The “rabbit hole” is an accepted metaphor for the conceptual path which leads to the true nature of reality. Infinitesimally deep and complex, venturing too far down is probably not too clever an idea, you have to wonder if beginning to expose just how deep the global economies’ rabbit hole is burrowed will now irreversibly spook the markets.
There’s been a collective denial during the past three to four years and despite the dizzying amount of meetings of the good and the great of the financial world over recent weeks, the reluctance to actually put a figure on the total stability ‘bill’ has not gone unnoticed. There’s two reasons for this, firstly the mention by the IMF and ECB of €2-3 trillion to protect Spain, Italy and Greece is a number that doesn’t compute with the electorates of the seventeen member countries of the Eurozone.
It’s confusing given it’s such a large sum, it could be €5 trillion it’s that ‘stellar’, most of us cannot comprehend the reality of such sums and what the impact will be. At that level ‘money’ actually loses meaning to the ordinary man and woman in the street. However, that new reality may, in the short term, be explained by the media outlets who choose to be off side with the various politicians and the decision makers. When they ‘do the math’ and explain in basic digits the impact such bailouts will have coming so close after the 2007-2009 economic crash, the mood of the electorate may change.
The second reason the politicians and decision makers have avoided the mention of cold hard facts is they know the inevitable focus will then be on those figures and very quickly the question will be asked; “is that enough, at what point do you come back and ask for more?” Naturally the inquisition then moves forward by asking how these crises differ from 2008-2009 and naturally the IMF and ECB will go to any lengths to avoid stating the truth; ” oh..this is much, much worse, we didn’t know how deep the rabbit hole went back then and we have absolutely no idea now..this €3-4 trillion is just the start.”
On the subject of the IMF (and without clumsily mixing up Alice in Wonderland and the Wizard of Oz) the IMF has been pushed as a lender of last resort bulwark over recent years, the evangelical, mystical saviour of the system. As the curtains were accidentally moved back by Christine Lagarde during the IMF’s weekend meeting she revealed that the IMF has circa €400 bl at its disposal, barely enough to ‘solve’ the short term Greek issues..
Asian markets reacted badly to the various proposals put forward by the IMF and the general mood of gloom which has cast a shadow over the global economy. The Nikkei closed down 2.17%, the Hang Seng closed down 3.08% and the CSI closed down 1.80%. The most spectacular fall was on Thailand’s main bourse the Bangkok SET which closed down 7.82% down and is now in negative territory year on year.
In late evening the ftse and SPX futures pointed towards positive openings, however, the overall ‘nervousness’ of the markets was illustrated by both futures indices being negative by over 1% pre the London open. The ftse is in positive territory now as is the SPX future. The ftse is currently up 0.5% and the SPX future is up 0.75%. the STOXX is up 1.52%, the CAC is up 1.02% and the DAX up 0.63%. Brent is down $15 a barrel gold down $43 an ounce and silver, which has imploded as an alternative investment recently, is down $234 or ten percent.
Sterling is up circa 0.5% versus the USD, EUR and CHF and relatively flat versus yen. The euro has clawed back earlier losses versus the dollar but is down circa 0.7% versus yen and down circa 0.5% versus the dollar. The Euro is very erratic versus CHF but is currently flat. There are no scheduled data releases that are likely to impact the markets today.