November 21, 2011
post contributed by Megan Flynn
What happened in the market immediately following the event on October 18th, 2011 proved it to be one of the most timely and useful events to date. There was a unique value earned from getting together to hear the Global Macro ideas from our panel a day before Greece approved the austerity package amongst riots in Athens and a week before Europe announced the 50% haircut on Greek bonds. The breadth of perspectives that were shared that night enabled participants to better position themselves for the historical days to come and gave even the most well read individual a new take on what was to come.
If you take Germany out, Europe is struggling, Alper Daglioglu, the Executive Director of Morgan Stanley Smith Barney & CIO for the Managed Futures Group stated bluntly. Similar to how everything else in the world seems to be almost instantly connected in many different ways, we need to start seeing a certain linkage between the fiscal policies of different countries, he said. Europe is going to have major issues with unemployment, especially Spain, with such a large number of their unemployed being so young. People who don't start their career after their education typically don't have a career, Daglioglu said. Combine that with an aging Europe and the long term is a big risk.
Greece will have a haircut and a line in the sand will be drawn, however, Italy and Spain will be treated differently, Robert Calabretta, President of Waypoint Capital Management LLC, said. I think if they have a big announcement it will be a good one and that it will at least temporarily take the European issue off the table. Short term we're long risk, Long term we're short risk, he said.
David Munoz, Managing Director of BlackRock & Global Head of Credit Strategy for the Fixed Income Division, added that people are still very underinvested right now and the market is favorable to an updraft. He then went into a detailed explanation of the dollar recycling theory out of China which he believes has been a catalyst to a lot of what is happening today. We are entering a regime shift and this shift is very important, he said.
China entering the World Trade Organization in 2001 was huge and can be contributed as a source to a lot of what’s going on right now. It set the expectations and standards of living lower for the rest of the world, Calabretta said. One thing that amazes me right now in the world, Daglioglu said, is the frequency and variation of the data connectivity and technology of the global economy and this is why I'm particularly worried about Europe as they tend to turn inward during crisis.
There are so many risk factors and they may or may not affect the market, but the reality is your dollar is not the same dollar, Calabretta said, I was in Japan when the Nikkei was at 39,000 and now it's at 9,000 and there’s nothing that says something that extreme can't still happen here in the US.