Article / 18 February 2015 at 10:30 GMT

Daily Shot: Greek grasshoppers and Slovenian ants Team / Saxo Bank
  • Greek public spending boost irks neighbours
  • Deflation threatens UK economy
  • US fears international loan defaults

By Walter Kurtz

Once again, we start with Greece where apparently the new government is ready to play ball – at least in the near term. Greece will be asking for a bridge loan as prescribed by the Eurogroup. 

Why all of a sudden? It was the Austrian Finance Minister Hans-Joerg Schelling who, on behalf of the Eurogroup, drove the following point home. 

It's easy to see how taking this hard line makes political sense for many in the Eurozone. Some of this pushback on Greece is not originating from Germany. Instead, it's nations such as Slovenia who have been quite angry with Greece. 

In the latest round of game of chicken, the Eurogroup seems to have won. But this is only the beginning and many more of such confrontations are coming. 


By the way, rumours are now circulating of significant deposit outflows from Greece as well as discussions of capital controls – similar to Cyprus. 


Elsewhere in the Eurozone, the area's economic sentiment indicator (ZEW) came in above expectations.  

It's interesting to see that the euro, helped by economic tailwinds, remains fairly resilient in the face of the Greece standoff.  


In the UK producer prices are falling sharply. The massive declines in the wholesale input prices are feeding through to the output prices. 

And this decrease in the PPI is flowing through to the consumer prices, as the nation's CPI hit the lowest level on record. 


The sad story of Ukraine's collapsing economy continues to unfold. The GDP fell 15% on a year-over-year basis. 


Now on to China where pressure is building on the yuan. Given the ongoing growth slowdown, the People's Bank of China desperately wants to ease policy but is afraid that the credit bubble in the corporate sector (some of which was helped by the explosion of "wealth management products") will worsen as a result of lower policy rates. 

Allowing the yuan to weaken may be a better option to help stimulate growth. After all, everyone else is doing it.

The yuan now trades at the weaker end of the permissible range.  

One of the reasons for the downward pressure on the yuan is the short-term profile of China's cross-border debt. We are seeing some capital outflows. 


Indonesia cut the benchmark rate by 25 basis points this morning, adding to the parade of central banks lowering rates. This is the first in a series of cuts. 

The nation's currency, the rupiah, has been selling off quite sharply. It is now at the lowest level since the Asian Contagion of the late '90s. Indonesia's mining boom is over. 

And here are some of the other recent rate cuts by various central banks. 


Investors remain uneasy with massive amounts of dollar-denominated debt outside of the United States. As a number of currencies depreciate against the dollar (such as the Indonesian example above), these dollar liabilities will become increasingly more difficult to repay. 

Combine that with weak commodity prices (with many of these loans used to fund raw materials and energy projects) and we've got a series of defaults on the way. 



Now a couple of items on asset management:

1. Hedge fund alpha has deteriorated over the years. 

2. Q4 2014 startup investment in the US is at the highest point in 10 years. 


The chart below is a bit dated but bloggers love to show it and discuss the sad state of the US economy. This is what I call "extrapolating the bubble". 

Using the 2005-2007 range to project potential GDP is absolute nonsense. That growth trajectory was only possible with massive amounts of credit and those days are over. 

Get used to it – this is the new normal.


Finally some food for thought - five items:

1. A statement on literacy and violence in Western Europe over the centuries. 


2. Some people like to compare the devaluation of the US dollar as measured in the amount of gold one dollar can buy to the proportion of silver in Roman coins. 

3. 156 countries were ranked by the perceived happiness of the citizens. Here are some results. 

4. Below is a chart from Credit Suisse showing how a portfolio of "sin stocks" would have outperformed most markets over a 38-year period. 

5. Since 1750, it's been taking around 50 years for the standard of living to double. Prior to that, it took 6000 years.  

— Edited by Michael Mckenna

* Walter Kurtz is an alias

** Thanks for reading the Daily Shot. To subscribe or unsubscribe, link to the Daily Shot and select the appropriate command. E-mail addresses are NEVER shared with anyone.
fxtime fxtime
It is surprising to see endless comments on the brinksmanship of Greece.....surely the media et al realise that the finance minister is a respected author on Von Neumans Game Theorem/Prisoners Dilemma so ofcourse he is ''playing' Greek fiscal affairs in the same manner. He knows a fudge/compromise will occur (as it always does) at the expense of ALL euro members and Greece will benefit.
AndrejF AndrejF
Well, as Slovenian citizen I cannot confirm, that the Slovenian state is "slashing pay and economizing". In fact there are several privatization projects put on hold, there is no real movement in pension/salary cut and no reduction of staff in public sector. Yes, the medical staff is underpaid, but considering that there are now 3-times more teachers as 20 years from now and only half that many children. Slovenia is just like Greece and Mramor should keep his mouth shut.
thewickedwiz thewickedwiz
Pity he didn't stick to playing games with his academic friends.....
fxtime fxtime
LOL....his other ''fame'' is to establish a computer cloud game system called Steam apparently.
fxtime fxtime
Oh and one other pointer was the establishment of MonteCarlo Hypothesis games for his Steam Corp ! Although these days it is more known as Martingale Theorem. Dangerous ideology to apply to state economics perhaps.


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