Aug

12

 There's lots of PE money going to Europe. Given the continent wide slowdown, I have to ask: why?

Tim Melvin writes:

There is a ton of PE and distressed money moving into Europe to buy bank assets and southern Europe. RE, KKR, Apollo, Baupost WL Ross and others have moved in a big way this year. The fund manager survey does not track this more patient (and probably smarter) money at all. Basically the PE and distressed guys are buying what the classic asset managers ares selling. Guess whose side I'm on?

anonymous writes:

On the macro level the fact that Germany is slowing is a major source of concern for the European economy, and the experiment in the single currency. Considering the Asian export market slowdown, persistence uncertainty in the Ukraine and ME it is unlikely German will have a meaningful pick up in 2014. German was supposed to be the main source of growth of Europe as the rest of Europe tightens budgets and deals with domestic crunch. The growing debt levels in the periphery, persistent weak growth, disinflationary forces, social and political discontent cannot portend well for the future.

The Italian government bond market is the 3rd largest in the world and they can borrow at roughly the same level as the US. Since 2010 public debt has gone from 120% of GDP to 135% and over the past 10 years GDP has been barely above .3%.

There is value in many of these assets being liquidated by banks and asset managers but expect the ECB to remain easy and the currency to make much of the adjustment necessary balance the macro picture.

Milton Friedman said:

I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it's hard to believe that it's going to be a stable system for a long time. … If we look back at recent history, they've tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else. So the verdict isn't in on the euro. It's only a year old. Give it time to develop its troubles.

Boris Simonder writes: 

Interesting quote by MF. That must be a very old one judging by his comment. Fourteen and half years later the Euro is alive and kicking, in fact, well beyond of what any skeptic would believe given recent years.

John Floyd adds: 

The quote was from 2000, alive and kicking is relative, the euro straight jacket has done no favors to other macro indicators such as GDP, productivity, debt levels, etc….I am not making a prediction on Euro survival or failure, in the end that will be a largely political event, as was the inception, one cannot ignore the fact now that a negative political and economic vortex is forming and become self-reinforcing, where the braking mechanism is in asset prices I am not sure, and full disclosure I have been bearish the Euro concept since inception, luckily I have learned from mistakes and been able to squeeze out some profits and both sides and from other asset markets playing the same thematic tones, such as long the front end curves, I merely ask the question now is the timing and confluence of catalysts pushing us closer to seeing the Euro move lower? And yes alive and kicking for some time it has been, but so did the Argentine Peso pegged at 1 for about 10 years.

Boris Simonder writes:

The macro indicators you are referring to has more to do with national and cultural structures of each individual EU country, than the currency itself - As for betting against the Euro since inception, I'm sure no one envisioned an almost 100% rise between 2002-2008. Euro moving lower? Speculators net positioning in the futures market would think so, and perhaps the macro crowd betting on widening EU/U.S rate-spreads would support as well. If you consider Euro to be a risk-on currency, then the climate isn't perhaps the best to support that. Or how about the bag of technical breakdowns since May.

As for the comparison to Argentine Peso, can you really compare a pegged currency against a free-floating one? Or yet a single country against a bloc of countries with far more political and monetary power?
 


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search