Apr

8

 The forced parallels of the current events in Greece with the events before WW I, WW II and the Cold War in Europe fail to fit the facts. The Russians are now using half their effective combat power to support the "volunteer separatists", the Germans spend less than 1% of their GDP on defense, and neither France nor Britain nor Spain nor Italy nor the Netherlands nor Germany has any imperial interests or even pretensions.

A comparison with the events of 1880 to 1890 in Argentina would be more useful. No one with any sense has believed that the Greeks were going to be able to pay the debts they had, yet Greek sovereign debts traded at tiny spreads to German ones for most of the period of this "crisis" (sic). During the 1880s the spread between Argentina's long-term sovereign bonds and the U.K. consols remained equally calm even as "underwriting banks demanded higher fees and Argentina's government accepted leaving more money on the table by underpricing its IPOs as its fiscal position deteriorated."

By 1890 the annual interest on Argentina's debt was 40 percent of that year's fiscal revenue.

anonymous writes:

What do you think about the idea that even closer in time one might draw similarities between Argentina in 2001 before the peg to the US$ at 1.0 broke and Greece today?…

1. In an effort to import policy discipline an ill-suited, rigid fixed exchange rate is adopted. Argentina in 1991 starts peg at 1.0 and Greece in 2001 enters the Euro.

2. Domestic economic policies that are inconsistent with the currency regime are pursued.

3. End game develops as official support wanes, domestic unrest waxes, and fewer pieces on the board heighten the disparity. Further to elaborate on the US dollar comments and some posts earlier…

As mentioned based on current volatility of around 10% markets have a reasonable chance priced of seeing 1.0 in the Euro within the next 18 months.

The Euro was at about 1.40 in May, 2014 and the recent low was 1.0458 March 16, 2015. The all-time low was about .8300 in October, 2001.

In terms of direction I would ask the question of what the drivers of direction have been in the past and what the drivers of direction are likely to be in the future.

Where is the change and variant perception that may cause an acceleration in current medium term direction or a reversal?

Further, given the "blip down" US economic data relative to expectations over the past month or two and the "short term" blip up in European economic data relative to expectations who else is asking this question and perhaps acting upon it? Has the EuroUsd 1.05-1.10 range created some complacency and perhaps allowed some steam to build up?


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  1. anand on April 9, 2015 8:29 am

    in terms of perception (mentioned in second and third last paras) there have been three issues discussed around EURUSD.. 1) ECB QE programme 2) prospective rate rise by FED 3) Greek Crisis.

    How is it possible to know which factors the market was more or less interested in? Or what the combination of factors which acted to create a move?

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