By Alex Salomon
1. “Duh” moment of the week: France’s Francois Hollande insisting on Eurobonds is proof that he is not willing to implement the structural reforms needed to drive “real” and lasting growth (not debt-fueled growth). It is not that Eurobonds are not desirable or a future solution. But he should really have approached Germany and other allies with a strong effort to promote new growth, modern growth, inspiring growth (flexible labor laws, tax breaks for small and medium companies, tax breaks on new hires for industrial revival and innovation jobs, tax burden for sheltered, ie. largest CAC40 companies). Then, Angela Merkel & Co. could have warmed up to Eurobonds. France is taking the lazy way out — again, again, and … again.
2. Really, we prefer liars… Considering that Lagarde was being candid and fresh and speaking her mind in her interview with The Guardian, and considering how blasted she was for doing so, she had to soften her tone almost to retraction (via her Facebook page). This is quite telling: we really demand from our world leaders to lie out right (insert sarcasm). We do the same with most CEOs and anyone else in charge: please cuddle us, sugar-coat it for us… lie to us. Calling it like it is, it’s really something of the past. We have the leaders we deserve and since we mostly demand lies, we get rewarded in kind.
3. Germany, Scandinavia, and to an extent France and Austria really have to start making a tough, real call: either they accept to copy the USA and just like we subsidize Mississippi, Alaska, North Dakota and other States (for tons of reasons, from lack of residents to lack of resources) and they accept to subsidize the Union… or they break it up. Both solutions are OK. The middle-road and a bit of both without the sacrifices of either is not going to last. It was good when the world was awash with debt-fueled money. Now that times are tough, the going gets tougher. Accept to integrate and have German tax collectors move to Greece, in exchange for perpetual help… or bring in the des-Union and let’s get it over with (and create a smaller, Federal Union… it’s OK, Europeans: your Union does not have to be 50-country strong!!).
4. What is a worthless Greek Drachma really worth? There is a column brewing about that, but why, o why, does the “mass media consensus” point to a 50 to 60% devaluation? See these articles from Forbes and Business Insider. Maybe it’s time to shoot that optimism right out and consider a 80-90% devaluation for a currency that no one will want, that gray and black markets will racket into hyperinflation, that the Greek central bank won’t have any assets to cover, and that the country’s riches won’t have enough to support (unless they can export plain rocks, Church artifacts, and already tax-sheltered shipping companies?).
The optimism surrounding the actual devaluation ratio is a reflection of the global lack of preparedness for “Grexit” and the fact that Greece will de facto become a third-world country in the middle of Europe, with a decimated and racketed population and a worthless currency no one will want. The “Currency of Hades” as coined by Sean Udall.
5. Totally unrelated, but I feel, see, read so much pessimism out there that just like we sold in May and went away, I would not be surprised by a powerful wave of June optimism. Human nature needs to feel highs and lows… I think we’re ready for the relief of a high. June blossom, anyone?
Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of his employer or any other person or entity.
No position in any of the securities mentioned at the time of publication.