I don't see too many imbalances in the system. Equities appear fairly valued. The economy appears to be getting back on track. I guess bonds are the obvious area of imbalance, both in terms of the amount of debt outstanding and the price paid for that debt.
Of course, balance is predicated upon confidence and if confidence evaporates, then balance disappears along with it (or at least adjusts to a lower equilibrium).
The accumulation of overweight (aka as imbalance) is greatest in the sovereign area. But so long as sovereign's can maintain confidence, they can continue to accumulate liabilities.
Look for market reverberations (like in the summer of 2007) for signs of disequilibrium. Japan is the most obvious candidate.
Until then, party like its 1999.
Showing posts with label sovereign crisis. Show all posts
Showing posts with label sovereign crisis. Show all posts
Tuesday, January 22, 2013
Thursday, November 10, 2011
Sovereign Debt Crises Have A Long Fuse
About the only thing Greece* has shown us is that sovereign debt "crises" have a long fuse. The Greek crisis erupted in early 2010 and has yet to reach its ultimate zenith.
In recent days, Italian bond yields have risen above 7%, throwing into question the sustainability of Italy's fiscal position, and the potential collapse of efforts to bailout the eurozone.
Equity markets have appeared to ignore the current "crisis." I suspect it is because they see it as a long term problem, with only a small likelihood of a catastrophic collapse any time soon. With Greece as the blueprint for this thinking. This may, or may not, prove correct, but it has frustrated the bears no end. They have been betting upon a rapid conflagration, and are perplexed by the market going up in the face of supposedly rising risks. The greater possibility is for more "can kicking" and the prospect of a long dripfed erosion in confidence. Periodic fires (aka crisis of confidence) are likely break out, but the system can go on for a long period of time before the piper ultimately comes calling.
The real problem in this whole equation is structural fiscal/current account imbalances co-mingled with massive long term contingent liabilities due to generous promises made at various points in the past. In the absence of any serious address of those problems, we know how this story will end. Even when the market is signalling the ultimate end, a bankrupt country can make interest payments on its debt for a long period of time before it eventually calls it quits.
*And let's not forget Japan.
In recent days, Italian bond yields have risen above 7%, throwing into question the sustainability of Italy's fiscal position, and the potential collapse of efforts to bailout the eurozone.
Equity markets have appeared to ignore the current "crisis." I suspect it is because they see it as a long term problem, with only a small likelihood of a catastrophic collapse any time soon. With Greece as the blueprint for this thinking. This may, or may not, prove correct, but it has frustrated the bears no end. They have been betting upon a rapid conflagration, and are perplexed by the market going up in the face of supposedly rising risks. The greater possibility is for more "can kicking" and the prospect of a long dripfed erosion in confidence. Periodic fires (aka crisis of confidence) are likely break out, but the system can go on for a long period of time before the piper ultimately comes calling.
The real problem in this whole equation is structural fiscal/current account imbalances co-mingled with massive long term contingent liabilities due to generous promises made at various points in the past. In the absence of any serious address of those problems, we know how this story will end. Even when the market is signalling the ultimate end, a bankrupt country can make interest payments on its debt for a long period of time before it eventually calls it quits.
*And let's not forget Japan.
Thursday, March 4, 2010
Is Greece the tip of the iceberg?
Have we seen this before!
Is Greece the tip of the iceberg?
Is Greece like New Century Financial Corp signalling the beginning of the fall in the sovereign dominos?
Only time will tell. It may, or it may not. If failure in Greece is the tipping point, then it will be all too obvious in hindsight. If it isn't, then it will be quickly forgotten as a footnote.
Is Greece the tip of the iceberg?
Is Greece like New Century Financial Corp signalling the beginning of the fall in the sovereign dominos?
Only time will tell. It may, or it may not. If failure in Greece is the tipping point, then it will be all too obvious in hindsight. If it isn't, then it will be quickly forgotten as a footnote.
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