EU Market Situation and Outlook

[smac]

Syriza getting 36%-38% and maybe a majority and maybe not will not reshape European politics.

I don't think Merkel is bluffing.

She will let the Greeks default and exit the EU.

If anything this will crack the whip on the Italians,Spaniards, and Portuguese.

TBH I watched some of the live footage from the 2012 riots, when Merkel was last being hard-line over Greek debt.

It's all monopoly money in the end, and watching buildings being burnt to the ground in some geo-political game of RISK, was actually quite disturbing.

Oh well we can carry on paying $500 for Obeche trim, and mock the lazy Greek/Spanish/Italians.

Grexit v2 ain't gonna happen. If one exits they can all exit. Power decentralizes back to member states, and plenty of small bit players in their home countries would love to rise to power and become mini Kim Jong -Ils.

 

[Auzie]

Grexit v2 ain't gonna happen. If one exits they can all exit. Power decentralizes back to member states, and plenty of small bit players in their home countries would love to rise to power and become mini Kim Jong -Ils.

I thought that was the founding Eu idea, anyone is free to exit if they wish.

It is not a very compelling union if it takes away power from its constituents and centralizes it. My understanding of that union is that it is about opening markets and opportunities for its constituents, not about taking power away from them.

 

[smac]

I thought that was the founding Eu idea, anyone is free to exit if they wish.

It is not a very compelling union if it takes away power from its constituents and centralizes it. My understanding of that union is that it is about opening markets and opportunities for its constituents, not about taking power away from them.

That was the "sell side".

Entry was easy (and oiled nicely with enticements to those in power at the time allegedly)... Exit is much harder, especially if you have released control of your national currency. It was the one thing the UK and Swedish Govts. got right.

Don't get me wrong, I'm not a raving Occupy sort of guy, but I'm not one for needless layers of government either.

Open markets = good
Harmonized Product Standards = good
Remote Multinational parliaments = bad
Shared Currency = v. bad

 

[sundaymorning]

Greece and Eu resemble a very bad marriage of incompatible partners. Such union requires an enormous amount of effort to make it work and it still does not work. Greece may also be better off outside of the union, to get a chance to self-reflect, loose external blame point and develop its own strengths.

I agree, some things just aren't meant to be, the economic impact of Greece joining the EU didn't pan out as planned, leaving other countries to constantly shoulder extra weight. When things don't work out after a second and third try, one has to wonder what the other side might look like.

 

[Auzie]

That was the "sell side".

Entry was easy (and oiled nicely with enticements to those in power at the time allegedly)... Exit is much harder, especially if you have released control of your national currency. It was the one thing the UK and Swedish Govts. got right.

Don't get me wrong, I'm not a raving Occupy sort of guy, but I'm not one for needless layers of government either.

Open markets = good
Harmonized Product Standards = good
Remote Multinational parliaments = bad
Shared Currency = v. bad

Agree with your points on European layers of bureaucracy, it seems so wasteful and ineffective, there is no excuse for getting it so wrong.

Shared currency obviously does not work as constituents are incompatible regarding their fiscal behaviour. I am not seeing why they so desperately cling to it.

 

[smac]

Agree with your points on European layers of bureaucracy, it seems so wasteful and ineffective, there is no excuse for getting it so wrong.

Shared currency obviously does not work as constituents are incompatible regarding their fiscal behaviour. I am not seeing why they so desperately cling to it.

Speculatively, my guess is non EU banks with significant EUR holdings would be screwed on a balance sheet solvency basis if their reporting currency was non EUR and it tanked.

Any bank that had PIIG debt would also be screwed.

Any bank that held debt on another bank that held debt on PIIG would be ...

The ECB would be screwed if left holding all the PIIG debt...


IOW all the same reasons Grexit didn't happen last time.

 

[drinkerofkoolaid]

Four of Greece's Biggest Problems :

1) Most of the people with the education and experience necessary to fix Greece and create a functional economy have left the country. (Many students in Greece have been in college for 10+ years because they don't have the qualifications to get hired in another country and because college is free and housing is heavily subsidized as long as you're a student)


2) Large companies in Greece don't pay taxes and bleed many areas of Greece dry. (such as companies engaged in Fracking/coal mining/etc.)


3) Most of the political parties are very new and don't have a coherent platform or plan. (Rioting and burning down the town hall is not a plan!)


4) The underground economy in Greece is very large.

 

[NigelM]

Speculatively, my guess is non EU banks with significant EUR holdings would be screwed on a balance sheet solvency basis if their reporting currency was non EUR and it tanked.

Any bank that had PIIG debt would also be screwed.

Any bank that held debt on another bank that held debt on PIIG would be ...

The ECB would be screwed if left holding all the PIIG debt...


IOW all the same reasons Grexit didn't happen last time.

I agree Grexit isn't going to happen but the various banks (incl national banks and ECB) that have Greek debt on their books are going to be feeling very nervous anyway this week. If the Greeks arbitrarily impose new terms on repayments or they decide to default entirely that sets a precedent for Italy, Spain and others to follow. I think the Germans and others could survive a Greek default (albeit with a fair amount of pain) but not a complete PIIG default. All that nervousness will cause plenty of market jitters this week.

 

[drinkerofkoolaid]

I have a feeling most banks and large investors with exposure to Greek debt have had plenty of time to hedge a Grexit. Also, very few Greeks keep their money in Greek banks.

 

[Auzie]

Four of Greece's Biggest Problems :

1) Most of the people with the education and experience necessary to fix Greece and create a functional economy have left the country. (Many students in Greece have been in college for 10+ years because they don't have the qualifications to get hired in another country and because college is free and housing is heavily subsidized as long as you're a student)


2) Large companies in Greece don't pay taxes and bleed many areas of Greece dry. (such as companies engaged in Fracking/coal mining/etc.)


3) Most of the political parties are very new and don't have a coherent platform or plan. (Rioting and burning down the town hall is not a plan!)


4) The underground economy in Greece is very large.

That is my view as well, from afar.

Maintaining status quo is not sustainable and something has to give. My bet is on a Greece default, that would not be so surprising considering the past and present situation.

I hope that Eu leaders, whoever they are, develop some creative responses.

 

[dmunjal]

I agree Grexit isn't going to happen but the various banks (incl national banks and ECB) that have Greek debt on their books are going to be feeling very nervous anyway this week. If the Greeks arbitrarily impose new terms on repayments or they decide to default entirely that sets a precedent for Italy, Spain and others to follow. I think the Germans and others could survive a Greek default (albeit with a fair amount of pain) but not a complete PIIG default. All that nervousness will cause plenty of market jitters this week.

This is good analysis. I feel like Greece is like subprime housing. It's just the tip of the iceberg. If it defaults, it's sets off a chain reaction as debt derivatives are unwound.

No one realizes how our monetary system is so vulnerable to a default of this size. This is why global QE continues even 6 years after the financial crisis.

 

[sundaymorning]

I agree Grexit isn't going to happen but the various banks (incl national banks and ECB) that have Greek debt on their books are going to be feeling very nervous anyway this week. If the Greeks arbitrarily impose new terms on repayments or they decide to default entirely that sets a precedent for Italy, Spain and others to follow. I think the Germans and others could survive a Greek default (albeit with a fair amount of pain) but not a complete PIIG default. All that nervousness will cause plenty of market jitters this week.

I think bailing out banks would make more sense than Greece. If Greece exits, I'm sure the transition should be made somewhat smoothly, as to not create panic and chaos. It's never a good idea for any government to completely default and not repay, some form of payment should be expected, otherwise, it'll be mighty hard for that nation to finance future projects. Greece and Portugal are the two weakest link, earnings per capita is about $21k compared to $29-$35k for Spain and Italy respectively. I would argue Portugal is in better shape than Greece, at least many global conglomerates are in Portugal.

 

[Auzie]

QE is unlikely to be as effective in Europe as it was in US

Markets welcomed the news of ECB decision to implement QE by a rally in Europe.

On the other side, sceptical views abound on the likely effectiveness of ECB QE programme in Europe.

Business Insider published a graph that demonstrates major differences between US and European QE effects.

Some expected hurdles to QE in Europe:

1. Bonds purchases will be subject to risk sharing arrangements. ECB has to buy proportionally from 19 fragmented markets. Such proportional buying is unlikely to spur economic activity in peripheral markets, where the risk of buying is far greater. The European set up unfairly redistributes the risk amongst constituents.

2. Unfair redistribution of risk causes political opposition, making it harder to execute QE to the sufficient degree.

3. QE does not address Euro imposed dysfunctions. Peripheral countries still have relatively high wages that will deter business investments. Common currency prevents fast adequate wages deflation in these regions.

4. Unlike US, driving down bond interest rates does not flow directly into the economy in Europe. European companies get most of their credits from banks, not from bonds. The effect is diluted.

5. In US, low mortgage rates led to increased home equities. Homeowners tapped into equities by refinancing or borrowing. That spurred the economy. In Europe, more conservative banking practices prevent people from tapping into their home equity.

6. Fiscal policies in Europe are pulling in the opposite direction to QE. Austerity policies undercut QE.

 

[schonelucht]

Pictures being worth many words, I charted the sales of Tesla in Europe for 2013 and 2014 Model S. Since we know the company steers production around quarterly delivery numbers, I took the same approach. The chart below includes European countries as reported in this thread. The other category contains all countries which didn't have a month with at least 10 sales. Also note that the UK numbers are extrapolated and therefore less accurate.

I still think these numbers show that Tesla has reached a steady state of deliveries in Europe where market demand more or less fits the production supply Tesla is willing to allocate to this region. Disregarding 2014Q3, the second and last quarter look fairly similar. The biggest difference is a slightly depressed number in Norway for the last quarter. It's reasonable to speculate this is due to customers switching over to the AWD model. Even rolling over this demand to the next quarter, it may still fail to reach the numbers of the same quarter in 2014.

In the interest of transparency, I would encourage everyone to look at my input numbers in my pastebin ( http://pastebin.com/Ru0a2cSr ) because I expect there to be some mistakes.

 

[NigelM]

I think bailing out banks would make more sense than Greece. If Greece exits, I'm sure the transition should be made somewhat smoothly, as to not create panic and chaos.

Bailing out anyone will leave taxpayers on the hook if there's no repayment plan. Just as parts of Europe are seeing light at the end of the tunnel it would be a major setback to have to cut spending or increase taxes in those parts that are starting to do better. (IIRC Greece owes something approaching $300bn of debt!) Also letting Greece off the hook at all risks more instability in other parts of Europe.

Grexit would mean chaos no matter what, there's no smooth way out of the Euro. The average European has German Euros, French Euros, Italian Euros etc in his/her pocket...they also have Greek Euros, it's all mixed in and 1 Euro is worth 1 Euro wherever you are. What is going to happen if you're in a store and you get told "Nope, we're not accepting those Greek ones anymore...."? Would you still accept Greek Euros in change when you buy something for cash? On a very simplistic level there's potential for chaos, it doesn't get any easier at the macro level.

 

[SwedishAdvocate]

.../ Grexit would mean chaos no matter what, there's no smooth way out of the Euro. The average European has German Euros, French Euros, Italian Euros etc in his/her pocket...they also have Greek Euros, it's all mixed in and 1 Euro is worth 1 Euro wherever you are. What is going to happen if you're in a store and you get told "Nope, we're not accepting those Greek ones anymore...."? Would you still accept Greek Euros in change when you buy something for cash? On a very simplistic level there's potential for chaos, it doesn't get any easier at the macro level.

I have Swedish Crowns (Thanks a lot to my fellow Swedes for not getting me into the Euro...)

But is that really a problem? How much of all Euros exist as physical money? I would guess: Not that much...

Couldn't you just let people exchange them into some other (non-greek) physical money. Or just leave the greek euros in there and instead regulate it digitally?

 

[drinkerofkoolaid]

Has there been any discussion about how in many parts of Europe, gas stations are far less convenient to get to and use than in the United States?

 

[Auzie]

I have Swedish Crowns (Thanks a lot to my fellow Swedes for not getting me into the Euro...)

But is that really a problem? How much of all Euros exist as physical money? I would guess: Not that much...

Couldn't you just let people exchange them into some other (non-greek) physical money. Or just leave the greek euros in there and instead regulate it digitally?

I think the idea is that with the exit from Euro, Greece go back to drahma. That would give them control of their currency, something they do not have now.

 

[smac]

In the interest of transparency, I would encourage everyone to look at my input numbers in my pastebin ( http://pastebin.com/Ru0a2cSr ) because I expect there to be some mistakes.

Not sure where you got the UK numbers from. According to the official government figures: 2014Q2 was 192 , 2014Q3 was 282. 2014Q4 figures are not yet released.

You can download a data dump straight from the UK government, or see this site for a quick (and accurate summary, I checked the two were correlated).
TESLA MODEL S - How Many Left?


The Q3 figure included a lot of pre-orders. The car officially released in June (Q2) but the bulk of pre-orders went out in July after the first service centre opened (Q3). It will be interesting to see how the official Q4 figure shapes up, and see what "baseline demand" there is after the initial rush.

 

[hobbes]

Very well made plot, thanks! I would refrain from interpreting too much into the ups and downs - there is always a pattern across the calender year and for the 2013 numbers there is the initial ramp-up; 2014 I think the shut-down for bringing up the new line probably had a big impact.

Pictures being worth many words, I charted the sales of Tesla in Europe for 2013 and 2014 Model S. Since we know the company steers production around quarterly delivery numbers, I took the same approach. The chart below includes European countries as reported in this thread. The other category contains all countries which didn't have a month with at least 10 sales. Also note that the UK numbers are extrapolated and therefore less accurate.
View attachment 70309
I still think these numbers show that Tesla has reached a steady state of deliveries in Europe where market demand more or less fits the production supply Tesla is willing to allocate to this region. Disregarding 2014Q3, the second and last quarter look fairly similar. The biggest difference is a slightly depressed number in Norway for the last quarter. It's reasonable to speculate this is due to customers switching over to the AWD model. Even rolling over this demand to the next quarter, it may still fail to reach the numbers of the same quarter in 2014.

In the interest of transparency, I would encourage everyone to look at my input numbers in my pastebin ( http://pastebin.com/Ru0a2cSr ) because I expect there to be some mistakes.