Tag Archives: UniCredit

The Last Optimist – Alive and Kicking

There’s an old saying amongst investors that claims that the market bottom is reached only when the last optimist turns pessimistic. Former Goldman Sachs European analyst, now UniCredit chief economist, Erik Nielsen, is a natural-born optimist. And he’s still hanging on, still looking for something positive to tell his clients… God bless his soul!

“While few people like to see their individual benefits being cut, or their individual taxes hiked, the broader sentiment in Southern Europe is that people want core-European quality-institution and stability.”

Erik Nielsen

“Big political changes are now sweeping through the euro zone, putting, at least for now, the many skeptical political observers to shame.  I can’t tell you how often I have been told by investors and economists during this crisis that its only a matter of time before Southern Europe refuses the adjustment medicine and brings into power radical political forces which will eventually take them out of the euro zone, and that Germany will soon refuse to lend any further money to the south.  Interestingly, some 90% of those having predicted this outcome happen to be residing outside the euro zone,” Nielsen points out.

Here’s the rest of Mr. Nielsen’s commentary, published at www.eurointelligence.com today:

The Case for Optimism

Well, so far it is moving in the opposite direction: In Greece, Lucas Papademos was sworn in as prime minister, and Italy is about to hand power to Mario Monti.  And next Sunday when Spain goes to elections, and assuming the opinion polls are remotely accurate, Spain will elect the conservative Partido Popular with a wide absolute majority.

What’s the common picture in these three countries? People want more Europe, not less.  While few people like to see their individual benefits being cut, or their individual taxes hiked, the broader sentiment in Southern Europe is that people want core-European quality-institution and stability. 

Meanwhile, in Germany, Stern magazine rewarded Angela Merkel‘s performance during recent weeks by putting her on the front page – her picture tattooed onto the bicep of a strong arm and with a sub-title of “how Merkel runs Europe”.  Stern’s weekly ranking of politicians sent her top of the group, followed by – equally important – other pro-European opposition politicians, with the more sceptical ones (the Left and FDP) way down.

For us believers in the European project, this is clearly good news. 

But will the market appreciate it?  Well, one day it will, but I am not completely sure that it will get it quite yet.  At the end of the day, we are living through this highly peculiar period where investors will rather buy bunds or gilts with a virtually guaranteed erosion of real wealth, than being paid 6%-7% for an equivalent Italian bond with a virtually certain better outcome in two years.  But with leverage and mark-to-market and a year of generally poor performance, two years is a long time.

Everybody in the asset management industry seems preoccupied with career risk. 

It is a sad reality, sad because when the collective guardians of our savings prefer negative real return rather than maximizing return on capital, then this will come with a cost to long run growth.

What should be the policy response this bizarre state of affairs? 

So far, the European response has been out of the good old text-book, to which I still subscribe:  When you have an excessive fiscal imbalance, then you adjust it as fast as you can, accepting the short-term pain for the longer term gain.  And until very recently, the market subscribed to the same philosophy, discounted the future benefits of the tougher policy, and rewarded the faster adjustment over the slower one.  

Now, however, markets seem to like slower, or no, adjustment over the fast adjustment, predominantly because investors have turned themselves into pseudo political scientists, predicting a demise of the politics in the countries undertaking tough reforms.

So far, the common political “wisdom” on Europe on Wall Street has been wrong.  Will it change now on this latest evidence?  I don’t know.

If it doesn’t, then I would propose the following: if markets do not properly reward fundamentally good adjustment policies in a country, which the Troika deems sufficient and therefore eligible for a credit line, then it would be only reasonable for the ECB to draw a line in the sand and announce a maximum funding cost for that country for a period of time. 

For example, if Italy puts into law the required structural reforms, and the market does not bring funding costs down sufficiently on the back of the prospect for better growth in the future, then – with a Troika approved credit line – the ECB ought to tell the market that during the next year (or two) and so long as those policies remain in place, the 2-5 year sector of the Italian curve shouldn’t be above, say, 4%. 

I suspect that the ECB would not have to spend much money getting that result, if any. 

The parallel is the Swiss National Bank’s decision to change their exchange rate policy “from leaning against the wind” with a clear and defendable floor of 1.20 Swiss Francs against the euro. 

It was a gutsy call by the SNB, which suddenly  everyone agreed with once implemented and successful.

I suspect the same would be true if a member of the European Central Bank‘s executive board were to propose a temporary ceiling on yields of 4%.

This would quickly put to an end the current phase of the crisis – and, almost certainly, the build-up of sovereign debt on the ECB’s balance sheet.

By Erik Nielsen, chief economist of UniCredit.

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EU To Freeze Assets of Libyan firms

EU diplomats are close to finalising a list of Libyan companies to be added to a recent asset freeze and travel ban related to 26 members of the Gaddafi regime. A diplomatic contact says the multi-billion-euro Libyan Investment Authority is  very likely to be included, along with an investment bank and  three other major firms.

“We’re looking at targeting assets that are clearly linked to those people already identified as perpetrators of human rights abuses.”

EU diplomat

The details are yet being held back to prevent money being smuggled out before the measures are in place. France, Germany and the UK are leading the new initiative.

The sanctions are to be adopted informally at around 10 am Brussels time on Tuesday, unless Italy or Malta – the two EU countries closest to Libya – raise last-minute objections. the EUobserver.com reports.

The Libyan Investment Authority and the Libyan Central Bank hold stakes in prominent Italian companies.

The Libyan Central Bank is the second largest shareholder Italy’s largest bank, UniCredit with about 7 percent of the shares.

In addition, Gaddafi and his companions owes 7.5 percent of the Juventus football club, 2 percent of arms firm Finmeccanica, amajor part of car-maker Fiat, a part of Italian energy giant Eni and a stake in Telecom Italia.

The EU ministers meeting at the competitiveness council in Brussels on Thursday are likely to stamp the measures as an emergency summit on Libya in the EU capital the next day.

“We’re looking at targeting assets that are clearly linked to those people already identified as perpetrators of human rights abuses,” another diplomatic source says.

Nato chief Anders Fogh Rasmussen indicated on Monday that Western powers are considering military intervention if the civilian death toll continues to mount.

“If Gaddafi and his military continue to attack the Libyan population systematically, I can’t imagine the international community and UN standing idly by,” he told a press conference in Brussels.

Adding: “I assume that any Nato operation would take place in accordance with, and pursuant to, a UN mandate, and I take note of the fact that the current UN mandate doesn’t authorise the use of armed force.”

Nato defence ministers are to meet in the EU capital on Thursday and Friday in an event scheduled before the Libya conflict broke out.

US President Barack Obama have also indicated today that a military action against Libya is not to be ruled out.

Well, I guess this is the opportunity many Western politicians and generals have been waiting for.

Payback time!

Related by the Econotwist’s:

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2010 Analysis: Four Scenarios

I have managed to collect some analysis, predictions and commentaries from some of the worlds leading financial firms and experts, In the days to come I will present them here at econotwist.worldpress.com. Hopefully you will find them usefull and intersting. To kick off the ball; here’s the team of analysts at Europe‘s biggest bank, Deutsche Bank, who predicts four posible scenarios for 2010.

“One of the largest challenges will be funding the still large global government insurance in a world with less quantitative easing. QE limited the discussion of the impact of crowding out in 2009. Will we be as fortunate in 2010?”

Deutsche Bank

(Aricle in Norwegian, original report in English)

Jeg har samlet noen analyser, prognoser og kommentarer om den globale økonomiske utviklingen fra noen av verdens ledeende finansforetak og eksperter.  I dagene fremover vil jeg presentere den en etter en her på econotwist.worldpress.com. Først ut er analyseteamet til Deutsche Bank. Den europeiske storbanken skisserer fire mulige scenarioer for 2010.

– Selv om vi er positive på kort sikt, er det klart når vi ser på verden i dag at det nåværende makromiljøet vil være vanskelig å beholde. I 2010 vil markedet trenge tydelige beviser på at landene som har stått for de mest aggressive mottiltakene under finanskrisen er på stø kurs tilbake til finansiell disiplin. Hvis ikke vil vi fortsette å bygge opp risikoen for statlige gjeldsbomber som kan forstyrre bedringen i det svake næringslivet, skriver Deutsche Bank.

– Og skulle 2010 bli et nytt vanskelig år, er det lite sansynlig at katalysatoren vil komme fra aksjemarkedet eller det kommersielle kredittmarkedet. Det betyr at de makroøkonomiske forholdene vil styre økonomien i 2010, og i realiteten vil dem som har investert i statsobligasjoner rundt om i verden være dem som avgjør skjebnen til andre mer risikofylte investeringsklasser, konkluderer analytikerne.

Deutsche Bank skissere fire mulige scenarioer for den økonomiske utviklingen neste år.

1.(mest optimistisk) “This scenario is one where the authorities have as good a year as they did in 2009. They likely keep stimulus extremely high in the system without there being any noticeable consequences of their actions. Under this scenario we would expect equities to be significantly higher, credit spreads be much tighter but with bond yields only edging slightly higher as the authorities are seen to have firm control of inflation expectations and may even be continuing to buy bonds.”

2.(mest sansynlig) “This scenario is the most likely and suggests that we start to see gradual easing off the gas from the authorities but only as it’s proved that there is some momentum in the underlying economy. Under this scenario risk assets have a good year but returns are checked to some degree by rising bond yields and less stimulus being injected into markets. A satisfactory year for risk, especially equities, but a mildly negative one for fixed income. Credit investors will likely have to rely on spreads to get positive total returns.”

3.(mindre sansynlig) “This is the second most likely scenario overall in 2010 but one that potentially becomes more likely as the year progresses. Here we are likely to see sharply higher bond yields start to disrupt the positive momentum in markets. These higher yields could be either due to Government supply starting to overwhelm demand, or because of inflation fears. It seems unlikely that actual inflation will be a concern in 2010 but it’s quite possible for expectations to become unanchored. We would also have to include the potential for a Sovereign crisis somewhere in the Developed world within this scenario. We would note that the higher yields in this scenario are not based on positive growth momentum but by inflation/Sovereign risk.”

4. (skrekk-scenarioet) “This is the nightmare scenario of Deflation or in less extreme terms perhaps a double-dip. Given that much of the world is currently still in negative YoY inflation territory it is difficult to completely rule out even if we do live in a fiat currency system and even if inflation is expected to return to positive territory in early 2010. For deflation to be sustained we would probably need an exogenous event to hamper the authorities ability to continue to successfully fight this credit crisis. Such events could be a fresh banking crisis arising, a political backlash encouraging immediate increases in economic regulation or withdrawal of stimulus, or possibly a Government bond/currency sell-off that forces the authorities to aggressively reign in stimulus for fear of a sovereign  risis.”

Den europeiske iTraxx-indeksen som måler prisen på europeiske Credit-default Swaps:

Prisen for å forsikre statlig gjeld (Credit-default Swaps) er på vei opp igjen.

Her er hele analysen fra Deutsche Bank.

Tidligere analyser:


Danske Bank

Et bilde sier mer enn tusen ord.

Blant de andre observasjonene er blant annet:

* Gull (som nå koster rundt 1200 dollar per unse) har ikke vært billigere siden begynnelsen på 70-tallet.

* Obligasjoner er en klart bedre investering enn aksjer.

* Negativ utlånsvekst i USA.

* Boliglånsrentene vil ligge på rekordlave nivåer til forbi 2015.

* Kjerneinflasjonen i flere land vil falle mot 0%.

Når det gjelder valg av strategi for året som kommer, siterer Edwards  styreformannen i det kinesiske statlige investeringsfondet,  (China Investment Corp), Lou Jiwei:

“It will not be too bad this year. Both China and America are addressing bubbles by creating more bubbles and we’re just taking advantage of that. So we can’t lose,”

Her er hele analysen fra Société Générale Cross Asset Reasearch:

Tidligere analyser:


Danske Bank

Deutsche Bank

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