Summary: Another zombie day. Today's links include alphaville's review of results from a proper stress test and two comments on the BIS paper on FX HFT, but otherwise a slow day on quality texts. Check the posts from the previous days for some proper reading, after you've done the above.
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Debt crisis: live – The Telegraph
Eurozone crisis: live blog – FT
FX options: Vols, Risk Reversals & Pin Risk – tradingfloor
EURO CRISIS
A genuinely stressful stress test – alphaville / FT
Realistic but nasty scenario makes half of the banks close on Basel III requirements, but Basel II lets almost all of them survive. “European banks look to us as if in some cases they haven’t even begun the balance sheet repair process, with record high assets, large wholesale funding gaps, small cumulative loss realisations compared to total assets and thin capital bases.”
Buiter: Euro area recession likely to begin in Q4 – alphaville / FT
Most likely date for Greek restructuring is after the ratification of EFSF enlargement, late October-early November.
Tepid Italian Bond Sales Indicate Gloomy Autumn – The Source / WSJ
“Yields paid have risen while bid-to-cover ratios have not. And the prices of the bonds auctioned have in some cases fallen–Citigroup calls the price performance around auctions ‘extremely poor’”
Goldman Sachs: "Welcome To The Great Stagnation" – ZH
Estimates probability of stagnation in developed countries at 40%
Estimating the Cost of the Eurozone Crisis – The Street Light
Cost of crisis, assuming the payments agreed upon on July 21st, in core countries 2.5% of annual average income, in PIIGS 6-18%.
Steen Jakobsen from Saxo Bank: The pain from here is either 2-5 years of recession or 10-15 years. Enron-i-sation & tax makes this week the new low in solidarity, rationality and solution seeking.
Euro toast, anyone? The meltdown picks up speed – EconoMonitor
Pessimistic review and view on.
German parliament approves expanded bailout fund – WP
Includes an ok review of the current crisis situation.
Nothing new, but well-written summary with links to other readings.
Making or breaking the European Union - Barroso’s U-turn? – euobserver.com
Opinion by a political eurofederalist, claiming that Barroso seems to urge more federal future.
GREECE
Failure being devastating does not ensure success – alphaville / FT
SocGen estimates the costs of different default scenarios for Greece. For disorderly one, they see a 50%-drop in GDP. Contagion costs have been increased by policy thus far. EFSF: “And they’re all learning it on the way, and way too late.”
Strikes, disorder, erasing tax base, huge unemployment, debt forgiveness waits as the core banks are more important.
Next Game Under Way in Euro-Zone Crisis – The Source / WSJ
Current policy aim is to firewall Greece and save the Franco-German banks.
Look, if you had one shot… – The Big Picture
If the EU lets Greece default and write off a substantial amount of their debt, they would have seized the moment and forcibly dealt with the problem of too much debt.
“POLICY”
Quick and decisive action! On short-selling, again – alphaville / FT
The short interest was not high before the ban that has not been effective. Largest short interest in three Spanish and two Italian banks,
Tax policy: Skinning the fat cats – Buttonwood’s / The Economist
Estimates 0f -0,5% to GDP, it would be circumvented, U.K. would veto it, so why bother? Smokescreen to shield voters from the leaders’ bad policy?
To Ease the Crisis, Tax Financial Transactions – NYT
French foreign minister being delusional how the tax would help in this op-ed.
EMERGING
The MM is covering his shorts, the macro is bad but followed soon by easier credit and government intervention.
Falling like a BRIC – Pragmatic Capitalism
Manufacturing indices showing contraction in B, R, and C. I still expanding, but at crisis levels.
OTHER
FX bots make fairweather friends – alphaville / FT
The bots are okay in normal, good immediately after shocks but during the shock bad.
The Bots of FX – naked capitalism
Comments on the recent BIS report on FX HFT by Greg McKenna
Research Review: Volatility & Portfolio Management – The Capital Spectator
Summaries of several recent research papers
The ultimate Amazon follow-up linkfest – Abnormal Returns