July 14, 2015

What's Up With China? Not Much.

Here's a helpful and informative article about the recent popping of the Chinese stock market bubble. Its causes, its consequences. I have bought some FXI (the Chinese ETF) recently, thinking the selling was overdone but as my super smart fellow blogger Noah Smith implies, I might have been a little early. Excerpt:
This is what usually happens when people try to prop up share prices. Economist Owen Lamont has studied episodes in which companies resort to various legal actions and market manipulations to keep short sellers from driving down their stock prices. Even when the companies succeed, their share prices usually continue to drift lower. If this is true for a company, it should be similarly true for the Chinese government.  
Many analysts say they think China’s stocks still are overvalued. BlackRock’s global chief investment strategist Russ Koesterich was quoted as saying: “Given the magnitude of the run-up [in Chinese share prices], it is possible that even after a 30 percent correction, we haven’t gotten back to something approaching fair value.” Whether he’s right, he’s certainly expressing a widely held view, and that means that pent-up selling pressure might remain. 
 We shall see.

July 10, 2015

Greece's Depression vs. the Great Depression

One chart is worth a thousand words (courtesy of the New York Times):


Gross domestic product

U.S. 1933
Greece 2013
–26%
–26%
+5%
0
–5
–10
–15
–20
–25
–30
1929
1930
1931
1932
1933
1934
1935
1936
2007
2008
2009
2010
2011
2012
2013
2014
Percentage change in annual G.D.P. since 1929 in the U.S. and since 2007 in Greece

July 6, 2015

Some Clarity on the Greek Situation

This piece by the often excellent Roger Cohen does much to illuminate the running Homeric Greek Saga (sorry for the mixed metaphors):

[...] Should European leaders now allow this to happen — keep the cash spigot from the European Central Bank turned off, watch Greek banks become insolvent in short order, see medicines and imported foods disappear from pharmacies and supermarkets within a week or two, force Greece to start printing i.o.u.s or eventually drachmas that might allow the country over time to devalue its way back to competitiveness? Should Europe gamble that as this scenario unfolds — and Greeks see they were hoodwinked by Tsipras into voting on an austerity proposal when in fact they were voting on whether to keep the euro or not — the majority will rise up and throw out the leftist government for one more amenable to a deal? 
Or should creditors, headed by Germany, now cave to Greece — persuaded at last that austerity has its limits and the Greek people have evidently reached theirs, that grievous mistakes have been made by all sides, that the euro may never recover from the loss of one its members, and that, as the International Monetary Fund concluded last week, Greece is almost certainly going to need some debt relief at some stage anyway? Should the troika swallow its pride and say to Tsipras and his ministers that — despite their incompetence, their amateurishness, their arrogance allied to childishness (fatal combo), their insults and their game playing — they have proved their point and won the day and more money is coming? 
The decision is not easy. The abrupt resignation on Monday of Yanis Varoufakis, the finance minister, suggests that Greece may now be more serious about negotiation. Much hinges on how expendable Greece, which accounts for just 2 percent of the eurozone’s economic output, is seen to be. In the end currencies are more expendable than countries. Greece will survive without the euro, initially in great misery. The euro may survive without Greece. But, because trust is the foundation of any currency, and joining the euro was an “irrevocable” decision of all its adherents, the euro will have suffered a body blow. It will become little more than a fixed exchange rate system awaiting the next defector. [...]
It was a sentimental illusion to allow Greece into the euro in the first place, but sometimes terrible decisions have to be managed rather than reversed. This is still such a case. 

July 1, 2015

Fodder for the Blame Game

Do not believe the current narrative. This impassioned piece by Clive Crook from Bloomberg tells you why.

Excerpt:

[...] Far from expressing any desire to compromise, dominant voices among the creditors -- notably German Finance Minister Wolfgang Schaeuble, who often seemed to be calling the shots -- have maintained throughout that there is nothing to discuss. The program already in place had to be completed, and that was that.
Yes, the program had failed. No, it wouldn't achieve debt sustainability. Absolutely, it was pointlessly grinding down Greek living standards even further. What did that have to do with it? [...]