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| What a rollercoaster it has been. |
Another interesting day: summit-jargon thrown left and right, an attempt at Deutsche Bank’s chairman’s life, S&P threatens a downgrade of everything in Europe, yesterday’s test balloon (letting both EFSF and ESM operate at the same time) was rejected by Germany, and we got a new test balloon (IMF) that got already denied.
Today a special section on the laughable IMF-rumor that was used to boost stocks in late US session. I’ve included some comments, even though the rumor has been shot down already. For the headline analysis, nothing beats the blogs.
To quote my discussion from last night with Mr. Kari ‘The Street’: We have a strange combination of paralysis, political realities, desperation and faith here. The banks are playing along with the mañana-game, as if they would not, they would lose their communication channels with the political leaders – and the money from sovereign tax payers is what will either directly or indirectly bail out the banks in the end. This looks like the ending of the movie Reservoir Dogs, where everybody is pointing a gun at each other – a Mexican stand-off. Of course there is only one way for this to end – someone will pull the trigger and the others will follow.
The drop in the PIIGS bond yields has been huge. It will be interesting to see next week how much the ECB has been buying – i.e. were they supporting the summit results or is this drop purely market-driven. Obviously low liquidity, holidays, constant news and rumors are influencing and exaggerating the moves. I’ll think about this and let you know later. You can follow me on Twitter and Facebook and email me for suggestions and requests.
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| More about this chart tomorrow. |
Then to the links:
News (Wed evening) – BTH
Daily 8-Dec – Danske Bank (pdf)
Markets Live – alphaville FT
Debt crisis: live – The Telegraph
EZ crisis Live blog – The World / FT
EURO CRISIS
Cognitive Dissonance Reigns As Risk Sentiment And Positioning Diverge – ZH
Morgan Stanley’s 2012 Cross-Asset Navigator: investors assume a solution will be found, but will not position for that outcome. Deutsche Bank: We keep moving in circles trying out different permutations and combinations but in reality where is all this money going to come from?
Morgan Stanley’s 2012 Cross-Asset Navigator: investors assume a solution will be found, but will not position for that outcome. Deutsche Bank: We keep moving in circles trying out different permutations and combinations but in reality where is all this money going to come from?
SUMMITS, TREATY CHANGE
Private sector participation in future sovereign restructurings, can EFSF and ESM be in operation concurrently, role of the IMF and procedural issue of the treaty changes.
Van Rompuy has found paragraph 14 of Article 126 of the EU treaty that could be used to circumvent parliamentary ratification of treaty changes: Officials from the 27 member states will begin preparatory talks on Van Rompuy's "Interim Report for a Stronger Economic Union" on Wednesday evening.
EU Treaty change: Its all about timing – Saxo Bank
In essence it is assumed (hoped) by Eurozone officials including Van Rompuy that the treaty changes will give the ECB the confidence that it needs to give more support to weak banks and governments on the basis of enforced fiscal restraint.
Many EU leaders seem to actually believe that the Treaty changes are important. The reality is the market could care less about treaty changes. The market cares about only one thing, that the ECB will announce new, bigger, more aggressive sovereign purchases.
A global supra-government — unelected, unaccountable and unconcerned with the general welfare — has emerged. It has nothing to do with the United Nations; it doesn’t fly around in black helicopters. Gulfstream jets are more like it. And whatever 2011 may be, it’s not a good year for democracy.
ECB
The not so secret ECB lending efforts – Pragmatic Capitalism
Collection of charts. In dollar terms the amount outstanding to European institutions is over 3/4 of a trillion and growing. This shows increasing dependence of European institutions on the central bank for short-term funding.
Indeed, if it turns out that a detour through the IMF is needed to allow the ECB to provide liquidity to countries like Italy and Spain, the rest of the world will ask why Europe cannot be more candid about the ECB’s central role in this crisis. Good question.
ECB about to offer more liquidity to banks by loosening collateral requirements. ZH comments: Liquidity stopgaps only make the insolvency gangrene even worse as it allows banks to NOT address the underlying issues and mask the symptoms. But everyone knows that by now... Or should.
Me like cheap dollars – alphaville / FT
(ECB allows $50.685 bn in 84-day operation vs poll of $10bn): The ECB dropped the rate that banks pay for borrowing dollars to OIS plus 50bps from OIS plus 100bps last week, in line with other central banks. So it looks like banks made bids to take advantage of, and to store up, dollar liquidity while it’s cheap.
European Banks Dash For Fed Cash As Dollar Swap Usage Soars, Funding Squeeze Now Shifts To Euros – ZH
Good charts and talk from Goldman Sachs: the repo rate cut helped to lessen the stigma of using the USD facility. Previously banks avoided it to safeguard their reputation.
CREDIT
The spread differential between financials and non-financials is at all-time highs. Even so, we do not expect this relative spread premium to compress until the risk from the European sovereign crisis is safely behind us. Financials remain disproportionately exposed to the interaction of downside macro risk and the enormous pressure under which European sovereigns and banks are laboring.
There seems to be some confusion around the Basle banking regulation with respect to sovereign debt. We want to take a quick look at two distinct concepts here: "risk weights" used to determine capital ratios and "liquidity ratio" used to make sure banks have sufficient short-term liquidity.
Here’s Why the Euro-Zone Downgrade Threat Really Matter – MarketBeat / WSJ
All these institutions are singled out because they are either backed by euro-zone government guarantees, directly dependent on them for funds, or directly exposed in other ways to the finances of those governments.
Investor Demand Soars For German 5 Year Paper – ZH
Roundup of comments from today’s German auction.
RUMOR OF THE DAY: IMF
*G-20 CONSIDERING $600B IMF LENDING PROGRAM FOR EUROPE
Update - Denied.... And Here Is Today's Completely Idiotic Rumor – ZH
Apparently the fact that before this rumor we had news that the IMF is short $120 billion in cash for already proposed credit facilities is completely irrelevant.
Here’s Why Everything’s Rallying Again – MarketBeat / WSJ
Sounds legit, if by “legit,” you mean “ridiculous.”
The only way this can be fixed is by fixing the structure of the EMU by creating a truly sovereign monetary system.
IMF – TF Market Advisors
This is all circular and that circularity is coming back to haunt those people desperately trying to come up with new ways to extend and pretend.
MoreLiver: No money!:
IMF's Financial Resources and Liquidity Position, 2009 – Oct 2011 – IMF
Review of the Flexible Credit Line and Precautionary Credit Line – IMF
The Fund’s Financing Role—Reform Proposals on Liquidity and Emergency Assistance and the Review of the Flexible Credit Line and Precautionary Credit Line – IMF
*IMF DENIES REPORT OF NEW $600B LENDING PLAN
DIVERSION
Expect the unexpected – Free exchange / The Economist
How The Economist got a lot of stuff on Hitler and the 30’s depression wrong. Predicting is hard!
Attempt Made On Deutsche Bank Head's Life: Explosive Package Addressed To CEO Intercepted, ECB Return Address Given – ZH
Horses for courses: picking market models – John Kay
Before I hired a horse doctor or horse trainer, I would always ask “have you ever seen a horse?”