Summary: 24th anniversary of the '87 stock market crash. Let the video to the right take you back to unforgettable music, hairdo's and shoulder toppings. By the way, over the past 30 years, bonds have returned more than stocks. Thanks a lot for Finance 101 courses.
Quote of the Day: EMU is not sustainable. It's really simple: You can't have a club (any kind of club) where people can consistently break all the rules. Then there is no more club. The only question is whether some countries will leave or whether the whole thing will slowly dig itself a deeper and deeper hole. I'm betting on the former: people with something to lose will always have an incentive to protect what they have. Greece doesn't have anything to lose anyway, so they'll go along with whatever idiocy is proposed next. – “FDAXHunter” Nov 2010
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| Bonds have won: click for larger pic |
Quote of the Day 2: Even if this turns out to be the big weapon everyone is hoping for, it won’t be a bazooka — it will be a Panzerfaust! – Krugman / NYT
Danske Daily – Danske Bank (pdf) (online Thursday)
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
Peter Tchir: “Killing CDS does little or nothing to the real market and that is playing out to the chagrin of all those who thought they had killed the devil. And no hedge funds are outright short Greece via CDS at these prices.”
UBS/Paul Donovan: “We will end this crisis, maybe by Christmas, or perhaps by January. And then we can pause a bit, we can relax. And then we will have another crisis, which could be Spain, it could be France, you pick a country. There’s no shortage of crises in Europe”.
“Despite gearing down, the Baltic Sea region moves forward – rewarding business opportunities are there to be found!”
EFSF / “DEATH STAR”
Assessing the probable eurozone Grand Plan – Humble Student of The Markets
“Is a 50% haircut enough? Could the debt crisis spread to Portugal? These are all good questions to which I have no answer, but I believe that the market will assign a high risk premium to compensate for those events. In such a case, the ring-fence will have failed.”
There is no such thing as EFSF leverage without the ECB – Bruegel
“The entire proposal rests on the premise that financial markets are now shunning these debts because of marginal doubts about their recovery value in the case of a credit event and that therefore by guaranteeing a small portion of this debt, the credit enhancement will comfort doubtful investors. This is an inadequate assessment.”
Pricing the EU WI bonds – Bruce Krasting
“The enhanced bonds would be “Story” bonds. In my experience story bonds have a very limited investor interest. I have no doubt that ten of billions of these bonds could be sold, but Trillions?”
On The Insanity Of Fixing Excess Leverage With More Leverage, And The Relentless Euro Rumormill – ZH
David Rosenberg: “How cool is it that we live in a world where complicated financial engineering in a radically overleveraged system forms the cornerstone of the solution to these debt problems...Why are we so skeptical?”
Yes, we have no bazookas (but maybe Bradys?) – alphaville / FT
Nomura’s idea: target the insurance at holders of the debt who themselves have terrible balance sheets via Brady bond-style instruments.
Reflections on the latest Eurozone tape bomb – alphaville / FT
Another summary of the research from Citigroup’s Mr Buiter (see yesterday)
A ’5x Inverse Eurozone Volatility ETN’ to save the Eurozone? – alphaville / FT
Parody. Also, “a synthetic 5x leveraged EFSF fund structure designed to track the iAlphaville AAA-bond index to a multiple of five. The index measures the returns of whatever AAA bonds are left in the world. The fund, however, plans to use Eurozone debt (and possibly also Dexia debt) to collateralise the liabilities.”
Parody. Also, “a synthetic 5x leveraged EFSF fund structure designed to track the iAlphaville AAA-bond index to a multiple of five. The index measures the returns of whatever AAA bonds are left in the world. The fund, however, plans to use Eurozone debt (and possibly also Dexia debt) to collateralise the liabilities.”
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| Credit growth before crashes: click for larger pic |
Credit Growth Indicator – HistorySquared
Morgan Stanley looks at excessive credit growth (defined as the deviation from credit/GDP) in China. Bad news, but you probably guessed that. Especially since the official credit figures are too small.
Large difference between reported and implied price changes. Is the inflation lot stronger than the Chinese government has been saying, and is the reason why they have not eased monetary policy further?
Implied GDP deflator 11.2%, CPI 6.1%. Either the baskets are different, government is lying, or both.
OTHER
The random shock that clinched a brave nobel prize – John Kay
“Rational expectations consequently fail for the same reason communism failed – the arrogance and ignorance of the monopolist.”
EM Bond Snapshot – Danske Markets (pdf)
“We have now moved significantly negative in respect of Hungary. While we continue to be overweight in South Africa, Turkey moves up the ranks into the overweight category, along with Mexico.”
Art Cashin Shares His Personal Experience On The Anniversary Of Black Monday – ZH
DIVERSION
Is It Sometimes Rational to Select Leaders Randomly? A Cool Old Study – Bob Sutton
In team work assigning the leader randomly provides the best results, but participants view the leader more negatively compared to other selection methods.
American Protest Demands Don’t Need to Be More Specific Than Egyptian Protesters’ Demands – Washington’s Blog
The Main Demand of the Egyptian Protesters: Throw the Bums Out. Why should the demands of the American protesters be held to a higher standard?
687 million, heist of the century?
Olympus contradicts chairman over fees – FT
Olympus Backtracks on Gyrus Adviser Fee, Says Amount Double – Businessweek
Olympus Paid $687 Million Gyrus Fee, Double Amount Kikukawa Said Yesterday – BB
Olympus Confirms Price for Purchases – WSJ
Olympus Conflict Spills Out – WSJ
Warning: This is technically safe for work, but will make you feel really bad. Really. Bad.