Sunday, May 13, 2012

French Elections, Greece (Again?!), and JPMorgan

Just when things seemed like they were settling down, in the span of a week macro events took hold of the markets once again.

First came the French elections. The socialist party leader Fran├žois Hollande beat out Sarkozy, and brought back memories of another left French president, Fran├žois Mitterand. Mitterand was the socialist president who nationalized crucial industries, including banks and energy-related companies, set up the 39 hour work week, gave 5 weeks of holidays, and increased a whole lot of social benefits. Good lord. You can see why many people are worried.

Then came some 37 year old Greek socialist, Alexi Tsipras who somehow came in 2nd in the latest elections. I don’t think he even expected to garner so many votes. Nonetheless he’s speaking up like a confident politician as if he were the chosen one or something. He sure enough spits out a lot of nonsense like how Greece can renegade on the deals they’ve made with the European Union to get monetary support and somehow still stay in the EU. Alexi Tsipras, you’d be surprised how angry those Germans and French can become.

Lastly, the $2,3,4,5….BILLION loss on ‘hedging’ by JPMorgan. It’s obvious most of these banks, in an effort to tip-toe their way around the Volker rule, have just moved some of their proprietary trading into their Treasury departments and just changed the name of the activity to ‘hedging’ their balance sheet. When you’re playing with the gigantic balance sheet of Jamie Dimon, one misstep and you’re screwed.

Markets took all of this in in stride, selling on each of the news.

Should you be worried? Short view is, yeah, why not, all this isn’t spectacular for the markets. However, a long term view is that this will all come to pass with no severe long term effects. Hollande will be constrained by the rules of the European Union. Go ahead, try to break the rules while Germany, France, Italy, etc are all looking. Can Greece break their agreements and stay in the EU? Probably not. One article I read on Reuters had a little snippet at the end of it which pretty much summarizes the big picture:
Greece could run out of money as soon as the end of June. The prospect that Greece might declare bankruptcy and leave the euro caused panic across the euro zone last year. Since then, European banks have written off the value of most of their Greek debt, making them less prone to shock if Greece defaults.
link to article
Basically since Greek debt is worthless, it really shouldn’t cause anymore long term effects. Markets would react negatively in the short term if they do in fact renegade and leave the EU, but because all the debt is written off already, who cares? (other than of course the Greeks who will be further thrown into a deep depression, unfortunately)

Lastly, the case of JPMorgan is quite an unfortunate one and will probably help with passing more financial regulation. But they (the governments) were going to do that anyways!

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