La compétitivité avant les retraites

 Les Echos – 26/03/10 – Eric Le Boucher

La façon dont le président de la République a présenté ses deux dernières années de mandat en focalisant l’attention sur la réforme des retraites est dangereuse. Dangereuse vis-à-vis des partenaires sociaux car il en fait un test de leur combativité. Ils vont se sentir renforcés avant cette bataille « décisive ». Dangereuse vis-à-vis des marchés financiers qui en ont fait un test exactement inverse, celui de la volonté d’assainissement des comptes publics par la France. Nicolas Sarkozy s’est coincé d’avance à décevoir soit les syndicats soit les marchés, lesquels risquent de monter les taux d’intérêt sur les bons du Trésor. Pour un pays dont la dette atteint 1.500 milliards d’euros, un point de plus coûte 15 milliards, soit plus que les 12 milliards de déficit prévus en 2012 pour la caisse vieillesse…

L’explosion universelle de Shanghai

  La Tribune – 15/03/10 – Marc Fiorentino

Plus que quelques semaines à tenir. L’exposition universelle de Shanghai s’ouvre le 1er mai et se termine le 31 octobre. Ce sera l’occasion, la dernière, pour le régime communiste de Pékin de faire une grande démonstration de puissance digne des plus belles heures du régime de Mao ou de l’époque de l’URSS. Une fois les pavillons démontés, les touristes partis et les caméras éteintes, la bulle pourra enfin exploser. Car ce qui se passe en Chine aujourd’hui a toutes les caractéristiques de la bulle parfaite et c’est un spécialiste obsessionnel qui vous parle. Une vraie bulle, presque plus belle que la bulle Internet de 2000 ou que la bulle immobilière américaine de 2007. Explications et petit retour en arrière. En 2008, les Etats-Unis explosent et entraînent le monde dans la tourmente. Le commerce international chute de façon brutale pour la première fois depuis la Seconde Guerre mondiale. Et la Chine, dont la croissance est à l’époque exclusivement ou presque portée par les exportations, doit entrer en récession. Mais entrer en récession pour un pays où la croissance est devenue LE dogme, c’est impossible. C’est inacceptable. C’est contre-révolutionnaire. C’est de l’anticommunisme primaire. Il faut donc tout faire pour éviter que la croissance passe en dessous des sacro-saints 8%.

CDS : une réglementation contre-productive

La Tribune – 15/03/10 - Noël Amenc, professeur de finance, directeur de l’Edhec Risk Institute

Alors que Nicolas Sarkozy et Gordon Brown se sont entretenus du projet d’interdire les ventes "nues" de CDS souverains, aujourd’hui accusés de porter une lourde part de responsabilité dans la crise grecque, et que le projet doit être abordé lors de l’Ecofin de mardi, le professeur de finance à l’Edhec en décortique les nombreux obstacles juridiques et pratiques. Pour lui, assécher le marché des CDS souverains, c’est priver d’endettement les Etats.

Mirror, Mirror, on the Mall

Barron’s – 15/03/10

BEWARE OF GREEKS BEARING BONDS — and Germans and Frenchmen, too. The shrill, closely coordinated campaign launched this month by the three nations to curb speculation on their sovereign debt — and especially short-selling — is a sneaky attempt to subvert markets. They cannot succeed; but in trying to, they could inadvertently injure current holders of European debt, a universe that includes pensions, endowments, and mutual funds. The three nations want mandatory reporting of all derivatives-trading in Europe. In this, they mirror U.S. proposals to regulate the credit-default market by making participants use centralized trade execution and clearing houses and post larger amounts of collateral. These Europeans propose a step further than the U.S., however: Banning naked short selling of sovereign debt on the CDS market. To what end?

How to handle the sovereign debt explosion

Financial Times – 11/03/10 – Mohamed El-Erian (Chief Executive of PIMCO)

Every once in a while, the world is faced with a major economic development that is ill-understood at first and dismissed as of limited relevance, and which then catches governments, companies and households unawares.  We have seen a few examples of this over the past 10 years. They include the emergence of China as a main influence on growth, prices, employment and wealth dynamics around the world. I would also include the dramatic over-extension, and subsequent spectacular collapse, of housing and shadow banks in the finance-driven economies of the US and UK.

Today, we should all be paying attention to a new theme: the simultaneous and significant deterioration in the public finances of many advanced economies. At present this is being viewed primarily – and excessively – through the narrow prism of Greece. Down the road, it will be recognised for what it is: a significant regime shift in advanced economies with consequential and long-lasting effects. To stay ahead of the process, we should keep the following six points in mind.

Hold Cash as ‘General Correction’ Looms, HSBC Says

March 11 (Bloomberg) — Global financial markets are yet to bottom and investors should hold cash, investment-grade debt or defensive stocks to ride out a coming “general correction,” according to HSBC Holdings Plc. A sputtering U.S. recovery, the winding back of stimulus in Asia and the likelihood that Europe will begin to “normalize” interest rates, even in the face of Greece’s continuing budget crisis, mean that markets haven’t fallen far enough, said Dilip Shahani, HSBC’s head of global research Asia-Pacific. Greece’s woes have shaken global markets, with the MSCI World Index of equities slipping 2.2 percent from its Jan. 14 peak, and a Bloomberg survey showing confidence in the world economy falling for a second month in March.

“Equity and credit markets, and foreign exchange and interest rates, have probably discounted about 60 percent of what’s happening,” he said in an interview in Hong Kong. “There’s a lot of event risk we know about, but there’s probably one or two things that are going to come and create the final surprise that will trigger the final push down on all the markets together.”

Stocks Head for an ‘Air Pocket’ as Yields Rise

March 9 (Bloomberg) — U.S. stocks rallied so much during the past year that they are vulnerable to a slump as interest rates rise and inflation accelerates, according to John Hussman, who oversees about $7 billion at the Hussman Funds. The CHART OF THE DAY shows how the Standard & Poor’s 500 Index has performed since hitting bottom a year ago today, when it reached a 12-year low. The yield on 10-year Treasury notes and the rate on three-month Treasury bills, based on data compiled by Bloomberg, are also included.

Treasury yields are higher than they were six months earlier, as depicted by the chart’s white lines. The Federal Reserve’s discount rate, charged on direct loans to banks, and the year-to-year rate of change in the consumer price index also rose during that time.

When combined with the S&P 500’s 68 percent surge from last year’s low and its historically low dividend yield of 2 percent, these conditions show stocks are poised to hit an “air pocket,” Hussman wrote yesterday in a report. Prices may fall 10 percent or more in about six weeks once that occurs, the report said. Hussman based the estimate on three other periods when the S&P 500 had 12-month gains of more than 30 percent and all the other criteria were met. They included September-October 1987, shortly before the Black Monday crash. The others were August- October 1999, close to the end of the “Internet bubble” years, and September-December 1955.

“We are already defensive” because of concern that stocks have risen too much and too soon, Hussman wrote. “The pressures we’re seeing on the yield front make our aversion to market risk somewhat more pointed.”

Why the euro will continue to weaken

Financial Times – 08/03/10 – Wolfgang Münchau

If you want to unnerve a European, the revelation of a secret dinner of New York-based hedge funds conspiring against the euro is hard to beat. Europeans are right to worry – but not about the collusion itself. They should be much more concerned that some of the world’s smartest investors are convinced the euro has only one way to go: deep down.

L’Europe au bel avenir

 Les Echos – Eric Le Boucher – 05/03/10

Les nouvelles sont très bonnes. L’Europe se réveille enfin. La semaine dernière, après tâtonnements, un consensus s’est établi sur le sauvetage de la Grèce. Reste, certes, à en trouver précisément les modalités, mais le principe est celui de la solidarité réaffirmée : « On ne laissera pas Athènes tomber en faillite » en échange d’un plan de rigueur spartiate. Et révolution : on a entendu, dans cet épisode grec, Angela Merkel prononcer les mots magiques de « gouvernement économique ».  Mardi, la Commission de José Manuel Barroso a sorti l’Union de l’immobilisme sur les organismes génétiquement modifiés (OGM) en autorisant la culture de la pomme de terre Amflora et de nouveaux maïs. Voilà douze ans que les OGM pourrissaient dans les tiroirs du commissaire à l’Environnement, l’Europe, terrorisée par les discours écologistes et divisée, n’osait trancher. La voilà obligée de le faire.

Wen Warns of Bank Risks, Pledges Property Crackdown

March 5 (Bloomberg) — Premier Wen Jiabao warned of “latent risk” in China’s banks and pledged to crack down on property speculation as the government faces the consequences of flooding the economy with money to drive growth. “The domestic economy still faces some prominent problems,” Wen, 67, said in a speech in Beijing to the National People’s Congress, similar to the U.S. State of the Union address. He also cited excess capacity in manufacturing and weak support for rural-income growth.

China’s Hidden Debt Risks 2012 Crisis, Northwestern’s Shih Says

March 3 (Bloomberg) — China’s hidden borrowing may push government debt to 96 percent of gross domestic product next year, increasing the risk of a financial crisis in the world’s third-biggest economy, Professor Victor Shih said.

“The worst case is a pretty large-scale financial crisis around 2012,” said Shih, a political economist at Northwestern University in Evanston, Illinois, who spent months researching borrowing transactions by about 8,000 local-government entities. “The slowdown would last at least two years and maybe longer,” the author of the book “Factions and Finance in China” said in a phone interview March 1.

China Stocks May Be Hurt in Short Term by M2 Slowdown: JPMorgan

March 3 (Bloomberg) — China’s stocks may be hurt in the “short term” by a slowdown in the nation’s money supply growth, the outlook for inflation and speculation the government may slow down investment projects to cool economic growth, JPMorgan Chase & Co. strategists wrote in a note to clients.

“Given that we expect the inflationary pressure to peak at around July/August this year, Chinese equities should bottom out around late April or May 2010,” they wrote.

European stocks are set for a long struggle

Financial Times – 01/03/10

It is still too early to buy European equities and the current correction phase could last a few more months or even quarters, says Ronan Carr, strategist at Morgan Stanley. He believes there are strong similarities between current market conditions and those seen in 1994 and 2004, when markets struggled and it was difficult to make money.

“First, these are ‘start of tightening’ years,” argues Mr Carr. “The Federal Reserve has not yet started hiking the Fed funds rate as it did in both 1994 and 2004. But we believe the tightening process has clearly begun – and combined with sovereign concerns, the cost of capital is rising.”

Second, he says, a growth scare is building. “Investors are questioning the strength and durability of the recovery and leading indicators are already rolling over.”

Mr Carr warns that equity markets could struggle for several quarters, but with a choppy profile. “The 1994 episode lasted 13 months with a 17 per cent peak-to-trough correction,” he says, noting that 2004 involved a two-quarter 8 per cent correction. Both 1994 and 2004 saw periods of alternating sell-offs, rallies and range-bound markets, he says. “In summary, markets tend to struggle in the face of higher uncertainty, lower growth prospects and tighter monetary conditions. We would wait until either fundamentals improve or our valuation and sentiment models give ‘buy’ signals.”