14th Oct - Risk on, what's wrong

The decline in air cargo volume is not good news.

Summary: I just noticed an interesting website, Quantpedia from the founders of Finviz – one of the better stock screener / chart viewing websites out there.  Quantpedia aims to search and sift the journal articles for tradable alpha-enhancing strategies, turn them into trading rules, test them and post the results. Too early to say what will come out of it, but even now it is good for coming up with ideas.

Belgium is joining the PIIGS, at least based on one metric – their CDS curve is becoming inverted. Lifted from ZeroHedge. Great stuff, Dexia! 5Y, 10Y, and 5/10's CDS prices:

                                         
ITALY            452/462  +11               439.5/453.5         -16/-1                             
SPAIN           383/393  +6                 368/384               -13/-3                             
PORTUGAL 140/1180 +25               875/945              -280/-220                           
IRELAND     740/770  +20               590/660               -160/-100                          
GREECE       60/62  +0.5                  60/64                   -0.5/2.5 
BELGIUM   314/324  +15               311/325               -6/4
FRANCE      182/186  +7                 197.5/207.5         16/21
AUSTRIA     167/175  +5                 180.5/190.5         12/17
UK                92.5/96.5  +2.5            107.5/113.          14/18
GERMANY  94/97  +1.5                  112.5/118.5        17/21

Quote of the Day: There is a good reason why no obvious winner emerges from this Cook’s tour of the asset markets. The developed world can grow out of its debt burden, inflate the debt away or fall back into recession, marked by occasional defaults. Each of those outcomes leads to a different portfolio selection. – The Economist

Quote of the Day 2: Until 2008, asset values and levels of debt were determined by optimistic expectations about future growth which, in hindsight have proved wide of the mark. Even if a second recession is avoided, the evidence now strongly suggests that previous estimates of trend economic growth were too high. That, in turn, means that the collective financial claims on future income are probably too high, as they have been based on a previous, more optimistic, view of future levels of economic activity. It also means that those who took on debts in times past, fully expecting income gains to allow them to repay their creditors, are now in trouble. – HSBC seminar on Thursday

I’m planning to post a big weekender linkfest and a ‘Best of The Week’ out on Saturday. Yesterday I posted China in your hand and End The Market Correlation. Feed me with a comment, follow me on Twitter, Facebook or email me.

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

Greece Is Like the Soviet Union – Institutional Investor

Interview of Dimitris Drakopoulos, Nomura economist, published on Sep 29th

"They Should Have Known Greece Was Insolvent" – Institutional Investor

Interview of Barry Eichengreen (former IMF), published on Sep 22nd

Trichet interview by FT 12^th Oct – ECB

Economic Factbook Germany Oct 2011 – Danske Markets (pdf)

EFSF / “DEATH STAR”

The bazooka we won’t get – Daiwa

Italy is too large to fail, Greece should be allowed to default. “Frankly, what use is a guarantee that is partially guaranteed by the country that already (supposedly) guarantees the bond in the first place, particularly in view that the EFSF has no paid-in capital?”

Hi, It's Tim, I'm Stuck In Paris, And Need You To Send $500 – ZH

Peter Tchir: “Contagion has spread to Spain and Italy not because Greece and Portugal are having problems, but because Spain and Italy have too much debt and their banks have too many bad loans on their books”

Hard questions ahead for market, so be safe rather than bold – tradingfloor.com

ECB, Germany and France are supposed to come up with a plan before 23^rd Oct, but disagree on the main issues. Negotiation time, but parties are far apart and no easy solution.

What’s an EFSF guarantee worth? – alphaville / FT

“The possibility of an EU break-up would have to be taken into account, though a low probability event, the threat of a breakup would probably be higher in a scenario where the guarantees were called upon, thus reducing the value of the guarantee.“

Your deterrent is my bluff – alphaville / FT

senior French official: “The principle of a deterrent is that the threat is greater than the action” , Allianz: “Indeed, with a bit of luck, not a cent would need to be spent.”

CHINA

How much bad debt can China’s banks take? – alphaville / FT

Views that markets are not pricing in big enough non-performing loan numbers, not to mention other stuff (structural imbalances, shadow banking and falling export growth)

China's Appetite for Commodities Wanes – Heard on The Street / WSJ

Trade with China: And now, protectionism – The Economist

“America’s latest anti-China bill tackles a problem already being solved”

China wrestles its slowdown – macrobusiness

Premier Wen Jiabao announced six new measures to support small business.

OTHER

Market Cycles and the Performance of Relative-Strength Strategies – SSRN

Research Review: Inflation Expectations – The Capital Spectator

Summaries and links to five recent research papers.

DIVERSION

The “very scary” Iranian Terror plot – The Salon

“The most difficult challenge in writing about the Iranian Terror Plot unveiled yesterday is to take it seriously enough to analyze it. Iranian Muslims in the Quds Force sending marauding bands of Mexican drug cartel assassins onto sacred American soil to commit Terrorism — against Saudi Arabia and possibly Israel.”

Faster-Than-Light Neutrino Puzzle Claimed Solved by Special Relativity – technology review

The Eternal Adolescence of Beavis and Butt-Head – NYT