News (Thu evening) – BTH
News (Fri morning) – BTH
Danske Daily – Danske Bank (pdf)
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
European Interest Rates – Dr Ed’s Blog
Wrong with the last summit: destroying CDS market, a plan without details, raising and dashing expectations doesn’t instill confidence.
European Commission cut 2012 growth forecast from 1.8% to 0.5%
Morning Briefing – BNY Mellon
The Eurozone finds itself faced with a stark choice: either it changes what it is or who its members are.
Euroland’s hidden balance-of-payments crisis – Deutsche Bank (pdf)
research note from Oct 26th
French exposure in pictures – alphaville / FT
Banca D’Italia’s and IIF’s data and charts, discussion and links to docs.
Raising the dead and the Axis of Evil – Macro Man
German economic policy essentially consists of: 1) Tight fiscal policy to crush any signs of a recovery. 2) Tight monetary policy to crush any signs of recovery. 3) Tie yourself to some profligate countries so that you have a cheap exchange rate and can sell shedloads of exports. 4) When the countries you provided vendor finance to start having trouble paying you back insist that they follow 1) and 2). 5) Wonder why everyone hates you.
Its leaders repeat their mistakes during the 1930s (raising taxes & cutting expenditures in response to economic weakness) while attempting to save the structurally flawed EMU. Their mistakes only accelerate Europe’s dive towards a political singularity, when the current structure collapses — beyond which lies a new shape for Europe.
Unless politicians start responding to reasonable demands now–including a rethink of the European project and a return to national currencies–rabid populists will offer unreasonable solutions later.
Today, the question is no longer whether politics will become more populist and less internationalist; it is whether the consequences of that shift can be managed without turning ugly. In Europe’s politics, as in its economics, it seems there are no good options – only less bad ones.
FT Deutschland On The Upcoming Austrian AAA-Rating Downgrade – ZH
In two weeks, Moody's analysts to come to Vienna to assess the situation on the ground. Felderer considers it possible that Austria would put on negative outlook in this review. Good luck to EFSF.
Article from Dec 2004
Repost of Danske Bank’s analysis from last March, scenarios: 1) peripherial defaults 2) Germany leaving 3) total EMU breakup
Euro Zone’s Broken Bond Market – Overheard / WSJ
This is the crucible of the crisis. Yields are never likely to converge again as they did in the early part of the last decade. Every assumption about the fungible and risk-free nature of euro-zone debt has been challenged.
European Policy Makers Don’t Understand But Markets Do – Rebecca Wilder / EconoMonitor
Markets understand what policy makers in Europe do not: the European IMF-style model is not and cannot work under these conditions. Monetary policy is too tight, the global rebound has dissipated, and fiscal austerity is killing aggregate demand.
Is this the Merkel capitulation? – Humble Student of The Markets
END GAME
Endgame Approaching – Tim Duy’s Fed Watch
How viable is the idea of leveraging up the EFSF now that Sarkozy and Merkel have openly breached the topic of a breaking of the Euro? Do the Europeans really take the Chinese for such fools that they will save the Euro when the economic backbone of the Continent no longer believes it is worth saving?
Euro’s Final Taboo in Tatters – The Source / WSJ
(on exiting the euro) we could be moving to the point where politicians would be seen as irresponsible not to have considered this ugly prospect and made contingency plans.
Since everyone is talking about sovereign deficits, austerity and the ECB’s duties and legal limitations, let’s go straight to the Lisbon Treaty text. Below are the most relevant parts of the Lisbon Treaty governing how the EU is supposed to operate legally.
Two-track eurozone: wheels within wheels – Humble Student of the Markets
If discussions had been going on for a month, why did the story break yesterday of all days, when the financial markets were in turmoil? This was probably a leak. It sounded like too orchestrated to me. It seemed to me that it was done for maximum impact.
CDU Escalates Plans For EU Treaty 'Adjustment': Wants Option For To Kick Habitually Broke Countries Out Of Eurozone – ZH
From the request for the party on Sunday evening at Leipzig, by the Handelsblatt (Friday edition), the crucial word "voluntary" was deleted.
From the request for the party on Sunday evening at Leipzig, by the Handelsblatt (Friday edition), the crucial word "voluntary" was deleted.
ECB
"Could the ECB become the Central Fiscal Authority?" – Economist’s View
It can say to each of the 17 governments: "We will act as your lender of last resort if and only if you do what we say. If you don't do what we say, we will loudly announce that we will no longer act as your lender of last resort, and the bond markets will make mincemeat of your bonds, and there will be runs on all your banks."
To ECB Or Not To ECB - That Is The Only Question – Peter Tchir / ZH
The market is correct that massive ECB buying and printing is the only solution that maintains the Euro, but I find it hard to believe that Germany has been convinced so easily and that Germany isn't starting to think about giving up the existing regime. Germany and France are effectively the ECB and will pay the price for any mistakes.
Reward Spain for austerity (it’s cheaper) and Italy might follow.
Germans, who see a bailout as a wealth transfer to “irresponsible” states — are trying to extract as many concessions as possible out of Italy et. al. before they begin the rescue mission. That’s the optimistic take. The dour view, offered by Tyler Cowen, is that ECB officials simply don’t think they have the tools to salvage the situation — and so it’s not even worth trying. An even scarier thought.
Actually The ECB Has Already Handed Out €1 Trillion; And Why Germany Equates ECB Printing With Hyperinflation – ZH
JPM: We do not know the most critical answer: are German members of the ECB fighting a battle that has already been lost? In other words, will the destiny of the ECB be to print a couple of trillion Euros to buy or lend against sovereign debt for the next several years?
JPM: We do not know the most critical answer: are German members of the ECB fighting a battle that has already been lost? In other words, will the destiny of the ECB be to print a couple of trillion Euros to buy or lend against sovereign debt for the next several years?
The Dumpster for Toxic Euro Sovereign Debt – The Spellman Report
Hence, the SPV has a decidedly bank model flavor to it—except it is not subject to regulation and its transparency will be even worse than banks. At this point I believe it would be a heroic success to con individuals to do what bank depositors have become unwilling to do: continue depositing at banks whose assets contain bad government debt and whose deposits are “guaranteed” by the same insolvent governments.
ITALY
Italian CDS curve inverts (and who made money?) – alphaville / FT
Also CDS curves of FR, ITA, GER, BR, SPA.
Only if the ECB became an unlimited lender of last resort and cut policy rates to zero, combined with a fall in the value of the euro to parity with the dollar, plus a fiscal stimulus in Germany and the eurozone core while the periphery implements austerity, could we perhaps stop the upcoming disaster.
The reason why we're here is because the leaders of the euro zone have never backed their strong words with strong action. At every stage of the crisis, they have delayed and obfuscated, and dodged.
Secondary market levels were bad but the auction went smoothly.
Italy in Recession; Industrial Production Drops 4.8% M/M, .1% Q/Q; Barclays says GDP Likely Negative; Vast Army of Krugmanites to Howl at Moon – Mish’s
Article from Sep 2006
Even if Italy does restructure its debt, this would do little to solve its acute competitiveness problem. Here too, Greece could become a model for the larger country. Realistically, both countries face two options for regaining competitiveness and returning to growth: 1) austerity, internal devaluation and a decade of recession/depression or 2) abandon the euro, issue a national currency, allow it to depreciate significantly and regain competitiveness almost instantly.
Why Italy is ‘Oh, so special’ – alphaville / FT
The attempts to minimize settlement failures (i.e. short-selling of Italian bonds without timely closing) backfired – after introducing penalties for fails, the yields surged and liquidity dropped.
The attempts to minimize settlement failures (i.e. short-selling of Italian bonds without timely closing) backfired – after introducing penalties for fails, the yields surged and liquidity dropped.
Wednesday’s sell-off.
OTHER
EMEA Weekly – Danske Bank (pdf)
CEE growth nonimpressive, Russian numbers expected strong, Baltic upbeat with risks.
FX Outlook Nov 2011 – Saxo Bank (pdf)
A snapshot of collateral stress, courtesy of the Fed – alphaville / FT
The Fed introduced a quarterly survey “on changes in credit terms and conditions for securities financing and over-the-counter derivatives transactions” over a year ago. The point was to shed light on the mysterious practices of the shadow banking sector and in particular the daily goings on in the repo financing markets.
Chasing your own tail (risk) – AQR Capital Management (pdf)
Five alternatives: diversify by risk, actively manage volatility, uncorrelated alternatives, low-beta stocks and a crisis plan before it is needed.