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Dovre Insight: A dangerous game

Spekuliantai.lt | 2012-05-21 | Kitos | perskaitė: 425
Raktiniai žodžiai: Rinkos
Dovre Insight: A dangerous game Dovre Insight: A dangerous game

 Greek politicians are playing Russian roulette. The danger of a fiscal collapse and uncontrolled result from the euro zone has increased. The ripple effects for Spain and Italy can be disastrous.

Greece has a lot of debt, so much debt that many Greek politicians predict that the EU would not dare to let the country go bankrupt. The assumption is that the German government will give in and allow a comprehensive renegotiation of the rescue package.
There’s probably some room for renegotiation but there is not much. Angela Merkel is struggling to explain to the German people why she has thrown so much money into a Greek black hole. She cannot afford to spend more political capital of Greece.

17th June

17th June is the choice day in Greece. It will be crucial. What happens if the country is forced out of the euro zone? In Greece, the consequences will be disastrous, at least in the short term.
The biggest threat is that there may be a domino effect that affects Spain and Italy. The banking sector is the weak link. There are concerns that already there is evidence of capital flight. The total deposits in the Spanish and Italian banks are falling. If the blood loss is not stopped, it can have fatal consequences.
With political turmoil in Greece and renewed unrest in Spain and Italy the risk is increasing that the euro zone can be torn apart. What can governments do to neutralize this threat?

The End Game

There is only one permanent solution, the nuclear option. The problem is that in the euro zone states there are insolvent ones, near insolvent states and insolvent banks. The solution to everything is money printing. Money Printing is the end game not only in the euro zone but in any debt laden or stagnant G7 economy.
One way to circumvent the EU Treaty's ban on central bank financing of the national states, is to allocate an emergency banking license to the ESM fund. The fund will then be able to gear up by borrowing from the central bank and its lifting capacity will be almost infinite.
Such a solution would sit far away from the Germans due to inflation risk. If the situation is extreme enough, however, we expect that politicians will do what is necessary. With extreme, we believe government bond yields of 6.5 percent in Spain and Italy. It is not far away.

Oslo Stock Exchange

In the short run Oslo Stock Exchange was pushed down not only by the euro crisis but also by poor macroeconomic figures from the U.S. and especially China. The good news is that pessimism is already at levels that are associated with important market bottoms. Then sudden responses in the form of money printing become ever closer. We are fairly neutral to the Oslo Stock Exchange in the short term but positive in the longer term.

Dovre Portfolio

• Intex Resources
• Sparebank 1 SMN
• Funcom
• Wilh. Wilhelmsen
• Bonheur
• Hurtigruten

In: -
Out: -

 

 

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