The Weekly T Report: Business “Uncertainty”, Spain, and LIBOR

Business “Uncertainty”

Lately we hear a lot about business uncertainty. As far as I can tell it is an excuse that companies use when they don’t want to admit that real final demand is there. At the margin it may delay some business launches, but the reality is that is an excuse as much as anything.

Unfortunately with a government that doesn’t seem to be able to agree on anything I’m not sure how we see much progress on our own problems. Actually, I’m wrong, both sides agreed that that the Supreme court’s decision was a victory from them and a defeat for the other side. Good luck with progress.

Leaving the Euro as the ultimate in Business “Uncertainty”

I continue to read that the only way for countries to do well is to leave the Euro and devalue. Yes, that works great on paper, but what about the real work “uncertainty” risk. Are you going to commit to long term plans to buy goods from Germany when you are concerned that their currency will continue to appreciate? Are you going to commit to long term plans to buy goods from a country that you are worried is going to spiral into depression, at least in part because their weak currency causes “food and energy” inflation to spike? Are the people in those countries going to go on a spending binge, or hold off until there is more “certainty”.

Devaluation may work fine in the long run, but leaving a currency union, without massive disruption will take time and effort. It may happen, and work is likely finally going on behind the scenes, but the risk that a currency break-up will cause upheaval in Europe and then across the globe is too real to ignore.

The Spain Moment?

This weekend seems crucial to staving off a downward spiral. Europe could easily intervene and support the front end of the Spanish yield curve. The threat of inversion is real and at that point it is likely that plans to recapitalize banks in Q4 will become meaningless. The 10 year bond is exciting to watch, but when the front end gives up like it did late last week, it is very scary.

Markets across the globe reacted fairly calmly, no doubt in hopes that a Dow Jones report of a EFSF MOU to buy Spanish bonds turns out to be accurate. The S&P 500 and IG18 were both fractionally better on the week. That seems surprising given what is going on in Spain, but won’t last if nothing is done in Spain.

LIBOR, Banks, and Misinformation

There are two great things about the LIBOR Scandal as an investor. The first is that there is a lot of data available to analyze. The second is that the banks are hated so most of the data is ignored in hopes to spur some controversy. The combination of having data available and so many people ignoring the data or contradicting it creates opportunities to find oversold stocks and ones where the true impact hasn’t been felt.

LIBOR will remain on the front burner, and as we have dug deeper into the data and the law we are seeing some very interesting opportunities.