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| Sacré bleu! |
Quote of the Week: "S&P's report is the most honest, politically incorrect report on the Eurozone debt crisis I have seen in a long, long time." - Steen Jakobsen / Saxo Bank
-MoreLiver
To the links:
WEEKLY WRAP-UPS
US Macro – Calculated Risk
Market Week – PragCap
DealBook’s Review – NYT
Succinct Summation – The Big PicturePolitics this week – The Economist
Business this week – The Economist
NEXT WEEK
US Macro – Calculated Risk
Next Week’s Tape – WSJ
Week Ahead – A Dash of Insight
Emerging Weekly – Danske (pdf)
EU: Week ahead – euobserver.comEmerging: Week Ahead – FT
CALENDARS
Economic Calendar – fxstreet.com
Monthly Economic Calendar – fxstreet.com
Economic Calendar – BB
EU calendar – europa.eu
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS
The proposed plan is fundamentally flawed. It made no attempt to tackle the real issues – the level of debt, how to reduce it, how to meet funding requirements or how to restore growth. Most importantly there was no new funds committed to the exercise. Part 1 here.
Eurozone's Friday the 13th – Robert Peston / BBC
Greek negotiation halt, margin hike on Italian bonds and less importantly, the rating cuts.
And then there were 4 – Kiron Sarkar / The Big Picture
Personally, I believe this could be the final nail in the coffin for Greece. Negotiations between Greece and its creditors collapsed on Friday – there is a serious chance that Greece will have to have to default and indeed, exit the Euro. Contagion issues then arise. However, the ECB’s 3 year LTRO has helped enormously (particularly in respect of yields on shorter Euro Zone dated debt) and, as you know, I expect the ECB to introduce QE in the 2nd Q – possibly even in the 1st Q.
LCH Hikes Italian Bond Margins, Again – ZH
This will probably steepen the yield curve, as longer maturities are sold because of higher margins. Scribd-link to the document.
This will probably steepen the yield curve, as longer maturities are sold because of higher margins. Scribd-link to the document.
EU To Jobless Youth: Leave Home! – Real Time Brussels / WSJ
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| Deutsche via WSJ: markets expected the downgrades |
THE DOWNGRADES
Credit FAQ: Factors Behind Our Rating Actions On Eurozone Sovereign Governments – S&P
A summary of key points in more readable format from ZH.
S&P downgrade could be major game changer – Saxo
Steen Jakobsen: S&P's report is the most honest, politically incorrect report on the Eurozone debt crisis I have seen in a long, long time.
RBS on those S&P downgrades – alphaville / FT
RBS: Overall, while the market impact of the downgrades is unlikely to be very significant in the short term, they serve as a stark reminder that the euro area sovereign crisis is here to stay. What this means is that Europe now faces a choice. On the one hand, it can restructure the EFSF so that it retains its triple-A credit rating. That would almost certainly involve shrinking the EFSF in size. Or, it can be sanguine about the EFSF downgrade and just let it happen… Leveraging a triple-A EFSF is hard enough; leveraging a double-A EFSF is pretty much impossible.
Markets were expecting this for a long, long time.
Sarkozy's Electoral Bid Marred by Ratings Drop – WSJ
a particularly hard blow on Mr. Sarkozy, who had positioned himself as the defender of the country's financial standing
Here Are The First Official Responses By French Politicians To S&P Downgrade – ZH
whereas patriotic chauvinism has its good and bad sides, listening to politicians explain away how the impossible has just happened is always very amusing. Especially when translated by Google.
whereas patriotic chauvinism has its good and bad sides, listening to politicians explain away how the impossible has just happened is always very amusing. Especially when translated by Google.
Though grim, the news was not the blanket downgrade feared by eurocrats.
Why the eurozone downgrades matter – Robert Peston / BBC
But perhaps more importantly the downgraded Italian and French governments would be seen to be less financially capable of bailing out Italian and French banks in a crisis, so other creditors would be shouldering more risk.
Banks’ Appetite for European Sovereign Debt Will Be Tested. Soon. – MarketBeat / WSJ
The reality is if France falls, the periphery will lose its legs. The contagion will have spread right under the noses of EU leaders who were too busy “praying and delaying” instead of pressing decisive action.
S&P On Europe – Krugman / NYT
If S&P warns that austerity is backfiring and worsening the crisis, why did Merkel announce the need to rush raising taxes and cut spendings?
Merkel Wants Higher Taxes, Deeper Cuts, Faster Reforms; S&P Says Eurozone Policies Fall Short, France at Risk of Further Downgrades – Mish’s
GREECE
From 12-Dec: It surfaced today at an IMF press briefing in Washington: the IMF no longer supports austerity as a guiding principle
Even with 100% participation and 50% haircut only a 120% debt/GDP would be achieved, which is not sustainable. CAC introductions very likely.
Greek debt talks break down – MarketWatch
Talks between private creditors and Greece on a voluntary restructuring of government debt appeared to break down Friday, with negotiators representing the private sector citing the lack of a “constructive, consolidated response by all parties.”
Talks will resume on 18-Jan, must be concluded before 20-Mar Greek bond payment.
Talks on Greek Debt Are Halted – DealBook / NYT
One person involved in the discussions said that the move should be seen more as a negotiating tactic than a sign than a sign that Greece was going to default. The person, who spoke on condition of anonymity, said that the talks would resume Wednesday.
A Greek exit from the euro zone would be worse than catastrophic and could provoke greater social unrest, Zimbabwe-style inflation and a military coup, said London-based hedge fund firm Toscafund
ECB
Risks from ECB debt drip – MacroScope / Reuters
DZ Bank on LTRO’s risk: obviously this also has a downside in that the average maturity of the debt is decreasing and that builds up a substantial rollover risk because all this short-term debt will become due in a couple of years.
Is There Really A German Bias at the ECB? – Musings
This figure indicates that economic shocks to the non-core region were not very consequential in shaping ECB monetary policy, while shocks to the core were very important. Empirical evidence like tihs is hard to ignore when trying to make sense of what the ECB has been doing.
OTHER
we think growth will downshift from 3.0% in 4Q11 to 2.0% in 1Q12. Looking beyond the first quarter, we expect a growing private domestic sector will contend with a fading drag from the external sector and a persistent drag from the public sector
The Correlation of Laughter at FOMC Meetings – The Daily Stag Hunt
The times they laughed kept increasing right until the start of the crisis.
What Will It Take for Euro’s Link to Equity to Return? – The Source / WSJ
Last year, the euro was one of many ‘risk assets’ likely to rise when investors were feeling good about the future, along with equity and commodity currencies, such as the Canadian and Australian dollars.
7% Alpha – mebanefarber.com
On piggy-backing the hedge funds.
Inventory levels have tightened, sales are stabilizing, required downpayment % has fallen, payment affordability best since ancient history, builder stock prices picking up.
The Sovereign Debt Crisis and Confirmation Bias – Credit Writedowns
The issues for Greece are not about working longer hours but are ones of productivity, industrial organisation, and demographics. That won’t stop people from spinning the tales of lazy Greeks and workaholic Germans. People will believe whatever they want to believe based on their world view and presenting facts that challenge that view is only going to make these people dig in deeper into that view.
Chart of the week: who has IMF help? – beyondbrics / FT
Largest EM credit line belongs to Mexico - 28% of total, followed by Poland.
Most things are wrong (and it doesn’t matter) – Deus Ex Macchiato
I used to manage a model verification group. We looked at derivatives pricing models and checked their accuracy. Many of the ones we looked at were somewhat wrong, and some of these we passed anyway. Why?
DIVERSION
Trials and Errors: Why Science Is Failing Us – Wired
This mental approach to causality is often effective, which is why it’s so deeply embedded in the brain. However, those same shortcuts get us into serious trouble in the modern world when we use our perceptual habits to explain events that we can’t perceive or easily understand.
Book Bits For Saturday – The Capital Spectator
So you still think the Internet is free – youyuxi.com
Infographs on net censorship worldwide.
Dear Student: I Don't Lie Awake At Night Thinking of Ways to Ruin Your Life – Forbes
The fact that you “don’t understand” why you didn’t earn full points for a particular question might itself help explain why you didn’t earn full points.
Scandalous Photos Reveal Grover Norquist Carried On Secret Affair With Taxes For Years – The Onion
In a scandal that strikes at the very heart of the American anti-tax movement, a series of incriminating photos surfaced online Thursday, revealing that, for decades, leading Republican power broker Grover Norquist has secretly engaged in a romantic affair with taxes.