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| Short EURUSD at next "Death Star" sequel rally |
Summary: Dexia in trouble for the final time, about to be nationalized, Greece missing deficit targets, eurocrats still peddling with EFSF leveraging, even though Germans have said “that’s it”. EURUSD probing new lows, core CDS prices increasing, China’s hard landing (polite way to say recession) now openly discussed. U.S. investment banks getting into dark side of the moon with MS becoming the new BoA and GS rumored to post zero earnings and paying zero bonuses. Safe haven buying driving idiocy like buying Japanese government bonds. End is near.
Views: S&P 500 dropping to 1000 points, EURUSD to 1.20. Swiss National Bank’s stomach to be tested soon, as safe haven buyers take almost anything.
In case you missed it, I posted Weekender on Saturday, full of commented and summarized links to read on the euro crisis and some recreational material as well. I've also updated the Calendar. Feedback is always appreciated, leave a comment, follow me on Twitter or email me. Spread the word - I'm trying to gain street cred here. The MoreLiver's Daily is also now on Facebook. And remember to buy Aaron Brown's book. If you prefer, you can also buy it for me as a gift.
Quote of the Day: “This is the equivalent of putting explosives into a can, before kicking it down the road – Wolfgang Münchau on leveraging the EFSF
Monday Watch (Weekend headlines) – Between The Hedges
FX options: Vols, Risk Reversals & Pin Risk – tradingfloor
EURO CRISIS
Everything You Wanted To Know About EFSF (But Should Be Afraid To Ask) – ZH
Nomura’s nice research paper, full scribd paper.
Euro Zone’s Leveraged Solution to Leverage – EconoMonitor
Satyajit Das: “The circular nature of the scheme is surreal. Highly leveraged vehicles, in part backed by weakened nations like Spain and Italy, are to undertake the “rescue” of the same countries and their banks.”
The EU dream has turned into a nightmare – The Telegraph
“The peoples of the EU’s richest and poorest countries are thus equally powerless in the face of what amounts to a bureaucratic dictatorship of unelected apparatchiks – who, in a vain bid to save their pet project, are now talking about the need for a further bail-out fund of £1.7 trillion.”
Brown against it while Blair for it. Brown’s five points: sufficient convergence, flexibility, investment stimulation, financial services, growth and jobs. Brown won. Must-read.
The euro crisis: Is anyone in charge? – The Economist
Roundup of who supposedly does what, and who (IMF) end up doing it.
Quantos: when CDS met the monetary union – alphaville / FT
Interesting product, mashup of e.g. Italian government CDS’s both in euros and dollars. In case of credit event, you receive [100 - Recovery Rate] * [%USD:EUR change]
EURO BANKS
The euro banks: Holey grail – The Economist
Additional capital needs for Basel 3, marking PIIGS debt to market, recession and perhaps PIIGS default.
Dexia en chute encore – alphaville / FT
Nearing falling to the government’s lap. French and Belgian finance ministers met on Monday to discuss solutions (= capital injection and/or nationalization)
Bernanke Getting Cold Feet On European Bank Bail Out? – ZH
N.Y. FED may ask foreign lender for more detailed “fourth-generation daily liquidity” reporting, according to BusinessWeek.
Market Declines: Is Banning Short Selling the Solution? – NY FED (pdf)
Shorting bans ineffective, useless and costly, recent bear market not caused by shorting.
Financial transactions tax (FTT) would not fly. Swedes tried it. They already said they are not interested anymore.
GREECE
Only one plan does not require lengthy legal changes: ECB buying bonds while EFSF guarantess against losses.
EZ finmin meeting today on Greece, EFSF leverage. ECB meeting not to lower rates after the recent increase in EZ inflation, but expect a 12 month liquidity facility to banks in addition to the previous 3- and 6 month lines.
Greece to cut 30,000 public sector jobs, miss deficit targets – Calculated Risk
Greek Cabinet to Fire 20% of Public Workers; Unconstitutional Action? What if Greece Says "* You" to the Troika? – Mish’s
Older article, from 24th Sep: A comprehensive IMF study says during weak growth austerity programs fail.
FINANCIAL CRISIS
Bill Gross Starts Q4 With A Cold Shower: "Forget Double Digit Returns - Bonds, Stocks And Real Estate Are Overvalued" – ZH
Goldman's Jim O'Neill: "Let's Worry About Everything" – ZH
Among other things points out that foreigners are buying JP bonds (debt-to-GDP 220%), given JPY level, low yield, so it is just too much cash and buying anything that does not have euro printed on it.
Too many bullets for stocks to dodge – Humble Student of The Markets
Markets expect either avoiding Greek default or TARP-like bank rescue. Both difficult, and recession coming.
We are in a secular bear market – alphaville /FT
Nomura expects stock to decline further, does not have high hopes on EZ crisis.
The Global Economy – Out through the In Door? – The Big Picture
Satyajit Das: Greece as patient zero, sovereign debt problem has gone viral. Even countries with little headline public debt (China) will get hit, as over-investment in infra will take down banking system and hamper growth. Most probable scenario is global Japanification for a decade or even two, with risk of panic and volatility. But still less time than the 30 years that caused this.
Central banking post-crisis: What compass for uncharted waters? – BIS (pdf)
Tighter integration of monetary and financial stability functions, more global awareness and safeguards for operational independence of central banks.
Does fiscal stimulus work in a monetary union? Evidence from US regions – VoxEU.org
Fiscal multiplier of 1.5 from U.S. military spending
SAFE HAVENS
Swiss Head for Bunkers in Case of Euro Fall-Out – The Source / WSJ
Even capital controls are discussed.
Currency Peg Causes 50% Surge In Swiss National Bank Balance Sheet, Major FX Losses – ZH
Swiss central bank’s FX positions are already at 20% of GDP. Can they keep the CHF from appreciating, given the worsening EZ crisis?
Nomura Explains Why Gold Went Down, And Why It Is Going Back Up – ZH
Even though gold is a tail-risk hedge, at points it behaves like a risky asset, selling off together with stocks.
A Yen For Yield – The Psy-Fi Blog
In low yield environment people start eventually making stupid bets.
CHINA
Sanctions against China in planning: “Holding China accountable won’t solve our economic problems on its own, but it can contribute to a solution — and it’s an action that’s long overdue.”
HSBC: China’s top government adviser says no hard landing
One chart and one table.
Casino stocks are hit hard. This gave me an idea to check if the casino stocks would be “another copper” to measure the easiness of credit in China?
OTHER
Evolution and the Overconfidence Phenomenon – Turnkey Analyst
Research Digest 26th Sep – Turnkey Analyst
Links to “alpha-generating” research papers.
AQR offers prize for research on liquid assets – Pensions and Investments
$ 100,000 for the best paper. Launching eViews…
On Penny Stocks – The Aleph Blog
“Don’t let the seeming cheapness delude you. This is an area where accounting frauds are rife, and where ordinary investors lose a lot. DON’T BUY PENNY STOCKS.”
First Day of The Month Effect – Pragmatic Capitalism
Works only during bull markets, but lessens exposure in bear markets.
Picking A Fight With “Value Investors” – Also Sprach Analyst
“One should not be willing to allow his/her own capital to be destroyed by 50% every 3-5 years in the name of long-term value investment, because that's silly.”
DIVERSION
Religion makes people happy, so why is church attendance declining? – VoxEU.org
“Churches tend to lose members during stable and economically prosperous times. They stand to gain members notably when economic, political, and other societal conditions are harsh.”
It’s Good to Be Michael Lewis – New York Magazine
‘Occupy Wall Street,’ a primer – WP
Fifteen Definitions of Freedom from #OccupyWallStreet – Rortybomb
People Who Became Nouns: The Music Video – brain pickings
Volta, Léotard, Earl of Sandwich, Zeppelin, Silhouette, Shrapnel etc.