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I feel the today’s rally was more or less the buy the rumor, sell the news in reverse: the downgrades happened on Friday and everyone (+ their grandmothers) knew for weeks that they were coming. The follow-through on today’s risk-on rally was very weak and markets turned sour towards the close.
Probably next risk-on will be seen when the Greek negotiations appear to be closing successfully. It will be another buy the rumor, sell the news. I expect to see a lot of nervous range trading in all the markets for a while. Vol will increase and action will get even choppier as the "bad news" are constantly measured against this backdrop - is this "bad enough" to be actually good, or is "too bad" that not even a good old-fashioned money helicoptering will not help. This will stop when the QE & LTRO are done. After that, bad and good return to the roles they traditionally have.
- MoreLiver
Recap – GMT
FX option vols – Saxo
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS
More apathy, less austerity - faith in Eurozone dissipating fast – Saxo
Only two choices: 1) Who pays the bill and how do we create an internal devaluation of the poor Eurozone countries combined with a move to true solidarity and fiscal transfer. or 2) More of the same: Social riots become the norm, Greece leaves the EU, Portugal follows, and things get out of control leading to the EU breaking up… I have never been more confident than now that this game is just months or a few quarters away from breaking down.
The downgrading of France from AAA was not, of itself, a major surprise. France has not traded as a AAA economy for many months now. This does not mean that investors should dismiss the downgrade as irrelevant. Rather, we should perhaps view this as a 1949 moment. A key bilateral relationship may be redefined by the visible confirmation of what is already an economic reality. How this political situation resolves is of great economic import.
Handful of questions remain on EU fiscal treaty – euobserver.com
EU leaders aim to announce a political agreement on the treaty next week and to sign the text at the March EU summit. With markets in recent months making EU decisions obsolete shortly after they are made, the ratification process is expected to last about one year.
Chart of the Day: The Ultimate European Government Debt Chart – Credit Writedowns
Perhaps not the ’ultimate’, but a very nice demonstration of what can be quickly done with Google’s Public Data Explorer.
Taxing finance: Not so fast – Buttonwood’s / The Economist
1) All taxes are paid by the end user, so it is not a valid argument against the transaction tax, 2) liquidity is over-rated, 3) active managers underperform so the tax might actually enhance investors’ returns.
ECB
The ECB has a communications problem – alphaville / FT
Goldman Sachs thinks QE would introduce even more credit risk and thus not be very effective. Instead, ECB could set a plan and provide information on how it supports the bond markets and what happens to LTRO: how, when, who and how much.
Goldman Sachs thinks QE would introduce even more credit risk and thus not be very effective. Instead, ECB could set a plan and provide information on how it supports the bond markets and what happens to LTRO: how, when, who and how much.
$10 TRILLION Liquidity Injection Coming? Credit Suisse Hunkers Down Ahead Of The European Endgame – ZH
CS: February’s second 3-year LTRO looks set to be extremely large. Really extravagant claims (we have heard reports of €10 tn) are probably wide of the mark because this will not be a complete collateral free-for-all. On Greece: What message would paying the 20 March in full on Greece’s behalf give to the rest of the periphery?
CS: February’s second 3-year LTRO looks set to be extremely large. Really extravagant claims (we have heard reports of €10 tn) are probably wide of the mark because this will not be a complete collateral free-for-all. On Greece: What message would paying the 20 March in full on Greece’s behalf give to the rest of the periphery?
The Deposit Facility is an indicator of net borrowings from the ECB – Sober Look
Therefore when the Deposit Facility balances increase, the banks are not really “hoarding cash” – they simply have no choice but to use the ECB's facility. The way to interpret this record deposit amount is that the banking system as a whole is borrowing record amounts from the ECB on a net basis.
OTHER
Collection of several articles from the past day or two.
We find ourselves in a situation in which neither side wants to force the other into extreme steps and neither side is in a position to enter into broader accommodations. And that's what makes the situation dangerous.
Renaissance Starts First Hedge Fund in Five Years Trading Stocks – BusinessWeek
The best-performing hedge fund group comes up with a new cheap one.