Thursday, December 22, 2011

The Future of Euro and Euro Zone

經過了動盪的一年,歐洲以及歐元的方向大致上往哪個方向走可以看得出來,不過能不能走到大家所期望的終點還不能百分之百肯定。以歐元來說,早先猜測可能會往兩個不同的方向之一發展,一是把體系中表現差的國家排除,另一是德國這種優等生主動脫離。目前看來德國應該會留在歐元體系裡面,所以問題就只有哪些國家會離開,以及什麼時候。

我目前的猜測是像希臘這樣的國家會先違約,至於是否被趕出歐元體系還要看接下來對於希臘財政改革能否有一個歐元區和希臘都會接受的計畫。會違約的原因在於他們欠債額度太高,不管怎麼樣樽節支出都沒有辦法平衡預算。希臘必須違約,在重整債務之後重新出發。在違約之後希臘政府將無法從國際市場上融資,因此他們也要考慮是不是取得完整的財政自主權比較好。除了希臘之外,葡萄牙和愛爾蘭也有可能離開歐元區對大家都好。由於這些國家的高額債務,他們離開歐元區對於他們自己和公債持有人都會非常痛。最近這幾個月希臘的處境就是最好的示範。他們違約了以後留在歐元區情況可能會更糟,因為現在維持秩序的軍警到時候因為發不出薪水來可能有些拒絕值勤,有些根本被裁員裁掉了。如果改用自己的貨幣,一部份壓力可以由通貨膨脹解決。

對於一個穩定的經濟體來講,通貨膨脹不是好事。但是對於負債太多的國家,他們一方面要檢討自己的財政收支,以取得合理的平衡,另外一方面如果能藉由通貨膨脹來降低應有的薪水、年金及其他債務壓力,會比較容易過關。

這個做法並不簡單就是了。由於歐元是仍然存在的強勢貨幣(相對於希臘等國而言強勢),要國民把手上的歐元換成新的本國貨幣並不容易。現在希臘的資本外流已經相當嚴重了,當退出歐元區的討論搬上台面時,連普通小老百姓都會想辦法把錢運到國外去,或者最起碼換成歐元鈔票藏起來。如何能在轉換貨幣過程中讓希臘不至於資本外流到幾乎全國掏空,這是最困難的部份。如果希臘等國能夠等到歐洲債務危機大致上告一段落,經濟恢復正常運作之後才討論退出歐元,對他們來講會是比較好的選擇。時間在不在他們這一邊?Your guess is as good as mine.

在其他國家的債務部份,以目前局勢發展來看,最終 ECB 可能還是要靠條約修改以直接購買義大利和西班牙的公債,來把這兩個國家以及剩下的歐元國家穩定住。這當然是治標而不治本,因此也需要讓歐元各國在財政政策上面也更趨一致,月初歐洲國家的峰會就是在談這一部份。

既然已經可以看得出來終局大概會往哪個方向走,我們就可以推敲中間會發生什麼事情。歐元區縮小對於退出的國家來講並不容易,因此如果能拖他們就會盡量往後拖。在這個前提下,他們也會盡量延後違約的時間。只要還沒有違約,退出歐元區這個議題就暫時不用搬上台面來。包括希臘在內的幾個國家,接下來還是會運用所有的影響力來得到 EFSF (European Financial Stability Facility) 的紓困資金,歹戲還會拖台一段時間,直到德國和法國受夠了為止。

EU Treaty 的修改勢在必行。一方面在財政政策上做更嚴格的要求,另外一方面要能夠放寬不對個別國家財政紓困的限制,使 ECB 可以直接注入資金到義大利等國家。歐盟和使用歐元的會員國在這兩點上面歧見甚深,如果不能把這兩個重疊但不完全相同的國際組織給順利分開,歐盟很快會名存實亡。英國現在就有很強的被邊緣化的憂慮,但是他們又不能讓步,否則他們不加入歐元所帶來的好處也將一筆勾消。我的猜測是即使英國更形邊緣化,倫敦作為金融中心的地位也不會那麼容易被改變。法蘭克福也好,布魯賽爾也罷,歐洲大陸上這些國家,也許法國除外,對於金融業的觀感和看法就是和紐約或倫敦不同。倫敦仍然有人才、有產業集中優勢,也有法律制度的保護,英國應該大膽向歐洲說不。

ECB 前天提前送給歐洲銀行的耶誕禮物 (三年低利貸款) 所扮演的角色跟 Paulson 在 TARP 通過後把 10 家 (Wachovia 不算就是 9 家)銀行抓來塞給他們 $125 bn 的目的類似,都是要增加市場流動性。當年有些美國銀行還不想要這筆錢,譬如 JP Morgan Chase, Wells Fargo,當然也有像 Citi 這樣如大旱望雲霓的銀行。不過最後的結果是這些銀行雖然沒有倒,他們也沒有把錢放出去,市場上面的流動性仍然不足,導致 Fed 必須要 QE1, QE2, Operation Twist 一個接一個推出。ECB 前天的貸款是由歐洲銀行主動申請,結果他們同意貸出的數目遠超過市場早先預期。往好處看是市場上增加了不少資金,往壞處看是歐洲銀行可能問題真的很多。如果美國的經驗給了我們什麼教訓,那就是當情況沒有穩定下來前,再多的錢也沒有辦法提供足夠的流動性,因為大家都想把現金留在手上不敢輕易借出,以免接下來經濟情況惡化時要錢也沒有地方可以找的到。

要讓市場開始動起來,EU Treaty 修改或是找到可行且具可信度的方式繞過 Treaty 的限制,就成為必要條件了。

在歐洲的政治家找到解決方式之前,最大的風險在於 S&P 和 Moody's 將法國甚至德國的公債評等降級,今天聽到消息說 Moody's 也警告英國了。如果這兩家評等機構『不識好歹』在現在這種時機把歐洲國家公債降等,市場信心潰散有可能會讓危機升級。

近期前景也並不都是那麼灰暗。明年一月 FOMC 的部份成員會改變,預計會有更多鴿派進入,如果 Bernanke 要推 QE3 阻力會小一些。Fed 的 FOMC 裡面鷹派鴿派是從通貨膨脹角度來看,主張將壓制通貨膨脹做為 Fed 第一要務的是鷹派。這裡當然還有另外一個變數:美國總統大選。如果 Newt Gingrich 的支持一直居高不下的話,這可能會被解讀為反對紓困的主張佔據言論高原。Mitt Romney 的支持率一直拉不上去,恐怕最後也只有訴諸傳統共和黨教義派的政策。在現任總統聲勢一直拉不起來的情況下,假如共和黨堅持反對寬鬆貨幣政策,對於 Fed 來講也會有很大的壓力讓他們不能實施 QE3。如果 QE3 在明年第一季或第二季實施,而 ECB 得到購買義大利和西班牙債券的許可,我們甚至有機會看到資產市場的強力反彈。這個時候要注意的就是由於 Fed 和 ECB 的資產負債表都過度擴張,市場上面資金過多,通貨膨脹以及隨之而來的利率調整會是對各國央行本事的一大考驗。

以現在這個時間點來講,看空仍然比看多要合理一些,底部還沒有出現,也仍不能確定到底有多深。不過如果要真的做空也得小心,現在空方的獲利空間已經不是半年或一年前那麼大了,如果歐洲政客能夠在短時間內達成共識 (平常情況下機會不大,不過由於談不成的後果相當嚴重,所以現在很難說),做空反而有可能面臨相當高的下方風險。

[Note] 前一篇文章的 Comments 裡面有一些跟 VC 有關的討論,我覺得受益良多。對 VC 有興趣的人可以看一看,大致上挑英文的留言看下去就好了。

11 comments:

Ben said...

Finally a post that I can relate to:) As usual, an excellent read from CCLu.

I can write pages and pages on the current economic issues facing the world, but I won't bore you with the details. I will simply bullet-point some of them. Feel free to tear apart my thesis and tell me where I have gone off the deep end.

- The EMU crisis is no longer just a economic crisis, but rather a political one. And that's the real danger.
- The real problem with EMU is structural, as CCLu had already pointed out. The southern countries are not competitive and are locked into a fixed currency. Austerity is not the answer and will only make their economies weaker.
- There are only two ways out for EMU, break-up or fiscally/politically integrate. All the other solution are band aids.
- I may very well be wrong, but I just don't see how the Southern Europeans would want to live like the Germans.
- I pay almost no attention to the rating agencies. Those guys are only good for locking up the barn after the horses are gone. You will find very few bond managers who still think that France is AAA.
- We are quickly approaching the EMU end game. 2012 is the end of the road for EMU, one way or another.
- The real unknown for 2012 is China. China is a bug in search of a windshield. It is amazing that most people I talk to believe that the Chinese Government will show up on a white horse and successfully rescue the economy again when it runs into troubles. I am a free market guy, and unless the Chinese have invented the Utopian economic system, it will end in tears.
- Finally, QE3. I must admit that Bernake scares me. He declares that there are limitations to Fed's power, but he certainly doesn't act like it. The power to print is an awesome responsibility that must be handled with utmost care. The Fed has already lost a great amount of prestige under Greenspan and now Bernake. QE2 did very little for the real economy, and QE3 will probably do even less. We have serious structural problems here in the US, and no amount of liquidity will fix them.

I have never been more worried about the world than I do now in my whole life. Things can get ugly in a very short period of time. And on this cheerful note, CCLu, Happy Holidays to your and your family.

Mobi said...

One thing is for sure: it will be ugly. It's a question of when, not if. Two things I would recommend. First, get resources/things to protect you and your family. Then, have cash in hand to buy useful stuff cheaply when it collapses (assuming a deflation one.)

漫步在雲間 said...

chinese people are actually quite rational, it seems the China gov. is also preparing for a landing, 最近網路流傳一篇國務院經濟學家李佐軍博士的講稿本文,裡面提到他"以政治考量的話",中國最佳崩盤時機是2013

不過不知該文是真是假

CCLu said...

To Ben,

1. I don't trust rating agencies either (who still does right now?). However, the rating still means something to banks when they calculate their risk-based capital. It also dictates whether a pension fund can keep a certain asset in its portfolio. A serious downgrading can cause real problems.

2. No one knows what's going to happen in China. We all agree that there's a big real estate bubble. Eugene Fama might think otherwise, he doesn't believe in bubbles. The rest of us do. If the study of Rogoff (Reinhart and Rogoff (2009) "This Time is Different") teaches us anything, that's there is nothing new under the sun. Once there is a bubble, it will burst. The problem is we never know when until we are standing in front of the inevitable.

The conflicting signals sent by the People's Bank of China worry me a lot. I'm not sure how big an impact it will have on the world market, but it will be significant to Taiwan.

3. I gave Ben Bernanke rounds of applause in the past three years. He applied what he learned from the Great Depreciation and tried his best to avoid the history repeating itself. However, we might be entering into an uncharted water if we haven't. Fed needs to unwind its position to shrink its ballooned balance sheet sooner or later, probably in 2012. I'm still dovish at this moment, but my inner hawk is making noises. If the Fed raises interest rate too early or too late, we are in for another big trouble. I also don't think QE3 will help, but that might be a good thing for ECB if some hot money goes to Europe. I just wish the commodity prices could be contained in a reasonable range when QE3 happens.

Merry Christmas and Happy New Year.

CCLu said...

To Mobi,

My guess is this will be a disaster fueled by serial defaults, inflation is the more likely outcome from past experience.

Given that QE type measure is used all over the world, holding cash is quite dangerous. Usually we would suggest commodities, but the gold price is still very high thus leaves us a big downside risk if we get in right now.

Ivan de la Isla Hermosa said...

John Cochrane on European Crisis

I would like to share, regarding to Cochrane's comment on EU crisis. Generally, I agree his ideas; therefore sharing them here.

1. Sovereign debt crisis is not new, and they could have ended it sooner and easier(if they do not regulate bank well and right.)

2. Banking regulation is the key, not the national budget.
Sovereign default would damage the financial system, however, for the simple reason that Europe has allowed its banks to load up on debt, kept on the books at face value, and treated as riskless and buffered by no capital.

Therefore, the current rescue package won't be helpful:ECB, in a sense, give the bank money, buying more debt, and wanna make the borrowing rate lower(and affordable). it will only reinforce the current crisis linkage: National debt-National/EU banks-Currency crisis: and further to political crisis.

3. He sees 3 alternatives for EU:
first: a currency union without fiscal union
second: a currency union with fiscal union
third: a breakup.

No one likes the second, yet it seems they are heading to there. the third one is a tragedy, and first one, well, European simply do not know how to do that.(because they consider now it is time to shake up everyone's national budget)

Let's see how ECB gotta play their cards(not many left for choices)

Ivan de la Isla Hermosa said...
This comment has been removed by the author.
Ivan de la Isla Hermosa said...

A few feedback for Ben and CCLu,

1.) For Ben:

Do southern European has to behave as German? Is that necessary?

I got this idea from Cochrane's article, I may get him wrong yet I guess he implies something here.

"After all, Mississippi and Manhattan use the same money"

Southern Europeans do not necessarily behave as German, just like Mississippi is not Manhatten. The key is: they should borrow accordingly to their capacity.

Yes, we knew they did not. And, inappropriate EU banking regulation(as Cochrane suggests) worsen the situation since lots of banks got hooked up with those debt.

A plain default should have ended this episode. As I recalled, America allows counties, even States, to go bankrupt and restructured. (though I am not familiar with the process) Yet, the hooked-up banks won't easily let these indebted countries go through these process.

So, it is, now, the endless political entanglement: Should they surrender their fiscal autonomy and then act as German?

It is hard to say now but I guess such fight would be ugly.

2.) As for CClu, only a reminder on typo: I guess you mean Great Depression not Great Depreciation :P

I am not sure whether we shall applause to Bernanke after I see "inside job". :P

CCLu said...

To Ivan,

Thanks for pointing out that stupid typo.

I think Bernanke did the right thing when he and Paulson injected the capital into banks in Sep 2008. That was not the best solution, but I don't think letting AIG, Morgan Stanley, Goldman Sachs, Citi all go is a good idea. My advisor also signed Cochrane's petition against TARP, but I just don't see working alternatives.

The original TARP idea was not perfect, what they really did was even worse. However, the market was saved at the end of the day. I think the real argument is whether the banks can survive without those money. Investors back then didn't care what the government says, they need to see some bold actions to believe. Some of the problems are really psychological. Goldman Sachs had no reason to go under the water, but it almost did.

Lehman was let go and the bankruptcy process is still not over as we speak. It will take roughly 4 or even 5 years to get that one firm done. If we have two went away in 2008, things will get even more complicated. It's easy to write off those losses, but to get back what's left will take too much time, and time is money here.

Bernanke's later actions are not immune to criticism though. My criteria is this: you can throw money into fire to stop the crisis, but you don't do that to boost the economy. The current U.S. situation is a political crisis to Obama, but it is not really an economic crisis. Don't get me wrong, it's bad, very bad, but it is not something can be saved by monetary policy, no matter how created it is.

As to Cochrane's Bloomberg article, I think I'm with him on this. I'm not sure the market can sustain the default on Italian bonds, but the Greece has to go.

Mobi said...

Defaults lead to deflation, not inflation. 1930s depression is a good example. Inflation is due to the central banks' loose money policy reaction. However, Japan has already shown us the best they can do is a stagflation where holding cash to buy later is still a good idea.

CCLu said...

To Mobi,

According to Ken Rogoff's book, the correlation between defaults and high inflation (defined as an annual rate above 20 percent) is positive. For the years after 1940, the correlation between inflation and outright external default is 0.75. In Depression era defaults, deflation was the norm, but it is not so anymore.

One possible scenario is this: a country defaults on foreign debt, so it cannot get access to the international capital markets and is forced to live by only domestic means. There is no way it has enough resources to do so, otherwise it would not get there, so printing out money becomes a natural response. If the economy gets into a deflation episode, the debt burden will be even higher for the government. Politicians will try to avoid that.

Domestic defaults work the same way. Governments tend to inflate themselves out of defaults. In fact, after the domestic default, according to Rogoff again, inflation remains at or above 100 percent in the following years, while it is about 33 percent for external defaults. Please see Figure 9.3 and related discussion for all details.

In the current day economy with fiat money, inflation is the possible outcome. We have long passed the gold standard era. Deflation is more likely to happen back then, but even then it is not the only outcome.

The problem with Greece now is that they cannot help themselves with inflation tax because they do not print out Euros themselves. That being said, with the European's version of QE, I would assume an inflation episode is more likely to happen. It's not happening now, and I can't guarantee it will happen because we've learned a lot in 1980s to avoid that kind of scenario. If I have to bet on one, I'll pick inflation.