Summary: A dead Friday to end a week that was dead in many ways. The whole market feels like a trauma patient that requires in rapid succession CPR, IV, defibrillation, 4mg of generic benzo and 500 mg of Seroquel. QE, unlimited liquidity to banks, EFSF, TARP, bond purchases, short selling bans, high-level telephone conferences, announced meetings, cancelled holidays, being pompous and patronizing, promises, lies and threats. This was the week that the patient finally stabilized. But everyone in the markets knows that the perceived stability has only happened by throwing in all the possible therapies at the maximum dosage. The patient will become critical again very soon. And there is no Dr. House around to make a last-minute save before the commercials.
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| From Deutsche Bank's report, copied blatantly from FT's alphaville |
Interventions killed the trends in CHF and JPY, EURUSD has not moved since last spring, U.S. stocks kept sawing like crazy and ending the week practically unchanged. ECB bond purchases lowered the yields on stressed sovereign bonds, but CDS prices barely budged and safe haven-buying continued. It is now all about trust or alternatively lack of it: trust of government, counterparties, repo market, ECB, European Commission, Merkel, Sarkozy, SocGen, BoA, Chinese, and occasionally a person from some think tank or a head of a multibillion hedge fund. Trust is the new currency. As lack of trust is contagious, anyone with some trust left will be very careful about being seen with unsavory characters. Thus ends the market.
Views: No updates. Today’s most important link was A CDS basis “pain trade”. I'll update again before Monday's markets.
EURO CRISIS
View from RBS
That was the ECB bond-buying week that was – alphaville FT
Perhaps official growth forecasts are too optimistic. If so, the planned budget deficit reductions might not be enough. To really assure markets, France has to rely on independent forecasts.
It Is Time for Independent Economic Forecasts in France – The Source WSJ
France losing AAA rating would force banks to acquire more capital
Risk reversals favor EUR/USD puts over calls
Options Traders Bet on Euro Slump Against Buck – The Source WSJ
No publicly announced European covered bond deals since June, other bond markets remain closed to most. European Banking Authority: the region’s banks have €4.8trn of wholesale and interbank funding expiring this year and next. Banks have been busy using ECB for liquidity.
Liquidity Options Running Out For European Banks – Zero Hedge
Conduct stress tests with realistic assumptions (serious sovereign hair cuts), then capitalize banks. In the future issue euro bonds. Will feel and look nasty, but it has to be done.
The EuroCrisis … In One Chart – MarketBeat WSJ
Peg talk
Swiss franc: safe haven no more? – beyondbrics FT
FINANCIAL CRISIS
Only places attracting inflows.
Nomura’s slides do not paint a happy picture
Are US banks turning Japanese? – alphaville FT
(scroll to bottom) CEE most exposed to developed Europe, Russia ok until $80/bbl etc.
Back to 2008? Contagion Risks and Policy Responses in CEEMEA – Morgan Stanley
For FED: announce triggers for future tightening, buy interest rate swaps, backstop mortgages, purchase stocks. Ideas also for ECB, BoJ and EM.
Unconventional Unconventional Policy – Morgan Stanley
Good bullet point list of bull and bear factors from the ending week, with links for more info
Weekly Bull/Bear Recap: August 8-12, 2011 – Rational Capitalist Speculator
Very good links to videos and satellite imagery of cities built for the sake of it, and currently empty.
Faces of China: Ghost Cities – Part II – Zero Hedge
SHORT SELLING
EDHEC’s Risk Institute’s open letter against the ban
European Business School Blasts Short-Selling Ban – MarketBeat WSJ
Charts of average % of shares on loan in France, Belgium, Spain and Italy. They are low. Additionally, lower for the banned financials than market averages, save for Italy. The sellers are long-only investors, not the evil shorters.
Short-selling fairies – alphaville FT
“Less than 1.5% of Soc Gen’s shares had been lent out for short-selling as of Thursday, while the same figure was 2.0% for BNP Paribas, and 1.1% for Credit Agricole.” Not that much, then.
Short Selling Ban Buys Time to Investigate SocGen Story – The Source WSJ
“Restrictions seen more likely to nurture erratic trading than eliminate it.”
“Bank runs are never stopped by bank CEOs denying them. Once you have to deny that your bank has problems you are probably already dead."