Greece and the Art of the Deal

Last week the FT reported, under the headline “Resentment and a collapse of trust make last-ditch deal more difficult” (6/20, p.2), that one night, when the Brussels bureaucrats were burning the midnight oil waiting for the Greeks to fill out their very sketchy last-ditch proposal, the Hellenes were spotted strolling around the Sablon restaurant district recreating themselves. A couple of days ago, FT writer James Mackintosh added the following: “Another day, another missed deadline. Greece has finally jotted down a few rough notes, so eurozone leaders offered their least-favorite pupil yet another homework extension, hoping it will be turned into a deal this week.”

The Greek crisis provides superior entertainment in that it is both interesting and unimportant. It is clear, however, that the present Greek government is committed neither emotionally nor philosophically to a solution that is compatible with the Germanic requirements of a single currency.

I wonder what sort of solution we would want if we were Greek?

Greece: As John McEnroe used to say, “You cannot be serious.”

Last Friday I was in the Berkshire Hills in western Massachusetts helping one of my daughters and her husband build a yurt in which they intend to spend the summer, so I didn’t get around to reading the Friday FT until yesterday. On page 2 there was an article describing the differences between Greece and the creditors in five areas: 1. Primary Surplus, 2. Value Added Tax, 3. Pensions, 4. Labor Markets, 5. Privatizations.

It looks like Greece and the creditors differ mainly on VAT and Pensions, and on pensions they are heading in the same direction but Greece wants to go slow. On VAT, the creditors want two rates: 11% for essentials and 23% for everything else. This is pretty much the situation that already exists, but the Greek government wants a third, lower rate for very essential items: Medicines, books, magazines, newspapers and theater tickets would be taxed at only 6.5%. (Certain Greek islands would be exempt altogether.) Despite my deep respect for the classical Greek theater (think of Sophocles, Euripides, Aristophanes!), this special treatment, which would include showings of Frozen and the Die Hard series, struck me as odd.

The fundamental problem in Greece is that its official tax rates are punitive so everyone evades them. 26% for corporation doesn’t sound bad, but it’s universal like the US, and social security is 42% (26% for employers and 16% for employees, plus the 23% VAT on purchases.)

Maybe the Greeks would prefer a purely socialist system? I say stop bullying them and let them go.

Climate Change: Best Review's "Catastrophe Losses 2014"

The June issue of Best's Review has a folded, glossy insert suitable for framing (by actuaries, I suppose) named "Catastrophe Losses 2014, which present graphically the magnitude and costs of global catastrophes, both man-made and natural, since 1970. It consists of five panels and a map.

I have attached one of the panels whichs puts in perspective the unusual attention accorded to extreme weather these days. Best's shows that global catasrophe losses were well below average in 2014, which belie the impression I had developed before looking at the data.

The epigrammatic words of Sgt. Joe Friday come to mind: "Just the facts, ma'am."

This is not necessarily a good thing for property and casualty insurers however, as future losses could well return to normal and be greater than the level upon which they now base their rates.

It was also interesting that the data shows that 50% of global catastrophe losses of $34.7bn for insurance companies were in North American, with only 20% in Asia, where conditions tend to be more catastrophic. In this respect, we are still the clear leader.

Reinvigorated spirits in the Mysterious East?

Two bits of information caught my eye today: 1. House prices and sales are rising again in China. (slightly: +0.05% m/m, but no longer negative) 2. Capital spending in Japan rose 7.3% in Q1 (vs. 0.1% est.)

This adds to good reports from Europe in recent weeks. Could it be that, finally, prices and economies are re-accelerating?

FT this morning: "Weak rouble and sanctions breath life into Russian industry"

Well, it looks like we've taught them a lesson they won't soon forget with the sanctions.

The Russian economy contracted 1.9% in Q1, which is less than expected and Renaissance Capital has improved its outlook for 2015 from -4.3% to -3.5%. This less-than-dire result comes from the increased domestic manufacturing and food production. The FT says,"some parts of Russia's food sector are booming" following food import bans against EU producers. Georges Barbey, Laxness head in Russian, said,"I see a renaissance of Russian industry, a renaissance we've been waiting for for a long time."

Chinese, Turkish and South Korean manufacturers are being pushed out of the market.

We, and the oil price decline, gave the lemons and they are making lemonade.

Middle-aged Chinese women corset gold demand in Q1

Global gold demand dropped 1% in Q1 2015 while supply was unchanged at 1,093 tons (725 mine, 367 recycled.) Demand would have been up had not middle-aged Chinese woman curtailed their jewelry purchases, according to the FT. Instead, the ladies have been opening brokerage accounts to speculate in stocks. Just under 8 million brokerage accounts were opened in the first quarter in China, up 433% from a year ago.

I wish I had known this would happen on December 31. The Shanghai Composite has risen 33% since then and gold is more or less flat.

Please email me in June in advance of the 3rd quarter trends.

Kosovo: Now that they are independent, they are leaving.

5% of the population left this winter alone. The FT reported on p2 this morning:

This reminds me of the case of Surinam. It decided to cut ties with the Netherlands in 1975. (It was already an autonomous republic and a consitutuent of the Kingdom of Netherlands, like Netherlands itself.) Then, before the date, 1/3rd of the total population decamped for Amsterdam.


Be careful what you wish for.