Central Banking 2014 Upgrades & Arab Uprising Part II

Good evening to all

The month of July has been rather amusing in market volatility and global economic indicators balancing out each other, mixed in with the typical political cocktail of civil unrest.

ECB and Bank of England Harmony

 With the markets losing some of the power and confidence in tactic decision making, today they looked to the words of Mark Carney (Bank of England) and Mario Draghi (ECB). The Outlook of both and interest rate decision remained unchanged, though new weapons such as market guidance are becoming more weighted on market volatility.

A Central bank’s words are one the most secretly kept letters before an announcement, as these words are the recurring power mover of any market. Previously a central bank would never try to give their opinion on forward assumptions of market growth, though the new Bank of England governor changed the norm.  So these words are now a typical aspect for market makers to expect in the medium term.

Liberalisation of the ECB was also in discussion; the idea of releasing the minutes of the ECB, could be seen as a more accurate way of the market valuing the future. Though in the Gothic economist’s opinion this will only produce more wild fire, and take less value of the central bank’s overall decision.

Vertigo Markets

So with the last month being pinned to fallout part 2, of the financial crisis shows that the wounds slowly are healing, for now... The patient is still in intensive care.

The redbull juice of quantitative easing, unfortunately could be working. Grumbles for the Gothic economist, as his positive monetarist views against Keynesian borrowing malarkey as being the devils work could succeed, as the S&P climbed today. However... These growth patterns with an over capitalised market, may bring future worries, to the mix.

Today the US market saw growth patterns that had not been seen since 2011, amongst these positive movements, there has also been frailness at the midpoint, due to fears of reduced growth within in china and liquidity worries for domestic and medium sized businesses.

The Brent crude benchmark has been on rapid brinks of decline and ascension. The Chinese downturn in GDP forecast, and the US growth results have been players on this. Since July continuing into August has seen many Middle Eastern civil problems affect oil output, and with US sanctions on cutting Iranian oil exports have been also implemented this week. Hence this fall going into the winter season for the northern hemisphere could see prices above $112 a barrel.

Positives that can be seen are controlled inflation position within Europe and US, also boosted exports in some of the sovereignly constrained Euro zone countries.

Burn Baby Burn

The Middle East and North African political process is still far from maturing in stability. With Nigerian tensions, the Egyptian political problem and summer maintenance schedules, the fall could haunt the price yet.

Libya has been flooded with protests and shut down of its ports, leaving the OPEC state with no oil and in some cased more than 50% fall in refining, giving August and September contracts a rise.

The markets could possibly become more active in their discontent with the Arab uprising, as foreign direct investment thoughts to Africa becomes less desirable.

The biggest problem is that due to these cuts in production, you cannot stop oil extraction straight away, so all you can do is flare. The burning of fuel in some parts of Africa have forecast to total over $100m a month, and with Flaring already being a major issue within Northern Canada, more investment and maintenance is demanded within the Oil & natural gas sector.

This week saw oil spills in Thailand, Nigeria and evidence of manufacturing faults with an Exxon pipeline in Canada. Enough said on future prices and environmental damage.

Closing Black Words

The energy sector will continue to climb, as middle east tensions are predicted to continue , if  US continues to give out low unemployment data and growth support. Though this highly unlikely, and in the fall, markets will become more volatile, as the deadline for the US borrowing limit comes closer.

Buy while you still can...

Wealth management stays strong, Shale keeps on fracking and France feels the heat...

Tax Privacy lies no more

The continuing transition of banking secrecy becoming more open, continued last week, as Luxembourg, the British territory of Bermuda and Chiefs of Uni Credit began a mixture of transitioning towards a mixture of openness towards taxation figures, and bank balances.

The Austrian chancellor though is going one step further. He has been given approval to negotiate with the US a tax centred upon foreign bank account holdings. More centered towards account holders in the US, it will most likely be a two part situation for EU member states also. Austria is also signing up with the US to a mutual administrative assistance in regards to tax matters.

The movement is a combination of pressures implemented from the EU and US. Allowing for tracking of financial intermediaries that can involved in a rouge transactions, to increasing the strain on beating tax avoidance. Obviously a growing concern for large investors, though that hasn't put them off too much...

Regardless of this big shake up, wealth management and private banking are still on the rise. The likes of Goldman Sachs and JP Morgan are preferring to have a stickier type of deposit holder, where reserves are less volatile than those entwined within their investment arms.

As all these changes for reform, glide out of the former Habsburg empire, from neighbouring italy Tax evasion scandels for Mr Belesconi as he loses his appeal for a zero four-year jail sentance, for his punishments for tax evasion. FT article

Black Clovers

Ireland has now been recognized for offshore exploits to a once ignored segment of the Eurasian plate. This will hopefully bring a few more receipts into the stagnant Irish economy, though still striving as the only euro-zone member, that is currently able to repay its debts to creditors and the ECB.

Whilst the ocean floor is being discovered off the west coast of Kerry, in the US, commercial competitive rates of liquefied natural gas have raised hopes for the department of Energy, as the mining of shale has unlocked vast amounts of the fuel source. So much that the US is on high prospects to be net exporter by 2020.

The new energy boom is acting as a boost to the US recovery, as will eventually be reflected within the future months whilst the Brent Crude price fluctuates  The oil price staying firm on still low growth forecasts, and possibly more so into the end of 2013, that the US's energy chat moves further away from coal and oil, in the hope to reduce CO2 emissions and increase its strategic dominance, by becoming less energy dependent.

French woes

Last Friday marked 25 years of the Franco-German relationship within the council of financial and economic affairs. Though a Francois Hollande has certainly realized he and his government may have really played with fire, in relation to their bullish comments amongst other EU nations over the previous weeks.

With taking advantage of trade woes with UK & China, and insulting government figures in Germany, it is only obvious for Mr Hollande to possibly expect a more uncooperative relationship, in regards to their views against the Germans and their strong Hayek position. As well he also needs to manage a healthy cabinet reshuffle.

Protectionism and National independence is becoming more an issue, and with the organisations, such as the WTO, being in a crisis, slowly taxes and tarrifs may comeback into being. Though it is more likely that free-trade-areas and economic zones will continue to exist, just with larger import/export costs.

What to do??

I had no idea what on earth to write about last week...There was too much to write about!! Instead I made a draft of my views last week which I did not finish.

So the world has turned into the rule of the bond market. If you want to know what happens, look at the rating agencies a few purpose done government leaks and the market speculation.

one day this week at 13.30 the rallying of stocks occurred on the DAX bringing it up by 3% percent within minutes. Though still peripheral pressure was implemented on Europe.

The worrying thing was that the Chinese Central Bank cut deposit rates for banks as the China markets closed negative, possibly showing a new landmine that could go off on the already fuel leaking world market.

Still I think one kind of cranky positive result that has come out this week so far is that the UK economy doesn't seem to be needing to fear the rating agencies for the time being only the Strike currently occurring which is seeing huge amounts of public Sector workers affect the growth of the UK economy.

When the IMF reaffirms in your mind, why it is the Last Resort...

This week really marked a major time within the History of the European Monetary Union, the first stages of Greece having no more power in it's own country.


After the markets being stressed over the future of the €zone and Italy, it seemed a deal had been sealed on the weekend and the markets were looking hopeful for Monday, that was until the Greek PM flew back to Athens and announced there would be a referendum vote given to the Greek people to ask if they still wanted to be part of the euro and EU. Obviously the markets went to the panic button and Italian bond yields rose to the roof (The higher the bond yield, the higher the cost for Italy to borrow).


The last time I read of such a immediate of loss of power, was in the Oil Crisis peak of the 70s when the UK had to borrow from The International Monetary Fund. The IMF is the lender of last resort by any country's eyes, and when a combined package with the ECB was made in the last weekend of October, Greece seemed to think it had time to hold a referendum. The heads of the IMF, Germany & France just turned round and refused to give Greece any extra money this week until Greece did the right thing. Now Greece will not be trusted for a very long time...


There is without a doubt in my mind that the Greek PM did the wrong thing, he could have nearly produced the default on Tuesday. It was that serious and also he wasted a huge amount of money within the market. Not only that but when you take into consideration that Greek bond holders lost >50% of their value on their assets negotiated between the ECB & main holders, you can see why Angela Merkel, Nicholas Sarkozy & Christine Lagarde may want to hire an assassination Squad to take down George Papandreou.


Today FT.com produced an interactive map of the possibilities of the Fallout of the EU if Greece were to default, it's interesting whichever way you take it.


http://www.ft.com/cms/s/0/0a35504a-0615-11e1-a079-00144feabdc0.html#axzz1cXJyG6ms


I don't want to be 'I told you so'...but the default is only becoming more likely, November 2011 will be something European Economic history. The EU will be quite likely, kicking Greece into the dessert by the end of the month to sacrifice the few for the many. Then stage two gets under way... Italy


I'll promise I'll lighten the mood with one of my silly graphs on the weekend^^ Maybe zombies could trigger the collapse of the Eurozone? Stay tuned!

Greece's Future Epitaph and ECB loses a few Nukes along the way...

So time to get to the major future of the exotic  € member states and really what is the future for Greece and also  now Italy, which I will discuss in the next post.

In contrast to Italy and Spain (and arguably the remaining lesser deceased EMU members) Greece is insolvent and in need of debt restructuring, so now it is from a typical investors eye like this.

Greece is on life-support and we are getting ready to find out what he has in the 'family will' and who gets what debts that he goes to grave without paying. 

The main problem is who Greece borrowed money off, which has left a lot of our own banks now having to realise they won't really see their money again, making the lunch group investors not know why they shouldn't move more to the BRIC countries(Brazil, Russia, India & China).

The fire-power of the European Central Bank is also under attack, the uncompromising dedication for the ECB to support illiquidity issues of governments is crucial in some ways, though it is getting more in-tuned with political decisions and this by any economist outlook gets us extremely scared.

This is due to the ECB being the grim reaper; who lives and who dies is up to them and unfortunately that is the way it goes in positive economics, though it is being slowed down now. If the ECB had its way it would have back in late July refused help to Greece and provided them with a little get out of town cash and help with defaulting, because the longer it is left the harder the fence becomes to stop greece's plague attacking Italy and Spain.

What we discussed this morning in my Behavioural lecture was also the civil situation, a lot of us showed how Greece would likely come to civil unrest, from negative growth and high unemployment with zero money, what would you do if you were Greek?

http://www.ft.com/cms/s/0/4220f626-d54c-11df-8e86-00144feabdc0.html#axzz1aXhw5yiu

This link gives an interactive outlook on the € members on their unemployment and GDP readings as well as their competitiveness. 

I think the biggest scare is that people will have to see it like this in the eyes of most analysts as the most likely options.

1.Germany leads a € break up- possible? but unlikely right now

2.Disorderly € breakup of the bottom pile?survival of € will occur though will cause large political disruption.

3.ECB takes a hit and one country exists without contagion- meh we doubt it yet we need to still think it

4.IMF decides that Default and debt restructure will occur- As likely as a bomb falling to the ground

5.Growth and inflation stabilisation occur and everything is mulled wine & butterflies-That is as likely as my monetary integration teacher deciding she is wearing latex to the lecture this afternoon. Desirable, yet highly improbable.