Europe's Populist Left

[MadImmortalMan]

On the other hand, when I see a new bond pop up with a nice 4-5% yield, issued by some non-African government, I can't stop myself from clicking the buy button.

That's still kinda crappy.

[Monoriu]

On the other hand, when I see a new bond pop up with a nice 4-5% yield, issued by some non-African government, I can't stop myself from clicking the buy button.

That's still kinda crappy.

I'd love to hear it if you have a better idea 

[MadImmortalMan]

Junk bonds are not less risky than stocks and you're not getting nearly the yield to make up for it.

AT&T pays 5.71% right now, and it's a hell of a lot safer than a junk bond. And can be sold on a whim.

[Monoriu]

Junk bonds are not less risky than stocks and you're not getting nearly the yield to make up for it.

AT&T pays 5.71% right now, and it's a hell of a lot safer than a junk bond. And can be sold on a whim.

Just checked it.  My US stock trading account is now online after two weeks of battling with the bank.  You guys use "ticker symbols", and AT&T is "T", right?  We use numbers in HK.  AIG is 01299. 

There are also Vanguard passive ETFs, right?  I'll do it on Monday then.  Markets are closed now. 

[Admiral Yi]

You guys use "ticker symbols", and AT&T is "T", right?

Yup.

If you need to look up a ticker, I find the easiest is to go to the company's home page and click on the investor relations tab.

[Sheilbh]

Still my point stands.

Except if Germany were to have some of the problems that the periphery has they may be more open to potential solutions.

But I think there is a strand of German public opinion that's rather Mono-ish. See this interview with Draghi:

The question is why you see price stability at 2% inflation at all. 0% would be much better, wouldn't it?
Draghi: The 2% target was decided by the Governing Council in 2003. It would certainly not help confidence if targets were changed when it becomes difficult to meet them! Otherwise, when we had 3% inflation, we could have set 3% as the target. We must be reliable. Inflation has been low for some time now. This is partly due to falling oil prices and corrections of high prices in some countries, but also to weak demand. Core inflation has been around 0.7% for a year.

No major central bank has an objective of 0%. The reason is simple. If one aims at 0%, half the time inflation will be positive and half the time it will be negative. And when inflation is negative and interest rates have fallen to zero, one cannot lower interest rates to bring inflation back to zero.

Do you fear deflation, i.e. declining prices and wages?
Draghi: The risk cannot be ruled out completely, but it is limited. The important thing is what inflation rate people expect over the medium term. Since June, we have seen that these expectations have declined. If inflation remains low for a long time, people might expect prices to fall even further and postpone their spending. We are not there yet. But we need to tackle this risk.

... and the result is grotesque. The central bank fights for more inflation. That's strange for Germans, whose country has suffered two periods of hyperinflation and fears a new currency reform. Do you understand the unease of the people of this country?
Draghi: History shows that falling prices can be as damaging to the prosperity and stability of our countries as high inflation. That is why our mandate is symmetric. And that is why we are now ensuring that the risk of deflation you just asked me about does not materialise. You, as a journalist, also have a duty to explain. Public opinion in Germany is very important for us.

On OMT.

I looked this up and I don't think the ECJ have actually ruled yet. But the press release of the Advocate General's opinion had this section:

As regards the first question referred for a preliminary ruling, which concerns whether the OMT programme is in reality an economic policy measure rather than a monetary policy measure, the Advocate General takes the view that the objectives of the programme are in principle legitimate and consonant with monetary policy. However, given the significant role which the ECB plays in financial assistance programmes (design, approval and regular monitoring), its actions might in certain circumstances be perceived as being more than mere "support" for economic policy. Thus, in the event of the OMT programme being implemented, the ECB must, if the programme is to retain its character of a monetary policy measure, refrain from any direct involvement in the financial assistance programme that applies to the State concerned.

Which makes it seem like it'd be difficult for the Troika to continue as it currently does - and as Syriza rightly point out it has no legal or institutional basis - if the ECB would want to go forward with OMT. I think the markets would far prefer the OMT to the Troika.

Meanwhile, the Russian finance minister said that if Greece were to seek loans from Russia, they would give the request due consideration.

That was a worry back before the bailout too. I remember reading many articles that the Russians were prepared to bail the Greeks out (if the Euros didn't) in exchange for naval bases.

In fairness on the Russian sanctions point, their Finance Minister has posted this:
http://yanisvaroufakis.eu/2015/01/29/a-question-of-respect-or-lack-thereof/

And when asked the Greeks did approve extending the sanctions and, apparently, their Foreign Minister told his Euro-colleagues 'I'm not a Russian puppet.'

On the non-cooperation story that is bold. What's clear is that this time it's different. This isn't Papandreou or Berlusconi or Zapatero.

Dijsselbloem had apparently briefed the media that an extension of the programme had been agreed - again it's not entirely clear if that was just the press jumping the gun or the Eurogroup forgetting to check with Greece. But as it turns out they're pretty clear they don't want the next tranche or to extend the current program.

Varoufakis is right that this, ultimately, is their electoral mandate it's what people voted them into office to do and on the first day in office he said he'd started negotiations with Greece's official creditors but would not acknowledge the Troika. But everyone had assumed that the crunch point would come in about June or July, whereas at this could move it forward to February. But the decision in February would be Draghi who I think would be unlikely to pull the plug so early in any stage of negotiations, but if he doesn't then the Troika have set a precedent of accepting this from the Greeks.

For all the talk of cooling things down the meeting doesn't look like it went well:
https://www.youtube.com/watch?v=LPmFHW60Ho8&x-yt-ts=1422579428&x-yt-cl=85114404
The bit of talking at the start of that clip: '...and with this if you want – and according to European Parliament – flimsily-constructed committee we have no aim to cooperate. Thank you.'

On the other hand Varoufakis was on Newsnight earlier and was emphasising that Greece wants a deal. He said Syriza pledge to run a balanced budget and a primary surplus. They want to deal with Greece's partners - the IMF, EU and ECB - but reject the Troika (the sort of WW2 United Nations stance they've adopted and the supervising officials). He added 'we do not want to reverse structural reforms, we want to deepen them and make them more extensive'. The interview starts at around the third minute:
https://www.youtube.com/watch?v=BiIO4YciewU

There were two nice game points made by London City people I saw today. One is this could be a very strong bluff and if you're playing poker with a weak hand as Greece (probably) is, it may be the way to go. The other was this tweet: 'the month ends with me worrying that @yanisvaroufakis is significantly over-estimating his game theory skillz'

I do wonder if everything will, in the end, turn to Draghi who, so far, has been appropriately silent.

Edit: The Newsnight interview really is great and worth watching - and only ten minutes!

Edit: Also extracts of one of Varoufakis' books have been made into a free e-book:
http://www.amazon.co.uk/Europe-after-Minotaur-Greece-Economy-ebook/dp/B00SV1T1VE/ref=sr_1_1?ie=UTF8&qid=1422527560&sr=8-1&keywords=europe+after+minotaur

[Martinus]

Yi, I'm particularly interested what your take is on this.

There are some things I agree with, in particular that Greek debt was unsustainable when the program began.

He is in total denial when he says that the bailout imposed terrible austerity on the Greek people.  The troika financed deficits that Greece would otherwise have not been able to finance without the bailout.  The alternative to the bailout, with its strings attached, was even deeper cuts, those necessary to achieve a balanced budget.  When no one will lend you money, that's the only kind of budget you can run.

He is also being a bit disingenuous when he tells Germans that they don't have to worry.  If he does what he says he will, either they will get less of their loan back, get less interest on it, or get it back over a longer time.

I think the point (whether right or wrong) is that merely servicing the debt Greece has is such a huge expense, they could use that part of their income to finance any deficit they have. I don't know if that's true but I seem to remember seeing a figure of 1/3 of GDP being used to service the debt. If this is true, then Greece would probably be better off defaulting.

[Admiral Yi]

Yes and no Marty.  If they didn't get any new money they would by definition be running a balanced budget.  No deficit.

[Martinus]

Yes and no Marty.  If they didn't get any new money they would by definition be running a balanced budget.  No deficit.

Ok maybe I should have said shortfall rather than deficit. My point was that if they default and stop servicing their debt, this alone may give enough money to finance their spending without having to implement severe austerity measures.

[Martinus]

It's probably 1/3 of national budget, as 1/3 of GDP would be ridiculous though.

[Martinus]

Sheilbh, thanks, that's very informative. It will be really interesting to see how it plays out. The Greek side is not without its rights in this, but any compromise with them would be such a paradigm change for Germans (and, apparently, also Finns, the Dutch and Estonians) that I don't know if they reach any. Most likely outcome will be some sort of kicking the can down the road while allowing the Greek fellow with the name I havent yet memorised to keep his face. At least that's what the Economist sez.

[The Brain]

Junk Bond? Is that any of the movies set in E Asia?

[Admiral Yi]

Ok maybe I should have said shortfall rather than deficit. My point was that if they default and stop servicing their debt, this alone may give enough money to finance their spending without having to implement severe austerity measures.

Absolutely.  Cut off all debt service and you have a ton of extra money to spend on making your voters happy.  That's the great beauty of default.

[Sheilbh]

Most likely outcome will be some sort of kicking the can down the road while allowing the Greek fellow with the name I havent yet memorised to keep his face. At least that's what the Economist sez.

Possibly. Trouble is that's what Varoufakis has largely rejected. They don't want the next tranche of bailout money, they don't want any more 'extending and pretending'. His basic point is that an issue of insolvency has been treated as one of illiquidity.

Slightly mixed messages again today. Martin Schulz met Tsipras yesterday and was reasonably optimistic. But having briefed Merkel last night the German position seems to be publicly very hard-line.

Edit: The amazing, perverse thing is the Germans, according to Der Spiegel, want to give Greece more money (double the normal tranche) for them to keep to the austerity plans and Greece are the country refusing any more money because they can't afford it

[Legbiter]

Would it be too bad an example to set to put Greece through some kind of debt-forgiveness program like you'd do for an African country?