Argonaut Capital Management is a hedge fund manager based in New York. The firm manages has over $6 billion under management. Argonaut’s flagship hedge fund, Argonaut Macro Fund, was down 2% in April and over 1% in May.
David Gerstenhaber, the CEO of the hedge fund, has become increasingly bearish on Europe.
While analyzing unemployment trends in the United States and monetary policy in Japan, the report’s most pessimistic assertions regard Europe’s ability to recover from its current economic malaise. According to Argonaut, there looks to be no realistic hope of a European solution in the near future.
Despite that, the hedge fund thinks there will be a solution, probably in the form of debt mutualization. The report echoes Winston Churchill’s famous comments on American action in the second World War. Churchill said “You can always count on Americans to do the right thing, after they’ve tried everything else.”
The same applies to Europe, though it appears there is a great deal more to try before the Northern European economies agree to create common debt obligations with the poorly performing Southern European nations. A second actor’s inflexibility is also standing in the way of that recovery. The ECB’s lack of innovative action is holding back the recovery of the continent.
The argument outlined in the report relies on the actions of the Federal Reserve in the early days of the financial crisis and the effects that had on the stabilization of the economy in the United States. The ECB refuses to act completely as a lender of last resort to the nations of the Union, because it is sticking to its legal mandate very strictly.
If it were to deviate slightly from that mandate, there would be a far less pressure on the individual sovereign entities in the Eurozone. Despite the effects of the ECB’s inaction, there is much more blame to be laid at the feet of politicians who continue to avoid a comprehensive solution to the current crisis.
The expectation in the report is that European leaders will not act on the policies needed, such as Eurobond implementation, until the market absolutely forces them to do so. It seems unlikely that there will be any move on this for some time. Those who have to make the decisions are politicians and they face pressures that slow their hands.
Europe is now exerting a massive downward pressure on the economies of the rest of the world. According to this hedge fund, and many others, a solution to the problem does not look likely any time soon. that means the downward pressure will continue for some time.
Angela Merkel, quite possibly the most important actor in the entire crisis, faces huge popular and political antagonism toward the idea of Eurobonds. In order to overcome that there needs to be a change in that opinion or there needs to be a more powerful force coming from another direction.
That force is likely to come from the market, or from other Eurozone leaders. Argonaut does not see either of those circumstances coming together any time soon. Until there is some evidence of radical action by Eurozone politicians, or by the European Central Bank, Argonaut remains pessimistic on the continent.