Monday, August 27, 2012

Open Letter To Tsipras and Samaras

To: Alexis Tsipras and Antonis Samaras
Re:  Attempts to de-rail the global economy and humiliate your great nation en route to winning a few miserable votes

Dear Sirs,
Thank you for your concerted efforts at ruining the global economy in order to try and game Northern European taxpayers into bailing out your insolvent country and ultimately shuffling the risk for your profligately accumulated debt onto their taxpayers.

Your plan appears to be working. You see in recent days a slew of companies have been coming out and warning of a drop of in orders and visibility, much of which seems to have accelerated in Europe around the time in between the two Greek elections in May and June.

Companies Are Starting to be Affected by the Uncertainty You Created

Adtran Inc (NASDAQ: ADTN) missed estimates and warned of a tightening spending environment amidst decreasing visibility. Acme Packet (NASDAQ: APKT) has its own issues but it is hard to conclude that orders decreasing in Europe weren’t a big part of their own miss. The same thing applies to Advanced Micro Devices (NYSE: AMD) which talked of weakness in Europe amidst weak PC sales.

To prove that this isn’t just about technology, Nike (NYSE: NKE) warned that its inventory in Europe would be higher than originally planned due to weaker sales. In addition Alcoa’s (NYSE: AA) CEO spent a fair amount of time on the recent conference call explaining how European Purchasing Manager Indices (PMI) were affecting his company. He even produced charts highlighting the increase in correlation between his company’s prospects and the macro-economic environment.

CEO’s are just like the rest of us. If they read newspaper reports talking of another ‘Lehman’ moment inspired by a disorderly Greek exit, they will hold back on investing. They will hold back hiring. They will stop creating wealth. Your plan is working.

Mr Tsipras Goes to Athens

A particular commendation is due for you Mr Tsipras. Your policy of continually reminding the rest of the globe that you might engage in a hard default and therefore possibly trigger off a financial crisis in Europe and ultimately the US was very effective. Indeed, your choice of language belies your intent. Quoting from an interview you gave with the UK’s Channel  4.
“On the other hand, our advantage is that if the funds stop coming in, we will have to stop paying our creditors. That would result in a domino effect in the financial markets all over Europe and create a devastating storm all over Europe.
 Both sides have nuclear weapons in their hands. And the big issue is to try and find a solution so that neither of the two sides pushes the button, because if something like this happens, no-one will benefit”

That’s the way to show them! Threaten Mutually Assured Destruction (MAD) on the other countries in Europe who have been giving you generous aid in order that you reform your economy and get back to a sustainable debt path. Why not reward the ECB for buying your bonds and lending you money by unilaterally defaulting and creating a black hole in their balance sheet? Why not thank the Europeans who voluntarily wrote off a huge part of your debt by threatening to ruin them unless you get what you want?

Turn Greece Into a Bank?

It doesn’t matter a jot that MAD was a doctrine used by mortal enemies in the Cold War. It has morphed into the de rigueur strategy between the best of friends in recent years. However I have a suggestion for how you might tighten your ‘game.’

The banks gamed the taxpayers by pointing out that the global economy would collapse if they weren’t bailed out in order to start merrily creating the conditions for the next crisis. Like Greece, the banks have a small number of people earning an inordinate amount of money and coming up with no end of –dare I say it- Byzantine methods of tax avoidance. The benefits of the arguments of ‘trickle-down’ (even if the reality is a myth) work equally well with banks and Greece’s not tax-paying wealthy. Why not turn Greece into a one big bank and apply for TARP?

Let’s Not Forget Prime Mnister Samaras
For you Mr Samaras the spoils! No I mean literally the spoils. The phrase ‘to the victor the spoils’ refers to an election winner gives government jobs to its voters. Or rather, in this case, promises not to sack any public workers.
This stroke of genius and your election victory, comes after a few years of voting against bailout proposals including the initial May 2010 deal. You even sacked prominent figures from your party when they voted in favor of the bailouts.  You are now holding together a shaky coalition having garnered political support by voting against restructuring measures that the Troika( ECB, IMF and European Commission) have asked Greece to enact in order to get bailout money. Meanwhile the second biggest party - led by the hard left Mr Tsipras- is merrily campaigning and marching against every reform measure.

Well done Sir!  Now precious few believe in you or that your Government will hold or even countenance making measures that might give your creditors a chance of being paid back the money you owe them. 

The good news is it doesn’t matter. You can always use the MAD doctrine to have another pop at blackmailing Germany, Austria, the Netherlands, Finland et al into taking on collective responsibility for your mismanagement, corruption, profligacy and non-tax paying elite. The worse the economy gets, the stronger your MAD bargaining position will be. Right?

Beware the Shark’s Finn

All is going well. You are getting what you want. However be careful, it might not be safe to go back into the waters of debt accumulation. Those pesky Finnish (who contribute more per capita to the bailouts than anyone else) are not happy. They keep raising the issue of collateral. In other words, the pests appear to think that imposing some conditions in order to actually try and get their money back is a good thing. How dare they? They clearly don’t understand how this is supposed to work!

What makes them dangerous is that if they agitate the situation and make noises about leaving the Euro (as they did recently) then the Troika might start crystallizing a choice in their minds. A choice between keeping a contributing nation in or removing a nation that doesn’t appear able or willing to pay any debt back and is threatening to destroy the economies of the rest by taking MAD action.
You never know, the Euro Zone might do something ridiculously silly and decide to throw out the serial debtor and keep the creditor in!

Cheer Leaders on the Sidelines?

On the sideline sit a multitude of investors who are pointing out that, according to BIS figures, Greece’s total debt held in foreign institutions is less than Ireland owes the UK. These investors think that if Greece is removed, then the uncertainty will be too.

These people think that markets hate uncertainty and so do CEOs. When it is removed then firms will invest again. Markets will move strongly higher and pent up corporate investment spending will be released. Be careful. These people are not afraid of your empty threats and they are sitting and waiting for your exit in order to get back in to the business of not rewarding blackmailers and investing, creating wealth, employment and good will.

Look out for them. They might get what they want soon.

Kind Regards,
N. Machiavelli

Monday, August 13, 2012

Soup Kitchens, the Homeless and Hedge Fund Managers

I stumbled upon this article recently about soup kitchens and the homeless. I must confess that is one of the most delusionally hilarious things I have ever read. Before I witter on here is the link for yourselves to read.

Do Soup Kitchens Help the Homeless?

It is not so much the subject matter but the logic contained in it that is so inherently ridiculous.

For example (my italics) let me quote this

"A government drive to reduce homelessness has helped bring down the numbers sleeping rough by around two thirds, but recent bad economic news - notably the slide in house prices - has rung alarm bells. The homeless charity Crisis, whose Christmas centres open this weekend, warns that homelessness can affect anyone. It warns that even if you have a good job, things can go wrong quickly. A recent survey showed one in five people said it would only take a month for an unexpected drop in income to have a knock-on effect on their housing. "

Now at what point in this whole process is the author or anyone else in the UK going to dare to utter the truth that dare not bear its shame. When is someone going to point out that a good reason why there are so many homeless people is precisely because house prices are too high. Somehow the logic is twisted into this sick idea that high house prices are good for the economy and therefore good for the homeless.

Perhaps the reasoning is that if bankers and real estate speculators are celebrating their new found wealth by moving on from cream of mushroom and are now tasting the delights of lobster bisque, the trickle down effect will kick in and the homeless will now be enjoying more conventionally acceptable fungi in their soup?

But the nonsense doesn't stop there. My italics again.

Former rough sleeper Mark Johnson says it really can happen to any one of us: "We're all prone to that - you know all of us - a breakdown in a relationship, or some sort of trauma or a death or a tragic event - we're all there, much closer than we care to realise." He remembers hearing a very similar view from a city hedge fund manager: "He said in a very quiet conversation we had: 'Do you know what, I know that I'm only ever a couple of bad decisions away from being on the street myself,' and I thought that was a really good insight into being in this world because everyone is."

At which point Mark Johnson (name sounds a bit too generic so my bullshit radar is bleeping already) was entitled to respond to this sterling 'insight' with the comment 'Ok then let me pop in your office and do a couple of futures trades and with a bit of luck I too could be earning huge sums of money and be set for a life of privilege just for convincing someone at an asset management firm that I know what I am doing'.  

Now given that hedge fund managers do make bad decisions. More than a couple of them. All the time. It should be somewhat surprising to the author of that article that not more soup kitchens had little corners in them where the community of recently homeless hedge fund managers might get together and plan their latest arbitrage situation.

No matter, there is in fact a deep insight in this article. It's not in the content of it but rather the underlying assumptions that she makes safe in the knowledge that they exist within the unchallenged and pervading social concensus within London.

In other words, high house prices are good for everyone at all times, including those who can't afford their own home. We do live in a meritocracy where outcomes are distributed based on ability and all that bailing out of the bankers after they made hundreds of bad decisions was really just a way of reducing the numbers of the homeless. Now I get it!