Tag Archives: austerity measures

The Markets and What’s Next?

21 May

The markets have seen a sell-off in the recent past and I expect this to continue untill some stability returns to the market and this is unlikely until the Greek Elections in June and a government is formed, at the earliest assuming no additional market controvecies.

It is clear that the problems in the Eurozone will keep a chokehold on financial markets in the weeks ahead. Investors and the markets are currently assessing Greece’s commitment to the austerity measures and the Eurozone as a whole – we await other headlines on the debt crisis.

G8 Meeting over the Weekend

 

G8 strongly supported keeping Greece in the Eurozone. No decisive decisions were made but confirmed they would do what was necessary to battle financial turmoil while revitalizing their economies. They stressed the need for strategies to encourage growth.

Greece’s failure to form a ruling coalition after its May 6 election has now led it to a second election in June. Polls show the radical left party is in the lead, and that party rejects austerity measures agreed to as part of the Greek bailout.

 

Reports This Week

  • Monday & Tuesday – Atlanta Fed President Dennis Lockhart speaks in Tokyo on monetary policy
  • Tuesday – US Treasury auctions $32 billion in 2-year notes
  • Wednesday – US Treasury auctions $32 billion in 5-year notes
  • Thursday – New York Fed President William Dudley at Council on Foreign Relations & US Treasury auctions $29 billion in 7-year notes
  • Friday – Consumer Sentiment Report

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Markets Plummet – An Overview

10 May

We have seen markets plummet since the elections over last weekend, down to lows of 2012 as investors took flight from stocks at risk of being dragged down by troubles in the Eurozone. This sell-off  seems to have been triggered, at least in part, by fears that a planned coalition government in Greece will tear-up the austerity deal underpinning the country’s recent €240billion (£190billion) bail-out.

The FTSE 100 Index saw £26 Billion wiped off its value following a further slide of over 100 points. This is a third day running of major sell-offs across most stock markets following concerns over the future of the Eurozone.

Alexis Tsipras, whose Syriza party came a surprise second in Sunday’s poll, is insisting his country’s bailout deal with the EU and IMF is ‘null and void’.

As well as uncertainty over Greece, fears that Spain will need to bail out its banking sector caused that country’s 10-year bond yield to soar again above the ‘unsustainable’ 6% level. This is perilously close to the 7% interest rate on government borrowing that prompted Greece, Portugal and Ireland to seek bailouts.

Financial analysts said the current market turmoil was likely to continue. It appears unlikely that a Greek coalition would be formed considering the rhetoric from the various party leaders, so uncertainty was likely to reign for a while.

‘The worst case scenario for the EU is if Greece leaves the Eurozone and undertakes a disorderly default. It is difficult to see why the country would do this but then again it only takes one angry politician to change history – Greece is staring into the political and financial abyss. Whilst a less likely scenario, if it did happen it could have huge ramifications for the rest of Europe.

A default for Greece looks likely and a departure from the Euro in the next 18 months is expected – this scenario has in excess of 66% outcome expectation – good chance of happening. Greece would not be allowed to walk away from its debts and financial obligations, if it leaves the euro. The likely scenario would be it would be given a greater period of time to repay its debts. The sanctions against Greece, if it attempted to renege on its debts, does not bear thinking about.

These are grave concerns and the ramifications for the Eurozone, global economic prosperity and stock markets are huge.

Investing is about taking best advantage of the market cycle while avoiding the periods of market panic – I am pleased to say, we hold a defensive strategy across all my clients and so we have avoided the worse of the declines and are well placed to benefit from the market opportunities expected to be created by the current market turmoil.

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan

Turmoil Caused by French & Greek Elections

8 May

Investors have seen a further downturn in the stock market rollercoaster ride running up to and over the weekend, as political upheaval in France and Greece cast fresh doubt over the future of the Eurozone.

The Euro sank to a 3-and-a-half year low against the pound and a three-month low against the US dollar before clawing back lost ground.

There was also turmoil on European stock markets. Shares in Greece tumbled nearly 7%, with banks  leading the way, in the wake of the weekend’s elections.

It has been a busy weekend in politics :-

  • the Greek conservative Antonis Samaras now having three days to form a coalition government. He is , faced with EU warnings to keep to the tough terms of the international bailouts but there are renewed fears Athens may default on its debts and leave the Eurozone.
  • Mr Hollande campaigned on a platform of renegotiating the terms of the EU fiscal pact to concentrate more on reviving economic prosperity than simply reducing budget deficits.

There are serious concerns that Europe is facing a fresh economic crisis after France elected Francois Hollande and the Socialist Party, a result that is being held as a rejection of austerity measures imposed amid the Eurozone Crisis. It is expected that he will in effect, tear-up last December’s controversial deal to save the euro from oblivion. It is expected, he will seek talks with the ECB (European Central Bank) and German Chancellor Angela  Merkel to demand further borrowing to boost growth.

The menace to the single currency was compounded when voters in near-bankrupt Greece also rejected plans to impose tough financial discipline.

City analysts said that while stock markets had expected a Hollande win, the results in Paris and Athens could tip the strained Eurozone back into turmoil. This could be good-bye to austerity measures and hello to the threat of financial chaos. The  outcome to the French  election has grabbed all the major headlines.  However Greece’s inconclusive and dangerous election result may be even more significant. Greece is close  to collapse.

The Results :-

  • Mr Hollande defeated Mr Sarkozy by 52% to 48% in only the second time a sitting French President has failed to win a second term
  • Greece’s conservative New Democracy and socialist PASOK parties risked falling short of the 151-seat majority needed to form a coalition government;
  • Financial experts warned that the Euro could collapse within months;
  • British officials admitted that David Cameron made a serious error by ostentatiously backing Mr Sarkozy’s re-election bid.

The new French President has pledged to spend an extra 20 Billion Euros in the years ahead to kickstart the economy and wants to slap a 75% tax rate on those earning more than one million euros a year, or around £850,000.

He says he ‘dislikes the rich’ and has singled out ‘the world of finance’ as his principal enemy. Some analysts have suggested  that this could be the first steps to the start of the break-up of the Euro. It is predicted that the ECB might have to lend more money to banks if there is another stock market ‘wobble’ in response to Francois Hollande’s triumph.

In addition to this, some analysts are reporting that France’s affairs paled beside the impact of the Greek election and persistent fears that Spain will be the next European domino to fall. Greece is close to collapse and Spain is deep in a financial quagmire. There are growing concerns that if matters are not brought under more structured control in the next 18 months, we may very well see a split (or several) in the Eurozone.

My Analysis

The election results have set the backdrop for an extended period of volatility and I expect investors to take time to come to terms with a socialist government in France and renewed uncertainty in Greece. In addition, the borrowing costs in Germany have hit a record low of just over 1.5% (possibly a new ‘flight to safety’), while gilt yields in the UK were 2%. This compares with nearly 23% in Greece, 5.77% in Spain, 5.46% in Italy and 2.8% in France.

While I think that the outcome of the French election was widely anticipated, as with every event in life, until it happens, it is a shock. This as a global event needs to be coupled with the fiscal and political situation in Greece – it is highly uncertain and the Eurozone’s weakest link just got weaker. A Greek eurozone exit is now firmly on the cards.

I am expecting the situation in Greece, with the problems in Europe, in addition especially in Spain and others should put markets in risk-off mode. This is before further data arrives from the global issues in developing economies (especially China), US, Middle East and Africa.

 My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshomoneywiz, linkedin Darren Nathan

Fallout Over Spanish Financial Crisis

2 Apr

British financial authorities are drawing up emergency plans to cope with the fallout from the Spanish financial crisis as fears over Spain’s ability to curb its debts grow this weekend.

Senior City figures have cited that Britain’s banks should be more than capable of dealing with a Spanish crisis. The UK authorities are less optimistic and are expecting the situation to be magnified as a result of the significant banking links with Spain, the large British expatriate community and the high level of British holiday property ownership.

More than 700,000 British expatriates live in Spain, more than 500,000 Spanish homes are thought to be owned by British citizens.

In Spain, since the start of the financial crisis, it has been estimated that the average house prices in Spain have dropped over 25%. This is expected to have exposed Spanish banks to many billions of euros of potential bad debts. British banks’ total exposure to Spanish debts is thought to be circa. £52 Billion including about £2.75 Billion in Spanish government debt, about £8  Billion in loans to Spanish banks and the majority in loans to the private sector. 

Santander UK – which owns Abbey and parts of Bradford & Bingley and Alliance & Leicester – is separately funded from its Spanish parent group and its deposits are covered by Britain’s Financial Services Compensation Scheme.

The Spanish Government approved an austerity budget on Friday in an attempt to meet European targets to curb its borrowing. This was met by rioting reflecting widespread fury by many Spaniards.

Spain and Italy are currently believed to be the countries most likely to need financial bailouts, following financial lifelines to Ireland, Greece and Portugal.

The concern and fear for the Eurozone would be :-

  • the size and volume of money needed following the recent further bail-out of Greece
  • the ability for us all as member states to continue to raise the necessary money
  • the financial effect of the level of indebtedness needed by each member state to fund these lifelines
  • how long can we afford to continue to raise these additions

 

The Eurozone, Austerity Measures and Economic Growth

23 Mar
OK, so the question now has to be asked – Was the Eurozone Austerity Measures in the face of the Debt Crisis the right move? I don’t believe we can answer this question yet. Yes, I am concerned as we haven’t solved the problem but rather just pushed it on a little while into the future. Could these measures deepen the recession in southern Europe? There are signs that following the initial euphoria the effect is more detrimental than beneficial – my question is still – did we have a choice?
 
The actions taken have had the effect of putting a safety net around the European financial system and hopefully by deferring the need to deal with the actual problems, may be they will sort themselves – or will they? So what for the economic outlook?
 
Europe Excluding UK (IMA Sector Profile)          
performance
 

 
Source: Trustnet
 
So what for the European Markets? Investing is different to economic forecasting, the markets typically see a wide divide from the economic data. I believe this is due to the markets, their values and their future values are barometers of investor’s sentiment, future corporate profitability and perspective. This is not in actual terms but rather relative to current opinion.
 
So if the markets are optimistic and become less optimistic, we could see a fall in value – if markets are pessimistic and become less pessemistic, we could see a growth in value. The market has become significantly optimistic in recent times – so where will the market lead – more optimistic or more pessimistic?
 
Personally, looking at the indicators, the market is overstretched and indicators point to a correction of at least 5% but will it be a blip or a more serious move, only time will tell. I have taken a more defensive position and this has warded off the recent negative volatility and we are prime to reposition with a higher equity position following this mini-cycle.

Eurozone Debt Worries Return Over Spain

22 Mar

Eurozone debt worries return with concerns over Spain as its’ bond yields rose sharply, prompting fears that the debt crisis plaguing the Eurozone could return. This could potentially have a detrimental effect on share values and the recent optimism in the markets.

In Portugal, the country is expecting a 24-hour general strike. This is in outcry over the government’s recent austerity measures enforced following the country’s 78 billion euro bailout.

There are growing concerns over China’s slowdown and I fear the economy may be heading for a “hard landing”. This is the fifth consecutive month where we have seen factory activity slow.

If these concerns and fears grow the effect on the more optimistic market could have a significant effect.

Any questions, email me at welshmoneywiz@virginmedia.com

Spain : The Next Euro-Crisis?

13 Mar

Spain is the Eurozone’s fourth largest economy, with unemployment running above 22% and the decline within its property market means Spain could have significantly worse problems than Greece. This could threaten the Eurozone’s  vulnerable stability.

There are some suggestions that public debt in Spain might be higher than the official statistics. If this is true, there’s a serious concern that it might end up very high within the next few years. The banking system throughout Europe, including Spain, is fragile and with debt problems in the housing market, means we could see a situation comparable to that in Ireland. If this is the case, bailouts and defaults would become a problem. The associated fall-out for Europe would also have  far worse consequences than Greece. Spain is much larger than Greece, so any risk of a default or a bailout has a much bigger implication for the Eurozone.

Eurozone finance ministers on Monday urged Spain to make new cuts to its 2012 budget to reduce its deficit by a further 0.5%, agreeing a new target of 5.3%. In the same meeting, some of the finance ministers dismissed any comparisons with Greece as Spain has made progress.

Spain has large downside risks and is in a very fragile situation. Its problems are significantly worse than Greece’s. The macroeconomic situation of the country posed a major threat from the current austerity program.

The financial panic is temporarily over but 2012 will be the year of austerity across Europe.

 

Any questions – welshmoneywiz@virginmedia.com

Second Bail Out Secured For Greece

12 Mar

Greece has secured its second bailout on Friday, hopefully giving Greece an opportunity to restore its struggling economy to health. I believe that the bailout deal was the only way to restore the country to economic health.

The write-down/hair-cut/controlled default was possibly the worst technical default a country has suffered with bondholders being forced to take part in a debt-swap deal through collective action clauses (CAC) on Friday. Over 80% (circa 83.5%) of creditors agreed to the deal, which allowed Greece to force the remaining to accept the deal, leading to 100 billion euros being wiped off Greece’s debts by reducing the value of their bonds.

There still remains concerns that Greece will end up needing a third bailout following the unpopular austerity measures, while Greece is still in Recession. Greece needed the 130 billion euro bailout from the European Union and the International Monetary Fund as it had a debt-to-GDP ratio of around 160% (which was unaffordable) and current unemployment of circa 20%. The bailout is expected to be finalised later today. 

The Greek Bond Debt Restructuring Is A Success?

9 Mar

Almost 95% of private creditors have taken up the Greece bond swap offer by the Thursday evening deadline, lightening Greece’s debt burden. This is planned to avoid a default on Greece’s debt liability and has seen bond holders accepting losses of almost 75% on the value of their investments.

The European Union and International Monetary Fund made this bond swap a pre-condition for final approval of the 130 billion euros ($170 billion) bailout, which was agreed last month. The results are expected to be announced on Friday morning and Finance Minister Evangelos Venizelos will hold a news conference before a call with Eurozone Finance Ministers in the afternoon. The result provides good news for the Greek government.

Despite the success of this program, the deal does not resolve Greece’s debt problems but rather reduce its debt liability from 160% of its Gross Domestic Product (GDP). It buys Greece some time to try to restart the economy, which is suffering a recessionary cycle. The concerns of a contagion spreading to other European countries and fear of the threat of failure receded and this led to a rise in the financial markets on Thursday. Bank stocks led the rise, with the risk premium on Italian and Spanish government bonds, amongst others, falling.

In the Friday conference call, Eurozone ministers could decide to clear the overall bailout package but I believe the decision will be delayed until the face-to-face meeting on Monday. To avoid default, Greece must have funds available of 14.5 billion Euros on 20th March to repay maturing bonds. The growing fear and expectation is this will not be the last bail-out needed for Greece; and at some point the Eurozone and their other International Partners will say “no-more”. The question is, “What happens then?” But for now stability is hoped for and expected.

To contact me, email :- welshmoneywiz@virginmedia.com

Payday Loan Companies – Why This is So Wrong

7 Mar

I have been warning people of the unacceptable business practices currently being allowed as I believe this takes advantage of people in financial fifficulty. I am sure you will have seen one of the many television adverts offering loans in minutes at rediculous rates of interest, say 2763% APR. The government needs to improve regulation in the debt and credit industries to protect consumers.

A cross-party MP committee has attacked poorly regulated payday loan and debt management companies for causing people unmanageable debt problems. The news comes as the Office of Fair Trading (OFT) launches an investigation into these practices. The Committee is also asking the government to act swiftly should the OFT investigation reveals any evidence of non-compliance within the market. The idea being if self-regulation cannot deliver enough protection the government must intervene with statutory regulation.

I believe the practice to borrow money this week and pay back next week causes spiralling debt, which quickly becomes un affordable. If there isn’t sufficient income to pay bills, it is pretty clear that borrowing from Peter to pay Paul leads to more borrowing next week? Next week comes and you borrow more to payback both the loan and the interest running up larger and larger debts.

Research by Consumer Focus showed that customers had on average over three loans, while insolvency experts R3 claimed that a third of people who take out a payday loan have to get another one because they can’t afford to pay it off.

Please make comments as this practice is wrong.