Google Analytics

Monday, December 12

12th Dec - 12/12/2011/12:12

Friday's and today's price action in the European bond markets kind of reminds me of the last July's "summit to end all summits". Clearly we are moving in a risk-off manner again. I try to write something coherent for the evening post. The BIS Quarterly Review in the "Other" is surprisingly interesting even to practitioners, take a look.


Massive amount of summit analysis again:
News (Mon morning) – BTH
Danske Daily – Danske Bank (pdf)
Market Preview – Saxo Bank
FX Update – Saxo Bank
Morning Briefing – BNY Mellon

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

Lessons From EuropeKrugman / NYT
It is really, really hard to cut nominal wages, which is why reliance on “internal devaluation” is a recipe for stagnation and disaster. The crisis really has settled some major issues in economics. Unfortunately, too many people — including many economists — won’t accept the answers.

Is the eurozone banking system about to collapse?Humble Student of the Markets
Roundup: The Telegraph’s Friday article, Bundesbank running out of money, collateral crunch, bank stocks moving with the crisis.

Britain Seethes, Germany Sulks, France Gloats; UK "Big Loser" Falls into "French Trap"?; Who is the "Real Loser"? Bazooka MathMish’s
As the ECB keeps bloating its balance sheet with garbage, German taxpayers are at risk, thanks to Merkel foolishly giving in to Sarkozy's insistence of "no losses for bondholders".

A player to be named laterJohn Mauldin / Pragmatic Capitalism
Germany is saying that Europe needs a dad… That all sounds well and good, but the details, as I read them, say that their fellow students all get to vote on whether the parents are being reasonable.

Harry Potter, Twilight, And The EUTF Market Advisors
With the Summit having reached a conclusion, we now wait on a few final scenes to play out.  The plot started falling apart on Thursday with Draghi’s testimony, but by forming a circle, holding hands, and chanting IMF and G-20 over and over, the market was placated, at least for a day.

Euro Pills: How (Not) to Save EuropePaolo Manasse / EconoMonitor
The Commission’s proposals for fixing the Euro mess are numerous and involve many economic and legal problems. As for the latter, the trade-off is between timeliness and effectiveness of the measures. More ambitious reforms require amendments of the European treaties and therefore run the risk of being mired in exhausting legal battles.

Europe’s suicide pactMacroBusiness
My assumption is that, if Europe does ratify this framework (there are a few stragglers), after 12-24 months of trying the effect will be so disastrous that they will eventually give up. But until then my base case for Europe is a significantly worse economic outcome… But it is now the recipe Europe is using. Another “summit to end all summits” is guaranteed.

Will S&P downgrade Europe?Humble Student of the Markets
This analysis indicates that the fiscal balance of major eurozone countries will deteriorate under the terms of the new "fiscal compact", which leads to the conclusion that a wholesale downgrade of many eurozone sovereigns is very likely.

The EU summit: Beware the Merkozy recipeThe Economist
The euro crisis cannot be solved by yet another one-sided solution

The IMF and the euroThe Economist
An IMF rescue plan could spook investors rather than reassure them, particularly if parallels were drawn with Greece, Portugal and Ireland, which have already had rescue packages from the IMF and the Europeans, and show no sign of regaining access to financial markets.

The Merkelization of
EuropeForeign Policy
In spite of all evidence to the contrary, she insists that what's good for Germany is good for everybody else, too. It's clearly not… This is a catastrophic mistake, which, politically, vastly expands the EU's centralized authority while robbing it of even the fig leaf of democratic legitimacy it had sported.

Germany’s Last-Ditch Compromise, At A PriceTestosterone Pit
While Friday’s agreement doesn’t fix anything, it does reveal a perhaps last-ditch effort by Germany to accommodate a measure of Inflationspolitik in order to safe the euro, as long as member states will make a serious effort to get their budgets in line.

If you don’t want to read about the content, this is the post for youA Fistful of Euros
The French didn’t like the idea much, but liked the idea of openly disagreeing with the Germans less, and hoped the Brits would kill it. The Brits thought it was the final triumph of euro-socialism, or something, and over-reacted. As a result, it went through anyway, with any waverers whipped-in by being told that it was just the Brits being bad Europeans. I think this story fits the facts.

A Deep Seated Hostility Towards European Construction?A Fistful of Euros
The nub of the question is the Euro, and setting up some form of workable common governance for those countries who belong to the monetary union. In this sense an agreement between the 17 countries who share the common currency would have made perfect sense, and in is not clear to me at least why the UK (or countries like Bulgaria and Romania for that matter) would need to be party to this kind of agreement.

Not Really Uniting, to Not Really Save the Euro…Not ReallyA Fistful of Euros
The British newspapers are full of lines like “UK vetoes EU uniting to save euro” and worse. This illuminates a huge problem with the European Union. The first problem is that this assumes that somebody’s going to save the euro.

Could David Cameron have done anything other than walk away from a new EU treaty?Bagehot / The Economist
It was not sprung on other EU governments as a surprise. George Osborne, the chancellor of the exchequer, had briefed colleagues extensively, for instance. What is more, France and Germany negotiated with real aggression, it is said: it was not Britain that was being unreasonable.

Europe, Taxed by TobinThe Psy-Fi Blog
The financial transaction tax and how it created a rift between UK and the rest of the EU.

Follow the money: Solutions in a time of crisisSol Sanders via ZH
How to accommodate
London’s primary interest in the European Union’s economic community should have been a problem negotiated long ago. But, now, for the moment, Frankfurt and Paris have their revenge for their long apprenticeship to The City.

BIS Quarterly Review, December 2011BIS
Main topic euro crisis, also FX strategies, global liquidity, impact of QE, credit risk transfer. Press release, full pdf

Credit Markets Update: The Generous GamblerMacronomics

Part Two: A Digression on the Arcana of Financial FrontiersDISMagazine
Article on high frequency trading

A Romance With Risk That Brought On a PanicDealBook / NYT
Ultimately, the bets Corzine placed wound up better than the firm itself. The European debt trades were profitable, though too late for MF Global.

Three Investment Themes for 2012The Reformed Broker
Return of emerging markets, actively managed ETFs, income worship.

Hey, Want to Try My Fund?WSJ
Heirs to Investing Legends Open Up Their Own Shops

In Euro Era, Opening Bell Is a 2:30 A.M. AlarmNYT

Lessons of the 1930s: There could be trouble aheadThe Economist
In 2008 the world dodged a second Depression by avoiding the mistakes that led to the first. But there are further lessons to be learned for both Europe and America.

A Curated Linkfest For The Smartest People On The Web!Simoleon Sense

Why do people sometimes get stuck in seemingly minor choices?Farnam Street
Consequently, if a decision feels unexpectedly difficult, due to even incidental reasons, we propose that people may draw the reverse inference that it is also important and deserving of more attention. This, in turn, should increase the amount of time people spend choosing.

How to Spot a ScammerThe Altucher Confidential

Macau’s gambling industry: A window on ChinaThe Economist