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kagiso

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  1. With QE ended and IR's starting to edge upwards, unpayable government debts will change from economic issues to popular revolts. Time to dust off this thread I think: Italian capital flight confirmed for May https://www.capitalandconflict.com/end-of-europe/italian-capital-flight-confirmed-for-may/ The good news for Capital & Conflict readers is that I can speak German. The bad news is what I found in the German papers. There are no Gothic headlines to report just yet. But the Germans are perfectly aware of what’s going on. And they don’t like it... ...Perhaps the Germans will refuse to fund Italy via Target2. A refusal to send funds back south as they flee north would mean a currency shortage in Italy that the ECB can’t legally balance out for long. It’s no wonder the Germans are worried. Under Target2, half of Germany’s net foreign assets are at stake, the newspaper Handelsblatt pointed out... ...The Germans are getting worried. Which means the rest of the world should be too. If the newspapers and Alternative for Germany (AfD) in opposition kick up a fuss, you have antagonism introduced into the equation of lender and borrower. At 0% interest due on Target2 liabilities, it doesn’t pay for the Germans to put up with this... But they’re stuck. If they pull the pin on Target2, it unleashes the crisis they’re worried about. If they do nothing, the stakes go up over time. Meanwhile, Italy’s trade surplus means that it has less to fear from an exit of the euro than other nations. In fact, the cost benefit analysis of an Italexit done by JP Morgan analysts supposedly shows Italians have least to gain from remaining in the euro and the damage of leaving would be least severe as compared to other troubled countries. If you put politics aside, leaving is the least painful thing to do...
  2. When something has gone on for decades, like the concentration of people in London, it is easy to imagine the trend is inevitable, and will continue forever. However, those of us with long memories will remember the 60's and 70's, when London was shrinking, as industry fled, and areas like the docklands and swathes of South London were urban wastelands similar to the industrial North. The Jubilee line extension was repeatedly postponed due to lack of demand. A couple of items that suggest to me that the depopulation is about to begin again. https://www.ft.com/content/86845750-b4f0-11e7-a398-73d59db9e399 http://www.cityam.com/275381/tfl-says-major-tube-upgrades-northern-line-and-jubilee-line Industry fled London because of high costs compared to the rest of the UK. Finance stepped in to replace the industry, helped by concentration effects. But the internet and communication technology means that any finance job that doesn't actually need face to face contact can be done pretty much anywhere. Deutsche Bank has already moved lots of work to Birmingham: http://www.birminghampost.co.uk/business/business-news/eyes-banking-world-birmingham-deutsche-7366789 The more banks that move there, the better the resource base for others considering the move. Edinburgh and West Yorkshire are other areas with lots of finance resources ripe for 'inshoring'. Some hedge funds have already set up in Oxford, much more convenient for both mathematical graduates and grand homes in the Cotswolds. On a countrywide macroeconomic level something already seems to be afoot. From the 1970's to the noughties, when the UK pulled out of recession, inflation started in London and the South-East before unemployment had dropped in the North. This time seems to be genuinely different. Unemployment has dropped across the country, to 1960s levels, but inflation (other than the house price variety) remains remarkably low. Partly this is due to migration of people to London, but only partly. It appears jobs have also migrated out of London as well, relieving inflationary pressure in the capital. For the long term the Tube article is warning of things to come. The main extra cost in London is house prices. But London's tranport system is also very expensive. It only very recently stopped receiving central government subsidies, and just ten years ago received as much subsidy as the whole of Network Rail. If London does start to lose jobs and population it can't afford its transport network. Cuts will be needed, but, with very high fixed overhead costs, this will start off a vicious circle of reduced services and reduced revenue. And if London holds out the begging bowl to the rest of the country, how do we think Scots, Welsh, Northerners and Midlanders are likely to respond?
  3. Greece has public debt of 180% of GDP. This is because Greece was forced to convert private debt of French and German banks to public debt, an act of great wickedness. The IMF staff have long noted that this is unsustainable, and needs to be written off, it is a great dishonour to Christine Lagarde that she has ignored the views of her staffers to support the political and banking elite of Europe. The very, very interesting thing is that Greece has managed, by extraordinary efforts, to move their primary government budget (ie. ignoring debt payments) in to surplus; they have managed to bring tax and spending into line. This means that they can, if they want, default on their public debt; they won't need euros from the ECB to run the government. If Varoufakis was still there, I am sure they would default immediately, whether Tsipras has the balls I am not sure. But given the thoroughly evil way that the EU and IMF have treated Greece, default is the morally and economically correct thing to do. Either way, Greece is certainly going to threaten default if the debt is not cut back, and the next stage of the EU debt crisis will be very entertaining. The whole point of this week's deal is to move the crisis to 2018, after the German elections in 2017. If Tspiras had any guts he would avoid this gambit by threatening default immediately, and putting Merkel's majority at risk. Either way, get the popcorn ready.
  4. I appreciate this isn't London, but I think it is very, very relevant to the London hyper bubble: http://www.liverpoolecho.co.uk/news/investors-protest-hong-kong-over-11661261 Foreign investors have been investing in London property because they know that the UK has robust laws about private property and that, for example, they don't risk arbitrary confiscation by the state. What they haven't appreciated is that in an advanced state, robust laws about private property include fast effective bankruptcy laws. Once these investors realise that their 'deposits' on 'apartments' only give them a place in a queue to receive pennies in the pound there is going to be a scramble for the exit. The first big Battersea / Nine Elms bankruptcy can't be far away.
  5. ahhh....the difference an interest rate rise makes: http://www.reuters.com/article/venezuela-bonds-idUSL2N1540UK http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-faces-wave-of-epic-debt-defaults-fears-central-bank-veteran.html Commodities...tick Shares...tick Emerging debt...tick Houses next
  6. http://www.aljazeera.com/news/2015/02/dubai-debt-storm-clouds-gathering-150201075605951.html
  7. As QE winds down, and the commodities boom finally comes to an end, it seems like a good time to dust down this old thread. And Reinhart & Rogoff - a year and a half ago: And Reinhart & Rogoff - a year and a half ago: Greece, did of course default, but only got a partial write off. The EU refused to reduce debts below Italian levels for political reasons. This still left Greece in a debtor's prison, where they could not possibly pay off their debts. There is a point in all sovereign debt episodes where, if the lenders refuse to be reasonable, the problem morphs from the economic to the political. In Greece that happened yesterday. The Germans and Dutch remain intransigent. So Syriza's only possibility is to unilaterally default. If they default, their banks will go bankrupt. Greece is not allowed to print euros, so they will need to leave the euro and print new drachmas to recapitalise the banks. Then, like Iceland a few years ago, or Germany after 1953, unburdened by debt, their economy will boom. The Portuguese, Spanish, and Italians will follow rapidly. Indeed with sovereign default back on the table, and debt markets again closed, it could all happen very, very quickly. Meanwhile, Ukraine, Russia and others are at risk: http://www.washingtonpost.com/opinions/catherine-rampell-greeces-debt-crisis-is-far-from-a-resolution-to-judge-from-history/2015/01/12/8e331a0c-9a9c-11e4-96cc-e858eba91ced_story.html http://www.businessweek.com/news/2015-01-15/ukraine-faces-default-specter-as-russia-puts-neighbor-on-notice http://seekingalpha.com/article/2814325-russian-federation-1-year-sovereign-default-probability-9_05-percent-up-5_52-percent-in-6-months http://www.reuters.com/article/2015/01/12/credit-malaysia-sovereign-idUSL3N0UR1II20150112
  8. http://www.gizmag.com/london-skyline-skyscrapers-town-planning/31610/ Worth looking through the article. Given the absolute aversion of most brits to living in flats, the scale of these proposals suggests a London based housing bubble driven almost entirely by foreign investors.
  9. Well, it has taken four years for the commodities boom to end, in the meantime we have had defaults in Europe to keep us entertained. The tide is now going out on the developing countries - it will be interesting to see what they are wearing. It will also be intersting to see how much UK, US and euro banks lose in the carnage.
  10. Really?! I can only presume you have never actually read any AEP. Try reading the link below all the way through. http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6630117/Greece-tests-the-limit-of-sovereign-debt-as-it-grinds-towards-slump.html It is AEP's prediction of a Greek default in Nov 2009. At the time a lot of commentators such as you treated him like a swivel eyed loon. There is not a word of it that is wrong. He predicted the whole sovereign debt crisis way before any other mainstream pundit. And also prompted me to start the soveriegn default watch thread: http://www.housepricecrash.co.uk/forum/index.php?showtopic=131198 Because his central premise is correct. Like the gold standard in the twenties, the euro is not sustainable because the euro area is not an optimal currency zone. Southern Europe will continue to slump until the euro is split up. And southern europe is now extending to include France and even Holland. The split is inevitable, because either 1. the South will get fed up with pemanent depression, or 2. the Germans will get fed up with paying bigger and bigger bills. The article you quote is simply discussing whether option 2. is about to break. Maybe it is, maybe it isn't. But one option is definitely going to happen. France moving into full slump will be the critical point. AEP has been consistenly and spectacularly right for the last four years.
  11. I thought this was interesting as I see Vietnam as a mini-me for China; all the problems described in the article are mirrored in China's economy: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9501953/Run-on-Vietnams-biggest-bank-highlights-threat-to-economy.html
  12. The detailed mechanisms for wealth and income distributions forming into power laws (Pareto distributions) can be easily explained as a consequence of payments to capital. This can be interest, dividends, etc as well as rent on land or housing. See 'Why Money Trickles Up' for the explanation: http://www.econodynamics.org/sitebuildercontent/sitebuilderfiles/bullets.pdf'>http://www.econodynamics.org/sitebuildercontent/sitebuilderfiles/bullets.pdf http://www.econodynamics.org/
  13. Looks like it is going to be official: http://www.bloomberg.com/news/2012-03-09/greek-debt-deal-might-trigger-3-billion-of-default-swaps-under-isda-rules.html Somehow I don't think it is going to be good for anybody, especially not Spain or Italy. Even if Greece is a small economy, paying out the CDS's is going to take a lot of money, and with banks around the world already stressed this could push some over the edge. More importantly, like sub-prime mortgages, nobody ever expected this to happen, and nobody knows exactly which banks are at risk, nor for that matter which countries. We are all set now for a liquidity collapse, an interbank loan collapse and credit crunch part 2. Unfortunately, this time the sovereigns are maxed out, and in no position to come to the rescue.
  14. The last crash started on exactly the day after double tax relief was ended for people buying houses together. I remember a wave of hysteria as people rushed to complete on time, two friends of mine actually paid and organised for their vendors furniture removal. This gave a final upward blip to the market. This was then followed by a completely dead market that precipitated the crash and didn't end for another eight years. The behaviour over the last few months looks exactly the same, the last few suckers who still believe in getting on to the bottom rung artificially bumping the market up. If it is, then the next few months could be very interesting. http://www.bloomberg.com/news/2012-02-27/u-k-home-prices-underpinned-by-tax-holiday-rush-hometra.html
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