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Author Archives: Lenore Hawkins, Chief Macro Strategist

About Lenore Hawkins, Chief Macro Strategist

Lenore Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, strategic planning, risk management, asset valuation and operations optimization, her focus is primarily on macroeconomic influences and identification of those long-term themes that create investing headwinds or tailwinds.
Digital Killed The TV Ad

Digital Killed The TV Ad

Further evidence of our Connected Society and Content is King investing themes can be found in a recent research report by Magna Global that found in 2017 worldwide digital ad spend finally beat TV. Digital ad spend, reaching $209 billion worldwide while TV ad spend stood at $178 billion this year

Infographic: Digital (Finally) Killed the TV Star | Statista You will find more statistics at Statista

As if that didn’t make it clear, content creation is becoming more and more of a focus for marketing professionals around the world.

Infographic: Where's a Marketing Budget to Go? | Statista You will find more statistics at Statista

For some perspective, looking at just Google’s ad revenue in 2016, it surpassed total advertising spend in every country in the world except the U.S.

Infographic: The Incredible Size of Google's Advertising Business | Statista You will find more statistics at Statista

Consumers are no longer satisfied with the traditional push model of content delivery as was the norm in a TV-driven world. Today they want what they want when they want where they want and how they want. This increasingly means on mobile devices where consumers can pull content that interests them. Those companies that can capitalize on the technologies and platforms that enable this trend are at the intersection of our Content is King and Connected Society investing themes.

With 2017 Poised to be the Year of Ransomware, More Cyber Spending is on the Way

With 2017 Poised to be the Year of Ransomware, More Cyber Spending is on the Way

With headlines swirling following the WannaCry attack that hit more than 230,000 computers across more than 150 countries in just 48 hours, on this episode of Cocktail investing we spoke with Yong-Gon Chon, CEO of cyber security company Focal Point to get his insights on that attack, and why ransomware will be the cyber threat in 2017. Before we get into that Safety & Security conversation, Tematica’s investing mixologists, Chris Versace and Lenore Hawkins broke down last week’s economic and market data as well as the latest relevant political events. With all the controversy in D.C., there was a lot to discuss concerning the likelihood that the Trump Bump, which was based on assumptions around tax reform, regulatory roll-back, and infrastructure spending is evolving into the Trump Slump as investors realize the anticipated timeline for such was decidedly too aggressive. With mid-term elections looming, we expect the Trump opposition will be emboldened by the controversy surrounding the administration and will put in best efforts to appeal to their constituents. For the market, it’s another reason to see the Trump agenda likely slipping into late 2017-early 2018, and that realization is likely to weigh on robust GDP and earnings expectations for the balance of 2017.

The markets on May 17th suffered their biggest losses in 2017, with the Nasdaq taking the biggest one-day hit since Brexit, as the turmoil in Washington dampens investors’ appetite for risk while raising questions over GDP and earnings growth. While some Fed banks are calling for 2Q 2017 GDP as high as 4.1 percent (quite a jump from 1Q 2017’s 0.7 percent!), the data we’re seeing suggests something far slower. We continue to think there is more downside risk to be had in GDP expectations for the balance of 2017, and the latest Trump snafu is only likely to push out team Trump’s reforms and other stimulative efforts into 2018. If 2Q growth is driven in large part by inventory build, which is what the data is telling us, expect the second half to be significantly weaker than the mainstream financial media would lead you to believe.

While the global financial impact of the WannaCry ransomware attack may have been lower than some other high profile attacks such as ILOVEYOU and MyDoom, the speed at which it moved was profound. We spoke with Yong-Gon Chon, CEO of Focal Point Data Risk about the incident to get some of the perspective and insight the company shares with its c-suite and Board level customers. While many are focusing on WannaCry, Yong-Gon shares that as evidenced by recent content hijackings of Disney (DIS) and Netflix (NFLX), ransomware is poised to be the cyber threat of 2017. Those most likely to be targeted are those organizations that prioritize uptime and whose businesses tend to operate around the clock, making backups and software updates extremely challenging.

While in the past IP addresses may have been scanned once every four to five hours, in today’s increasingly Connected Society, IP addresses are scanned one to ten times every second. As consumers and businesses in the developed and emerging economies increasingly adopt the cloud and other aspects of Connected Society investing theme, we are seeing an explosion in the amount of data as more and more of our lives are evolving into data-generating activities. From wearables to appliances to autos, our homes, offices, clothing and accessories are becoming sources of data that goes into the cloud. With the Rise of the New Middle Class in emerging markets, we are seeing the number of households participating in this datafication grow dramatically, exposing new vulnerabilities along the way. That increasingly global pain point is fodder particularly for cyber security companies, such as Fortinet (FTNT), Splunk (SPLK) and Cisco Systems (CSCO) that are a part of our Safety & Security investing theme.

During our conversation with Yong Gon we learned that companies need to understand that breaches must be viewed as inevitable in today’s Connected Society, network boundaries are essentially a thing of the past. Security can no longer about preventing nefarious actors from gaining entrance, but rather is now about managing what happens once a company’s network has been invaded. From a sector perspective, with all the regulation and reporting requirements in financial services, many of these firms are leading the way in how to best deal with such breached.Uber

For investors who want to understand the potential impact of cybercrime, Yong-Gon Chon suggests looking at how much data a company is generating and how the company is managing the growth of that data, with companies such as Facebook (NASDAQ:FB), Alphabet (NASDAQ:GOOGL) and Uber examples of heavy generators. Investors need to look at a company’s cyber risk as a function of the magnitude of its data generation and the company’s level of maturity in addressing that risk. By comparison, companies not affected by attacks such as WannaCry need to be asking themselves why didn’t they get hit? Was it luck or did we do something right? If so, what did we do right and what is the scope of protection we have given what we’ve learned about the latest attack strategies?

We also learned about the new efforts underway globally to develop attribution of cyber threats so as to differentiate between those threats from professional cyber criminals versus the capricious tech savant engaging in ill-advised boundary exploration. Along with this shift is also a change in the boardroom, where cybersecurity is viewed in the context of its potential impact on the business, rather than as a function of a company’s IT department.

One thing we can be assured of is that hackers are watching each other and the good ones are learning what makes attacks fail and where organizations are weakest. As the Connected Society permeates more and more of our lives, these risks become more pernicious and their prevention more relevant to our everyday lives. The bottom line is we are likely to see greater cyber security spending in preventative measures as well cyber consulting as those responsibilities become a growing focus of both the c-suite and board room.

Companies mentioned on the Podcast

  • Amazon.com (AMZN)
  • Apple (AAPL)
  • CVS Health (CVS)
  • Disney (DIS)
  • Facebook (FB)
  • Focal Point
  • JC Penny Co (JCP)
  • Kohl’s (KSS)
  • Macy’s (M)
  • Microsoft (MSFT)
  • Netflix (NFLX)
  • Nordstrom (JWN)
  • TJX Companies (TJX)
  • Twitter (TWTR)
  • Uber
  • United Parcel Service (UPS)
  • Walgreens Boots Alliance (WBA)

Resources for this podcast:

Italy’s referendum has the potential to set off a global landslide

Italy’s referendum has the potential to set off a global landslide

While financial, industrial and small cap stocks in the US have been partying like it’s 1979, investors would be wise to take more than a passing look across the Atlantic at Europe’s next biggest threat.

You’ve probably seen commentary about Italians voting on a constitutional referendum; not exactly riveting material.

Italy, Europe’s fourth-largest economy, is a nation in desperate need of reforms, having underperformed its major trading partners for decades, with the latest per capita GDP below 1997 levels and metropolitan area employment levels well below those in most of Europe.

Obviously, change is needed, but what is this referendum, why do you care and what is the herd getting wrong?

If you google the topic, you can get endless details on the vote, but here are the salient points. The Italian nation in its current form was born right after WWII and as such, has a deep-seated fear of concentrated power; pretty understandable after the fun times under Mussolini and his buddy Hitler.

That fear created a government with essentially two congressional bodies, both like America’s House of Representatives, except with more than double the members and even more layers of government from the top federal level on down to localities. There are a lot of people whose entire raison d’etre is to express their opinions and these are Italians, so the whole thing takes longer and is more emphatic.

The intention of the measures in the referendum, according to Prime Minister Mario Renzi, is to make government less complex and more functional, with fewer people involved and fewer layers. For example, today the Chamber of Deputies (Congress) has 630 members, (elected by voters age 18 and older) and the Senate has 350 members, (elected by voters 25 and older). The Senate would be cut to 100 members appointed by the regional elected governors, rather than by voters, and would only be involved in major decisions such as war or international treaties versus today where both houses basically participate in everything equally. The province layer of government would be officially removed.

David Cameron

Britain’s Prime Minister David Cameron wipes his eye as he addresses a news conference during a European Union leaders summit in Brussels March 20, 2015. REUTERS/Francois Lenoir

There’s more to it, but that gives a general sense. This bill is vast and complex, making a vote on it challenging as voters are unable to decide between the changes they support and those they don’t; it is all or nothing.

The bill was originally introduced by Renzi and his center-left party, then voted on by the Chamber and Senate twice. Yes, twice. It is now being put to a general vote by the electorate, illustrating the challenges of getting anything done in Italy’s government.

When it was first introduced and discussed, Renzi was enjoying more support than he is today, which led him to make the same mistake made by former UK Prime Minister David Cameron with Brexit, by making passage of the bill an endorsement of him. Back then Renzi vowed he’d not only resign, but would give up his political career; talk about laying it on thick. Recently Renzi has tried to soften his rhetoric, but most think that in the public’s that mind ship has long since sailed, so it would be tough for him to renege on those vows.

A man walks on a logo of the Monte Dei Paschi Di Siena bank in Rome, Italy September 24, 2013. REUTERS/Alessandro Bianchi/File Photo

A man walks on a logo of the Monte Dei Paschi Di Siena bank in Rome, Italy September 24, 2013. REUTERS/Alessandro Bianchi/File Photo

Opponents claim that a “yes” vote would give Renzi excessive power, which when you think back to the 1930s and 1940s, gives anyone in that part of the world understandable heartburn. While many are likening this vote to Brexit and Trump, the dynamics here are materially different. Brexit was primarily a, “Screw you!” to the status quo and bureaucrats in Brussels. Trump stormed into D.C. amongst cries of “Drain the Swamp!” Many are looking at the polls in Italy today, which indicate a “no” vote majority, and likening them to the inaccuracies of the Brexit and Trump predictions – that is a mistake.

The truth is at this point, most Italians don’t really even understand what the referendum is all about and Beppe Grillo, the leader of the Five Star movement, is helping to give voters the impression that a “yes” vote would give Renzi near-dictatorship powers.

Those Italians who understand that red tape is the biggest enemy of the country would vote “yes” over and over again. The problem is that those that would vote “yes”, tend to be better educated and higher income earners, which has given this vote a vibe of class warfare. With many of Italy’s business elite thinking that Renzi may be Italy’s last hope, that schism is visible to most everyone.

The Importance of this Referendum on Worldwide Markets

Investors need to care about this because the market has decided that this vote is an indicator of Italy’s ability to make much-needed reforms and that matters because of the impact of Italy’s banks and sovereign debt. The actual quality or validity of the reforms proposed in the referendum have become almost meaningless. For those within Italy the vote has become a referendum on Renzi and as Italians grow increasingly frustrated that their lives haven’t materially improved, even some members of Congress from within Renzi’s own party who originally voted for the referendum are now scrambling to develop compelling arguments for why they now oppose it.

Italian banks are in a world of hurt, which is almost intuitive if you look at the nation’s credit markets and weak economy. Italy has negligible public credit markets, so borrowing means a trip to the bank, which makes credit risk more highly concentrated than in countries like the US, which have robust bond markets. During the financial crisis and in the years following, banks engaged in a lot of extend-and-pretend, some of that of their own volition, some after cozy chats with government officials, hoping that at some point in the not-too-distant future, the economy would get back on its feet and those struggling loans could be made good.

Despite a rapid procession of new leaders, the economy has yet to recover. Granted, it is better today than in 2012, with a few new stores popping up here and there rather than seeing yet another one shut down week after week. The unemployment rates for younger Italians, however, remain tragic and intense frugality is more the fashion than Milan’s latest catwalk. Businesses remain weak, so borrowers and banks that made those loans are still struggling. Adding to the pain are the piles of sovereign bonds warehoused at banks and the even more painful dirty little secret that the Italian government is notorious for not paying its own bills. This creates a twisted triangle between the bank pressuring companies to pay their debts, those companies, in turn, trying to collect from the government and bureaucrats dialing up the banks for leniency towards those the government owes.

The Shake Out From this Vote Will be Felt Worldwide

Beppe Grillo

Leader of the Five Star Movement and comedian Beppe Grillo.REUTERS/Remo Casilli

If contrary to the polls the “yes” vote wins, Italian bonds and banks will rally and the MIB (Italian stock index) will have a huge relief rally, particularly given its over-exposure to banks, and the euro will likely strengthen relative to other currencies.

If the polls are right and we see a “no” vote by a large margin, Italian yield spreads over German bunds will widen a lot. Italian bank stocks will accelerate downward and Banca Monte dei Paschi di Siena (MPS) will likely need external aid, which will put the European Central Bank in the hot seat,  and all eyes will be on German Chancellor Angela Merkel who is also watching Germany’s Deutsche Bank spiraling downward.

Renzi will be pressured to resign, (unless the win is by the smallest of margins) and the Italians will find themselves back at the polls, with the outside chance that Beppe Grillo’s Five Star could gain additional traction, which would be terrifying for anyone doing business in the region. The euro will weaken materially. European banks as a whole will likely take a hit and the dollar will get pushed further and further up as money races out of increasingly dicey Eurozone into the relative safety of the US dollar and US assets – a tailwind to US stocks and bonds. The Italy economy would slow further thanks to the increased uncertainty, which would bleed over into other European nations and global trade. The acceleration to the rising dollar headwind facing US multinationals could render the Fed’s rate hike decision irrelevant in comparison and harm growth back in the States at a point when the economy looks just finally be gaining a bit of traction.

While it may seem like a minor event on the global stage now, history is full of moments that initially seemed of little importance, but like the final grain of sand that ignites a landslide, in retrospect, those moments changed the global landscape in ways that were previously unimaginable.

Picking a President

Picking a President

Over the next 18 months Americans will be picking a President.  Last week Senator Ted Cruz announced that he is going to run for the Republican Party nomination in 6063-presidentialseal2the 2016 US Presidential election.  I’ve been asked many times what I think of him, or of the other anticipated candidates. While I typically like to refrain from commenting on any particular politician, preferring to focus solely on policies, I think this announcement warrants analysis.

First, the President of the United States is arguably one of, if not the single most powerful person in the world.  The US is the wealthiest nation on the planet, possesses the strongest military and is the third most populous, after China and India.  The role is a massive responsibility, which very few out of the some 7.3 billion people on the planet are capable of handling successfully.

As someone who has been responsible for hiring and occasionally, rather sadly, firing employees, I know that the most important step for successfully selecting a candidate is to know just what traits they must have in order to be successful – political candidates are no different.

A candidate for President of the United States requires, at a minimum, these attributes:

  1. A clear understanding of one’s view of the appropriate role of government in people’s lives, the ability to communicate that view succinctly and to accurately assess legislation that is (and will in the future be) consistent with this view.
  2. The ability to focus the efforts of large organizations combined with a relentless desire to continually improve results relative to costs.
  3. The ability to work productively with people whose ideology and/or background vastly differs from yours.
  4. Humility – an awareness that you will not always be right, thus a candidate must possess a desire to seek the council of others, (particularly those with differing viewpoints) and a willingness to admit when you have been wrong so that an alternative path can be tried.
  5. Strong communication skills:
    • The ability to quickly understand your counterparty’s wants, needs and fears.
    • The ability to clearly convey your goals in a dignified manner that gives your counterparty a sense of being respected so that they are able to listen.
    • Enough experience to know when the time for words has passed and action is required.
    • The ability to serve as a strong leader for the American people, instilling a sense of pride and confidence in our nation’s ability to overcome challenges and in our ability as individual Americans to achieve our dreams.]

Any politician’s political views are important only after they have illustrated convincingly that they have the ability to do the job.  Anyone who has ever been responsible for hiring people has learned that it does you no good to hire someone who says everything you want to hear, but doesn’t have the skills to actually get the job done the way they say they can.

Without getting into the nitty gritty, in my opinion Senator Cruz does not demonstrate satisfactory skills in all the areas mentioned above, particularly with respect to the ability to lead large organizations.  That is not to say that he wouldn’t be able to do that successfully, perhaps he would be a natural, but he has not already demonstrated the skill set.  The role of the President is an enormous challenge for anyone and I prefer to not take the risk of having someone learn too much while on the job.  The nation is facing enormous challenges that are becoming more and more impossible to solve as the years go by.  We need a president who already has the necessary skills and can quickly and effectively step up to those challenges.

Greece – Lazy, Stupid or Evil?

Greece – Lazy, Stupid or Evil?

My regular readers are already familiar with what I like to call BUC

Lenores Law BUC

Lately I’ve been mulling over a new one, which applies quite well to the discussions around Greece, but I think is universally applicable – L4

Lenores Law L#

I was speaking with a friend of mine who lives in the States and she was asking me about the view of Greece from Italy, (I’m working from Genova, Italy at the moment) and commented on how the country really needs to get its act in gear and what is wrong with those lazy Greeks who want Germany to endlessly subsidize them.

Dog-with-perked-ears

 

My ears immediately perked up!  That sounds a lot like L4.

 

 

 

Yes, Greece is a disaster, but having been to the country, (I’m in love with Santorini and Mykonos) and having seen just how hard many of the Greeks work, my ire got up hearing that as the explanation for why the nation is struggling.  Let’s look at the data on just how lazy those Greeks really are.

Data compiled by the Organisation for Economic Co-Operation and Development (OECD) shows that in 2013, Greece had the second highest number of average annual hours actually worked per worker at 2,037 hours- only Mexico worked more!

How many hours for those diligent, finger-wagging Germans?  1,388 – two thirds the hours that those lazy Greeks worked! The Germans sit at number 34, BEHIND Russia, Ireland, United States, Italy, Portugal, Canada, Spain, Sweden, Belgium, France, Denmark and Norway!  Yes, the average annual hours worked in Germany in 2013 was LESS than Greece, Italy, Spain and Portugal!

So what gives?  Why is Greece and for that matter Italy, Spain and France struggling?

There is no easy answer for that, but lets take a quick look at the data.

According to data compiled by the World Bank benchmarked to June 2014, out of 189 countries ranked for ease of doing business, Greece was number 61 while Germany was number 14.  (The lower the number the easier it is.)  Italy sits at number 56, Spain at 33 and Portugal at 25.  For comparison, the United States is number 7.

For getting credit, Greece ranks number 71 while Germany was 23.

For getting electricity Greece ranks 80 while Germany ranks 3.

For enforcing contracts, Greece ranks 155 while Germany ranks 13.

So maybe it isn’t that those Greeks are lazy, stupid or evil.  Maybe they just have government bureaucracy that makes it excruciatingly difficult to earn a living, no matter how hard you work!  As a gentleman named Henry David Thoreau once said in “Civil Disobedience, “That government is best which governs least.”

Or as another fellow for whom I have a rather mad crush said, “Government is not the solution to our problem; government is the problem.”

Bella Italia: Life is sweet and I shall taste it all

Bella Italia: Life is sweet and I shall taste it all

The human mind is incredibly adaptable, which has been a key component of our success as a species, but that adaptability has a downside in that after a time, we can get accustomed to most anything, be it heaven or hell.  I am incredibly blessed to live in two of the most gorgeous places on the planet and thank my lucky stars every day that my bi-continental life makes it almost impossible to ever take their beauty for granted.

Saturday morning, despite having what I later learned was a nasty case of bronchitis compounded by a horrid allergic reaction to the medication I was taking, I dragged myself out the door for a run along the sea.  Never said I was a sane person.  I live on the top floor of a lovely old building at the very top of a little hill, less than a stone’s throw from the shores of the Mediterranean, which makes her pull all that more powerful.  Saturday morning she was particularly lovely, her waves sparkling the way they do when Spring is just around the corner.  Despite the hacking and incessant nose blowing I just had to go out for a run.  Just brought a few packages of Kleenex and hey, there are trash bins all along the way!  After a while I took to jogging on the beach and just had to take this shot.

IMG_0729

 

Later that day, post shower and lunch preparation, given that I was already violating pretty much every ounce of common sense by jogging for 80 minutes with a bad chest cold, I figured I’d go for broke and shared some gorgeous champagne on my terrace.  The alcohol is purely medicinal!  Couldn’t help it with such a gorgeous sunny day and Spring whispering in my ear that warm-weather opportunities for mischief are right around the corner.

IMG_0730

Bella Italia!  Life is sweet and I shall taste it all.  I wrote that back in 1997 when I was on a train between Venice and Milan while vacationing before starting my MBA program, having no idea that one day I’d have the incredible fortune to live in this land of endless beauty and have a life more magical than I could have ever dreamed.  So today I toast to life, there have been years when you kicked my ass in ways that I thought would surely have broken me, but today I thank you for every one of those days as they’ve made today even more beautiful.

 

 

Chateau Latour a Pomerol 1994

Chateau Latour a Pomerol 1994

Another day suffering through work and life on the Italian Riviera and somehow managed to endure another epic sunset.  I think nature did its very best when creating this part of the world.  Nearly every morning I awake to a sunrise that takes my breath away.  Alright, alright… that is when I manage to get my sleepy self out of bed in time to see the sunrise, which granted is not an every day occurance.IMG_0007

But this evening… the Med put on some of her softest hues, demanding that all stop for at least a moment and enjoy just how very lovely she can be.  Despite the cool February air, there is already a gentleness in the air, a slight whispering warmth hinting seductively that Spring is coyly awaiting her turn.

After a decidedly long, but productive day at work and a wonderful surprise opportunity that has come my way, more on that later, I made my way to one of my favorite restaurants in Genova, Le Perlage, where the ever gracious and warm owner had decanted our wine for the evening in the late morning hours.  In the morning you ask!?  Why the hell so early?  Because this wine, was a truly epic experience!  Meet Chateau Latour a Pomerol 1994, a new best friend!

IMG_0714

The only other time I’ve had the pleasure of such an exquisite vintage was with a 1971 Patriarche Pere et Fils Chambertin Grand Cru.  Despite having been decanted at around 10am, by 8pm the wine was still slowly unveiling her luscious yet delicate airs, each sip slightly different from the last.  Quite the seductress!  With a wine like this you also need to pour her gently through a filter and leave a good bit in the bottom of the bottle as the amount of sediment is impressive.

Amazing to me that a wine of such epic vintage is so gentle on the palate, making conversation rather difficult as we all wanted to just enjoy her loveliness in quiet appreciation.  With a wine this delicate we all chose some simple steamed vegetables (verdure miste di stagione stufate) and a light Mediterranean white fish baked in salt with some potatoes and artichokes hearts (a Genovese favorite).  This wine would truly be destroyed by a meal with a heavy sauce.  I think even a steak might possibly detract from her loveliness.  This is one to be savored slowly on a night made for quiet reflection.

Frost, Snow, Bordeaux!

Frost, Snow, Bordeaux!

IMG_7738

After a chilly day of frost and snow in which I managed to walk into entirely too many door jams, (I swear they moved), tripped over nearly every rug in my home, (did they get fluffier over the weekend?) and for some reason decided the refrigerator was the best place to leave my iPhone… By the end of the day there was nothing else to be done but decant a bottle of Bordeaux and enjoy an insanely gorgeous sunset.

After a day like that I highly recommend curling up on the couch and having a long chat with a great friend over a bottle of this delicious wine.  Granted, it is still a bit young, but has sufficient complexity to not require a meal to bring out its flavors… although a bit of chocolate didn’t hurt.  Don’t judge… I wasn’t kidding about the multiple door jams.

As with all Bordeaux wines, this isn’t a very big wine, so don’t have it with anything too overpowering, but I think it would go well with a steak, (not a heavy pepper sauce) and maybe some steamed veggies… or skip all that like I did and head straight to the chocolate.  The wine needs a good 1 1/2 to 2 hours to breath in the decanter at a minimum.  The oak notes mellow as it breathes and the earthier mocha flavors emerge a bit stronger along with some raspberries and cherry touches.  It’s definitely the kind of wine that you love to let linger on the palate.  Enjoy!

Greece in Hotel California

Greece in Hotel California

Greece was all over the headlines again last week as the deadline for debt talks neared. The Maastricht Treaty, which created the European Union, is starting to sound an awful like the Eagles “Hotel California,” with many in Greece left rethinking, “This could be Heaven or this could be Hell.” The treaty provided a lengthy list of requirements to enter the Eurozone “hotel,” but provides no way to exit, making all members, “…just prisoners here, of our own device.” Greece, among quite a few others, didn’t exactly meet the economic fitness requirements to obtain membership in the Eurozone. The current members were well aware that Greece was essentially doping to get the level of performance required and were all too willing to look the other way. After all, “We are programmed to receive. You can check-out any time you like, but you can never leave!”

 

After Greece made it onto the Eurozone team, things went quite well for a while. The global economy appeared to be performing in tip-top shape and “dealers” for Greece’s performance-enhancing creative debt securitizations were ubiquitous. Now before anyone gives into the desire to finger wag, first recall that parts of the US economy also indulged in such performance-enhancing financial supplements, (housing and now the auto sector). Frankly, pre-financial crisis the proliferation of creative debt securitization on the global stage was a lot like an excerpt from a Lance Armstrong post-2012 doping deposition, “Everyone was doing it. You had to if you didn’t want to be left in the dust.” Pssst, a version of this is still going on today, just ask any company that is juicing its EPS by using newly issued debt to fund stock buybacks such as Apple (AAPL), IBM (IBM), Monsanto (MON), CBS (CBS) and many more.

 

Today, global economic conditions are such that the hills have gotten a hell of a lot steeper, the pavement is full of cracks, there are powerful headwinds, rain flurries and Greece’s pre-crisis performance-enhancing suppliers are no where to be seen. Debt-doping allowed the nation to get away with all kinds of economic sins, gorging itself on regulations and labor laws akin to years of multiple-pint nightly threesomes with my two favorite partners-in-crime, Ben and Jerry, followed by many a lazy day-after spent series-binging on “Ex-wives of Rock” while sprawled on the couch munching on peanut butter Cap’n Crunch out of the box. Now with no “supplements” available, an overweight, out-of-shape and endocrine-exhausted Greece is being told to get pedaling faster and faster on a bike with bald tires, a broken gearbox and gyrating handlebars.

 

You would think that Germany, of all countries, would remember that driving a nation into the economic ground is never a good idea. Most economists and politicians refer to Germany’s understandable fear of hyperinflation but that overlooks the much more relevant and painful lesson from the impossible demands placed on the country post WWI, which destroyed not only its relationship with its neighbors, but also its democracy and ultimately led to WWII. How ironic that the Maastricht Treaty, which was conceived in part to prevent another war between European neighbors, is now the cause of so much inter-European strife!

 

Greece simply cannot pay its debt, which is pretty much its standard operating procedure. According to Kenneth Rogoff and Carmen Reinhart, “from 1800 to 2008, Greece was in default 50.6% of the time,” so angry bondholders, how about a reality check? Last week we mentioned that the nation’s economy had contracted by 26% from 2008-2013, yet it is still managing to remain current on its debt payments while running a primary surplus of about 1.5%. That would be a seriously crowd-pleasing performance on NBC’s The Biggest Loser!  The problem is its creditors want Greece to increase that surplus, meaning ride even faster up that blasted hill! Even Jillian Michaels wouldn’t push that hard.

 

Last Thursday Greece formally requested a 6 month extension after four weeks of brinkmanship, which was quickly returned with an “I don’t think so,” from Germany.  On Friday night a four month interim pact was reached that will once again kick the can down the road, albeit a much shorter road than after previous kerfuffles, conditional on Greece submitting a list of reforms by Monday 23rd.  Greece submitted such a list close to midnight on Monday, which the eurozone commission officials claim contains significant changes from “a more vague outline originally discussed at the weekend.”  One official reportedly said, “We are notably encouraged by the strong commitment to combat tax evasion and corruption.”

 

The Eurozone finance ministers will hold a conference call on Tuesday to determine the acceptability of Greece’s proposed reform plans.  Most likely an agreement will be reached.  The bailout money will continue to come and the European Central bank will continue to stand behind the nation’s banking system.  However, all the finger pointing and accusatory language has greatly damaged relationships and backed both parties into difficult corners.  The next round of talks in four months could be even more contentious.

Classy Classic Queen

Tuesday night I was lucky enough to see Queen performing in Milan with Adam Lambert.    Queen, well what’s left of Queen, still has it and Adam Lambert brought along insane vocal and performance skills, along with something even more rare in the music industry.  He’s a very classy guy.  After Kanye West’s ridiculous behavior over Beck’s Grammy Sunday night, it was an absolute pleasure to see someone so young treating those who came before him with genuine respect.  (Kayne and his wife are truly cut from the same cloth, two champions of the selfie-nation, utterly lacking any grace while ignorantly blustering about their own magnificence; must be exhausting to live staring at yourself in the mirror.)  Adam was clearly  utterly loving being on stage with the band and gave the audience his very best.  Unlike Kayne, Adam has the maturity to know that respecting another person in now way diminishes you.  His solo career hasn’t yet taken off to the degree that his talent suggests, hopefully this experience will help him find his own “voice” and let us enjoy him much more.

Queen played most of the classics and Adam kept the audience in the palm of his hand throughout evening.  I have to say it was pretty awesome to hear an forum full of Italians belting out Queen hits for all they were worth!    The opening performances had Adam seriously channeling George Michael Faith-style, which embarrassingly had me feeling like a teen groupie… economist/investor/world-traveller/Lambert groupie?  Perhaps I was still suffering from jet lag.  Yeah, let’s go with that.  Bohemian Rhapsody was a bit of a tear-jerker duet between Adam on stage and a Freddie Mercury video on a massive screen above.

If you get the chance and are a lover of classic rock, I highly recommend seeing this tour, or the more than likely one that will follow after Queen’s next album with recently discovered Freddy Mercury tracks drops later this year.  It was one of the best shows I’ve ever seen.  Here’s “Who Wants to Live Forever” from the evening. Hear all the Italians singing along… love how music is so universal. (Oh and by the way, the show just a few days before this one was cancelled because Adam had bronchitis. Talk about a professional!  Music and class makes for a great evening.)