DSK: Winners and Losers
As yesterday’s post ran a bit long in the tooth, here are my top three winners and losers coming out of the Dominique Strauss-Kahn affair. Let me preface by saying that I don’t expect any of these expected results to come over night. The DSK affair will be a catalyst, not an instaneous spark but certainly a factor which will be felt down the road. So without further a due:
The Losers
1) The French
An empire in their own mind. The definition of old glory slowly spiraling down the toilet. The survivors of every possible sort of physical, fiscal and ideological defeat going back over 150 years. This one may turn out to be the worst. If there is one thing the French have always been able to claim it is an aura of social superiority. Since the inception of the EU, France has tried and tried to assert its dominance on the diplomatic stage. Though Germany continues to be the economic engine of Europe, France has been its diplomatic stalwart. Grace, class, honor that je ne sais quoi, were all the purported social skills which gifted French diplomats with the inside track to crucial bureaucratic positions. No more. Every French potential appointee to high level EU, IMF, World Bank, etc office will now suffer the microscopic myopic analysis previously reserved for the occassional Polish pope or Italian playboy cum prime minister. All that grace, all that glory…gone with the wiggle of one withered wand.
2) Central Banks
News to my fellow Americans, Wall Street is not the most hated wing of the financial big bird yucking up the planet. The IMF and the World Bank are beyond unpopular in most of the world. Think of the populism of Main Street vs. Wall Street at the apex of the crisis. Mulitply that by a thousand. You aren’t even half way there. As a former prof of mine astutely noted when comparing the developing world to the U.S.
Here we put it up with our fiscal masters, hoping we can one day become them. There…the ropes come out and dangle from the street lamps when the rich get too rich.
DSK’s actions are a physical manifestation of what the global financial system (which our dear Fed is part of) is perceived to be doing on a daily basis to financially weak nations. Expect a fall out. A major one. It may not come over night, but the sour taste felt in many a French mouth is far more bitter the further East you head on the map. This event is not the reason why, but an addendum to why one day…the IMF and the World Bank will no longer have any sort of grip on its debtors.
3) The Euro
I toldyaaaa sooooo. This is what happens when dozens of nations come together under one fiscal umbrella. Though you may not have optimal purchasing power as a Slovakia, Estonia or Romania you definitely only have to deal with the stupidity of your own leaders. Since the ECB is neither legally, nor physically capable of controlling Europe fiscally, the IMF and World Bank act as de facto Euro backers. This is why in times of crisis a system such as the Euro’s can flounder spectacularly. The Euro will not crash as a result of this affair. This is just one more little straw that will ultimately lead to the snapping of the proverbial camel’s back. This is just one more reminder for richer EU nations like Germany that they do not need the laissez faire attitude of the French oligarchy cramping their economic efforts. This is just another reminder to Russia and Turkey that they may be in safer water doing business with the East rather than the West. This is just another reminder for the poorer Central and (especially) Southern and Eastern European economies that being part of this mass love in money machine masked as a continental union really just means depending on what the elites of Western Europe do or don’t do right. Though behavior like DSK’s shouldn’t have any baring on markets and currencies, it does. As a result, Euro holders will pay.
The Winners
1) The Dollar
It’s a great time to be the greenback You are doing absolutely nothing right, but everything is going in your favor. It is like the dollar went off Bretton Woods and told nobody a thing…because everything it does or doesn’t touch seems to turn to gold. Though the U.S. has a large share in both the IMF and World Bank, these institutions (via both their personnel and spheres of influence) are looked at more so as Europe and emerging markets oriented organizations. Any screw ups on their part (or those of their personnel) are a bonus for the USD. I am reiterating my 1.10 call from this past week’s NSFW and thoroughly enjoying traveling on the back of the green, once again…
2) Investment Bankers
Yes I am talking to you. There is a new designated scapegoat. You are no longer the boogey man, try and make it last longer than a week this time around. Imagine Dick Fuld dressed in a white triangular hood, burning foreclosed upon homes and eating little babies. That’s DSK today. That evil financier image has thereby been transferred from the Goldmans and Morgans to the IMFs and ECBs of the world. Wall Street can breathe a sigh of relief...for now. Not all is forgotten. There never has and never will be a better chance for bankers to pass the buck, however, so I suggest you guys forward this sentiment onward. Sometimes the only way to make people hate you less is to find someone who they can hate more. Wall Street has once again been given the gift of central banker incompetence in unintended aid of repairing its tarnished image. Damn I wish I worked in PR these days…I would cost Goldman and arm and a gilded leg for reverse populism marketing.
3) Eddie Braverman and Expats Throughout Europe
What better position to be in today than as a retired American trader living in France writing about finance on a daily basis. After hearing day-in-day-out about American transgressions, cruelty and overall crudeness, now is the time to hit back. To illustrate the wealth of potential vengeance let me tell a quick tale. I hung out with a friend and his three year old son the other day, the boy was holding his crotch and dancing in place.
Daddy, daddy...I need to pee…I neeeeed to peeeee!!!
As soon as my friend said “go ahead”, the kid whipped it out and went for it…right there. The gag is that we were in an outdoor seating area of a busy bistro. The rest of the customers were aghast, one woman shrieked and we laughed until we cried. This is the sort of position Eddie and others like him are in today. We can whip it out and water the weeds, laughing our merry way to the currency exchange. They can all pump umbrellas and sulk. There is something very satisfying for L’stupid Americain when he’s the smartest guy in the room. Cheers boys. I’m off to the currency exchange and then to the pub...
http://dealbreaker.com/2011/05/dominique-strauss-kahns-new-accommodatio…
Since being granted bail he, and his wife, have moved into a new apartment which includes a complementary maid service. Of course it does....
Bitch Slap a Frenchman Day
Dude, the big winner here is Nikolas Sarkosy. His goose was cooked before this, now instead its DKS's goose.
I have to say, I disagree with almost every single point of your analysis. I guess I'll just go point by point:
Losers: 1. The French aren't going to lose on the international front because of this. Lagarde is mostl ikely going to get the IMF job and she has the "je ne sais quoi" you mention in spades. The real reason France plays a big role in diplomatic affairs is that they are a former colonial power which sits outside the traditional anglo-saxon power nexus. France still enjoys a privileged relationship with many of its former colonies and even the thornier ones (Algeria, especially) still matter because of immigration issues. The real loser is France's domestic politics. Since the Socialist Party's first serious candidate since Lionel Jospin just ethered himself, Sarkozy looks set to be in the clear for another 5 years. If you're wondering why that's bad, realize that Sarkozy has focused a great deal of his efforts on curbing civil liberties as opposed to reforming the labor market, the single biggest issue France faces. A strong Socialist Party reduces the appeal of the extremes, Communists and Facists alike, and unfortunately, the Socialist could take a few more years to recover.
You might be right on this one. But the IMF and World Bank's reputations are intricately tied to the PIIGS situation. I only see one good way out of this one, and it's my third point.
The Euro is actually the biggest winner from the DSK situation. Simply put, the IMF was too accommodating of the way the EU has been handling their fiscal crisis. New leadership and stronger representation from non-European IMF members could force the EU's hand away from bailout and into an orderly restructuring. A "Brady Plan" for PIG bonds is probably the best solution that's been advanced up until now and a less "Eurpoean" IMF might be more favorable to such a plan (http://www.ritholtz.com/blog/2011/04/a-credible-solution-to-europe%E2%8…)
Winners: 1. The dollar isn't getting anything from this. 1.10 is about as high as the dollar could possibly go right now and considering how rickety our recovery has been, that's the last thing we need. The Fed will smoke the dollar if it starts trending much higher, probably faster than you can say QE3.
Wishful thinking. Who else do you know who works at the IMF? People at the IMF and the World Bank are civil servants and simply don't make enough money and are too faceless to ever attract much of the western world's ire. Plus, the DSK thing is really about one man's personal foibles. It's easy to see the symbolism, but Goldman isn't in the clear, not by a long shot. I'll bet a silver banana Taibbi doesn't write more than one article on the IMF/World Bank this year.
Expats aren't getting anything from this. People in Europe didn't care Bill stained Monica's dress and they don't care the head of the IMF was a rapist. Seeing a country spend over a trillion dollars for a useless war will always get more mileage than one dude not being able to keep his "jeanson" in his drawers.
Basically, I think you're making way too much of this. The only real fallout I can see is that politics at the IMF will begin to change, which may or may not push the Euro towards a durable solution.
Wish I lived in NYC. I would have hosted him purely for the story. And perhaps to berate him for handing the French election away on a silver platter.
The dollar is going nowhere but downhill.
Chart courtesy of Oanda.com: http://i.imgur.com/JgtUd.jpg Over the last 10 years, the dollar has lost respectively 39% and 13% of its value against the EUR and the GBP. It took a massive flight to quality during the financial crisis to provide some support (the 2008-2009 bump).
Uncle Eddie is a winner, but not for the reasons you mention. Think about it this way: assuming he left the US 10 years ago with $1,000,000, he landed in Paris with EUR 1,150,000. Now imagine he'd do the same thing today, he'd be left with EUR 690,000. That's a EUR 450,000 FX LOSS.
I changed all of my dollars on May 16 when GBP/USD was a 1.599 and I am not looking back.
This makes as little sense as if europeans felt good about Clinton's affair.
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