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| Debt levels, summing public+corp. Source |
Summary: The risk-on trade in anticipation of the euro bazooka has gone a lot further than I expected. Equities can still be seen as being range-bound and at the top of the range – EURUSD has gone up more than I’m comfortable with. Today’s links include a lot on China and the stock market. I’ve previously posted a credit guest post. Yesterday I published an #OWS collection, Euro ‘Death Star’ and Brother, can you spare a yield?, which revolutionary included some of my own analysis. Feed me with a comment, follow me on Twitter, Facebook or email me.
Quote of the Day: Message to Barroso and other EU clowns: The German supreme court already rejected a permanent mechanism and it also rejected use of leverage. Even were that not the case, Slovak shows what happens to governments when they try to force things through. German Chancellor Angela Merkel will fall, the Italian Prime Minister will fall, as will the Greek Prime Minister, and perhaps French president Nicolas Sarkozy falls. What part of that do you fail to understand? There is no magic bullet and the Eurozone will not survive intact. – Mish’s
News (Wed evening) – BTH
News (Thu morning) – BTH
FX option vols – Saxo
TV: Bloomberg, CNBC, BBC World News
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Erste’s fumble, and where (else) to hide sovereign marks – alphaville / FT
“Those helpful sea creatures at Goldman Sachs have called 36 banks to see if any of them were treating CDS protection sold in the same way that Erste Group was.” – but that is not the only way to hide.
The European Troika’s rescue plan will fail. Time to choose an endgame – EconoMonitor
“It is an EMU problem and Band-Aids will never suffice. The problem with the set-up of the EMU was the separation of nations from their currencies.” Solutions: disband EMU or reformulate it.
Market Slumps After European Banks Admit They Can't/Won't Raise Capital; Will Proceed With Asset Liquidations Instead – ZH
A roadmap to stability and growth – European Commission (pdf)
GREECE
After they ran out of ink to print tax forms, now the demonstrators are blocking access to finance ministy’s building.
Pointless Greek bond swap dead — long live pointless Greek bond swap – alphaville / FT
“One way to look at this is that there is someone out there (perhaps living in this building) who still thinks a 30 per cent cut is actually enough.”
The Greek (Ministry) Mystery of Finance – Lighthouse IM
Good charts of the budget deficit – the picture ain’t pretty.
EQUITY
Cash on the Side – Bruce Krasting
Not that bullish – the best case for the euro crisis is bad, U.S. debt ceiling debacle coming up, stimulus is not happening, credit crunch continues, no good news from China.
Dissecting The Historical Equity Risk Premium For Clues About The Future – The Capital Spectator
“investors expect a long-run equity premium (relative to bills) of around 3%–3½% on a geometric mean basis and, by implication, an arithmetic mean premium for the world index of approximately 4½%– 5%.”
Prediction? Pain – PIMCO
“Recent Federal Reserve activity has pushed down the long end of the yield curve, spiking the present value of plan liabilities and widening the funding chasm.” - pension funds are hoping risk-on will save them.
Repeating the Future – PIMCO
Long-term value in stocks, low interest rates, society should learn to borrow only to fund investments, not consumption.
A Wild Ride on the DAX – The Source / WSJ
Plus: Liquidity from central banks, technicals, European solution, currently ok world economy. Minus: corporate margins at historical highs, no investments coming, China, European solution.
Setting return expectations – Abnormal Returns
Short commentary and summary, small linkfest.
FINANCIAL CRISIS
The outsized returns from lobbying – WP
The stocks of top 10% lobbyists in the S&P500 outperform by 11% annually.
Haircuts and the cost of sovereign default – voxeu.org
“indicative evidence for the existence of a trade-off: achieving a high degree of debt relief now can have benefits in the short-run, but may also imply worse borrowing conditions in the future.”
Notes on income inequality – WP
The Volcker Rule: Toothless Then, Even More Toothless Now – ZH
Peter Tchir: “The rules are meant to be in a final form by July 21, 2012. Assuming that deadline is met, the banks then have 2 years to conform with the provisions and can petition the board for up to 3 additional 1-year extensions. Which brings us to July 21, 2014 at the earliest, and possibly July, 2017.”
Debt Levels Alone Don’t Tell the Whole Story – NYT
Add up the household, corporate and the government debt, and the financial crisis did not come as a surprise. Don’t miss the graph!
Banks, Credit Events, And Sovereign CDS – ZH
Peter Tchir: “In the end, Iceland and Ireland both improved only AFTER they let banks fail. The US, for all the talk about Lehman, is only doing worse than that since it decided banks couldn’t be allowed to fail.”
CHINA
with a full scribd-link to the 37-pager
“if you really want the Chinese to do something, never pressure them about it in public. Loss of face is anathema in the Middle Kingdom.”
Nasty Stench of Trade Wars Hits Dollar, Helps Euro – The Source / WSJ
The Senate’s Currency Manipulation Bill is Not Only Bad Policy, but Unncecessary – EconoMonitor
The Future of Chinese Politics – HistorySquared
China allowed yuan to weaken, sat out the 10y Treasury auction.
“In Feb 2010 my thesis was the $2.1 trillion stimulus package rolled out by Chinese authorities after the 2008/2009 financial crash was leading to enormous malinvestment.”
DIVERSION
Wall Street, With Calm, Not Hysteria – NYT
Interview with the director of the coming movie “Margin Call”. Trailer here.
Paul Allen: The Singularity Isn't Near – technology review