Friday, November 25, 2011

Europe Crisis Reflects Deeper Ideological Divide: Eric Fine

Europe Crisis Reflects Deeper Ideological Divide: Eric Fine

The crisis gripping Europe reflects a much larger problem: The world’s policy makers have fundamentally opposing views of how to manage their currencies and economies. Unfortunately, there’s no happy solution.

Let’s examine the ideologies. In the U.S., the dominant crisis narrative is that authorities faced a once-in-a-hundred-years storm in the financial panic of 2008. The only proper response, then, was for the Federal Reserve to provide unlimited funds until confidence returned and longer-term solutions were possible. Many Americans apply this lens to Europe, and conclude that the European Central Bank must similarly print money to solve its crisis now.

Germans, together with many emerging-market policy makers, see a very different narrative. To them, the crisis is the result of governments repeatedly building up debts in response to economic slowdowns -- the same explanation U.S. authorities offered for emerging-market crises in the late 1990s. They might further note that the U.S. hasn’t used the time bought with the Fed’s largess to address underlying problems, such as the sorry state of public finances.

These poles reflect deeply held beliefs, not intellectual or moral failures, as those on opposite sides of the divide appear to think. There’s no objective truth. Nobody really knows how much debt the U.S. and the euro area, which issue the world’s two leading reserve currencies, can bear. It’s also unclear how much inflation the citizens of advanced nations will tolerate before they lose faith in their currencies. As the U.S. and Europe test new limits, we may soon find out.
Monetary Policy

Consider monetary policy. Many in the U.S. believe the Fed can expand its balance sheet indefinitely, if necessary. They rightly point out that investors pile into the haven of dollars and U.S. Treasury bonds in times of crisis, and that this revealed preference suggests the dollar’s reserve-currency status is unassailable. Given the experience of the Great Depression of the 1930s and the stagflation of the 1970s, they reasonably conclude that bank runs should be treated with limitless liquidity, and that inflation can ultimately be resolved.

Germans draw their beliefs from a darker history. Between the two world wars, central-bank financing of government deficits fueled the hyperinflation that helped bring down theWeimar Republic and set the stage for the rise of Nazism. Many emerging markets have also learned painful lessons about what can happen when central banks become perceived as primarily lenders to government and enablers of fiscal incontinence. Their response to the American line is that if the fiscal and monetary authorities don’t establish credibility, suffering a bout of austerity may be far less bad than social breakdown. Not surprisingly, the charter of Germany’s Bundesbank forbids lending to government.

Can these differences be reconciled? One seeming compromise-- which will probably be proposed if the world faces another period of systemic risk -- is to invoke a new global reserve currency, namely the International Monetary Fund’s so-called Special Drawing Rights. If the IMF had the ability to issue unlimited SDRs, it could boost the reserves of central banks at will.

Such a move, though, would probably face opposition from the German side of the ideological divide, which would view it as yet another attempt to finance profligacy with funny money.

This suggests a second option will arise: to create some global standard to which the value of individual currencies can be tethered. Central banks would guarantee their currencies’value in gold, or against a basket of commodities. People with backgrounds in emerging markets would recognize such a commodity standard as essentially identical to a currency board, in which a central bank guarantees the exchange rate of its currency against that of a reserve currency. Currency boards tend to come about when people lose confidence in the fiscal and monetary authorities, almost always as a result of permanent monetization of government debt. Sound familiar?

Cautionary Tale

For policy makers who see the SDR as an answer, the recent European experience offers a cautionary tale. The European Financial Stability Facility represents an attempt to create a new balance sheet to bail out governments. Doing so in a crisis hasn’t worked out well, as the troubles of financially weak states have infected the stronger ones. This is why China, likeGermany, is reluctant to become a backstop for Europe. Once that happens, every new “crisis” will drag them in deeper, increasing the likelihood of contagion.

In the short term, the probable outcome is a continued policy muddle. Some central banks will follow the Fed’s example and keep expanding their balance sheets, while others will try to hold the line, like the ECB. To prevent the effects of such opposing policies from leaking across borders, countries might start to employ capital controls.

If the sides ever do agree on a single new architecture, it will probably happen in one of two bad ways. Financially strong countries, such as China and Germany, may become so infected by the weaker countries that the attractiveness of printing money overwhelms ideological constraints. Alternatively, the financially weak nations might give in to demands for austerity and tough choices.

In the final analysis, either option will be painful.

(Eric Fine is a managing director at Van Eck Global. He manages accounts that have positions in the sovereign and corporate debt of various countries, including a net short position in European sovereign debt. The opinions expressed are his own.)
To contact the writer of this story: Eric Fine at EFine@vaneck.com
To contact the editor responsible for this story: Mark Whitehouse at mwhitehouse1@bloomberg.net

Thursday, November 24, 2011

三大积极因素助力A股企稳回升

三大积极因素助力A股企稳回升

受欧美大跌影响早盘直接低开,蓄势震荡一个小时后,股指突然发力上攻,并强势翻红。截止收盘,沪指报2397点,上涨2.49点,涨幅0.10%。

是什么原因促使股指企稳回升的?我们认为主要有三大因素:

1、央行表态浙江6家农信银行恢复存准率16%,这意味着定向宽松政策正在逐步推进。

2、换届后IPO首发通过率明显下降,表明证监会开始整治A股弱势的根源,利好股市。

3、神秘资金逆势拉抬四大行,疑似国家队再出手。

盘中的这波异动拉升是在银行为首的权重股带领下起来的,其实近期四大行的表现明显强于股指,主要是因为随着近期的频频下跌,股指再次来到汇金大举增持的点位,这意味着汇金也将面临被套的局面,同时作为国家队也有护盘维稳的要求,所以很有可能就是它们再次出手大举买入。据监测,目前主力资金明显流入、正加速入场,使很多个股快速翻红上涨。

总的来看,目前政策面已经悄然转向,继汇金大举增持四大行、国务院力挺小微企业、财政部宣布减税后,部分地区的存准率也开始有下调松动趋势,这意味着定向宽松的政策利好正在不断酝酿,有助于A股的企稳筑底。

投资者应该注意的是,据我们详细研究,目前操作要想获利,只能买入一类股:那就是国家政策大力扶持的品种,同时像前期暴涨的文化传媒概念也是同样的原因。(广州万隆)