Views: Germany’s actions feel like it has already decided to go ahead with the damn euro bonds. But in order to squeeze more austerity and conditionality from the PIIGS, it has to play hard to get. This is also important for domestic political reality, especially in Germany. By pretending to be very reluctant and getting lots of promised austerity from PIIGS, euro bonds might become politically viable in Germany.
EURUSD: I’ve been wondering a lot about the recent range trading. My latest theory: players assume two possible breakup scenarios. 1) The core leaves the currency union, which would make the euro very weak or 2) periphery leaves or is forced to leave, which would make the euro strong. At the moment either is as probable, hence the range and large risk reversal levels in option markets.
There are alternative continuation scenarios of “Eurobonds” and “transfer union”, and I have not decided how the markets would play these out. Of course, one possibility is “muddling through”, but that is not really a scenario, as inevitably it will lead to the choices above – unless they discover oil in Greece, gold in Italy and a cure for cancer in Portugal.
Joke of the day: Both Berlusconi and his finance minister, Giulio Tremonti, have defended the government's actions. Tremonti insisted the debt crisis could not have been predicted but said it could have been avoided with the creation of Eurobonds, a new joint bond backed by all 17 countries using the euro. "We wouldn't have gotten here if we had had Eurobonds," Tremonti told reporters, calling for more "integration and consolidation of public finances in Europe." – AP
Joke of the day II: If something would just distract the news media from the economy, we might have a chance. Where’s Charlie Sheen when you need him? – Free exchange / The Economist
EURO CRISIS
Italy’s economy minister has said that a solution to the euro zone’s current debt crisis would be the creation of euro bonds, according to a report published Saturday.
Italy calls for creation of euro bonds: report – MarketWatch
Larger ESFS, fiscal union, ECB to return to monetary, not fiscal issues
Though Germany’s finance and economy ministers are against euro bonds, Welt am Sonntag quotes a “government source” that they are an option.
Good article summing up the situation, extensively hyperlinked text.
On ECB liquidity, Eurobonds and the civil unrest of austerity – Credit Writedowns
Majority of housing loans in CEE countries are in foreign currency, opening up a huge FX risk for households – and thus also to banks.
(pdf) Bank funding of residential mortgages in the EU – DB Research
Good look at the history of currency unions. Not much has apparently changed, so recommended.
When money brought us together – boston.com
FINANCIAL CRISIS
34 countries, with CDS price historical data download
Sovereign default probabilities online – DB Research
Very nice: Marx was partially right (globalization, financial intermediation leading to redistribution of income and wealth from labor to capital), we are back in 1929 in terms of income and wealth inequality and low federal tax revenue.
Global Financial Crisis 2.0 – Nouriel Roubini
Now everybody knows the Greenspan put was just bad policy. Now it is official, because it’s WP.
How the Fed boxed itself - and you - in – Washington Post
“Macro risks that have been apparent to me here are still there and are arguably getting even worse. Perhaps many are already jumping back into equities and risks, but I am not buying into it at the moment.”
A Few Thoughts On The Recent Market Turbulence – Also Sprach Analyst
“…people worried about US creditworthiness are buying the debt at record high prices of the same
country they’re worried about.... people worried about banks are selling their bank stocks to get
cash so they can deposit it back into the same bank... it doesn’t make any sense”
(pdf) Things that make you go hmmm… – the trader
"The Wasteland" - How Central Planning Broke All Markets... And What We Can Do To Fix Them – Zero Hedge
Sound fundamentals, but also less financial openness and exposure to US creditors helped
EMERGING MARKETS
Q2 GDP published in many countries.
Week ahead – beyondbrics / FT
Very good review of Estonia’s economy by Edward Hugh. Lots of charts.
TRADING
Goldman Sachs’ full technical analysis slide deck
Next Week's Market Charts That Matter – Zero Hedge
Ex-Salomon Bros, ex-principal of Long-Term Capital Management, 1h30min lecture
Doug is among other things ex Global Head of Proprietary Trading at J.P.Morgan
“You can take this course, along with several hundred Stanford undergrads, without having to fill out an application, pay tuition, or live in a dorm.” Course lectured by two legends. Also other courses, like machine learning etc., sponsored by Sequoia Capital.
Stanford Offers Introduction to Robotics Course Free Online – ieee spectrum
“now’s a good time to buy stocks, if only because the opportunity cost of not buying stocks is so enormous. Bonds and cash yield nothing: it’s really hard to see how they can be a better bet than stocks over the medium to long term.”
Chart of the day: The great earnings-yield divergence – Felix Salmon via Reuters
GS plans to shut down its principal strategies business, the unit that makes investments/bets with the company’s own capital, following JP Morgan Chase & Co’s decision to do the same.
Goldman Sachs’ Traders Go Freelance – Twisted Minds