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Monday, January 23

23rd Jan - Just sign here and don't think

Portugal -a closet Greece?
Interesting spectacle on Sunday: Italian PM suggested doubling the ESM from current plans of €500bn to full 1trn, and got a no from Germany immediately. The ESM should be agreed upon on Monday and signed on 30-Jan. There is the possibility of increasing ESM’s size later, so why the rush? 

A surprise move to double now could make the negotiations and signing harder, as countries like Slovakia have difficulties understanding why they should be bailing out rich bastards in Greece and Italy. My thinking is that Monti has lost his nerve. There is no way how you change the plans for ESM on the previous day of the final negotiation. Of course, the idea is to sign under the €500bn and then later adjust that amount upwards as the need arises – and it will. I think we are in for an interesting week.


Central bank swap lines helped...
...but 2y swap spreads have hardly budged
Meanwhile, Spanish economists have fixated on their rigid labor markets, even though it is obvious that the European easy credit, housing bubble and construction boom are more to blame. The labor market peculiarities just make the adjustment much harder. So in order to keep the lifelines from Europe open, the systemically most dangerous PIIGS play blind to reality and repeat after the Commission that the answer is more Europe. Have you seen the ECB or the Commission pushing for skeptical governments in constituent countries, or have they been filled with “technical governments’?

 
With the Greek default, the commentaries are two-sided – others believe it will be a game-changer, others that it will be just accepting what has already happened. It is true that any pretense that sovereigns are risk-free would be gone, but the markets have realized and priced that for some time already. The coming default has to be marketed as catastrophic to discourage the 'closet-Greeks' of Europe (esp. Portugal, Ireland and Spain, but also CEE)  not to even think about it. This is also important to get more signatures to the treaties and the rescue vehicle agreements.
 
I changed my regular posts. The ‘Weekender’ has been split: new Weekender has links to articles, while the new Weekly Support holds the roundups.

For those returning from the weekend to MoreLiver here’s what you missed:
Weekender good reads from Friday and weekend
Weekly Support the past week’s review and the beginning week’s preview
Best of The Week selected links from the past week’s posts
Press Digest select articles from The Economist, The Telegraph and Der Spiegel

You can follow me on Twitter or Facebook and email me for suggestions and requests. I also have an automated publication based on the twitter feeds I follow at paper.li

News – BTH
News – The Trader
Press digests by Reuters: FT, NYT, WSJ,
Morning Briefing – BNY Mellon
Daily – Danske (pdf)
Market Preview – Saxo
Key events of the week – Goldman Sachs via ZH

FX option vols – Saxo
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT

EURO CRISIS: GENERAL
The latest actions in the Eurozone's "war'Sober Look
ECB lowered bank reserve requirements from 2% to 1%, LTRO-II coming, ESM & ESFS set at €500bn, treaty under construction and ESM support only available to treaty-adhering countries.

Super Broke Mario Brothers Kindly Request The ESM Be Doubled To €1 TrillionZH

Super Mario Brothers Super Denied: Schauble Tells Italy, ECB We Like You Just The Way You AreZH

EURO CRISIS: GREECE
Hours Ahead Of Monday's Euro FinMin Meeting There Is No Greek Deal; IIF "Remains HopefulZH
But wait, we thought Greece and the ECB had an upper hand? Wouldn't they exercise said upper hand by now, considering its now 9pm in Greece on a Sunday, the day before the critical European finmin meeting by which point the Greek deal was supposed to be in place?

Oh dear, Greece yet againThe Big Picture
Long and insightful article: The time, effort and, in addition, vast sums of money wasted on Greece is a joke, indeed criminal. We all know that Greece will default – it is not an “if”, but a “when”.

Subordination 101: A Walk Thru For Sovereign Bond Markets In A Post-Greek Default WorldZH
Huge article goes deeper into how sovereign defaults happen and what they mean.

Hell, Handbaskets and Hellenic DefaultLondon Banker
If any OECD state were to default there would be very serious implications: the Basel Accord zero risk weight of government debt would be proved fanciful; the assumption of government debt as a liquid asset suitable for bank Tier 1 reserves to meet unanticipated and sudden cash demands will become unsustainable…

EURO CRISIS: OTHER PIIGS
A Month In Spain That Didn’t Shake The WorldEdward Hugh / A Fistful of Euros
The problem here is that if you don’t “perfectly understand” why the country had the crisis in the first place, then you may not be able to put the consequences straight. Spain’s problems have a clear European dimension, a dimension which goes well beyond the simple difficulty of selling bonds which forms part of the Sovereign Debt Crisis.

Irish Journalist Hounds ECB Official Regarding Irish Taxpayer Bailout of French and German BanksMish’s
See also this article from Apr-2011.

OTHER
FXCM Reviews Customer Trading Data, Presents Lessons for TradersHistorySquared
However, specific time slices are profitable for traders. When volatility is increasing, during the European session, customers are profitable. The worst time for retail FX traders is when volatility peaks, 9:00 EST US, and throughout its descent into the Asian hours.

Will China Ever be As Rich as USA?Can Turtles Fly
Why do countries fail to reach U.S. living standards? Therein lies something of a mystery. Economists speak of a middle-income transition, or middle-income trap, where previously rapidly growing economies slow down dramatically and never achieve the same standard of living as the technological leader.

FOMC Meeting PreviewCalculated Risk
I expect the focus will be on the press briefing and the FOMC forecasts.

Japan’s Lopsided Financial BalancesRebecca Wilder / EconoMonitor
As with all credit cycles, the burden of debt falls on the government as the private sector recoups. However, in Japan’s case the government missed a great opportunity for structural reform before the crash associated with credit cycles in other major developed economies (the USA).

DIVERSION
All Together Now The Epicurean Dealmaker
Most government bureaucrats, politicians, businesspeople, lawyers, and bankers really do believe they are providing a useful and perhaps even noble service. They view their privileges and socioeconomic rents not as perks unjustifiably pilfered, but as concrete confirmation of the worth and value which society—the people, the voters, the market, etc.—places upon their efforts. They think they deserve them.
 
Do we have more fun at work or at home?Barking up the wrong tree
Answer is at work – but people don’t believe it, even when asked about it.