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Thursday, September 29

28th Sep - Eurovision and War in Middle East

Summary: Parliaments in Slovenia and Finland have now voted yes on the EFSF expansion. All eyes on Germany’s vote. Waiting for the stupid, pre-arranged parliamentary debates and votes on the EFSF feels just like watching the Eurovision song contest for the music's sake. Again a new plan on the Greece. The leveraged EFSF is not fashionable anymore, and now the talk is that the next stop is the G20 meeting much, much later. Meanwhile the Greeks cannot collect taxes as they’ve run out of ink cartridges. Jesus Christ…

Views: It is late and duration calculations have kept me from writing. After too much caffeine I figured I might throw here some of my wilder scenarios of what might happen or go wrong in the world. Yes, of course it involves proxy wars, hydrocarbons and the Middle East.

As Pakistan seems to become a lost case, eyes are turning towards other opportunities. The main driver is the global reliance on stability in Saudi-Arabia. Should Saudi-Arabia become radicalized, new power bases would be sorely needed. Recent war games have confirmed the essential role of Saudi Arabia and strategically, it is dangerous to be too dependent on a single player. What might happen if the Saudis were out of the equation?

  • Conflict in Saudi-Arabia – resource grab and cancellation of Western sovereign debt held by the local sovereign wealth funds. 
  • China makes a move towards Middle-East - by first befriending Pakistan, and maybe moving over India at some point. Screwing India by Pakistan proxy would have a tolerable international political cost to Beijing. 
  • Russia and U.S. end up in a proxy war on Cyprus. The real issue is of course hydrocarbons and location, location location. Look at the map and read a good blog entry. 
  • Putting pressure on Cyprus is also a handy way to control the wealthy exile oligarchs: 20% of Russian FDI comes from Cyprus, obviously Russian money trying to avoid expropriation risk. Indirect threats and pressure on Cyprus is a good way for Kreml to keep a free call option on the exiled oligarch wealth, while keeping the siloviks in power as the exiles will be too scared to disturb the next Russian "elections"
  • Iran is a wild card. Israel is getting tired, as everyone else is befriending them and the nuclear time-to-capability is short and close. Bombing run will cause a short-term non-nuclear missile throwing, sabre-rattling and finally an awkward peace.
  • For doing crazy stuff the timing is perfect. Everyone's paralyzed, broke or at least politically weak, so there will be almost no interference.

Again a huge amount of links, many of them worth reading. Better ones (or good but short) are marked with asterisks, and towards the end of the section the links generally get worse, more off-topic or just boring. Who cares of fundamentals nowadays? Check Saturday’s massive post or Monday's "Death Star" special in case you missed it. I updated the UBS rogue trader and the Calendar. Feedback is always appreciated: leave a comment, follow me on Twitter or email me. The MoreLiver's Daily is also now on Facebook.

News: Wednesday Watch (morning) – Between The Hedges
News: Today's Headlines (evening) – Between The Hedges
FX options: Vols, Risk Reversals & Pin Risk – tradingfloor
 
EURO CRISIS
"A Panorama Of The European Debt System" - The Definitive Primer Of The EurozoneZH
83 pages of summary analysis and eurocrisis FAQs from Morgan Stanley full on scribd.

Frau Merkel, it really is a euro crisisThe Telegraph
Merkel still stated this is not a crisis of euro, but of sovereign debt. Evans-Pritchard points out that the total euro debt levels are low compared to other developed nations and finds it appalling how this late in the game the key people are completely lost – or just talking stupid.

 Michael Hudson: Debt Deflation in America naked capitalism
Half of this very long interview actually discusses the European crisis policy limits, given legislation and roles of the different institutions.

Tape BombsMacro Man

Lachmann: ‘What’s really at stake here is the European banking system.’WP
Ezra Klein: Thanks for a really depressing interview.

Eichengreen: ‘We’re in for a couple more months of volatility at least.WP
First things first: someone has to take the Greek loss, and nobody wants to do it. After that,

Eurozone Rumors Turn Against MarketMarketBeat / WSJ
Too many, more complicated, markets dissect and dismiss the ideas faster.

You can lever, but will you take the loss?alphaville / FT
The EFSF could be leveraged thousand-fold, but at the end it is all about cash flows and credit ratings of the underlying sovereigns.

Leveraging the EFSF is attractive, but riskyGavyn Davies / FT
If the leverage breaks the core countries’ credit ratings, it will not work. But the size would be credible.

Art Cashin On European Political Alliances, Marrying Your Best Friend's Sister, And Fed Fisher's EnlightenmentZH
UBS’s entertaining and prosaic letter putting things into historical context.

Euro-Zone Wage Adjustments Could Be Faster Than ExpectedThe Source / WSJ

Markets Bet European Losses Will Be SocializedThe Source / WSJ

Barroso Calls for Tobin Tax on BanksThe Source / WSJ

Barroso attacks member states, US, bankseuobserver.com

Parliament approves economic governance ‘six-pack’euobserver.com
  


GREECE
When will the Greeks be made to suffer?Free exchange / The Economist
Despite net private outflows, Greece maintains a current account deficit.

Greece: The sudden stop that wasn’tvoxeu.org
So where did the money go?

On Greek HaircutsCredit Writedowns

The "EURECA" Moment ZH
Peter Tchir comments on the latest plan to save Greece – by selling everything. Full scribd link.

Another Greek SPV planalphaville / FT

How Low Could the New Drachma Go?The Source / WSJ

Greek Vote Approves a Despised Property TaxNYT

 
FINANCIAL CRISIS
Goldman: European banks are killing USalphaville / FT

Could the European Debt Crisis Cause a U.S. bank to Fail?The Curious Capitalist / TIME

Macro Commentary: We Are Moving To DisneylandZH
Peter Tchir’s letter – entertaining read.
 
CDS
Put (CDS) trading activity where your mouth isalphaville / FT

CDS Levels May Not Be The All-Purpose Indicator That WSJ Thought They Were Dealbreaker

A Fear Gauge Comes Up ShortWSJ


OTHER
Here Comes The "China Hard Landing" - Full Bank Of America Presentation SlidesZH
Bank of America’s 42 pages on headlined “China: The Systematic Risks”

BIS on FX HFT – “No Problem” – Bruce Krasting

High-Frequency Trading Is Evil, Right? Not So, Says the BISThe Source / WSJ

Take The Loss – The Big Picture
The difference between politicians and traders

'Moneyball' Author Michael Lewis to Script 'Liar's Poker' for Warner BrosThe Hollywood Reporter