Blogging from Maine

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Aug 6, 2012 7:11:54 AM

and tagged Europe, Yesterday's News

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This week, I am writing from Maine, so the posts will probably be somewhat shorter than normal and the timing may be erratic. I am taking the chance to research lobster rolls up here—for your benefit, of course. After reading a Wall Street Journal (WSJ) story on the best lobster rolls in Maine, I feel obligated to do my own research. Further reports as the story develops.

A quiet weekend, with the only meta-story being the Friday rally, variously attributed to a Spanish bailout hint in the Financial Times (FT) and to job gains in the WSJ. Monday really had no meta-stories, but the papers displayed interesting differences in focus.

The FT was all about Europe, and it was not cheerful. It led with “Greek bank head sent savings abroad” on page 1; although the story is not as bad as it sounds—the banker transferred money to London to buy a property—it has caused a political mess in Greece. The next story, on page 4, was “Rome has no plans for a cash request”; this one is even worse than it sounds, as the part of the sentence that did not make the headline is “unless Spain goes first.” On this note, we then go to page 13 for “US banks prepare for euro break” and to page 15 for “US banks haunted by spectre of Eurozone.” You can figure out that optimism is not the predominant note on Wall Street—or at the FT—with respect to the future of the euro.

The New York Times (NYT) had two front-page stories on issues we have been following. “Partisan Impasse Drives Industry to Cut Spending” talks in detail about how the political uncertainty in the U.S. is leading businesses to postpone or cancel investment and hiring decisions. The other front-page story of note is “As Libor Fault-Finding Grows, It Is Now Every Bank for Itself,” which talks about how banks are now ratting each other out in an attempt to make themselves appear less guilty. This is significant for a couple of reasons. First, it reinforces the systemic nature of the problem; second, it shows that the banks appreciate the scale of the problem and their potential liabilities; and third, it is the first time industry solidarity seems to have broken down in the current set of crises.

Post-2008, the banks have done an extraordinary job of managing the political and regulatory process to make sure that they did not really have to change their business models at all. They have worked together very effectively to make sure that no real changes were made, and, as a result, almost all of the same players are still doing the same things they did pre-crisis. The Libor scandal may be starting to change that solidarity, and that could open the door for some really big changes.

Finally, the WSJ has no single big story, but it also hits on a couple of topics we have mentioned before. The best article in this paper today is on page 4, “The Numbers Inside a Hot Button Issue.” It walks through some of the facts associated with the tax and spending debate in Washington. As you know if you have heard me speak, I am a huge fan of getting facts out there. “Everyone is entitled to his own opinion, but not to his own facts,” as the Daniel Patrick Moynihan quotation goes, and this article presents some pretty good facts.

Have a great day!

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