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Saturday, October 8

8th Oct Weekender

"The eurocrats got too greedy and dug too deep"
Summary: Rating cuts after Friday close. Markets were enjoying a risk-on after the Dexia event and increasing talk by the eurocrats that banks will be recapitalized. Steve Jobs updated, I will today post a “best of the week” collection. Do me a favor and spread the word if you like what you see here. Follow me on Twitter, Facebook and read my and other people's comments on Aaron Brown's book – I’m trying to do you a favor and only few of you have bought it. Don’t make me come over your place for a hard sell. See you on Monday!

Views: EURUSD and equity markets were on Friday sitting at the top of their trading ranges. If no concrete plans come out from the EZ and given the cuts in credit ratings, we probably see a swift “risk-off” in early parts of the week. Tuesday’s EFSF vote in Slovakia is the key event for the week. Expect rumors of rumors, contradictory statements and grand plans from the eurocrats during the week. 

I just had a word with "London Big Man" and he asked my opinion on the date of the Greek default. I said the time is after the core bank recapitalization plans are done, and the exact timing will be revealed by a sudden similarity in the statements of the key players. At the moment they talk whatever comes to their mind, but just before the agreed default time, they will, like a band of robbers, agree on a mutual story that they will just keep repeating. The key players are, in no particular order, Sarkozy, Merkel, Rehn and ECB. If you start hearing the same broken record from all of them, the default happens next weekend. Unless the Greeks decide to show the middle finger even earlier.

Quote of the day: “Two things that don’t remind me of Steve Jobs: 1. In this country politicians use polls to try to figure out what people want, and then offer it to them in order to get elected. 2. In the social sciences and even in some of the hard sciences, you can often only get tenure if you publish in the sanctioned journals in the sanctioned style.” – Emanuel Derman / Reuters

Joke of the day: Jutta Urpilainen, finance minister of Finland. Whatever she says is a joke. Just Google.

Today’s Headlines (Fri evening) – Between The Hedges
This week on beyondbrics / FT
This week on alphaville / FT
Succinct summation of week’s events – The Big Picture
Weekly Bull/Bear Recap – Rational Capitalist Speculator
Weighing the Week Ahead – A Dash of Insight (added on Sun)


Weighing the Week Ahead – A Dash of Insight  (added on Sun)
Next Week’s Tape: Earnings Season Kickoff – MarketBeat / WSJ
Economic Calendar –
Monthly Economic Calendar –
Economic Calendar – BB
EU calendar –
EM Week ahead – beyondbrics / FT 

Explaining the ECB’s latest programFelix Salmon / Reuters
ECB lending money to banks at attractive rates, but this is no recapitalization. There is no guarantee that ECB offers to roll these loans later so banks are not lending it. Instead they probably buy short-term  Italian and Spanish bonds and pocket the yield differential. And what happens then, November 1 2012 or January 31 2013 all the borrowed money has to be repaid to the ECB, with interest.

The Ticking Euro Bomb article series:
Act 1. How a Good Idea Became a Tragedy – Spiegel
Act 2. How the Euro Zone Ignored Its Own Rules – Spiegel
Act 3 & 4 What Options Are Left for the Common Currency? - Spiegel

Special Report: Europe's debilitating déjà vuReuters
How a host of divisions caused a seemingly unending string of setbacks to a deal for a new Greek bailout. First of three parts.

How to recapitalize really ****-up banks + Germany updateKantoos Economics
Poll says German voters favor Greek bond haircuts over “rescue operations”. Newspapers are starting to talk about Swedish-style forced recapitalization. And both the Greeks and the Germans seem to hate each other because of the mess, so fiscal union will not fly.

This Week in the European
In addition to a crisis review, words on the upcoming climate conference and reform of the Common Agricultural Policy.

Notes On The EurobubbleKrugman / NYT
“I understand that some people really, really want to blame the victims here. But that doesn’t make it right.”

Is Dexia a case typical of the impasse Europe has brought itself to?Wired and Ready
“The vicious circle about Dexia,  a landmark banking institution in Europe, and heavily indebted national economies which have brought the bank down to its knees with voluminous bonds of little value seems to me indicative of the trap Eurozone countries have put themselves in.”

[Something for the weekend] Dexia of Cardsalphaville / FT
‘In the “stress test” just a few weeks ago, Dexia passed with flying colours, showing twice as much capital as needed. Desperately trying to keep a straight face Michel Barnier, the internal market European Commissioner, told the FT: “The situation has worsened since the stress tests.”’

Epic, Grotesquely Surreal Friday HumorZH
Intesa SanPaolo defended itself on Thursday, showing a presentation where its Tier1 cap ranks among the best in EBA stress test’s adverse scenario. The best on the slide was Dexia.

Greece Finds Itself in Default ModeThe Source / WSJ
60% haircut would force a recap of 40bn of Greek banks.

The Euro’s Hard Rain FallsProject Syndicate
a Swedish MP, VP of Riksbank, former Min of Industry and Trade: “The main blame should therefore be put on the system’s founders, or those who saw the problems coming but chose not to raise a word of warning.”

 “Markets Were Up Today Because They Were Down Yesterday”Dealbreaker
Good commentary on Artemis volatility report, I posted on this yesterday.

Multiple equilibriaFree exchange / The Economist
Higher bond yields at first increase demand for bonds, but at a point the demand starts to decline, creating a sticky, self-reinforcing crisis. This is something all market participants have known for a long time, but might be a shock to the finance professors.

Exclusive: Computer Virus Hits U.S. Drone FleetWired
A keylogger virus detected in Predator and Reaper drone systems: “We keep wiping it off, and it keeps coming back, we think it’s benign. But we just don’t know.”

Five iconic science images, and why they're wrongsciencepunk

Monopoly board inspired by OWSZH

On #OWS and the Danger of Elite Capture – naked capitalism
Occupy Wall Street: Beyond the Caricatures –
Message To Guevaristas Occupying Wall St.The Daily Capitalist
Occupy Sesame Street Gets Violent –
Occupy Wall Street Organizing Nationwide Boycott Against Banks – NetNet / CNBC
The Wall Street Occupiers and the Democratic Party – Robert Reich