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| We can kick it! |
Another massive linkfest to start another week of kicking the can. My Weekender-post was heavy on Greece and the downgrades, as well as weekly reviews and previews of this week – strongly suggest you take a look at it. I’m on Twitter and Facebook. The few missing links will be updated later.
- MoreLiver.
Quote of the Day: “Instead, the commitment to the fixed exchange rate combined with Germany's failure to recognize that their current account surplus must turn to deficit if they ever hope to be repaid promises to lock the Eurozone on the path of ongoing recession.” – Tim Duy’s Fed Watch
To the links:
News – The Trader
Morning Briefing – BNY Mellon Daily – Danske (pdf)
Market Preview – Saxo
FX option vols – Saxo
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS
Good summary of Friday’s events, esp. the rating cuts.
ESM, just like the IMF, will force bond holder subordination – Sober Look
ESM is super-senior, just like IMF – putting the remaining private investors at risk of even larger haircuts.
"Let the Euro Die" Candidate Trails Sarkozy by Slight 2 Percentage Points; Will Sarkozy Survive the First Round Vote? Eurozone About to Become Unglued – Mish’s
All of the agreements hammed out by two arrogant but tough-as-nails and widely respected leaders of Germany and France will fail. Whoever replaces Merkel and Sarkozy will not have the same respect and both will soon be gone. Politics suggests that the Eurozone is about to become unglued.
Three problems: banks are massively insolvent, governments solvency questioned, massive trade imbalances. Decision makers work on the first and perhaps even the second, but barely understand the third.
Tyler Durden and Paul Krugman agree! – The EU is toast! – Bruce Krasting
But consider the end game for this. What's the value of a Euro if Spain, Italy, Ireland and Portugal were no longer part of the monetary union? That price starts at EURUSD 1.6000.
To emphasize, the risk is not that large central bank losses would impair the ability of the monetary authorities to provide liquidity, conduct open market operations, target policy rates, or safeguard the payments system. Rather, in the event that losses wipe out too much of their capital, the chief risk becomes the intrusion of politics into central banking. It might even bring about the end of independent central banks.
Merkel Denies Need for EFSF to be AAA Rated; German CEOs Ponder Dumping the Euro for a "North-Euro" or Deutschmark; Schaeuble Rejects ECB as Lender of Last Resort – Mish’s
While I certainly agree with Schaeuble regarding Eurobonds. I also agree that "giving the European Central Bank the role of lender of last resort wouldn’t calm markets permanently". However, Schaeuble comments are tantamount to the "joke of the day. The ECB is without a doubt already the lender of last resort if not the lender of "only" resort.
Is German Anger Finally Coming To A Boil? Even Local CEOs Say Time To Exit Euro May Have Arrived – ZH
CEO of Linde: If we do not succeed in disciplining countries then Germany needs to exit.
THE DOWNGRADES
Preliminary Thoughts On The European Downgrade From Goldman And Morgan Stanley – ZH
GS: impact likely limited, MS: impact initially trivial.
Ratings downgrade: Average common denominator – Free exchange / The Economist
The S&P verdict on France and Austria, and the other member states, could be capturing two very different dynamics, in other words. One is a continued dispersion of euro-zone states as the single currency fragments into individual countries. The other is a recalibration of the point of convergence in a reconfigured euro zone, where the AAA countries are more likely to be dragged down by others than to pull them higher.
With Standard and Poor's decision to punish nine euro-zone countries with downgrades and to strip France and Austria of their AAA ratings, Germany is likely to face additional burdens in the euro bailout fund in order to ensure cheap lending to save the common currency. Some are calling for Chancellor Angela Merkel to abandon plans for a tax cut in Germany.
Impact of sovereign downgrades on bank capital – Sober Capital
But this move by S&P makes further downgrades by other rating agencies far more impactful because banks applying these capital rules would no longer be able to ignore them.
GREECE
How's That Austerity Working? – Tim Duy’s Fed Watch
How can this downward spiral end with anything other than a technical default? It can't, which is why the debt talks collapsed… It looks like Merkel and Sarkozy are trying to pull the old bait and switch on (Greece’s) creditors.
It's not just Greece that faces a crucial week, Europe and the world face a crucial week if Greece and the bondholders do not find a suitable resolution. Moreover, the situation is critical. Ekathimerini reports that Greek banks must find 15 billion euros.
European officials now say that the task is less to help the country through its troubles than to avoid the sort of uncontrolled default that many experts fear could threaten the global financial system.
A Greek Default Would Hit the ECB Hard – Spiegel
Hopes that Greece can be saved are dwindling. Athens had hoped to reach a deal with its creditors on a 50 percent debt haircut, but banks have now made it clear that efforts to reach an agreement could fail. Should the country go bankrupt, the ECB stands to lose the most.
The IIF is seeking an annual coupon of 4% to 5%, arguing that is the absolute lower limit of any deal that could be described as voluntary, according to people with direct knowledge of the talks.
OTHER
As Two Thirds Of Companies Report EPS In The Next 3 Weeks, Talk Of "Record Earnings" Is About To Hit Mute – ZH
Some pics and commentary from the Goldman Sach’s Weekly Kickstart.
Baltic Dry Index Collapses – Bespoke Investment Group
The index collapsed by almost a half in one month. There went the global economy.
Mutual fund industry under pressure from ETFs – Sober Look
Reasons vary, but most point to years of poor performance coupled with downside risks that are higher than even the downside risks of hedge funds.
World Economic Forum Global Risks 2012 – Global Macro Monitor
Good video of the presentation and the pdf.
Outlook Beginning 2012 – RCS
Very broad views (Arab Spring, Euro Crisis, Hungary, etc.), extensively hyperlinked.
DIVERSION
Nuclear Weapons – Splitting The Atom Changed The World Forever – Foreign Affairs
Essays from 1945 to 2005.
A Curated Linkfest For The Smartest People On The Web! – Simoleon Sense