Financial Professionals


EU Summit and Japan



Over the weekend at a special European Summit, the 17 heads of state agreed to measures that I expect will be favorable for the value of the euro, as well as the regional economy.

  • European Financial Stability Fund may now directly buy government bonds in the primary market
  • The EFSF will be able to use all 440 billion euros above the previous 250 billion cap
  • Greece will now have 7.5 years, versus 3 years previously, to pay back funds
  • Greece's repayment is at 100 basis points less than the previously agreed upon terms


In contrast to what is being offered currently, I believe it is too early to assess the impact on financial assets and the global economy with any degree of certainty. Below, I have listed what I am thinking may be impacted.

  • In the immediate wake of Katrina, multiple strategists forecasted an impending U.S. recession due to the catastrophe. Parallels to that inaccurate call may unfold in relation to Japan derailing the modest global recovery.
  • Japan, the world's third largest consumer of oil at 4.4 million barrels per day, may experience near term demand destruction. However, I am suspicious that demand destruction will be structural.
  • Japan is a large importer of metallurgic coal.  Similar to my thesis on oil demand destruction, I am suspicious that it will be structural.
  • The Japanese currency continues to appreciate. Keep in mind that the currency has been appreciating significantly for the past 12 months. I am watching its currency movement cautiously, but do not expect that a significant reversal in the appreciation is imminent.
  • Japan is a large purchaser of U.S. Treasuries; near term they might buy less. However, I do not believe that should they significantly scale back those purchases, it will evolve into an unfavorable condition for U.S Treasury markets.

Past performance is not a guarantee of future results.

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