Blain's Morning Porridge - Greece Crisis starts early this year.. yawn..
Blain’s Morning Porridge – Feb 8th 2017
“To the gull’s way and the whale’s way where the wind’s like a whetted knife,”
Forgive me if I start on non-Financial Stuff this morning, but I’m launching my bi-annual sponsorship appeal today.
As regular readers will know I am a passionate sailor. In August my crew and I will be taking part in the Fastnet Race on the mighty Batfish V! It’s a 600 mile offshore slog to a Lighthouse off the toe of Ireland and back again. It will take us 5-6 days and we could see extremes of weather. Two years ago we drifted along in balmy sunshine (and a complete absence of wind), while a Force 9 gale forced our retirement 10-years ago! We will be training for the race most weekends from April onwards.
This year I am raising money for two special charities:
Sail 4 Cancer provides respite sailing breaks and holidays for cancer sufferers and their families. I’ve seen how much it can help families recover both physically and mentally.
Wessex Heartbeat provides support and residential care to the families of cardiac sufferers treated at Southampton General. The hospital did a great job looking after me after by-pass surgery went wrong resulting in my heart attack last year.
2 Years ago the Crew and I raised over £16,000 for Sail 4 Cancer. With more and more us afflicted by cancer, and knowing first-hand how sudden Heart Disease can be - please sponsor me for these two very deserving charities.
This is the link: http://www.sail4cancer.org/fastnet-2017-bill-blain
As an added inducement, I’ve got 4 places for clients on the yacht for this year’s Round the Island Race! Let me know if you are interested!
Back to the day job..
The great British Vegetable Shortage makes the FT this morning. “Ordinary people don’t buy three lettuces at a time”, quotes the PinkUn when talking about rationing. I don’t buy any. Ever. A vegetable shortage is of no concern to I.
I’ve three topics to think about this morning:
This year’s annual Greek crisis appears to have kicked off early. Recent IMF mumble-swerve basically admits Greece would have been better exiting the single currency. The combination of using the wrong currency at the wrong level combined with tight experimental monetary policy and an absence of fiscal stimulus has done nothing for the Greek economy, and might just explain why their debt levels continue to rise into the stratosphere. (A No Sh*t Sherlock is winging its way to the IMF for that stunning moment of self-realisation.)
A great note in FT’s Alphaville sums it up – a chart comparing Greece’s economic performance to the US in the 1920s/30s where a similar credit boom was followed by crashing collapse as the government pursued all the wrong policies. The difference was the New Deal in the early 30’s drove recovery. Greece has not seen any change in policy – and thus remains mired.
It’s probably worth noting the absence of any real economic policy around the Greek crisis since it started. Policy decisions to lend them more money have been about creating the illusion of (first) IMF/ECB Unity and then European Unity. The Greeks got money to pay off their debts, but nothing actually done to solve their mounting debt crisis – except sagely good advice to work harder, earn less, pay more taxes and sell off the crown jewels.
What’s the likely outcome? In the past I probably would have said something like “Greece is definitely going to exit this time..” but I shall not.
Despite hardening attitudes across Europe, a further “Solution” (US Readers – complex sarcasm alert) will probably result in a further bailout with Europe bending the rules to lend without IMF participation. Germany/Merkel can’t afford a hostile Greece as the refugee crisis mounts.
So perhaps time for more vigorous Greek policy to stimulate/grow the economy? I think there will be yet another crisis and compromise – but a solution? Alexander the Great had one to the Gordian Knot – he cut it open with his sword!
Second theme is the UK’s Co-op Bank. It’s a less famous FUBAR* bank than RBOS, but even more screwed up in many ways. Its business is actually good, and folk like it because of its historic cooperative and ethical status, but mistakes in the past are proving impossible to fix. Despite parachuting in top bank managers, years of restructuring, it’s unlikely to meet capital targets later this year, and rating and credit analysts speculate it’s on the way to the knackers – meaning a case of what happens to its sub and senior debt.
In the face of the growing competition from Challenger Banks and FinTech start-ups, it’s kind of difficult to perceive a situation where it makes much sense to save the 7th largest bank in a country that needs 3 or 4.
It’s got a senior bond issue due to repay in September. I suspect the real risk is not so much repaying it, but refinancing it. Creditsights came out with a view earlier this week – it repays the bond in September, but then becomes a series of sell-offs and diversitures, which begs the question of repaying other senior debt as it comes due.
As for the sub debt? Well that’s a speculative investment at this point.. I’m interested in client views and we’re looking to get involved in both the senior and sub paper. However.. the Coop 11 12/23 sub bonds plunged from 81.00 in late Jan to 50.00 this morning.. Time for a distressed play? I must read the prospectus most carefully….
Third Topic is German banks.
Deutsche stock has staged something of a comeback since its Nadir last year, while we’ve seen credit buyers selectively picking around some of the Grossbanken sub debt. I’m still wondering about them. Germans make wonderful cars, but their banks suffer much the same issues as Co-op and RBOS once did – paying the costs of previous mistakes, essentially unfixed, and still struggling to find new niches in a still depressed Europe.
It’s a pertinent question to ask why French banks – which some would say have faced larger challenges – look to be in stronger robust health than their German peers.
Germany without Commerzbank or Deutsche seems a long shot, and at some point they are fixed/fixable? When to step in and buy I wonder..?
In case anyone is wondering: *FUBAR: F****d up beyond all recognition.
Out of time..
Bill Blain