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Wednesday, November 30

30th Nov - Supplies, Supplies!

Ok, risk-on as repo rates are cut. Some already speculate that this could be in preparation for further action from ECB, as it needs more swap lines. The number of central banks participating in this is meant to signal that they are serious, they are coordinating their actions and are prepared to surprise the markets. I think they managed to score on all three - this is not a solution but at least signal that they are targeting one.

Elsewhere, China has started easing its monetary policy, the summits in Europe are in full swing and the audience is digesting the latest rumors of a schedule for a plan to solve the "thing". And of course:
  • HAGUE SAYS U.K. DEMANDS CLOSURE OF IRANIAN EMBASSY IN LONDON
  • HAGUE SAYS ALL IRANIAN STAFF MUST LEAVE
  • UK FOREIGN SECRETARY HAGUE SAYS HAS ORDERED CLOSURE OF IRANIAN EMBASSY IN LONDON, EXPELS ALL STAFF

  
Quote of the Day: “The German swine’s back will break just as the Teneriffan donkey’s that carried our forefathers on package holidays” – Kari “The Street” on 30-Nov

Joke of the Day: Supplies!  Jo-ke
  
EURO CRISIS
Eurogroup: Better than nothingDanske Bank (pdf)
EFSF will be boosted by introducing partial risk protection and a co-investment approach, sixth tranche for Greece was endorsed.

More Imaginative And Weird Solutions To The Euro Zone CrisisSeeking Alpha
Fed's euro zone QE, Gold backed bonds, Conditional euro bonds, Administrative Discipline, Administrative discipline via the IMF, Stability Union, Grand Bargain

Headlines And What They MeanTF Market Advisors
ECB rate cuts must be close to a certainty, QE3 seems highly likely, IMF/ECB “plans to explore”, Treaty Changes, Market “trading short” or “embarrassed longs”, AMR and short end of HY, Bank Rating Changes

Desperate eurozone chiefs look to IMFeuobserver.com
…ECB channelling loans to the IMF and then on to embattled eurozone states. The ECB and Germany have stubbornly resisted the idea of the Frankfurt institution to lend directly to governments, but with strong IMF conditionality attached to such cash, ministers are hoping the fudge will be sufficient to win over opponents.

Euro zone mulls ECB loans to IMF, but as last resortReuters
The euro zone is discussing the option of financing emergency help for Italy or Spain by using money from national central banks to boost International Monetary Fund resources - but only as a last resort, euro zone officials said.

ECB Needs to Check Its Oil Leak Over Bond Purchase SterilizationThe Source / WSJ
In other words, the bank’s attempts to stabilize the fiscal crisis sweeping the euro zone will start to impair its ability to manage monetary policy. And, that is why the bank’s oil leak, as small as it might appear now, is providing ever more reason for serious concern.

Wolfgang Schauble admits euro bail-out fund won't halt crisisThe Telegraph
He told Germany’s Handelsblatt that although Europe needed a fund “capable of action”, plans for the EFSF were too “intricate and complex” for investors to understand.

What a liquidity crisis looks likeINET
Today in Europe, policymakers dwell on austerity measures and the idea of a fiscal union, assuming that if these solvency concerns are resolved, the liquidity problems will solve themselves. But illiquidity is what will take down major European financial institutions first, solvent or not. Before too much longer, let us fully absorb the liquidity lessons of the last crisis.

Italy’s very own special liquidity programmealphaville / FT
But, the use of the phrase “to lend or borrow” makes us think it might be just as much about lending bills into the market as it is about lending cash. After all, if this was just about emergency liquidity, there would not be any need for Treasury involvement.

German 1-year note yield falls below zero for the first timeTF Market Advisors

CENTRAL BANKS’ REPO CUT
Central banks move to ease European dollar crunchalphaville / FT
The question is, did German bonds start yielding less than zero because of a sudden dollar liquidity crunch in the market? And to what degree is this connected to margin calls on depreciating euro-denominated collateral pledged in return for dollar funding?

Coordinated central bank action to address pressures in global money marketsECB
Press release. Seems some central banks have additional material and links on their web pages.

On FX intervention and the ECB/SMPBruce Krasting
I posted this and a few minutes later the Fed/other CBs announces a round of coordinated measures to assist the ECB. My point in this article was that the ECB has no friends, and that was the weakest link in their defense of the EU bond market. It seems they now have friends. We shall see how good these "friends" are.

Central banks lower swap rates by 50 basis pointsSaxo Bank
Combined with this week's failure by the ECB to completely sterilize its purchases of stricken peripheral bonds, this will increase speculation that the next official step may be for the ECB to bow to pressure to become the lender of last resort to Eurozone states; risk-on for now.

OTHER
Albert Edwards On The BRICs As A "Bloody Ridiculous Investment Concept"... And A China Hard LandingZH
SocGen: Investors are suckers for a good story. When you look at the evidence, there is absolutely no correlation between investment returns and economic growth because investors overpay for growth stories and there is no margin for error… We have identified a
China hard landing as one of the biggest investment shocks next year.

Equities, Japan and next decadealphaville / FT
from Morgan Stanley’s 2012 outlook report: For us, the most important development for investors has been confirmation that we have reached the end of the debt supercycle in developed market, plus declining living standards, social unrest, political turnover, populist policies and higher taxes.

The need to understand repo flowsDeus Ex Macchiato

Hedge fund survey saysalphaville / FT
Hedge funds want to limit the number of prime brokers they use to one or maybe two universal providers. They also want to avoid prime brokers with bad credit ratings and/or high CDS prices – leaving only two, Credit Suisse and JP Morgan

Debt and CDS: It’s complicatedalphaville / FT
In which we attempt to explain the complexities at the heart of the CDS trigger debate…

When It Comes to Sovereign CDS, Collateral is KingderivatiViews
As a result, well over 90% of CDS are subject to collateral arrangements, and these arrangements are virtually all two-way (i.e., either party could post collateral to the other based on the mark-to-market value of trades between them).

DIVERSION
The EU's 'techno party' is hollowing out democracyeuobserver.com
Long opinion piece: It is time for all those who hold democracy dear to speak out against these moves without fear of being cast as eurosceptics. Indeed, if one believes in Europe, we must speak out all the more loudly.

Euro BlindOpinionator / NYT
But we heard nothing and saw nothing, for shame. The tragic truth that we see unspooling in the desperate attempts to shore up the European Union while accepting no responsibility for the unfolding disaster is something that we both willed and that threatens to now destroy the union in its present form.

A wise man knows one thing – the limits of his knowledgeJohn Kay
We do great damage by claiming to know things that are not known, by asserting certainty in the face of uncertainty and ambiguity, and by attaching a veneer of rationality to decisions that have in fact been made on other, rarely articulated, grounds. The paradoxical result is all too obvious. The public sector and large bureaucratic organisations appear as paragons of good decision making process and exemplars of bad decisions.