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| European battle plan. Source |
Summary: Just one post today, I’ve been busy with two university courses from Stanford during the weekend. I posted a Weekender on Saturday – including all the week in review/ahead-links plus a longer editorial, and Best of The Week, which is simply a collection of that week’s best reads I’ve featured. I am soon updating the Occupy Wall Street link collection. A new one in the regular daily features below is a link to Danske Bank’s daily market report. Today the links in Diversions at the bottom are really good – I recommend that you take a look. I still hope I find time to put the Benford’s Law-post together.
Have fun! – “MoreLiver”
Have fun! – “MoreLiver”
Quote of the Day: The two candidates have around six months to convince France that they are not the men they appeared to be. Then the French public will vote on who put on the best show.” – WSJ on France’s presidential elections
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News (Mon morning) – BTH
Danske Daily – Danske Bank
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
A framework for assessing a eurozone rescue – Humble Student of The Markets
Excellent post. What needs to be done, what is credible and what is possible.
Wolfgang Münchau: “The many failures of the eurozone’s crisis response policy have a common cause: the eurozone is a large closed economy. Each of its 17 members is small and open. The political leaders who run the eurozone have a small open economy mindset – every one of them, without exception. The economists they employ mostly use small, open economy models.”
European Spillovers – Krugman / NYT
Comments to the above.
“despite a continued lack of general agreement, the euro zone committed to a comprehensive plan to recapitalize banks, resolve the Greek debt mess and beef up funds available to fight contagion from struggling member countries – All in time for a European summit next Sunday.”
“No one wants to get in front of the G20 train that is headed down the tracks on November 4th. After that, we can probably get back to crisis as usual as fixing the banks doesn’t fix the EMU. Ultimately, this crisis is going to require fiscal transfers of some sort combined with debt restructurings.”
Capping interest rates to stop contagion in the Eurozone – voxeu.org
“EFSF could play this role by committing to purchase new sovereign long-term bonds of solvent countries when market interest rates reach a certain level…This would require to increase the size of the EFSF, albeit not to astronomic figures, or to grant it access to refinancing by the ECB.”
The Biggest Market Headfake Ever: Is A Wholesale French Bank Liquidity Run The Sole Reason For The Euro, And S&P, Surge? – ZH
Comments from Deutsche Bank – EUR’s strength is probably banks selling assets and risk-on is probably funds from the periphery.
“To outsiders, he may appear to be an Italian extravagance. But behind the political and sexual scandals hides a history of moral malaise.”
G20
Excerpts of G20 draft communiqué – Reuters
G-20 Set to Push European Leaders to Deliver Crisis Solution – BB
Europe Crisis Plan Wins Global Backing as G-20 Urges Action – BB
Rehn Says EU Close to Reaching Agreement on Recapitalization – SF Gate
G20 tells euro zone to fix debt crisis in eight days – Reuters
GREECE
Any Greek Restructuring Should Be Designed To Trigger A Credit Event – ZH
Peter Tchir: If buying CDS is unlikely to provide the relief it should, the only way to reduce economic exposure is to sell assets… By eliminating a tool for banks to hedge their exposure by blatantly working around it, the EU will reduce future demand for bonds.”
“To better understand who will pay the additional costs of resolving this crisis, it's helpful to think about the incentives each side has to voluntarily shoulder the burden.”
Deutsche Bank Seeks "Voluntary" 50% Haircut on Greek Debt, Resists Recapitalization Efforts – Mish’s
FINANCIAL CRISIS
IMF Involvement Likely to Expand, Create Larger Debt Problem, as Social Unrest Goes Global – HistorySquared
The “solution” failed before, contributors have their own debt problems, moral hazard for Italy and Spain, social unrest.
The endgame of quantitative easing: communism? – Also Sprach Analyst
“Where does it end? Do we ever hit some absolute liquidity trap where people want to hold money rather than any other asset? Well, not really. Because the central bank has to keep on buying assets that people do not want to hold because they want to hold money instead.”
Safety regulators don’t add costs. they decide who pays them – NYT
Robert Adler, commissioner of CPSC: “In their world, costs to business are the only measure; benefits to consumers somehow never make it to the table. Unfortunately, that’s misleading and unfair. Someone always pays.”
Arab Spring: Counting Costs and [Oil] Profits In MENA – EconMatters
$56bn, not including infrastructure damage, foregone business, FDI and casualties.
CHINA
Michael Pettis: “while raising interest rates in China may be a very good thing – because it reduces the capital misallocation on which Chinese growth is highly dependent – it does not reduce inflationary pressure. It increases it.”
Emerging Market Troubles Still Misunderstood – HistorySquared
It’s all about credit: growth, quality, lending practices etc. Also a link to a BIS paper “Global credit and domestic credit booms”.
But not that dangerous, as large part of the exposure is on state-owned banks that are likely backstopped by the government.
Chinese M2 Growth Dropping To 9 Year Low Means More Pain In Store For SHCOMP – ZH
Interesting charts showing M2 growth vs. financial stocks.
Top 10 Forex reserves of the world table.
“Normal businesses don’t go bankrupt because they cannot borrow. Only money-burning speculation needs to borrow constantly to stay afloat.”
OTHER
Flawed Thinking as a Source of Market Inefficiencies – HistorySquared
Excerpts from a classic article, scribd-link to the original
From the Armchair to the Computer – economicprincipals.com
Enlightened Self Interest – Bruce Krasting
Argues strongly against the financial transaction tax
Losing Their Immunity – Krugman / NYT
“Why, then, does Wall Street expect anyone to take its whining seriously?”
Commodities and (a Lack of) Diversification – MarketSci Blog
Correlations between commodity- and stock prices at historic highs.
Copula: A Primer for Fund Managers – SSRN
By Nomura’s Wing Cheung: 1) What is copula and what does it represent 2) With correlation as a commonly used dependence measure, why is copula worth the extra complexity 3) What is 'tail dependence' 4) What are Gaussian, t-, Clayton, Gumbel and Frank copulas; how do they look and behave; and how to simulate 5) How to model equity markets with copulas where the dimensions are high 6) How can copula-based market model be applied to equity PM process.
Decomposing Short-Term Return Reversal – New York Fed (pdf)
“A simple short-term return reversal trading strategy designed to capture the residual component
generates a highly significant risk-adjusted return three times the size of the standard
reversal strategy during our 1982-2009 sampling period.”
More on High Frequency Trading and Liquidity – Marginal Revolution
10 essential fiscal charts – PEW Institute (pdf)
DIVERSION
Day One Trader – Amazon
Book by a veteran LIFFE trader John Sussex, video interview here.
Review of “23 Things They Don’t Tell You about Capitalism” – Portfolio Probe
Interesting points taken from the book by Ha-Joon Chang and a 32 min video lecture.
A Curated Linkfest For The Smartest People On The Web – Simoleon Sense
Another Twenty Ifs – Macro Man
20 funny multiple choices.
Applying Sentiment Analysis to the Bible – Openbible
Viralheat Sentiment API over several Bible translations shows a moving average of sentiment. Has links to raw data and API, so this is an interesting case study.
Throwable Panoramic Ball Camera – The Big Picture
7 Must-Read Books on Time – brain pickings