Tags: Greece | China | market | debt

Potential Effects of Grexit Weighed as China Strives for Stability

By    |   Wednesday, 08 July 2015 06:29 AM

Craig Chan, head of Asia foreign exchange strategy at Nomura, said the euro might fall further, but he tempered this view by noting that volatility in euro/dollar has decreased due to deleveraging and movement out of Greek assets, which has reduced private sector exposure from $300 billion to $30 billion.

Next, Frederic Oudea, CEO of Societe Generale, joined others who have said that the issue of Greece is a political one, not an economic one that would affect the European economy, given that Greece represents a small share of GDP and the ECB has been buying sovereign debt. In the next clip, Stefan Hofer, MD at BNP Paribas, agreed that the risk of a Grexit will be contained. This writer is reporting these views in case the pundits and authorities turn out to be wrong, and the reason would be that the policies of the IMF, the U.S. Treasury, and central banks that have led Greece astray have been in force for several decades and have led to periodic crisis episodes.

Nigel Chalk, IMF Mission Chief to the U.S., has reiterated advice that the U.S. should move cautiously to raise interest rates until 2016 “until there are more tangible signs of price and wage inflation.” Chalk agreed with an interviewer that China could be another source of drag on the global economy, and he added the strength of the dollar as another factor. Andrew Freris, CEO of Ecognosis Advisory, follows with a blunt warning that China is a bubble ready to burst, for two reasons. He cites the 85% share of the market attributed to retail investors and the propensity of this market to be subject to margin calls, 15%, compared to 3% in more established markets, leading Freris to exclaim, “Hello!?” Freris added that his hair falls out over the realization that the Chinese are giving more support to margin buyers who are the source of the problem. He was also shocked (Good grief!”) at the fact that China is funding brokers to buy Chinese stocks. However, the interviewer pointed out that the Fed and other central banks have supported markets through QE, and this writer has suggested that ultimately the Fed will buy equities. Now one must allow for the possibility that these may be Chinese equities.

Finally, as the banking industry marks the fifth anniversary of the Dodd-Frank Act, veteran analyst Dick Bove complains to a skeptical Kelly Evans that it is unfair for banking regulators to require banks to prepare so-called “living wills,” because industrial companies don’t have to do this. Critics of the industry, including FDIC Vice Chairman Tom Hoenig, have argued that industrial firms have to maintain higher capital ratios than banks, and the banks should be required to reduce their leverage drastically. Bove challenged Evans’s point that “taking down the financial system and requiring a taxpayer bailout also isn’t a way to run these financial companies,” to which Bove responded, “Why isn’t it?” as he argued that the crisis has been a money maker for the government and insisted that the banks were not the cause of the financial crisis. For this writer, the clip illustrates why the U.S. can never escape an ongoing, permanent crisis that has persisted for so long, roughly half a century, that it has embedded itself thoroughly in the cultural fabric of the nation, much as a stain sets in cloth if it is not removed.

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Robert-Feinberg
Craig Chan, head of Asia foreign exchange strategy at Nomura, said the euro might fall further, but he tempered this view by noting that volatility in euro/dollar has decreased due to deleveraging and movement out of Greek assets.
Greece, China, market, debt
568
2015-29-08
Wednesday, 08 July 2015 06:29 AM
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