Monthly Archives: April 2014

Only the brave (reloaded)

Posted on by
Reply
The few of us that are familiar with this “Open Thinking” may recall that Erik F Nielsen is the Global Chief Economist of Unicredit, one of continental Europe’s leading banks.
Prior to that, he had been Chief European Economist at Goldman Sachs, for several years. That was the job he held when I first met him, in 2011.
IMG_3014
I have always admired Erik’s ability to see through the fog, his being brave in his well-rooted capacity to read people and their behavior.
On 10 October 2011, Moody’s and Fitch had cut Italy’s rating heavily (Moody’s by three notches to A plus – yet higher than today’s…). Erik pointed this out, but then clearly argued:

“But sometimes the market gets it all wrong, as is the case now.”

Hence, his argument continued, Italy’s debt was a much safer bet than others, such as the UK’s triple A. Italy would get things done and make it.

Erik gave me the occasion for my first tweet ever, on that very day:

Two and a half years and almost three thousand tweets later, I want to spend some time, again, to praise Erik’s ability to “see through the fog”. In his usual “Sunday Wrap”, released today, Erik could write, amongst other things:

“But here we are, just short of 2½ years later. Those of you who focused on fundamentals and had a bit of understanding of Europe, and who bought the 5-7 year sector in Italy in mid-October 2011, now sit on an annualized return of 12.5% (in euros), compared with 1.7% (in sterling – and well below inflation) if you had gone with the 5-7-year gilts.”

Italy and so called “peripheral Europe” have surprised many, but not all. I wish to finish with Erik’s own words, again in today’s “Sunday Wrap”:

For someone like me who has spent the last 2 ½ years arguing that the Italian sovereign should not pay higher yields than the UK, seeing the 5-year BTP trade through its equivalent UK gilt this past week came with some satisfaction.   Longer term, this is right.

Well-done, Erik. But also well-done to the many courageous people who’ve worked to ensure that this could happen.

 

 

Tommaso Arenare