Ole Hansen
As the Chinese stock market bubble bursts, Saxo's Ole Hansen looks at the dramatic effect this is having on world commodities and growth.
Article / 15 November 2012 at 10:23 GMT

Steen's Chronicle: Social tension is now the elephant in the room

Chief Economist & CIO / Saxo Bank

We have been surprised how little impact the strikes on the streets of Greece, Portugal and Spain have had on policymakers. But this is finally changing: Eurogroup considers direct transfers to Greece.

Policy makers are finally realising that social tension can overtake much needed reforms and financing needs by virtue of rallying the voters. Note that the groups of people demonstrating across Europe are no longer just unions or public employees. This is now a national issue for many countries. One generation of youth has already been lost, with all the negative consequences expected for productivity, innovation and pure outlook on life.



We have reached the "saturation" point which I mentioned in last Friday's Macro update. Everything has a shelf life. The last date of sale is close for QE, lack of voter mobility, acceptance of extend-and-pretend, lack of accountability for politicians and social acceptance that austerity and easy monetary policy will change fundamentals.

What comes next is one of two things:

Radicalisation - Fascism & Communism?

IF - the policy makers ignore this call for 'change', then the voters will be radicalised, moving to the extreme left and right politically. We are considering having a Outrageous Prediction for 2013 that include a serious move back to Communism in Eastern Europe and towards more autocratic states in Southern Europe. The voters in Greece is already embracing Golden Dawn and in Italy the next Prime Minister could be a comedian from the Five Star Movement (Yes, I know - that's probably at least the second comedian... :-) but watch Beppe Grillo, which is that political comedian's name.

In times of crisis people go to extremes - and this is now a full blown crisis, as we have a banking, economic, political and social crisis in place. It's can't get much worse actually, which is probably a good thing. I am writing an editorial on the benefits of a crisis called: "Why We Need a Crisis" which I will publish tomorrow.

Social tension as policy input - could mean major losses

If policymakers do address the need for change, it will unleash major financial implications. Do not forget that by doing anything to reduce the social tension, governments will need to take losses on guarantees and loans given to Greece et al.

This will not go down well in Germany, where a 50% hair-cut on Greece will end up as a bill totaling 17,5 Bln. EUR  - or exactly enough to keep the German government from balancing its budget in 2014!  Try that one on for fun Ms. Merkel!

Furthermore, if one or two countries gets relief - in terms of extension of time schedule to do reforms, as well as nominally lower rates - the IMF, ECB and governments of Europe will need to take serious losses into and onto their individual countries fiscal budgets. A few countries will also have an additional cost from having to go to the market and raise capital at rates in excess of what the subsidized rates for Greece et al.

Taking losses would be a major step for Europe. We have socialised the debt and its burden. Now we need to democratise the loss to save what's left of Europe and probably also to stop the political moves to the extremes.

Unemployment and social tension could be the new major priorities for policy input, but taking action will come at a major cost to taxpayers and in particular the prudent Northern European countries. Is it time for change now? I doubt it, but this is a step in the right direction, and it proves, once again, that to create a mandate for change you need to see a serious crisis.


We have been playing the short-side of SPX and risk assets, but have now neutralised the positions respecting our old range....



But it's important to keep an eye on several things, including the fact we have broken 200-MA on the downside. Similar chart breaks have yielded further downside of 5% before, and of course, there is the ever-present fiscal cliff in the US.

The short-term support comes from easing of pressure on Spain and Greece, option expiry tomorrow in both commodities & equity futures and, for now, a slightly better tone and understanding in the US for the need for compromise.

This morning trades are included here

Safe travels,





Yvette Roper Yvette Roper
Saxo Bank colleague Theo Papathanasiou agrees the problem in Greece is getting worse. Here are his observations from the streets of Athens:

"I fully agree with this. I am currently in Athens on Saxo business. The view from the streets has worsened in a social sense even since June this year.
Yesterday, I walked through Syntagma square after a meeting nearby. I was in my suit. The crowds were starting to gather in support protest of the Spanish and Portuguese protests. I can honestly say that I have never felt more unsafe in my home town (I was born 300 meters from Syntagma sq) while dressed with a suit that for people here represents 'capital' and thus the 'enemy'. I think we are getting close to an "event" here.
goldfinger goldfinger
Very interesting insight. Comes back to the accepted thought six months ago that Greece needs to be on its own.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail