Apparently the only people in the world who don’t know the Euro crisis is about to get worse, are fund managers.
Last week when Portugal’s largest bank, Banco Espirito Santo shat the bed so to speak, most of the world perked up and was rightfully concerned. It was a clear indication that things in Europe are still very much “not okay”.
But not fund managers: According to the Wall Street Journal, they’re confident that this will all blow over in no time.
Large money managers don’t expect the worries over one of Portugal’s largest lenders to have a lasting impact on global financial markets depite a rout in Europe’s markets Thursday.
“This particular incident seems fairly isolated to the Portuguese bank as opposed to a return to the euro zone crisis of a few years ago,” said Eric Stein, global fixed income portfolio manager at Eaton VanceEV -0.13% which has about $286 billion assets under management.
Mr. Stein said he believes “many of the euro zone bonds out there may continue to rally in the short-term after we get through this Portuguese bank issue” thanks to firm support from the European Central Bank’s easy monetary policies.
Right then. Glad that’s settled. For a minute there we thought the only thing holding Europe together were bank bailouts from Europe’s unelected leaders and an apparent refusal to have a “plan B”.
But then there’s this chart, which clearly shows that on a private-sector level, Europe hasn’t managed to de-leverage much at all since the crisis.
You don’t mind waiting, do you?
Given the problems with Banco Espirito Santo, we can’t help noticing that Portugal’s private-sector has barely even begun to de-lever and serious tremors are already shaking up her banks. One seriously has to wonder what new surprises should await us if Portugal’s private debt levels were to descend to a mere 200% Private Sector Debt to GDP (let alone some level resembling “responsible”).
How anyone can think Europe is “on the mend” is beyond us. But the experts say otherwise:
Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, NJ, which has over $400 billion bonds under management, said the selloff provides a buying opportunity.
“Looking six to 18 months ahead I’d expect, all else equal, Portugal to fully recovers from this and then some,” he said. Mr. Tipps said the company has added to its holdings of euro zone’s periphery government bond holdings in recent weeks.
That light blue line above sure doesn’t look like it’s falling fast enough to be anywhere near safe within 6 months, to us.
With all this abounding optimism we might have retreated into our man caves to leave the thinking to the “experts” – but then along came a certain CEO:
Maximilian Zimmerer is the CEO of Europe’s largest insurance company, Allianz. His take on the situation in Portugal?
“The fundamental problems are not solved and everybody knows it,” Maximilian Zimmerer said at Bloomberg LP’s London office. The “euro crisis is not over,” he said.
“There is only one country where the debt level last year was lower than 2012 and this is a signal the debt crisis can’t be over, only a recognition of the debt crisis has changed,” Zimmerer said on July 9. “If the debt levels are not going down in the end we will have a problem, that is for sure.”
Oh no you didn’t, Maximilian.
In our view, Zimmerer hits the nail rather squarely on the head. But Portugal isn’t really where we’re looking. Europe’s problems are much worse somewhere else…
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