With the Europeans enjoying their long summer vacations, let’s recall Europe’s bloody crisis summers. Via Project Syndicate.
Summer crises are a familiar feature of European history – and of financial history. Indeed, the twentieth century was shaped by three summer crises, whose seriousness was heightened in each case by the absence of major policymakers, who were on vacation.
In two years, Europeans will commemorate the centennial of the assassination of Archduke Franz Ferdinand on June 28, 1914, and the subsequent “July crisis” that triggered World War I that August. On July 13, 1931, the German banking system collapsed, ensuring that what was previously an American economic downturn became the worldwide Great Depression. On August 15, 1971, President Richard M. Nixon ended the United States’ commitment to a fixed gold price, leading to a decade of global currency instability.
Each of these crises involved a highly technical issue, but also a much broader set of political problems. And, in each case, the intertwining of the technical and the political produced disaster.
Full article here.
With Diamond’s testimony in the LIBOR scandal, it is always worth reading some of Jessie’s thoughts on the matter.
After the hearing, Conservative MP David Ruffley, a member of the Treasury Committee, said he was not satisfied with Mr Diamond’s evidence.
“Either he was complicit or, frankly, incompetent,” Mr Ruffley told the BBC.
He said he was astonished that Mr Diamond said he only became aware of the rate-rigging at Barclays last month.
“It was quite shocking testimony, in the sense that there was serious wrongdoing and he didn’t know about it,” the MP said. “Heaven knows what else was going on inside the bank.” BBC
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”
John Dalberg Lord Acton
Over the past months, the psychology of the markets has been changing in a way we haven’t seen in many years. The bears, are all convinced that Greece, Spain and the rest of Europe will drag the world into the abyss. We have been rather bearish on the PIIGS situation, but have changed our view during the past month, as we simply have been encountering the shift in psychology in the markets. The crowded trade is being a Euro sceptic. This has proved rather costly during June, especially when it comes to the Spanish equities space. Too many “smart” shorts have entered doomsday short positions, and are now feeling the pain. Although we don’t expect the equities markets to go massively higher in the short term, one shouldn’t rule out a break out to the upside later this autumn. If SPX starts flirting with the old highs, many will start sweating, especially as the “crowd” has abandoned the equities space over the past years. Some more on the tilted psychology via Gresham’s Law.
This can happen in two ways. In the first (and most relevant) instance people can simply overdo the downside and realize that the depths of a depression are not a permanent condition of reality. The second may perhaps come later; as it is – for want of a better word – greed. We expect that the memory of debt-deflation would have to be purged from the mind of the investor before the latter can have a chance of taking hold once more. The world still has a case of ‘2008 on the brain’ / ‘2009 on the mind.
With the Euro crisis having spread across Europe, Germany is now starting to feel the pain. Markets have been cheering the Spanish bank bail out lately, but what is Germany facing this autumn? From Spiegel online.
The German economy will stagnate by this fall because of the euro crisis, Hans-Werner Sinn, president of the Munich-based Ifo Institute for Economic Research, said recently. The Macroeconomic Policy Institute (IMK) sees the German economy stagnating both this year and next. “The crisis in the euro zone, the strict austerity policies and the associated recession in many EU countries” have taken hold of the German economy, says the IMK. The economists at Citigroup expect a recession in the euro zone in 2012 and 2013.
The first half of 2012 is over – and the risk on/risk off trade is still alive and well.
There’s nothing like a spot of volatility to keep investors on their toes.
June was marked by a continuation of the markets’ recent obsession with events in Europe, but with a greater dose of unpredictability, both in terms of the news flow and how investors chose to respond to it. For instance, one of the best-performing asset classes was Spanish equities, which benefitted first from some bottom-fishing when that country’s government finally requested bailout assistance for the country’s troubled banks. Spain’s stocks ended the year with a bang, rallying on the final trading day of the year when word came that eurozone political leaders had reached an agreement to funnel financial support to troubled banks without adding to sovereign debt loads.
For all those that still think Spain is just going down, sorry. IBEX put in a stellar performance last month, managing squeezing many of those “smart” new shorts.