Betting against France

James Mackinstosh from the Financial Times has a great article on a strategy many hedge funds seem to be taking.

Long Italy - short France... and not because Italy is better shape... No way... The point is simply the spreads

According to the spreads (against the Deutsche Bund) here is how closely they stack (in basis points)

Italy 350

France 70

Is Italy really 5 times riskier than France?

So something is got to give. F

a) Things get bad, ECB intervenes to stop a run on Italy, France gets infected increasing its spread to level it to that of Italy, or

b) Things get better, Italy's spread goes down to match France's

There is always c) ECB dumps the PIIGS (Italy included) and let everybody fend for him/herself...

Just for the fun here is where the PIGS stand

Portugal 995

Ireland 575

Greece 2,227

Spain 298

And Belgium, courtesy of Dexia 195

To me, it seems like these spreads are priced as if there was no correlation between debtors, just as the CDOs were before 2008. The problem is that given that one country goes belly up, the probability of the next one going under is much higher.

Reshoring and the CNY

In a great piece at the HBR blog, Hal Sirkin from the BCG argues that increasing productivity in the US and increasing labor costs in China are making some US companies reshore their operations back the US.

Further, an article by Peter Marsh from the FT explains how US consumers and companies are beginning to value the "Made in the USA" noting that the cost advantage is not that great.

Brazil's Embraer chose Florida, while Germany's Volkswagen chose Tennessee. American workers are up to 3 times more productive than their Chinese counterparts...

According to Mr. Sirkin, up to 3 million re-shoring jobs could be created by 2020

Can you imagine how many more would be created with a 20% revaluation of the CNY?

A great take on the Euro crisis

After so many not so good pieces comes this one from BBC's Paul Mason. kudos to him.

Take a look for yourself


A loose canon

Debt to GDP does not matter

Debt to GDP does not matter

For too long we have focused on a simple and simplistic indicator to say that the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and everybody else are doomed. Further, these countries can't grow their GDPs so the logic conclusion is that they will never pay...

My personal Debt to GDP ratio is about 250% and nobody seems to care... My bank does not, neither do I. My mortgage payment is only 20% of my income. I comfortably fulfill my obligations with my current income level.

The tricks are these:

I did not buy my house using my credit card, rather a 30 year fixed rate mortgage.
My house is collateral

I am pretty sure that my case is rather ordinary, so if millions of people can afford leverage 3 times their incomes, why can't a country?

Debt terms are as relevant as debt levels, why don't journalist bring this up?

The real question then is
Can a country pledge collateral?

Could Jack Welch or Warren Buffet be better presidents?

Not unlike Americans, Chileans were disenchanted with the political class 2 years ago. In the last election Mr. Sebastian Pinera, a very successful entrepreneur run and won the highest office with the promise of managing the country as a corporation. Better administration. Less waste, more flexible decision making, more efficiency... what is not to like?

Could a Jack Welch or Warren Buffet be better for the US than a professional politician?

The Chilean experience seems to say no. Chile boasts the highest growth rate post recession in LATAM and very low unemployment.

Mr. Pinera's approval rate... under 30%.

Be careful what you wish for...

See The limits of a superman by John Paul Rathbone for more on the topic

A Lesson to the US on Infrastructure

As we are reminded by our authorities over and over, the US is in great need to upgrade its infrastructure. The choices we are given are taxes or "no" (as in we will just not do it).

With the World Cup (soccer) and the Olympics around the corner, Brazil's needs are so much greater than the problems we face. How will they do it? Rousneff should be jealous of Obama's problems.

Not quite.

Brazilians are much more pragmatic. They have just auctioned the rights to build and operate new "Sao Goncalo do Amarante" airport. A Brazil-Argentine consortium has 3 years to build an airport and then 25 years to operate it. Read article here.

How much will Brazilian tax payers pay for this?
Nothing, the consortium actually paid the government for the rights.

Are Brazilian unique?
Not quite, Argentina and Chile have had privately operated major airports and ports for many years. In Mexico, consortiums that operate roads are publicly traded companies

Who pays? Those who use airports and roads and ports.

Imagine the possibilities.

A bonus for Adoboli?

In the next days, Mr. Adoboli will undoubtedly be portrayed as a villain by his former bosses and the press. Regardless of his role in this debacle, I wonder what would have happened if Adoboli had been right? He takes on unauthorized or un-scrutinized positions at the prop desk and he makes 2b in profits. I posed this question to my students who agreed that he would have gotten a promotion, big bonus and a genius status.

So the difference between villain and genius is random

I think they are right.