SUMMARY: Bad macro from U.S. (trade deficit larger = Q2 +1.3% GDP might be revised to below 1%). Productivity down, labor cost up for Q2 2011 = bad for employment). French banks again taking a beating. ECB was reported buying Spanish and Italian bonds on Wednesday, but in much smaller amounts than on Mon and Tue. Today I have very good reads in Euro Crisis section. Again I advertise that yesterday’s links were really good.
VIEWS: No changes. Keep the Brazil short.
EURO CRISIS
Credit Suisse lists possible scenarios. Most likely: EFSF downgraded, but continues with higher funding costs. Worst: remaining AAA’s stop supporting the periphery.
What if France (or the EFSF) is no longer AAA? – alphaville FT
True reason for the current bank troubles in euro land.
Fund managers flee euro zone financials - Reuters
Former chief economist at IMF, and co-author of the best paper on euro crisis: EU must decide which countries are allowed to default and which absolutely not. Then banks must be recapitalized.
“A breakdown of the euro would precipitate a banking crisis that would be beyond the global financial authorities’ ability to control. The longer Germany takes to recognize this, the higher the price it will have to pay.”
Germany Must Defend the Euro – George Soros via Project Syndicate
PIMCO’s Andrew Balls believes ECB’s bond purchases are important and right, but ECB must prove to the markets that it is serious and in it for the long run.
No Turning Back: The ECB Brings Its Balance Sheet to Bear on Italy and Spain – via Advisor Perspectives
CDS prices of Italy, Spain, Germany and France continue climbing, irrespective of ECB’s purchases of Italy & Spain or investors’ safe haven purchases of German bonds
A CDS basis “pain trade” – alphaville FT
“...banning short sales...wouldn’t do much to prop up Italy – but it would make it more painful to express a negative view on Italian debt. Which seems to be what European regulators are after.”
FINANCIAL CRISIS
It did not work then, and it will not work now. End result in U.S. -48% in under a month
Short-Selling Ban History Lesson: Sept. 19, 2008 – MarketBeat WSJ
Japan and Switzerland in Currency War – The Source WSJ
When a government bond becomes a Giffen good – alphaville FT
“Taxpayers may not realize it, but they (Fannie Mae) just bailed out Bank of America again, this time to the tune of more than a half billion dollars.”
Bank of America's back-door TARP – CNNMoney
http://finance.fortune.cnn.com/2011/08/10/bank-of-americas-back-door-tarp/
DIVERSION
Governments do too little of what they should (health care & sustenance, neutral taxation, public services) and should not (bail outs, taking risk from private sector) and overfinancialization.
Capitalism with a human face? – Emanuel Derman / Reuters