Good morning

The headlines:

  1. Europe is meeting (again) about Greece (again). Some of the finance ministers seem to be saying that bailout is the only avenue that’s likely to gain a majority vote. Greek Prime Minister Lucas Papademos has told the commission that the extra budget cuts have been found, and further commitments have been made to ensure that austerity continues after the Greek elections. Hopefully, this will be resolved today. Link: Euro Region Ministers Circle in on Greek Bailout
  2. Japan has added its sentiment to that of China’s, indicating that it will support the Eurozone after the Eurozone sorts itself. This will be done by Japan committing further resources to the IMF, which could then form part of a bailout package. But so far, this is just Jun Azumi (the Japanese Financial Minister) talking. I stand by my point that it is very easy to commit to assistance after the crisis has been averted. Real support is required during. Link: Japan, China to help Eurozone via IMF.
  3. There are an increasing number of viewpoint articles around the departure of Greece from the Eurozone. This Bloomberg article (Link: Euro Leaders consider Greek exit at their own peril) talks about the potential implications for the rest of Europe, not just Greece itself. The key problem will be when investors start to distinguish between countries of deposit: for example, a euro deposited in Portugal and a euro deposited in Germany. As I have said before, contagion from a Greek default would give rise to that investor distinction, resulting in bank runs across the Eurozone. At that point, the question will not be whether the Eurozone will bailout its bank-run members, but whether it will be able to. 
  4. At the same time, British Foreign Minister William Hague has stated that the Euro was made “without exits”. And then he told Germany that she’s not facing up to her obligations. I love it when the Brits criticise the Germans. It’s like watching a family brawl. Link: Euro has no exits.
  5. China has cut its reserve ratio in a further round of quantitative easing measures. According to UBS, the 50 basis point cut will free up around 350 million yuan in the system. This is the second reserve cut made by the Central Bank, and follows on the increase in repurchase contracts undertaken earlier this month. With the concern of a slowdown, most analysts expect the reserve ratio to be cut at least twice more over the coming year. The quantitative easing is meant to act as a stimulant for growth. Link: China adds to reserve ratio cuts.
  6. I found this article on Mortgage Securities to be very interesting: Bonds Backed by Mortgages regain allure. Much like Greek bonds, the prices of mortgage-backed securities are now so low that the underlying fundamentals make them quite profitable. The article gives the example of an Alt-A security (a subprime MBS that required almost no credit checks – read “not a single credit check” – on the underlying mortgage-holders). Even if the rates of default and the relative hit that investors take on foreclosures are given worst-case scenario assumptions, the yields range in the region of 5% to 12%. Perhaps the bankers are ready for Round 2.
  7. And the African Business News in brief. Link: ABN Briefs. The highlights:
    • A joint venture operation – between Merafe Resources and Xstrata (of Glencore takeover fame) – has agreed to shut down five of its furnaces until May to help Eskom cope with its tight electricity supply. 
    • Vodacom Tanzania announced that it increased its user base by a third last year, and indicated that it would spend a further US $94 million to increase that base over the next 18 months. According to the Vodacom Tanzania MD, mobile internet penetration is only around 4% compared to neighbouring Kenya’s 15%, so there is much room for growth.
    • Anglo American announced a 14% increase in profits.
    • Gold Fields fourth quarter adjusted earnings per share increased by 26%.
    • Zimbabwe banks will limit that amount of cash that local banks can hold in foreign accounts. This is in an attempt to ease the dollar shortages in the local market.
That’s all for this morning.

Have a great week.