Summary: Risk on: Stocks rally, yields rally, USD, CHF and JPY weaker. Greek stocks went bananas after the bank merger. ECB has lightened up on bond buying. I have not bothered to put in links to the negotiations between Finland and everyone else on the Greek collateral, as the bailout will happen just as planned. Instead, there is a big list of interesting reads on the stock market. In the “Other”, there is a link to an interesting study finding seasonal patterns in mutual fund flows.
Views: Both US bond yields and stock market are approaching resistance levels. A lot of this is risk-on appetite after the Jackson Hole (a rave party to central bankers, though only IMF partied hard) and Irene (which didn’t rock at all). Temporary?
Joke of the Day: After the previous Portugal is not Greece, U.S. is not Portugal, Greece is not Italy, we now have "the ECB is not the Fed", from Monsieur Trichet.
Joke of the Day II: "Any institution that requires society to come in and bail it out for society's sake should have a system in place that leaves its CEO and his spouse dead broke" – Warren Buffet 2011, followed by W.B.’s own bailout of BoA after U.S. had bailed it out once.
EURO CRISIS
Political leaders dismiss the need to force-capitalize banks
“European elites must decide if they want the euro to survive”, "We have a simple choice: Solidarity or the collapse of Europe.", Poland will not join euro until it’s earthquake-proof.
Polish finance minister says Europe at risk of "collapse" – euobserver.com
“If the euro area is to be saved, it will not be enough to reshape other members in its own image. Germany will have to change, too.”
How Germany Free-Rides on the Euro – EconoMonitor
Only €6.651bn of bond buys last week, “but purchases take 2-3 days to settle, meaning the weekly figures do not necessarily give the full picture”. Estimate of Greek bond holdings €45bn
Even As Overnight Borrowing From ECB Drops To Zero, Bank Deposits With ECB Soar By €17.2 Billion To €121 Billion – Zero Hedge
As ECB Monetizes Another €7 Billion In PIIGS Debt, Trichet Says A Prudent ECB "Is Not The Fed" – Zero Hedge
Italy Trims Austerity Plans, Removes Tax Hike Proposal On High Earners, To Pursue Tax Cheats Instead – Zero Hedge
FINANCIAL CRISIS
ING: “Credibility is the reason why central banks fret about losses, not solvency. Finally, we should not kid ourselves into thinking that siphoning off losses to the central bank makes them disappear. One way or another, losses incurred by the central bank will end up on the taxpayer’s plate,”
If the GDP would be deflated with CPI, the recession would already be confirmed
3 Charts From SocGen On Why The "Japanese Scenario" Means Investors Should "Be Afraid, Be Very Afraid" – Zero Hedge
France to submit financial tax proposal in September – euobserver.com
Selected paper clippings from the rave party for central bankers
The Jackson Hole papers – alphaville FT
STOCKS BOTTOMING?
“In the absence of policy intervention, the path of least resistance for equities is down”
Not too late to buy the long bond – Humble Student of The Markets
Quantitative Desk Strategies report from 22nd August: high correlations, volatility structure, depression-like pricing suggest bottom near.
Panic pricing and the process of bottoming – Nomura Securities
Stock correlations very high, good points why (ETFs, less structured products)
Very good charts from J.P. Morgan Funds.
Deploying Corporate Cash – The Big Picture
The Predictive Power of "Stocks as Bonds" - Econompicdata
Is the S&P500 Cheap? – The Big Picture
EMERGING
Royal Bank of Scotland does not want to do business with Belarus. A bank with a soul or a country with bonds nobody wants?
Belarus: RBS jumps ship – beyondbrics FT
OTHER
The seasonal return pattern in stocks is confirmed by mutual fund flow data. It is stronger in Canada (up north) than US, and reverse in Australia, suggesting that seasonal affective disorder is behind it.
Upside in bonds limited: “The natural constraints of an investment style or strategy can be too easily ignored. Your due diligence processes should involve looking for and thinking about those constraints at every turn and your selection of managers should be limited to those that admit that they exist.”
bond math – The Research Puzzle
DIVERSION
Jeffrey Sachs’ piece. “The mad pursuit of corporate profits is threatening us all.”
The Economics of Happiness – Project Syndicate
Why Michael Lewis Annoys the Bejeepers out of Me – Locklin on Science