To the links:
News 11-Jan evening – BTH
FX option vols – Saxo
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS
What investors sense is not weak economic fundamentals, but Europe’s weak political fundamentals – the absence of a governance structure with real power and the will to use that power to resolve problems. If Europe is to adjust to the requirements of the new “Pacific world,” it does not need fine-tuning; it needs a new design.
After the debt spiral between the banks and sovereigns, here comes the low growth, austerity, even lower growth.
EU corporates move cash from bank deposits to repo – Sober Look
Based on his daily practice, Euroclear's Reiss estimated that up to 25 percent of the triparty market was on behalf of companies, a massive and sudden rise from the 2 to 5 percent where it had traditionally been.
Thoughts Ahead of Spanish and Italian Bond Auctions – Credit Writedowns
The implication of this analysis is that current spreads speak to a significant a case of a German overshoot than an undershoot by Spain and Italy. There are elements now that are reminiscent of the ERM crisis of the early 1990s when the German policy overshoot (loose fiscal policy tight monetary policy in the aftermath of the leveraged buy out of East Germany).
Speech by Bundesbank board member from 20-Dec
The falling euro and the crisis that wasn’t – The World / FT
Hard to remember now, but a lot of the pre-2007 predictions of crisis were all about huge swings in currencies as trade balances imploded. In the event, floating exchange rates, if anything, have been a useful shock absorber in the crisis.
German Economy Contracts in 4th Quarter; Spain's Industrial Output Plunges 7%; UK Trade Deficit Widens; European Banks Wisely Hoard Cash – Mish’s
ECB (& BoE)
BoE preview: wait until Feb for more QE – Danske (pdf)
Total QE by end-2012 probably £200bn, expects
ECB Preview by Goldman Sacs – ZH (posted previously)
No rate change or further non-standard measures, for now · More monetary stimulus wanted, but we don’t think it will come through further rate cuts · Which rate reflects the appropriate monetary policy stance? · What to do about the interest rate corridor? · Monetary policy in times of a broken transmission mechanism and why non-standard measures are the preferred instrument
No rate change or further non-standard measures, for now · More monetary stimulus wanted, but we don’t think it will come through further rate cuts · Which rate reflects the appropriate monetary policy stance? · What to do about the interest rate corridor? · Monetary policy in times of a broken transmission mechanism and why non-standard measures are the preferred instrument
Euro Slides Ahead of BOE and ECB Meetings – Credit Writedowns
GREECE
The Coercive Greek Restructuring Is Now Imminent: UBS Explains What It Means For Europe (Hint: Nothing Good) – ZH
UBS: In a coercive restructuring (=default), the consequences of the treatment of euro area central banks could be negative either way. ECB loses money: fiscal transfer and political trouble – ECB doesn’t lose: seniority and havoc in Spain and Italy.
Goldman Unveils The Script In The Greek Haircut Kabuki – ZH
Euro area policy makers have been very outspoken in making the point that Greece is a completely different case from other Euro area countries. However, in the absence of a credible commitment to no restructuring in the Euro area outside Greece, markets will continue to price spreads in Euro area bonds in a risk-averse way, factoring in the remote possibility of extreme outcomes occurring elsewhere too.
Greek Crisis Has Pharmacists Pleading for Aspirin; Bailout Money Used for Military Spending – Mish’s
Bailout money first goes to French and German banks. What is left over goes for weapons systems. Meanwhile, price controls and fraud have made aspirin hard or impossible to get. To top it off, Germany and France want still more tax hikes and austerity measures. Greece will default soon. It's all over. Nothing is left but a corrupt hollow shell.
DERIVATIVES
A timely confirmation of risky behaviour – alphaville / FT
Hedging, while aimed at sharing risk, can lead to more risk taking. But it isn’t in the way that you would think. The additional risk-taking isn’t on the part of the hedger (they don’t actually model that), it’s on the part of the entity that sold the hedge.
Hedging, while aimed at sharing risk, can lead to more risk taking. But it isn’t in the way that you would think. The additional risk-taking isn’t on the part of the hedger (they don’t actually model that), it’s on the part of the entity that sold the hedge.
[Credit event auctions] Mechanics – alphaville / FT
Since 2009 credit event auctions that determine credit default swap payouts have been hardwired into the operations of the market. Previously, auctions were arranged on a more ad hoc, voluntary basis. Potentially billions hinge on the outcomes of this automatic mechanism. (Time to read now, as there are credit events coming - MoreLiver)
IRAN
The Great EU-China Oil Swap – The Source / WSJ
If Iranian oil is embargoed, Europe will buy its oil from the Saudis and the Chinese will get a nice discount from the Iranians. Only problem is that the Western oil sources are quite narrow and cannot tolerate another supply shock.
Once again, regrettably and mysteriously, we find the developed world in lock-step in its eagerness to attack Iran. "Regrettably," because Iran has not threatened any other country, and war should never be used simply because the current art of diplomacy is inadequate. "Mysteriously," because this is a particularly horrible economic moment to go about risking much higher oil prices.
For decades Americans have been subjected to saturation bombing by misinformation and outright lies about Iran. The information from our intelligence agencies has painted a more accurate picture, if we choose to see it. Sixth in a series; at the end are links to the other chapters.
What Happens When a Nation Gets Nukes? Sixty Years of History Suggests an Answer. – Fabius Maximus / EconoMonitor
The drive for war comes from hawks’ terrifying forecasts of what a nuke-armed Iran will do. Similar warnings were made in the past about today’s nuclear powers. What does history tell us? Eight in a series; at the end are links to the other chapters.
OTHER
Getting up to Speed on the Financial Crisis: A One-Weekend-Reader's Guide – SSRN
All economists should be conversant with “what happened?” during the financial crisis of 2007-2009. We select and summarize 16 documents, including academic papers and reports from regulatory and international agencies. This reading list covers the key facts and mechanisms in the build-up of risk, the panics in short-term-debt markets, the policy reactions, and the real effects of the financial crisis.
Is the liquidity trap almost over? – Free exchange / The Economist
At this rate, it seems, the recommended policy rate will be positive in no time. Maybe.
Ten 100-year predictions that came true – BBC
In 1900, an American civil engineer called John Elfreth Watkins made a number of predictions about what the world would be like in 2000. How did he do?