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Wednesday, November 23

23rd Nov - On the road to French AA

China's PMI falling. Bad.
Middle of the week, slower on the material. Today the trouble with Dexia and China's PMI are the most important news - the imminent danger of France losing its AAA-rating and following that the death of any pretension that the EFSF would fly is the event everyone is expecting. This includes Germany and the ECB, as it will be the final turning point in the crisis - either Germany will pick up the work or allow the ECB to do it, or the only solution left will be a breakup.

News (Wed morning) – BTH
Recap (22-Nov) – Global Macro Trading
Stocks: Market Preview (23-Nov) – Saxo Bank
Danske Daily (23-Nov) – Danske Bank (pdf)
Morning Briefing (23-Nov)BNY Mellon
Today in Euromess (22-Nov) – Wonkblog / WP
S&P options: historic skew. Source: SurlyTrader

FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT

Dexia Bailout On Verge Of Collapse, Threatens To Take France AAA Rating Down With ItZH
Given the change in market conditions the commission, according to the article, is concerned at the ability of each country to finance its respective guarantee (most obviously Belgium) and therefore can renegotiate the October bailout deal…We suspect that there will be some renegotation that pushes more pain to bondholders in return for France shouldering more of the burden and so a DEXCL decompression vs Belgium-France compression trade makes some sense (as a risk-transfer trade) but cost of carry is high. Perhaps the simplest way (and cheapest) is outright short
France credit.

The interplay of sovereign spreads and banks’ fragility in the Eurozone
European policymakers are confronting a heightened crisis characterised by a perverse and seemingly intractable interplay between sovereign debt pressures and financial-sector fragilities. This column argues that the payoffs from strengthening banks’ balance-sheets can still be large and, therefore, fiscal support is merited. But a more resolute strategy for winding down banks is also needed.

Germany's Finances Not as Sound as BelievedDer Spiegel
But Germany's budget management is not nearly as exemplary as it would have people believe, and the national debt is way over the EU's limit. In some respects, Italy's finances are in much better shape.

Showdown in Greece; EU Gives Deadline on Signatures; Samaras Won't Sign, Sends Letter Instead, Seeks Policy ChangesMish’s
In the case of Greece, elections will be held early next year (supposedly). With all these demands and all this political posturing, one has to wonder. I for one hope Samaras holds firm and does not sign. The quicker the Eurozone blows up, the better it will be for everyone.

FOMC minutes – dovish surprise or shoulder shrug?Saxo Bank
The discussion in the FOMC minutes suggests that it won’t take much of an excuse for the Fed to swing into action again and were therefore taken as dovish by the market.

Is Jawboning All The Fed Has Left? Goldman's Take On The FOMC MinutesZH
November FOMC minutes showed detailed discussion of communication options. We expect the Fed to begin publishing explicit funds rate path at January FOMC meeting.

Minutes of the FOMCFed (pdf)

Chinese Manufacturing Contracts, Gauge Hits 32-Month Low; Soft-Landing Nonsense; Global Recession is HereMish’s
Trillions of dollars have been spent already, hoping to forestall another recession. Every action has added to debt in the US, UK, Japan, and Europe, and created a huge inflationary construction boom in China.

China's flash PMI data hits a 32-month low; Risk under pressureSaxo Bank

China’s PMI points to official contractionPragmatic Capitalism
Short comments from HSBC.

Policy News Trumps Economic Data As Biggest Driver Of Tail Risk EventsZH
A research note from Goldman Sachs: US Daily: “Market Movers” – Policy News at Home and Abroad Driving Markets

Lest We Forget: Why We Had A Financial CrisisForbes
It is clear to anyone who has studied the financial crisis of 2008 that the private sector’s drive for short-term profit was behind it. More than 84 percent of the sub-prime mortgages in 2006 were issued by private lending.

Simon Hunt November/December Economic ReportThe Big Picture
Long article stating that demographics and debt will limit future growth: The world is in a balance sheet depression which will make a second and perhaps more dangerous credit crisis almost inevitable. That should break out next year or in 2013.

Velocity of Pledged Collateral: Analysis and ImplicationsAlea
Summary and charts from a recent IMF paper.

And the Global Economic Saga ContinuesTim Duy’s Fed Watch
Euromess continues, China slows.
Anatomy of FacebookFacebook
Average degree of separation in US is only 4.74.

3D moon flyover reveals greatest detail everNew Scientist
Lovely video.

Why our brains make us laughBoston Globe