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| Greece already gave 300%! |
Weekend! I just laughed with a friend that I missed an obvious headline: after Greece can give 100% and Greece can give 200%, the 300% came and went last week. EDIT: I updated the Calendar page.
The situation in Middle East is escalating. There are no credible parties to mediate the mess, so I expect things to get worse. I wrote about this on 28th Sep Eurovision and War in Middle East and recently on 25th Nov Depressed?
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The latest episode in the "plan of the moment" after the eurobond debacle is the "no investor losses for sovereign bond holders, except Greece". I kind of understand the logic behind it - as investors are scared of possible haircuts, bonds have been sold and periphery yields have reached levels where a failure is guaranteed.
The bond-owners should not be rewarded for their risk-taking, and the periphery should not be rewarded for their reckless borrowing. Most definitely, the tax payers should not be punished for being the only one without a strong voice in the matter. Democracy in action!
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My 'week ahead'
Next week in the EZ crisis the Monday's EU-US summit is probably a side-show: US will pressure for QE and mutual guarantees, while Barroso and van Rompuy (God how I hate these people) will nod and listen politely - without Germany's approval nothing will fly, so I hope they enjoy the in-flight movie and at best examine the ECB-IMF path (17th Nov The IMF Conspiracy)
On Tuesday the Eurogroup and on Wednesday the Ecofin meetings will try to sort the mess by EFSF plan finalization, more talk on eurobonds and treaty changes. Again, of these only the EFSF could happen, everything else is up to Germany. Expect hope rallies as risk-on takes over and some weird trading, as the core bond yields will soon (if they already haven't) start to move together with risk - risk-off, core yields up and risk-on, core yields down (edit: I mean as correlations change, both discretionary and systematic trading is affected for a while, leading weird price action for a while).
Bond auctions: Monday Belgium, Tuesday Italy and Portugal, Thursday France and Spain. Given how cold the auctions have been, I expect an interesting week. One thing to keep in mind, though: after the "no losses"-eurotalk, a heavily supported or even proxy-bought auction could create a risk-on rally for several days. If that happens, you know what to do. Sell to strength.
That's it, enjoy the links and also notice that this week's posts have been huge - please appreciate my free service by checking them. For a nice background music, Strobe from Deadmau5 is perfect.
- MoreLiver
Quote of the Week: Each time they asked their commanding officer why they had to do the latest unpleasant assignment, he would reply "It builds character." One day a lonely voice in the back said "Sir, we have enough character already." – reader “Jim” on Mish’s
Quote of the Week 2: "France, Italy, Spain and all the peripherals" are in favor of removing the clauses, one EU official told Reuters. "Against it are Germany, Finland and the Netherlands." Austria is also opposed, another source said. – Plan to drop bondholder losses
Past
News (Fri evening) – BTH
Politics this week – The Economist
Business this week – The Economist
Macro summary for week – Calculated Risk
Market week wrap-up – Pragmatic Capitalism
Euro crisis, US budget policy gridlock and global growth fears
Weekly Bull/Bear Recap – Rational Capitalist Speculator
Pros and cons, extensively linked to further reading.
Weighing the week ahead – A Dash of Insight
Notes majority is risk-off for now, suggests careful contrarian risk-onFuture
EU-US summit, EZ and EU finmin meetings
Weekly Focus – Danske Bank (pdf)
Few options left for euro leaders, lots of US data, euro meets
EMEA Weekly – Danske Bank (pdf)
Hungary’s mysterious talks with IMF and EU, two banks in Lithuania suspended.
Weekly Preview – BNY Mellon
Credit: Weekly Update – Danske Bank (pdf)
Negative sentiment prevails on the back of a bad German auction.
US Weekly Kickstart – Goldman Sachs
incl. observations from Hedge Fund Trend Monitor
Emerging Markets week ahead - beyondbrics / FT
IMF's Lagarde visits South America
incl. observations from Hedge Fund Trend Monitor
Emerging Markets week ahead - beyondbrics / FT
IMF's Lagarde visits South America
Calendars
Economic Calendar – fxstreet.com
Monthly Economic Calendar – fxstreet.com
Economic Calendar – BB
EU calendar – europa.eu
Standard
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Changing the Rules in the Middle of the Game – John Mauldin / The Big Picture
Changing the Rules - When Even Germany Fails - European Inverted Yield Curves - Time to Review the Bang! Moment - The Risk of Contagion in the US - Time to Start Watching China, New York, China, and Some Links.
Do you believe in Merkels? – alphaville / FT
It’s highly unlikely that the Bundesbank will fail to make payments when they fall due, but this week has exposed a qualitative difference between a true sovereign currency, and one designed by committee, held together by ideology and political sticking-plaster. This uncertainty has bred the euro discount, and the result is the bizarre spectacle of cheaper money for the UK government than for the Germans.
It’s highly unlikely that the Bundesbank will fail to make payments when they fall due, but this week has exposed a qualitative difference between a true sovereign currency, and one designed by committee, held together by ideology and political sticking-plaster. This uncertainty has bred the euro discount, and the result is the bizarre spectacle of cheaper money for the UK government than for the Germans.
Do It Yourself Interactive Eurozone Bank Stress Test – Mish’s
The problem is indeed political. The bondholders (that means banks), not taxpayers need to take those losses. Politicians (led by Nicolas Sarkozy) refuse to accept that. Yet, the market will force it one way or another. The preferred way would be for banks to take a huge up front hit, right here, right now. The slow, painful way would be to stretch this mess out for decades like Japan did.
We now forecast a contraction of GDP in Q411, zero GDP growth in 2012, and growth of little more than 1% in 2013 and growth remaining below its pre-recession trend in the following two years. And the risks to that downbeat outlook, not least from the euro area debt crisis, are biased markedly to the downside.
Prepare for riots in euro collapse, Foreign Office warns – The Telegraph
British embassies in the eurozone have been told to draw up plans to help British expats through the collapse of the single currency, amid new fears for Italy and Spain.
The crucial question, then, is what, if anything, governments can do to gain the ECB’s backing. For all its talk of non-interventionism, the ECB has become a political actor -- most notably by withholding support for the Italian bond market in the crucial week before Silvio Berlusconi’s ouster as prime minister. ECB President Mario Draghi never specified why. Nor did Draghi or German Chancellor Angela Merkel ever say what would qualify as behavior worthy of support, other than to pledge allegiance to the euro while insisting that the central bank won’t act as a lender of last resort.
Well, with the ECB’s balance sheet loaded with peripheral debt and Germany – the single largest shareholder of the ECB – guaranteeing nearly 30% of any potential losses, Chancellor Merkel might rapidly realise that a Eurobond is the lesser of two evils if the alternative is a central bank providing permanent funding to fiscally-troubled member states. Let’s all hope she’s bluffing when she says that a Eurobond is not the answer.
As Crisis Mounts, Europe’s Central Bank Stands Back – NYT
To many commentators, the ECB’s attitude seems so incomprehensible that they assume the central bank is just putting pressure on politicians to make sure they keep their promises… But another possibility is that when the ECB says “no,” it in fact means “no.”
Collateral damage – breakingviews.com
ECB is shaping up to slaughter some sacred cows. The rate-setter, which has already lent more than 500 billion euros to liquidity-starved banks for up to a year, is considering offering longer-term loans… As the ECB only accepts individual loans greater than 500 million euros, many SME loans aren’t eligible.
PIIGS-BF (need new acronym, help)
Latest Idiotic Plan: No Losses for Banks or Bondholders because "Losses Undermine Confidence" – Mish’s
That's right folks, we are going to bail out the banks and no one has to take any losses (except taxpayers of course who will "share" 100% of the risk). Otherwise there will be a "loss of confidence" in the same banks that plowed into Greek, Spanish, Irish, and Portuguese debt because supposedly there would be no losses on sovereign debt.
Italy has remarkably low taxes on assets that are difficult to hide, like property. Only 2 percent of Italy’s total revenues come from these sources, compared with 10 percent to 20 percent in other wealthy countries like the United States and Britain. Not surprisingly, one of the big new moves by new prime minister Mario Monti to reinstate the property tax — which, incidentally, was abolished under Berlusconi.
This is shaping up to be the final test of the credibility of the sovereign CDS market - either exposure is hedged or it is not. Interestingly, either outcome is potentially catastrophic, with the end result being either the unknown outcomes of triggering CDS payouts or a complete flight from European sovereign debt. Maybe both.
OTHER
What Can and Cannot Be Done about Rating Agencies – iie.com
More comprehensive public disclosure by issuers on their financial risks, which would not require intermediation by CRAs, is the best chance for new and better risk assessment methodologies and practices to emerge.
The Failure to Forecast the Great Recession – N.Y. Fed
Three main failures: misunderstanding of the housing boom, a lack of analysis of the rapid growth of new forms of mortgage finance, insufficient weight given to the powerful adverse feedback loops between the financial system and the real economy
DIVERSION
While Washington clearly stands ready to back operations against the Assad regime, Moscow is drawing a red line around his presidential palace in Damascus. The Kremlin is warning the US, NATO and the Arab League that they will not be allowed to repeat their feat in Libya of overthrowing Muammar Qaddafi against Assad.
Book Bits For Saturday – The Capital Spectator
The Rise and Fall of Bitcoin – Wired
New NASA rover to scout for life's habitats on Mars – Reuters
A nuclear-powered rover as big as a compact car is set to begin a nine-month journey to Mars this weekend to learn if the planet is or ever was suitable for life.
Spec Ops Chief Sketched Out bin Laden Raid … in 1995 – Danger Room / Wired
Nice article from last May.
Pope falls foul of German hosts by shunning seat belt – Irishtimes.com
The foreign ministry confirmed yesterday that the Pope, as a visiting head of state, enjoyed diplomatic immunity during his recent stay. However, a government spokesman suggested that the Pope might not be immune from prosecution if he returned to Germany on a private visit. In Germany, rules are rules.