The drama surrounding the euro crisis has been reported in spectacular fashion in the media. Past EU summits have been characterized as “the last chance to save the euro.” The most recent EU meeting in Brussels was no exception, even though financial markets had lowered expectations of a big result. Though I don’t think such sayings as “the last chance to save the euro” make much sense, the outcome of this summit can be considered as progress. (more…)
I sometimes feel like I’m living in Lewis Carol’s world of “Alice in Wonderland.” Only in this financial “Wonderland,” bad is good and good is bad, safe haven assets (despite deteriorating fundamentals) are prized above all else and the truly cheap stuff (emerging market equities, anybody?) are swept into the dust bin. It causes one to wonder if the markets will ever escape back up the rabbit hole.
The prospect of Greece leaving the European Monetary Union seems avoided for the time being. However, escaping the worst-case scenario does not solve all of the underlying problems.
The situation in Greece remains difficult and we cannot discount the fact that Greece will need to renegotiate the bailout conditions or even negotiate a new bailout. With €11 billion of spending cuts required and a severe recession underway (GDP at -6.9% in 2011), Greece will need to find a way out of this negative spiral.
The Federal Reserve left the Fed funds rate unchanged at 0.25%, in line with expectations. As the market expected, the Fed extended Operation Twist, its bond buying program selling shorter-duration securities for longer ones, by declaring its intention to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less.
Those of you who read my last blog are familiar with Pioneer’s stance on the euro crisis. While much more complex than similar issues faced by the U.S. and UK, we believe the crisis will be resolved and that it will result in a more united Europe. That said, the €100 billion loan approved by the Eurogroup to help recapitalize Spanish banks is a move in the right direction.
I’ve asked Cosimo Marasciulo, Pioneer’s Head of European Government Bonds and FX, to summarize his thoughts on the matter, which he has provided here . . .
I am a certified Hoop junky! From the asphalt courts of NYC playgrounds to various hardwood courts around the world, I have played pick-up basketball all my life. I love competitive match-ups, whether among a rag-tag group of 5 on 5, the Final Four or the NBA playoffs. As such, watching the Eastern Finals in the NBA the last few weeks has been both depressing and exhilarating.
With over 25 years of experience in the asset management industry, Giordano Lombardo’s insights and expertise make him a sought-after commentator among Europe’s financial press.
Last week Ireland ratified the Fiscal Compact. Yet, while the Irish referendum is only one of the electoral events of this hot spring, it is not the most important one. The Greek elections on June 17 will be crucial for confirming the actual structure of the eurozone. In any case, even if the results of the referendum were not overwhelmingly positive, they provide a good indication of the country’s willingness to accept eurozone rules. The result is in line with what I see in most of the European countries, a declaration of “more Europe,” as highlighted by recent elections in France and in Germany.
I am often asked why – two years into the euro crisis – we’ve seen no solution. The euro crisis is not a pure debt crisis linked to deleveraging issues, as in the U.S. and the UK. It is much more complex and touches many different perspectives:
While markets are currently focused on the negative implications of a Euro breakup, causing Treasuries to rally strongly (as investors seek “safe havens”), let’s not forget that in March of this year Treasuries plummeted in value as investors grew anxious that the U.S. economy and inflation would test the Fed’s resolve to hold interest rates down. The most recent rally in Treasuries only increases our conviction that investors need to be positioning their fixed income portfolios for the return of inflation and the subsequent pressure it will exert on the yield curve. Indeed, we believe the odds are rising that the government bond market may be entering a long term bear market, based on a few key factors:
Most recessions are functions of a normal business cycle; this recession was a financial crisis marked by defaults by individual, business, and even government borrowers. Still, the U.S. economy is growing. It may be slow growth, but it is enough growth for the unemployment rate to fall from 8.5% to nearly 8%, and likely to below 8% later this year. (more…)