Our view on global investment markets:
April 2013 – Achtung Baby
Keith Dicker, CFAChief Investment Officerkeithdicker@IceCapAssetManagement.com www.IceCapAssetManagement.com
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It’s alright – it’s alright – it’s alright
www.IceCapAssetManagement.com
To Russia with love
While the debacle called Cyprus continues, many depositors whoshould be angry, are not. In fact many are holding court over brandy,vodka and macchiato describing how they pulled one over the neverwatching eyes of the Troika and their friends at the European Union,the International Monetary Fund and the European Central Bank.Meanwhile, the Troika is slowly coming to the realization thatperhaps they are not the sharpest knives in the drawer after all. Thereason for this epiphany is the mysterious case of the disappearingcash from Cypriot banks.Despite erecting iron clad walls around all Cypriot banks, someone,somewhere, somehow still managed to withdraw billions of Eurosfrom these supposedly closed banks. In what only can be described ina Woody Allen-esque way, it seems the great leaders of Europesimply forgot to close the back door to the banks. Apparently, whilethe average Cypriot dutifully lined up at the ATM to withdraw his EUR100 daily allowance, wealthy Russians and other Europeans simplyflew directly to Athens and London to withdraw all of their moneyfrom the
still-open
bank branches.And just think – during this entire time, Germany thought they werepulling one over on Russia. The sad part of the story however is thatCyprus once again has a giant hole to fill in their banking system allthe while anti-Euro sentiment builds quietly across the continent.
April 2013 Achtung Baby
Berlin (1990)
: Inspiration from the German reunification was notinspiring. In fact – nothing was going as planned. Ideas were notflowing, lyrics were not working, and the music certainly wasn’tplaying.The days were so dire, that Bono pleaded that their music wouldhave to move people in mysterious ways, and be even better than thereal thing. Never to give up, the rock band dug themselves in anddeclared they would keep trying to become one, until the end of theworld.
Berlin (2013)
: Inspiration from becoming the World’s exportingsuper power had long vanished. Throwing their hard earned moneyat the Irish & Portuguese, staring down the Greeks while Athensburned, and forcing the Italians, Spanish and Cypriots to accept theirway or the highway was reason for celebration. Everything was goingas planned - until now.The September 22, 2013 German Federal Election is fast approachingand what previously seemed like a cake walk of an election win, is nolonger. Euro skeptic parties are gaining traction across Europe and arenow knocking on Germany’s door.Chancellor Angela Merkel certainly has her work cut out for her. If she can successfully lead her coalition to victory, the coast just mightbe clear. Political failure on the other hand, could turn Europe into azoo station.
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Old is not new
www.IceCapAssetManagement.com just to agree upon the largely symbolic position of President. To makethe story even more entertaining, the new President is anything butnew. Somehow, 87 year old Giorgio Napolitano was arm twisted toonce again return to Rome’s Quirinal Palace for another 7 year term.Of course, this resolves nothing in the Wonderful World of ItalianPolitics except to provide the anti-Euro, anti-same-old-governmentleader Beppe Grillo with even more comedic material for the nextelection sometime this year.Meanwhile, as Europe continues to churn nowhere, it seems thatleading government officials everywhere have suddenly become fixedincome experts. According to these financial wizards, declining yieldsfrom Italy and Spain is vindication that (once again) the worst is over.This is the point where we ask investors, government officials, andmedia to read beyond both the headlines and the first paragraph of investment reports.Just as the declining US unemployment rate is attributed to more andmore people simply giving up hope (there’s that “word” again) andnot an abundance of new jobs; the decline in sovereign bond yields isthe result of domestic banks and pension funds buying new bondsfrom their respective governments – not an increase in confidencefrom international investors.While strong domestic demand for a government’s debt is usually agood sign, “forced” demand is not. To fully appreciate the continuingdemand for Spanish sovereign debt, look no further than thecountry’s social security pension fund which now proudly states
April 2013 Achtung Baby
Just like every other bailout in Europe, initial estimates of the moneyrequired for Cyprus will be unsurprisingly low, as will the actualeconomic growth rates thereafter. Whereas the gatekeepers inBrussels initially estimated the Cyprus bailout package to be EUR 17billion, the newest figure has jumped 35% to EUR 23 billion, and noone should be surprised one year from now when this figure isincreased even further.For those who still care, this shouldn’t be the least bit shocking. Afterall, the initial estimate for the Greek bailout was EUR 110 billion.Sadly, here we are 3 years and EUR 325 billion later, and there is stillno end in sight.Elsewhere in the bailout world, Portugal had to officially request a 7year extension to its repayment scheme. Meanwhile, rumours of Ireland once again heading to Brussels with cap in hand simmer aswell. Meanwhile, Spain and Italy - the 2 big daddies of the Europeandebt mess continue on a trajectory to nowhere, if that’s possible.Despite higher taxes, reduced government spending, and the slowwithdrawal of private capital, Spain’s fiscal position is not improving.To top it off, stories of unpaid bills have become legendary especiallyin the city of Madrid, which managed to increase its debt outstandingby 18% in just one year.At the same time, Italy is no closer to having anyone form a newgovernment. In fact, it took the warring parties 6 rounds of voting
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