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| Nomura's view on EZ devaluations |
S&P has put all the eurozone countries on downgrade warning, stating the obvious. The Italian welfare minister cries while announcing pension cuts. Lot of handshaking and smiling at the press from Merkel and Sarkozy – a lot of attempt to kick the can even further, this time until March, when the EU Treaty changes would be handled. As Peter Tchir said, there must be a lot of trans-Atlantic phone calls going on at the moment. Remember what I told you about Sarkozy? WSJ seems to agree.Finland celebrates independence day today. This is the first year when no veterans decorated with the Mannerheim's Cross (a decoration given to roughly one soldier in thousand) are able to attend the gala in the Presidential Palace. Times change. My last FX deal on the desk was in USDDEM, and I guess my first deal if I ever return to a desk will be in USDDEM as well. Times change.
News (Mon evening) – BTH
FX option vols – Saxo
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
GENERIC
All The World’s A Stage – TF Market Advisors
Excellent narrative, bottom line: Any sense that the photo-op scene at the end of the week is going to be cut, then get ready for a huge sell-off. If they cannot create the photo-op at the end of this week, we will hit new lows. Vol is down, options are cheaper than they have been in a while, so deep out of the money puts is best way to play the unlikely, but realistic alternative ending.
…using his place at the helm of the French ship of state during the euro crisis to grandstand himself into another term… The problem is that Sarkozy, whose political identity depends on being an outsider within France’s insular political elite, is having trouble stepping up to the plate in negotiations with his euro zone counterparts, as he faces off against the Socialist party at home.
The Euro, Currency Sovereignty and Adopting a Foreign Currency – Credit Writedowns
So what is the difference between, say, Japan versus Greece?... A sovereign government with its own currency can always “afford” to make all payments as they come due.
The EU will always create 'something' which they believe they can sell as progress, but the problem is one of moral and political standards, or rather the lack thereof. Yes, you can buy time by printing money, you can try to fast-track changes to EU treaties, but you simply cannot run away from the dilution of standards from these desperate actions.
Let me help you out with that whole “will they or won’t they” question – The Reformed Broker
Bailouts, bazookas, money printing, treaty changes, technocratic governments and so forth. All of these things will happen, the breakup of the Euro will not right now. Maybe someday, but the history of humanity says that while there are still switches to flip and levers to pull, expect them to be switched and pulled… They've staved off the inevitable through at least March 2012.
Throwing Good Money After Bad – The Dismal Optimist / The Big Picture
Angela Merkel is pushing for tight fiscal controls to be imposed on the Club Med states. I would argue that the market can do the disciplining. Europe isn’t ready for the kind of fiscal union Merkel seems to want.
What Can Save the Euro? – Joseph E. Stiglitz / Project Syndicate
Public-sector cutbacks today do not solve the problem of yesterday’s profligacy; they simply push economies into deeper recessions. Europe’s leaders know this. They know that growth is needed. But, rather than deal with today’s problems and find a formula for growth, they prefer to deliver homilies about what some previous government should have done.
The Hour of the Technocrats – Jeff Frankel’s Weblog
One of their advantages is acting as an honest broker when traditional politicians have become discredited or parties are deadlocked. Another is the credibility that comes when they are not motivated by getting re-elected, either because their term in office has been limited in advance or because it is know that they in fact prefer the quiet life back at the university.
ROUNDUPS
BofA’s summary of the European week.
All that said, it remains true that the situation is very precarious, and neither Germany nor the European Central Bank have committed themselves to the policies necessary to solve it. So I don't share the serenity of my hosts. But I'd sure like to.
BREAK-UP
Nomura Presents The Fair-Value Of European Currencies In A Euro Breakup Scenario – ZH
Based on current misalignment and future inflation risk, Nomura’s idea on how much national currencies would lose in value.
Post-euro currencies, charted – alphaville / FT
On Nomura’s note: this is another of those pieces of bank research that’s as interesting for being considered necessary to be written in the first place, as much as for its conclusion.
Thinking the Unthinkable: How to Break Up the Euro Area – PIIE
The ideal model for a dissolution of a monetary union is the partition of Czechoslovakia in 1993. It was amicable and orderly. And it was fast and simple. The euro members should opt for these properties. When the need for dissolution of the euro area appears inevitable, all countries should agree on an early exit date.
I was born in 1927, so I have seen two of these calamities in 85 years. The long term lesson seems to be that the old fashioned virtues of working, saving and living within your means are precious beyond gold and diamonds, and worthy of honoring because they were born out of human experience. The ‘new finance’ has done nothing to repeal those enduring hard-won principles of human conduct.
OTHER
The Facts They Don’t Want You to Know – Credit Writedowns
Absolute Return Letter Dec: about 15 fund managers out of a universe of 1,230 – ca. 1% – who could with some right claim that they have consistently been in the top quartile… According to an unpublished report conducted by IBM, our (fund) industry destroys $1,300 billion of value annually – a staggering 2% of global GDP
Spot the Dog let off the leash – alphaville / FT
comments the article mentioned above, link to original
Divided We Stand: Why Inequality Keeps Rising – OECD
In the three decades prior to the recent economic downturn, wage gaps widened and household income inequality increased in a large majority of OECD countries. This occurred even when countries were going through a period of sustained economic and employment growth.
OECD: “The benefits of economic growth do not trickle down” – Wonkblog / WP
Inequality highest in 30 years, OECD finds – MacroScope / Reuters
Happy Anniversary, Irrational Exuberance – The Big Picture
The 15th anniversary of the Greenspan’s famous speech \o/
DIVERSION
The Ultimate Book Lovers Resource – Farnam Street
Nice collection of book lists, Christmas and all… If you like this blog, I could really use this.