back a piece of its country along with its Black Sea naval ports which were anyhow only placed under Ukrainian administration in the 1950s by Nikita Khrushchev. The EU, joy of joys, gets handed another economic basket case in exchange. Who’s done better out of the trade?
Western sanctions are not only closing the barn door after the horse has bolted but, in some respects, after the nag has been butchered and has appeared in frozen lasagne. China has been remarkably quiet on the subject as I see another outbreak of “1984” style three-block politics developing. The West had lost this one before it had started and all the posturing and crying about sanctions will not reverse the outcome. Politicians should learn from traders that the first cut is always the cheapest one – but they won’t.
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Alas, it is that time of the week again and all that remains is for me to wish you and yours a happy and peaceful week-end. As the saying goes “Spring has sprung, the grass has ris, I wonder where dem birdies is?”
Actually, far more to the point, where the hell did I put the darned lawn mower?