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Thursday, October 13

13th Oct - China in your hand


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
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 marksalphaville / 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 endgameEconoMonitor
“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 InsteadZH

Italy Could Interrupt the Risk-On PartyMarketBeat / WSJ

Italian President Turns Up Heat While Waiting for Rome to BurnThe Source / WSJ

A roadmap to stability and growthEuropean Commission (pdf)
Barroso’s statement, summary by Zero Hedge here, euobserver’s article

GREECE
Kiss Tax Revenues Goodbye - Greek Civil Insubordination Takes On A Surreal TwistZH, ZH2
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 swapalphaville / 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 FinanceLighthouse IM
Good charts of the budget deficit – the picture ain’t pretty.

EQUITY
Cash on the SideBruce 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 FutureThe 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? PainPIMCO
 “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 FuturePIMCO
Long-term value in stocks, low interest rates, society should learn to borrow only to fund investments, not consumption.

A Wild Ride on the DAXThe 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 expectationsAbnormal Returns
Short commentary and summary, small linkfest.

FINANCIAL CRISIS

The outsized returns from lobbyingWP
The stocks of top 10% lobbyists in the S&P500 outperform by 11% annually.

Haircuts and the cost of sovereign defaultvoxeu.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 inequalityWP

The Volcker Rule: Toothless Then, Even More Toothless NowZH
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 StoryNYT
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 CDSZH
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
** Credit Suisse Buries China's BanksZH
with a full scribd-link to the 37-pager

The Only Way to Get China to ActThe Curious Capitalist / TIME
“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 EuroThe Source / WSJ

China: Trade Surplus Narrowed In SeptemberAlso Sprach Analyst

China Export Growth Slows on ‘Severe Challenges’BB

The Senate’s Currency Manipulation Bill is Not Only Bad Policy, but UnncecessaryEconoMonitor

PBOC Launches Day Two Of Currency Cold War OffensiveZH

The Future of Chinese PoliticsHistorySquared

China Won’t Take Currency Jabs Lying DownMarketBeat / WSJ
China allowed yuan to weaken, sat out the 10y Treasury auction.

China – continued boom or epic bustThe Burning Platform
“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.”

China Angered Over US Senate's Anti-Yuan BillForbes

DIVERSION
Wall Street, With Calm, Not HysteriaNYT
Interview with the director of the coming movie “Margin Call”. Trailer here.

Paul Allen: The Singularity Isn't Neartechnology review