Lots of billions lost to flu

Today, we are challenged again to reflect about resources, availability of wealth and how vast amounts of money can be spent wisely or just evaporate. It is also a call to reflect about priorities, decide on the appropriate ones and how to fund them. More concretely, all this is about uncertainty and its impact on capital markets, on short-term decisions and, in the end, on the minds of people.

Today’s uncertainty is about the coronavirus.

More concretely, almost every stock in the STOXX 600, the largest European share index, are trading since this morning in negative territory, in the red, as the specialists say. This represents around 180 billion euros the investors have lost during the day, just today. This is about 2% of the entire capital invested in those companies. But it is a lot of money that has faded away.

The investors are pessimistic about the impact of the virus and the capacity to control its transmission. A friend from the East Asia region told me that, in the current state of world affairs, “when China sneezes, the rest of the world catches the flu virus!” It is not exactly like that. But for sure the Europeans that negotiate in the capital markets got high fever today.

They are often wrong but the salary is great

My daily tasks include a close scrutiny of the financial analysts’ opinions and forecasts. And I am very often amazed. The spectrum of views is so wide and the predictions are so often off track! With time, their forecasts are systematically contradicted by the facts, particularly at times like the present one when the unknowns are many. But they always have a good excuse. And they earn good salaries. All that makes me wonder, now and then, if I have not chosen the wrong career path. 

End of summer vacations

End of August, end of summer holidays. This summer has been however a very busy one. And as we get into full gear in September, we will see an international scene pretty crowded by a number of key issues. The fragility of the politics has an obvious impact on the economy and the international business climate. But I have to say that surprisingly there is some kind of euphoria on the international financial front. A bit as if the politics and the financial matters were happening in two different worlds. And they are, in many ways. Russia and Ukraine, Syria, Iraq and ISIS, Libya and Egypt, the Ebola crisis, all that looks like crisis in distant planets. Big financial funds and the masters of global business transactions have been able somehow to isolate those crises and they believe the risk of contagion is today lower. But we forget that planets can also get into each other´s trajectory and crash. Prudence is then the right approach as we get into the new season.

Sovereign nightmares

The New Year brings back the sovereign debt question as the most urgent issue for the EU member States. Now that it is clear that Greece and Ireland have reached unsustainable levels of debt, all the attentions are moving to Portugal. On Wednesday next week, Lisbon will be again in the market to try to place Treasury paper. There is deep anxiety in Brussels and other capitals about the investors' response to that move.

The Portuguese government has shown they prefer to pay very high rates of interest to making use of the EU/IMF financial facility. This option is politically expedient in the short run. It delays the moment for hard decisions, particularly at a time when the presidential elections are around the corner, on 23 January, and the government's candidate is lagging behind in the polls. But, sooner or later, the moment of truth will come. The poor performance of the country's economy will then hit the wall.

The euro's value

The principle of a permanent stabilisation mechanism has been approved. The goal, as presented by the European leaders, is to save the euro as a currency. But was the euro under serious threat? Is it the euro as a currency that has been under attack, or something else? Or is it just the market playing with a currency that is overvalued?

Obviously overvalued, particularly if one takes into account the economic situation of some EU countries.

Wouldn't it be better for everyone, including for strong outlooking economies such as Germany, to have a currency that is closer to the value of the dollar?