The global debt crisis - November 2011 - Its origins and implications..
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The global debt crisis - Its origins and implications.. November 2011
2008 – The world on the edge 2009 – Green shoots 2010 – More QE needed 2011/2012 – More or less Europe 2
Households Banking Sovereign Political
1.phase 2. phase
Financial crisis The big recession
2007-2008 2008-2009
3. phase
Sovereign debt crisis
2009-
3
Greece falling behind target
This looks like a default
90% IO
80%
70%
60%
50%
40%
30%
20%
10%
0%
U
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11
Greece 2Y yield
Debt at ~ 160% = unsustainable
Haircut unavoidable 50%?
Caretaker government - Papademos
4
Not just a Greek crisis
The composition of Euro government bond markets according to current pricing
April 2010 September 2011
Greece 4% Ireland 1%
Greece 5% Ireland 2% Holland 5% Portugal 2%
Holland 5%
Portugal 2%
Spain 9%
Germany Spain 9%
22% Germany 24%
Italy 25%
Finland 1%
Finland, 1%
Austria 3% Italy 26%
Austria, 3%
France 21% France 20%
Belgium 5% Belgium, 5%
5 year CDS price over 200 basis points (2 %)
5 year CDS price below 200 basis points (2 %) Source: IMF/Nordea
5
Running out of risk-free government bonds!
9000
8000
8000
7000
6000 21. November 2011
5000
4000
3000
2000
1053
1000 532 708
325 456
44 63 68 95 112 116 207 220
0
NO SE FI DE NL DK AT FR BE ES IT IE PT GR
5Y CDS
6
First take on EU summit – a positive…
• The agreement at the EU summits will not end the
Debt-to-GDP-ratios showing the need of deleveraging
debt crisis, but important steps have been taken
in the right direction. 180.0%
• There are three important issues that have been
agreed on: 160.0%
– Deep restructuring of Greek debt with a 140.0%
nominal haircut of 50%, which aims at a
Greek public debt reaching 120% of GDP 120.0%
in 2020.
100.0%
– EFSF guarantee program to be leveraged 4
or 5 times through first loss insurance to 80.0%
reach a sum of between €1000-1400bn.
Formation of a SPV to attract foreign/ 60.0%
external capital.
40.0%
– Recapitalize EU banks so as to achieve a Tier
1 capital ratio of 9%, based on bank 20.0%
holdings of government bonds with mark-
to market prices. An addition a capital 0.0%
injection of €106bn. Portugal Ireland Italy Greece Spain Germany
Source: Bloomberg/IS&A
7
…but the market is sceptical and Italy is too big to fail
Italian debt compared with Greek debt
Greece’s debt ~ EUR 350bn
Italy’s debt ~ EUR 1,600bn
Greece Italy
8
ECB is trying to bridge the time/money gap
200000
180000
160000
140000
EUR/Millions
120000
100000
80000
60000
40000
20000
0
Jun-11 Jul-11 Sep-11 Oct-11
ECB bond buying (LHS)
• But it is not enough
• ECB: “We cannot finance budget deficits” & “Moral Hazard”
9Technocrats take over the world
• Technocratic government taking its form
in Italy
• Berlusconi resigned
• Mario Monti forms the new government
– Focus on growth
– Focus on asset sales
10A fragmenting union 11
France and Germany have to agree
Nein
Nein
• France • Germany
– Burden sharing in EU – Bondholders should pay
– ECB should print money – Countries with large debt should pay
12Options for Europe
Breakup Everything in between Fiscal Union
• EFSF
• E-bond
• This scenario is too costly • Muddling through • This scenario is not what
Europeans want
– And we do not know the – But it will take time
effects
– E-Bonds are a step
towards fiscal integration
13We need more EUR not less /1
• 9 benefits of trade
– More trade means more economic growth
– Trade means more jobs
– Increased trade offers a greater variety of
goods, at lower prices
– Trade helps reduce poverty
– Trade & investment flows spreads new ideas
and innovation
– Trade brings people together
– Trade and investment boosts competition as
well as competitiveness
– Trade agreements can make it easier to do
business
– Trade makes it easier to exchange innovative
or high-technology products
14We need more EUR not less /2
• Euro area has less debt/GDP than US
Europe pays too much on their debt
– US: Debt/GDP = 100%
4.5
– Euro Area: Debt/GDP = 89% 4
• Euro area has less deficit than US 3.5
3
– US: Primary Balance/GDP = - 8% 2.5
2
– Euro Area: Primary Balance/GDP = - 1.5% 1.5
1
0.5
• Euro area (on average) currently pays 3.70% on 5Y 0
Jul-09 Jan-10 Aug-10 Feb-11 Sep-11 Mar-12
bonds
• US currently pays 0.86% on 5Y bonds Average Euro Area yield (5Y) US 5Y yield
• The spread is almost 300bp!
15Our Track Record 16
Performance - since 31/12/2008 – Top 10%
Conservative Multi-Manager Balanced Multi-Manager Aggressive Multi-Manager
e Pool / FoF Balanced TAAPool / FoF
Balanced Conservative
Aggressive PoolPM Balanced PM
25%
40% 30%25%
50% 40%
35% 40%
28.3%
45% 26.87% 36.4%
35% 34.8% 43.9% 35% 35.32% 35%
20.38% 25% 30% 29.2%
20% 19.5% 20%
40% 19.68%
30% 30% 25.69% 30%
20.38% 35% 35.32% 25%
26.87% 20%
25%
15% 15% 15.3% 25% 25%
30% 20%
20% 15%
25% 14.3% 20% 20.0% 20%
10% 9.7% 10% 15% 14.3%
15% 20% 20.0%
9.7% 15% 15%
14.3% 10%
9.7%
15% 10%
10% 10% 10%
5%
5% 5%
10%
5% 5%5% 3.91% 5%
5% 3.91%
1.88% 2.85%
1.02% 1.02%
1.88% 1.31%
0% 0%
0%0% 0%0% 0%
Low er 10% Upper 10% Low er 10% Upper 10% Low
Upper 10% Low er 10% Upper 10%
Upper 10% Low
Low erer10%
er 10% 10% Upper 10%
Upper 10% Low er er
Low 10%10% Uppe
Average Nordea LUX Average Nordea
Nordea LUX LUX Average
Average Nordea LUX Average
Nordea LUX Average Nordea LUX Average Nordea LUX Average Nord
These charts illustrate the upper and lower 10% percentiles’ performance for all comparable products
found on Morningstar database and the PM portfolios’ performance in relation to them.
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