The stock market rises of 2014 are ephemeral to prevent the equity bubbles, contained for now, from assuming worrying and dangerous proportions. As for bonds, it seems that in America there is talk of raising short-term rates to prevent the rise of long-term ones, which are decisive for the home mortgage market.
So everything seems to be moving, in words, so that nothing really moves, neither shares nor bonds. Which also seems to happen in the wizarding world of Quantitative Easing.
In fact, America practices tapering and is preparing to put Qe in the attic. As it happens, however, Japan is replacing it with very similar amounts and Europe, listen, no longer considers QE as theologically incorrect and declares itself ready to start it if necessary.
For the communicating vessel principle, it doesn't matter which pipe the water flows from, only the total quantity poured in. We saw this with US QE, which drove up asset prices not just in the US, but around the world.
However, the first and last name of the person who introduces liquidity counts in determining exchange rates. Those who practice Qe see (and want to see) their currency weaken, those who don't practice it resign themselves to seeing their exchange rate strengthened.
The euro appreciated after 2012 against all currencies, emerging and developed, until German exports were booming. Now that it is becoming more and more difficult for BMW, Daimler and Volkswagen to sell in China, India and Russia, the German perspective is changing.
The straw that broke the camel's back and forced the Bundesbank to review its dogmatic apparatus is Ukraine.
Russia is Europe's largest car market, bigger than that German. In Moscow and St. Petersburg, then, it's not utility cars that are driving, but high-margin cars. Germany has no desire to move to the third phase of anti-Russian sanctions, the economic one, but will still be affected by those already in force now, because Russian demand will go down.
As for gas and oil, Russia is accelerating as much as possible the reconversion of its exports from Europe to China. It will take some time, but the strategy, which has already been set for a couple of years, is very clear.
Germany's energy policy was actually already chaotic and dysfunctional before Ukraine and today it appears to be in disarray. With nuclear power being phased out in an accelerated phase and with European gas three times more expensive than American gas, German power plants are now fueled by coal.
The result of this masterpiece is more pollution, an overproduction of subsidized renewables, a grid unable to handle peaks, a final cost of energy twice that of France and the flight of major basic chemicals to the United States. From today there is the added risk that Russia will turn off the taps at a time when there are no plants to regasify the liquid gas that can be imported from America or Qatar. Sure, Russia needs the money and won't cut off supplies except as extreme retaliation, but it's not a quiet life.
Ukraine will remain on the agenda not only because Russia will never resign itself to its loss, but also because there are internal political dynamics in America that oblige Obama, who would otherwise stand still, to raise his voice. Republicans are pressing the executive to exalt its contradictions.
Democrats, for their part, have traditionally been more hawkish than Republicans on foreign policy and this time they also have specific electoral reasons to keep tensions high. Americans of Polish and Ukrainian descent number several million and traditionally vote Democrat. In Chicago, Obama's fiefdom, the Poles are particularly numerous and it is no coincidence that Senator Durbin of Illinois, an orthodox Obamaan, pushes his boss to raise the bar against Russia.
In short, the world is not as beautiful as it appears. Thanks to this, in return, we will finally have a weaker euro and a more flexible Germany. Let's take advantage of it.
Attachments: Virtual Reality-RN-27.03.14.pdf
