Collective Amnesia

Greeks in the long grass……

It has been a punishing two weeks, with markets all over the place, and extraordinary volatility. Clearly, the political situation in the UK has played a part, but minor compared to the unfolding situation in Greece, fixed without much fanfare, on Sunday afternoon. The totally unexpected response, from Europe, has caused some massive hedge fund losses, where they were short, but as ever, timing is everything. I still don’t see how it can avoid default, but the huge QE program will kick this in to the long grass for at least eighteen months, which, to a politician, is the same as a solution.

 It will, also, be very positive for European equities.

 Taking St. Vince of Cable seriously……

 In this industry, we are constantly being told that past performance is no guide to the future, but, where it is available, it seems a good place to start. Now, you have to be of a certain age to remember the passing of the last Labour government, but they left office with unemployment higher than when they entered, and the country all but bankrupt. Ring any bells? Economic, and political cycles, are based on collective amnesia. However, this time it will be different; the mighty St. Vince of Cable now has a seat in Cabinet, and he can foresee all these problems. If you look at the pictures of the first gathering, he is the only one not smiling, probably cursing his luck that someone finally took him seriously, for a moment.

 Whatever your colours, this is the best hope we have of restoring some sense to our finances, and society, and I wish them well.

More fun to come…..

I did enjoy the interregnum, though. Days of horse trading, and the airwaves full of living fossils. Where do they get these people from? Just before the Deal, they had Paddy Ashdown briefing for the alternative, Labour, version. Did he really believe it, or was he set up? Either way, he played it brilliantly. The fun is not yet over, with the opposition about to enter a period of auto cannibalism, and Brown to return as a backbencher. Perhaps he will occupy the seat that Ted Heath had, and go for the record of the longest strop in history. All joy.

Budget cuts…….amputation or surgery?

We await the budget in 47 days time. I met with a strategist from J P Morgan on Tuesday, and he felt that the situation here was not as bad as we feared; growth is looking better than thought, and the Q4 numbers have been revised upwards. Whilst it is all at the margin, better tax revenues could make the difference between surgery and amputation.

Lending and borrowing……..

Meanwhile, the Wall Street Journal reported, on Thursday, that the poppy harvest, in Afghanistan has been disastrous. Yields have fallen between 30% and 50%, the crop having been deliberately infected, (it is said), by US led forces. So the price has rocketed; a kilogram of wet opium, is now $85, compared to $54 just 12 months ago.

Farm gate prices. The Taliban have 90% global market share in this product, and levy taxes on the farmers, and then process the raw stuff, and export it through Pakistan. This is what is known as “added value”. Whilst the Taliban might have short term cash flow problems, spare a thought for Mahmood from the Shah Wali Kot district of Kandahar. This year, he borrowed a “large” amount of money to buy poppy seeds, and his crop has failed. So, double or quits, a binary decision. What intrigues me is who lent him the money……

Finally, still on the subject of lending, and borrowing, I was amused to learn that, for his second resignation speech, Gordon Brown had to borrow a red tie from Alistair Campbell.

Sums it up, for me.

CDO.

14^th May, 2010