Definite Euro break up ?

Thespoofer

What do ye make of the write up on the back of yesterdays Sindo by Frederick Forsyth in regards to ( in his opinion ) the definite breakup of the Euro, is he a credible guy or what ?
And given David McWilliams' latest post, seems like the doomsday scenario is going to play out according to these lads.

V_Moth

Thespoofer wrote: »

What do ye make of the write up on the back of yesterdays Sindo by Frederick Forsyth in regards to ( in his opinion ) the definite breakup of the Euro, is he a credible guy or what ?
And given David McWilliams' latest post, seems like the doomsday scenario is going to play out according to these lads.

Wouldn't trust anything in the Sindo, but to an extant their columnists are right. Since early June, there have been 2.5 Options to solve the Euro crisis:

(1) Issue Eurobonds in conjunction with a significant Fiscal Union (ultimately heading for US of E)
(2A) Partial dissolution of the Eurozone - with the Euro being retained by France, Germany, Slovenia (?) and the Benelux countries
(2B) Full dissolution of the Euro.

None of these options are either politically attractive or easy to implement. Seeing that Ms Merkel rejected the Eurobonds idea last week, I have no idea what can be done to save the Euro.

Thespoofer

So it would be fair to say then that option (1) is probably most definitely not going to happen leading to our exit from the Euro as referendums would be needed to pass the further Fiscal Union.

I have noticed on Boards quite a few members don't like the Sindo, I mainly get it for Gene Kerrigan on the back page, he seems to know his stuff.

sarumite

There is a pretty good article on this subject in the Economist.

http://www.economist.com/node/21529049

irishh_bob

frederick forsyth makes nigel farrage look like our scoflaw , hes a euro sceptic times 100

hmmm

If you read something by Forsythe, it is not going to be neutral. McWilliams jumped the shark several months ago.

You use the word "definite" a lot. Nothing is definite at present, there are only probabilities. There are lots of options remaining to European governments, so at present it is still unlikely (but not impossible) that there will be a Euro breakup. A lot of options are shrouded in legal complexity - for example, the ECB could end the crisis in the morning by buying every bond offered, but there doubts over the legality and practicality of that.

cavedave

The intrade odds are below

Any country currently using the Euro to announce their intention to drop it midnight ET 31 Dec 2011

16.0%


Any country currently using the Euro to announce their intention to drop it midnight ET 31 Dec 2012
49.0%

Any country currently using the Euro to announce their intention to drop it midnight ET 31 Dec 2013
60.0%

Any country currently using the Euro to announce their intention to drop it midnight ET 31 Dec 2014
69.5%

Which means it is by no means certain

GSF

21.03 Siemens pulled €500m from a large French bank, although it is not clear which one, and deposited it directly at the ECB.
It apparently took the step two weeks ago, highlighting the strength of the fears over the future of the eurozone

DT reporting this, so obviously the big corporates are worried. Didnt know they could deposit directly with the ECB. Is the ECB making up the rules as they go along?

hmmm

GSF wrote: »

Didnt know they could deposit directly with the ECB. Is the ECB making up the rules as they go along?

I didn't read the piece but most big corporations will own an "internal" bank, so this would be unusual but not something radically new. Usually used as part of tax planning.

Scofflaw

hmmm wrote: »

I didn't read the piece but most big corporations will own an "internal" bank, so this would be unusual but not something radically new. Usually used as part of tax planning.

Sure - Siemens have a banking licence, as do a lot of large companies.

cavedave wrote:

The intrade odds are below

Any country currently using the Euro to announce their intention to drop it midnight ET 31 Dec 2011

16.0%

Any country currently using the Euro to announce their intention to drop it midnight ET 31 Dec 2012
49.0%

Any country currently using the Euro to announce their intention to drop it midnight ET 31 Dec 2013
60.0%

Any country currently using the Euro to announce their intention to drop it midnight ET 31 Dec 2014
69.5%

Which means it is by no means certain

A sudden rise in perceived likelihood towards the more distant future tends to indicate something that people believe but have no really credible mechanism for.

cordially,
Scofflaw

Good loser

Thespoofer wrote: »

I have noticed on Boards quite a few members don't like the Sindo, I mainly get it for Gene Kerrigan on the back page, he seems to know his stuff.

Gene Kerrigan seems to me all sneer and innuendo.

Irritatingly critical of anyone earning more than himself - except public servants and trade unionists.

Big time begrudger.

jimmycrackcorm

irishh_bob wrote: »

frederick forsyth makes nigel farrage look like our scoflaw , hes a euro sceptic times 100

I see you and raise you with Paddy Power
http://www.paddypower.com/bet/novelty-betting/current-affairs/euro-specials

johnnyskeleton

Since its foundation there has been a mix of uk eurosceptics, us traders and fringe economists who have predicted the euros collapse. It is important to remeber that this is not a currency crisis in the normal meaning of the phrase, it is a debt crisis that could pose difficulties for the currency.

But the euro has done quite well over the last few years in comparison to other major currencies eg usd gbp and so on. But unlike those currencies, Europe has yet to play it's monetary card. That is to say, the other countries have used extreme measures such as quantitative easing and zero interest rates. The eurozone hasn't gone down that road yet if at all, and is keeping back.

Much of the chatter is a rather poor attempt to deflect attention away from the us/uks problems. The Market doesn't necessarily agree.

Amberman

johnnyskeleton wrote: »

But the euro has done quite well over the last few years in comparison to other major currencies eg usd gbp and so on.

Eh? Its in a 3 year down trend since Q1 2008 against the dollar and has been tanking hard for the last two weeks.

See attached.

Amberman

Scofflaw wrote: »

Sure - Siemens have a banking licence, as do a lot of large companies.



A sudden rise in perceived likelihood towards the more distant future tends to indicate something that people believe but have no really credible mechanism for.

cordially,
Scofflaw

I think they're working on that mechanism right now. Isn't Germany preparing for a Greek default? Ofcourse, I understand that default doesn't mean they leave the single currency, but wouldn't a default increase the odds that they would leave?

I'm pretty shocked by those odds to be honest...basically even money that the Euro won't exist in its current form in 15 months or so. Surely there are better odds around than those?

cavedave

Amberman

I'm pretty shocked by those odds to be honest...basically even money that the Euro won't exist in its current form in 15 months or so. Surely there are better odds around than those?

Bette rin what sense? The intrade odds are what people are willing to bet. If the probabilities were lower you might bet and raise the probabilities. If they were higher you might bet against them. At the point where people wont bet the probabilities are where people believe to be near accurate.

Scofflaw

Amberman wrote: »

I think they're working on that mechanism right now. Isn't Germany preparing for a Greek default? Ofcourse, I understand that default doesn't mean they leave the single currency, but wouldn't a default increase the odds that they would leave?

As far as I can see, it would make the prospect even less attractive, since it would make them even more of a basket case.

Amberman wrote: »

I'm pretty shocked by those odds to be honest...basically even money that the Euro won't exist in its current form in 15 months or so. Surely there are better odds around than those?

Heh - why shocked? 16% by the end of the year is a relatively meaningful figure - 49% by the end of next year isn't particularly. All it tells you is the level of uncertainty people feel.

cordially,
Scofflaw

Amberman

Scofflaw wrote: »

As far as I can see, it would make the prospect even less attractive, since it would make them even more of a basket case.



Heh - why shocked? 16% by the end of the year is a relatively meaningful figure - 49% by the end of next year isn't particularly. All it tells you is the level of uncertainty people feel.

cordially,
Scofflaw

What it actually tells you is their current estimate of the probability of the event occuring over that period...which factors in their uncertainty...which they have included in their price.

Manchested United to win the league over a broadly similar time period, are a very similar price...4/5. Is there uncertainty here?

Sure. Chelsea or Man City could win the league....or some long shot like Liverpool (sorry...couldn't resist!).

Have they factored this in? Ofcourse.

What they are saying is that they think it will happen roughly one time in two in a montecarlo-type simulation over a statistically significant run of such simulations...given their current level of understanding...which will not be perfect and is subject to change.

Thats what a book maker does...and changes which effect their model will produce changes to their price of the event occuring...up or down.

Scofflaw

Amberman wrote: »

What it actually tells you is their current estimate of the probability of the event occuring over that period...which factors in their uncertainty...which they have included in their price.

Manchested United to win the league over a broadly similar time period, are a very similar price...4/5. Is there uncertainty here?

Sure. Chelsea or Man City could win the league....or some long shot like Liverpool (sorry...couldn't resist!).

Have they factored this in? Ofcourse.

What they are saying is that they think it will happen roughly one time in two in a montecarlo-type simulation over a statistically significant run of such simulations...given their current level of understanding...which will not be perfect and is subject to change.

Thats what a book maker does...and changes which effect their model will produce changes to their price of the event occuring...up or down.

If you believe that 50/50 odds on a yes/no question in a year's time reflect real analysis, I can only say that I admire your faith. Have you checked the volume?

amused,
Scofflaw

Amberman

Scofflaw wrote: »

If you believe that 50/50 odds on a yes/no question in a year's time reflect real analysis, I can only say that I admire your faith. Have you checked the volume?

amused,
Scofflaw

Well, bookmakers don't typically pluck these numbers from thin air...or they wouldn't be in business for long...would they?

Their numbers are usually backed by a lot of analysis. I worked for a time with the Ladbrokes head golf handicapped and I saw the work he did.

Maybe this particular bookie takes his lead from a larger firm...I don't know.

What is it that makes you think this price reflects the bookie plucking the numbers from the air? Bookies have been making books on politics and economics for a long, long time....and if it was impossible for them to profit from, you can be sure they wouldn't continue to do it.

If you think they are pricing this incorrectly, take your roll over to Betfair and lay it. Thats what I do when I have your conviction.

I assume you are also talking about the Man U price as well...no real analysis?

cavedave

Amberman

Their numbers are usually backed by a lot of analysis. I worked for a time with the Ladbrokes head golf handicapped and I saw the work he did.

Intrade is not a bookmaker AFAIK it is a betting exchange. so if the odds are wrong they do not lose money whoever is taking the other side of the bet is.

There are hundreds of paper on the accuracy of betting markets. Scofflaw is right that liquidity is important.

Amberman

cavedave wrote: »

Intrade is not a bookmaker AFAIK it is a betting exchange. so if the odds are wrong they do not lose money whoever is taking the other side of the bet is.

There are hundreds of paper on the accuracy of betting markets. Scofflaw is right that liquidity is important.

Ah...I didn't realise it was an exchange...so yes, liquidity does have an impact...but only on the margins as I understand it...and typically not for very long (if it is the same as the "other" markets...which it kinda should be).

Over the long run, wouldn't arbitrage players push price to it's true level by laying a binary event at an exchange and backing it at a bookies if there are significant differences?

If the exchanges are as racked by fear (and are therefore mis-pricing risk) as Scofflaw says and the bookies typically aren't, then I smell free money...and will have to look much more closely at this.

Does anyone have the odds for the same bet with a bookie?

Amberman

Found it...the best price from Odds checker is from William Hill.

7/4 for a breakup over the same period.

Confirms my earlier suspicions that the price was way too low.

Thats a pretty meaty arbitrage right there....lay at evens, back at 7/4....37.5% gross if my sums are right....take 7.5% for fees and sundries...and that looks like a risk free 30%.

Can that be right?

Edited: That isn't right...those numbers fail to account for inflation over the period in question.