Howdy-ho! Here are the selected links from this week's posts. A Weekender-post coming up later today. EURO CRISIS
ECB exposure to struggling eurozone economies has surged by 50% in six months; ECB unlikely to act as lender of last resort – Open Europe
ECB should not, will not, cannot backstop. ECB’s balance sheet expansion has made banks reliant on it and a long-term threat has been created. Restructuring is needed. The article link is to a summary, full pdf here and Zero Hedge’s short summary here.
Doubts Arise in Euro's Birthplace – WSJ
Netherlands' support weakens amid concern over bailouts.
After hopium, three choices: monetary union without sovereign defaults (fiscal union), monetary union without sovereign defaults, breakup
1) no ECB sovereign backstop, 2) no European joint bond and 3) no euro zone break up.
Many economists and investors see a binary outcome of the European debt crisis: either the ECB backstops the sovereign/there is a European bond, or the euro zone breaks up. Instead, we think that the continuation of what can be called “muddling through” is the most likely scenario for the period ahead.
BCG Presents The One Chart To Explain The Implications Of Leaving The Euro – ZH
A list of things a country leaving the euro zone would have to do – and what would happen afterwards.
Goldman's Take On TARGET2 And How The Bundesbank Will Suffer Massive Losses If The Eurozone Fails – ZH
GS: It is only if one or several countries were to decide to leave the Euro area that the imbalances would lead to potentially significant losses beyond the risk already reflected in the current generous liquidity provision through the ECB.
GS: It is only if one or several countries were to decide to leave the Euro area that the imbalances would lead to potentially significant losses beyond the risk already reflected in the current generous liquidity provision through the ECB.
Long article, unfortunately on three separate pages: Draghi may be signaling that the ECB will only ramp up bond purchases, in effect buying time, if European leaders commit that euro-zone countries as a whole will get a handle on the government finances of member countries.
LTRO
The carry trade and the goldilocks LTRO – alphaville / FT
European financials have deteriorated over the last week while the yields on Spain’s government bonds have been coming in. Is this the result of banks buying up the high yielding bonds that they will soon be able to fund exceptionally cheaply? SocGen, Deutsche and RBC comment.
European financials have deteriorated over the last week while the yields on Spain’s government bonds have been coming in. Is this the result of banks buying up the high yielding bonds that they will soon be able to fund exceptionally cheaply? SocGen, Deutsche and RBC comment.
What The TF Is Up With LTRO? – TF Market Advisors
Adding to your sovereign debt positions means you really believe there is no risk of default, and that using the program, won’t lead to renewed pressure on your business from politicians. I don’t see that happening.
A €360bn LTRO? – alphaville / FT
Morgan Stanley suspects most of the money will go to refinancing banks’ expiring debts – perhaps only €20bn to periphery debt.
Morgan Stanley suspects most of the money will go to refinancing banks’ expiring debts – perhaps only €20bn to periphery debt.
The Eurozone Is Saved? – Lance Roberts / dshort.com
So, while these operations once again postpone the inevitable, they do not fix the economic problems of the debt laden countries. There has been no resolution that gets these economies growing again, reduces their debt-to-GDP ratios or increases their economic prosperity.
On the ECB’s Long-Term Refinancing Operation and 2012 macro ideas for investors – Credit Writedowns
In sum, Europe is certainly a problem that will flare because the longer-term solution is a combination of credit writedowns, more bank capital, a lender of last resort and economic growth. Right now, the solution is no credit writedowns, maybe some bank capital eventually, some monetisation and economic anti-growth. Big difference.
ECB Liquidity: Back-Door Bazooka Or Suspension Of Democracy, BARCAP Opines – ZH
BARCAP: Liquidity is needed to keep the patient alive for 3 years or so. But that's pointless if no surgery is done over that time to heal the patient. The surgery is now a go. The democratic experiment is over.
Stark and Draghi on the haters – alphaville / FT
What the ECB is hoping to achieve from the LTRO? Interfluidity: The ECB would have the power to manufacture fiscal crises for a misbehaving state at will, and with marvelous deniability.
Credit Suisse’s presentation Feb 2011: Equity Correlation and Macro Investment Decisions, Crash Risk and Correlation Trading Paradigms by Mr. Mika Toikka
The Mother Of All Chart Porn - Presenting Goldman's Top 100 Favorite Charts – ZH
Goldman Sachs: In it, we take the best charts that we have published throughout the year and rearrange them to tell the story of the world. Our story is not just of 2011, but also of the years to come, as the world changes at a rapid clip.
The consensus is right, financials outperform, euro rallies, oil drops below $70/barrel, sovereign default…outside the Eurozone, US 10-year Treasury yields break out, an Italian sovereign upgrade, an E(M)U exit, fewer than five governments switch hands, Britain does great.
Deutsche’s Reid on shorter business cycles – alphaville / FT
DB: As policy flexibility to address structural problems has ended, business cycles will become shorter – and a recession in 2012 is probable.
‘Tis the seasonality, hold the jolly – alphaville / FT
Nomura points out that the current techniques for seasonal adjustment tend to boost data in the fourth and first quarter of the year, relative to previous patterns, then depress data in the second and third quarters. FT suggests this is a good reason to ‘fade’ the recent strong US numbers.
Nomura points out that the current techniques for seasonal adjustment tend to boost data in the fourth and first quarter of the year, relative to previous patterns, then depress data in the second and third quarters. FT suggests this is a good reason to ‘fade’ the recent strong US numbers.
OTHER
Bubble Trouble – Reuters (pdf)
Olympus wanted $1.7 billion in financial market losses from Japan’s bubble days to fly away. Instead they came home to roost
Economists explain 2011 in 18 charts – Wonkblog / WP
M.I.T. Expands Its Free Online Courses – NYT
New program allows anyone to take MIT courses online for free – and earn official certificates.