January, 2012 Archives

13
Jan

Another Friday The 13th European Massacre

by Riaan Nel in News

[DOWNGRADE-p1]

 On Friday,  October 13, 1307  the order was given and sanctioned by the Pope to arrest the Knights Templar.  Knights Templar were arrested all over Europe, their properties confiscated, and they were eventually executed for heresy.  This gave rise to the superstition that bad things happen on Friday the 13th. 

 I wonder if Standard & Poor’s Ratings Services was aware of this symbolism when they announced today that the ratings of 9 euro-zone countries will be downgraded, triggering renewed global worries over Europe’s ability to bail itself out of the financial crisis.  France and Austria were stripped of their coveted triple-A rating.  The 9 countries downgraded were: France, Austria, Malta, Slovakia, Slovenia, Italy, Spain, Cyprus, and Portugal.

The downgrade highlights major limitations in the euro-zone’s strategy to ride out of the protracted sovereign debt crisis, and casts doubts over whether France can continue to assist others while coping with its own domestic problems.  As the Wall Street Journal correctly states, the debate is being rekindled about the proper role of the European Central Bank, which so far maintained that bailing out euro-zone countries wasn’t part of its mandate.

4
Jan

Towards The Paranormal

by Riaan Nel in Global Economy

Bill Gross from PIMCO just posted his first “Insight” paper for 2012.  As always it’s an excellent piece of analysis, and we should heed his recommendations (despite his wrong call earlier in 2011 regarding US Treasuries).  Bill’s main points are:

  • The New Normal, previously believed to be bell-shaped and thin-tailed in its depiction of growth probability and financial market outcomes, appears to be morphing into a world of fat-tailed, almost bimodal outcomes.
  • A new duality – credit and zero-bound interest rate risk – characterizes the financial markets of 2012, offering the fat left-tailed possibility of unforeseen policy delevering or the fat right-tailed possibility of central bank inflationary expansion.

Here is the link to the entire paper:  http://www.pimco.com/EN/Insights/Pages/Towards-the-Paranormal-Jan-2012.aspx