After reading tons of material and selecting some good ones, they ruin my work by announcing there's no Greek referendum. Are the Greek people and their opinions not valuable to the eurocrats? MoreLiver demands more democratic referendums! Well, at least the few links to Italian trouble and the ECB decision roundup are of some interest. Guessing there will be a lot of material to cover during the weekend. Good luck, next post on Friday evening. - MoreLiver
News (Thu evening) – BTH
News (Fri morning) – BTH
Danske Daily 11/4 – Danske Bank (pdf) online later
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
Use the EFSF for ‘Sovereign Cleansing’ of Eurozone Banks – EconoMonitor
As long as this situation persists, Europe will lack a credible threat towards Greece or Italy. The contagion risk from default is just too big. A credible threat requires that European banks are disconnected from high-risk sovereigns. The EFSF can provide the means to accomplish this.
The Revolt of the Debtors – Project Syndicate
Nobody can know at this point whether Portugal or Italy might be the next stops on this road of resistance. The result, however, is quite predictable: soaring risk premia throughout the periphery.
If the ECB Prints then… – Rational Capitalist Speculator
Rumors are swirling that the U.S. and France are trying to convince Germany to let the ECB print.
Italy
Approaching the Italian endgame – alphaville / FT
Citigroup’s Matt King: The Italian endgame is getting nearer and a crisis is increasingly probable, and would do much to expose the inadequacies of the bailout mechanism as a whole. Also points to EFSF funding trouble and possible feedback loops as the Italian bond flirts with the 6% yield.
Italians: your country needs you – alphaville / FT
If Italy can’t write down the value of its debt through bank-style debt valuation adjustments, could the government just raid Italian savings in a patriotic ‘bunga bunga’ dance with bond markets, giving yields some breathing room?
lousy growth prospects, high public debt, political risk.
ECB RATE CUT
Introductory statement to the press conference – ECB
ECB announces details of its new covered bond purchase programme (CBPP2) – ECB
ECB rate cut snapshot: A different ECB under Draghi – tradingfloor.com
Steen Jakobsen: this could very well be the ECB starting up the engine to print money and become the back-up lender of last resort.
most euro-watchers expected Draghi to spend his early months establishing his hawk credentials. So the fact that the ECB’s very first move under Draghi was, instead, to cut interest rates a quarter point (even as inflation is well above target) suggests that the bank’s really, really concerned about the fact that Europe could soon enter into another recession.
Mario’s cut is no ECB liquidity bonanza – tradingfloor.com
the rate cut is more of a shift in timing relative to expectations rather than a shock to the aggregate forward expectations for easing… We are likely to see a second cut in December, when the guidance becomes even more critical, in terms of whether the 1.0% level really is a floor for ECB rates.
Five Highlights of Mario Draghi’s First Press Conference – MarketBeat / WSJ
downbeat on growth, inflation link to growth, SMP temporary and limited, ECB not a lender of last resort, rate cut unanimous.
ECB will not become bank of last resort, Draghi says – euobserver.com
ECB meeting: Draghi to the rescue – Danske Bank (pdf)
we now expect the ECB to deliver another 0.25% interest rate cut in December.
ECB Cuts Rates, In Surprise Move – MarketBeat / WSJ
a sign that the ECB is finally waking up to the fact that financial conditions are too tight in Europe, and that’s good news. The ECB might eventually have to carry the whole mess on its shoulders.
A fundamentally more dovish ECB – research ahead
“Super Mario” takes charge – Free exchange / The Economist
In an assured first appearance, Mr Draghi combined both the new and the old. Through its ability to create money, the ECB has the power to contain the euro crisis if it flares up into an even fiercer fire. But under its new president, the central bank is continuing to insist that European politicians put out the blaze.
Here’s What the ECB Needs to Do Next — And Probably Won’t – MarketBeat / WSJ
MKM Partners: ECB is going to eventually have to go full-bore into quantitative easing if it hopes to put a stop to the crisis.
GREECE
An Outline of Critical Events Affecting Greek Referendum – Credit Writedowns
Interesting views: France and Germany are done with Greece and now it is a question of ringfencing. Italian government will remain weak and eventually fall, austerity will not work and the real EZ crisis can begin.
A vote on the €300+bn Papandreou put – alphaville / FT
As an example of how long it could take to work through a massive austerity programme, it was only in 2010 that Germany made the last payment required by the Treaty of Versailles from 1919.
In many ways, Greece is like a contestant on the old game show Let's Make a Deal. The country has a choice of two doors: one that leads it out of the euro and on its own, and one that keeps it a part of Europe… It's not a choice I'd want to make. I wish them luck.
Greek bond accounting, encore (et enfin?) – alphaville / FT
BNP marks down Greek bonds by 60%. The current official haircut figure is 50%, but that is for the nominal amount. Long article on how the real NPV haircut is contingent on many things, especially coupon.
The Greeks will vote on something, and other euro news – Free exchange / The Economist
Mr Papandreou's government is now at serious risk. High-level ministers are abandoning him over the referendum plan, and he may not survive a confidence vote scheduled for (Friday)
‘I don’t imagine my fellow Greeks would like to risk leaving the euro zone.’ – Wonkblog / WP
Exiting the euro zone removes every reference point of stability that Greece currently has. If Greece is not part of the euro zone, it cannot rely on any of those institutions.
Papandreou ready to step down, ECB man likely to replace him – euobserver.com
Papandreou has backed away from holding a referendum and has agreed to talks with the conservative opposition over the construction of a transitional government leading to early elections
Take the euro away from the Greeks!” read Bild’s front-page banner headline. ”We want our own referendum (on Greece in the euro zone) now.” Until this week most Germans had grudgingly accepted their government’s view that there was no alternative to Greece staying in the euro and its exit would lead to greater turmoil. That all seemed to change on Thursday.
OTHER
Are Far OTM Options Underpriced? Contemplating Upside Skew Amid Hyperinflation – HistorySquared
scribd-link to CBOE’s paper on Skew Index
Isda has a bone to pick with you (and so can we!) – alphaville / FT
Central information repository for CDS contracts has lots of data – but not all. Also, pinpointing possible risk concentrations with the data is not easy.
Morgan Stanley cites several reasons for Poland’s likely success: a large resource base, gas pricing that is almost twice the pricing of the U.S., a developed gas market, and political support that welcomes foreign firms and hydraulic fracking permits compared to other countries in Europe. Just as shale gas is significantly driving the supplies of natural gas in the U.S., Poland’s shale gas could shift where Europe gets its energy in the future.
DIVERSION
Financial crisis forces Berlusconi to delay release of latest love song CD – The Guardian
Confessions of a Car Salesman – edmunds.com
We hired Chandler Phillips, a veteran journalist, to go undercover by working at two new car dealerships in the Los Angeles area.