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| Insert your ridiculous phallus joke right here. FT |
After a busy weekend, again a surprising number of interesting articles. Two of my favorite authors on euro crisis (see e.g. this pdf) have come up with a new one, claiming that to be effective, required size of the 'bazooka' is €2.5 trillion (that's in a good scenario. If SHTF, it would go up to €5trn.
Meanwhile, Portugal's troubles are gathering attention and the Troika is about to have a case of déjà vu as they will soon hear that the deficit targets cannot be met. Unluckily, the bailout was conditional on meeting the targets, so now the Troika is about to be pulled into another Greek dance of death and playing the chicken. Another Greece would be politically too much for Berlin. What happens when Berlin becomes unhappy:
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| Ausstieg = Exit. Source |
For those who have been elsewhere over the weekend here’s what you missed:
Just sign here and don't think Spain, ESM double-up, PSI breakdown
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
FX option vols – Saxo
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS: GENERAL
That’s not a bazooka… – alphaville / FT
Authors of still the best articles on euro crisis argue: Any successful program must recognize the fact that appetite for periphery debt amongst investors will not recover to “precrisis” levels, because default risk is now a reality that was not foreseen prior to 2009 and because debt stocks are now higher in the periphery – so the ‘bazooka’ should be €2.5 or even €5 trillion. Full document here
When a derivatives counterparty leaves the euro… – alphaville / FT
Law firm Clifford Chance has put together a FAQ about what would happen to derivatives contracts should one’s eurozone counterparty exit the single-currency.
The ESM / EFSF Bluff – TF Market Advisors
There is no shot of raising all the capital. It is a distraction from their failure to leverage EFSF or to get new (non-European bank) funding from the IMF. It’s not a solution, barely even feasible.
Mispricing of sovereign risk and multiple equilibria in the Eurozone – voxeu.org
Economists have been lining up to point out that markets were wrong in charging the same risk premium on Greek bonds as for German bonds during the decade-long honeymoon period of the euro. But this column adds that the same markets are also wrong in overestimating the risks that the periphery countries will default. The result is a more unstable Europe for us all.
EURO CRISIS: ECB
Death sanitised through credit – alphaville / FT
The real point of LTRO was to keep secured lending in the interbank markets still working – with LTRO, ECB stepped in and became a “broker of last resort”. This helped the banks in their refinancing troubles and lessened the need to deleverage quickly.
Privileges and Immunities of the European Central Bank – ECB (pdf)
EURO CRISIS: PIIGS
Why Are Greek Credit Event Swaps Still In The Mid 60′S? – TF Market Advisors
The Net Notional of Hellenic Republic CDS outstanding is only around 3 billion (less than 1% of the debt outstanding). After the PSI deal is done, the amount of debt would be reduced, but a default on a relatively small amount of holdout debt ($10 million I believe), would cause a Credit Event for the entire amount of CDS outstanding.
The Portuguese government did meet its obligations under its bailout agreement in 2011, but only by using a one-off transfer of money out of the banks’ pension funds to the government. In 2012 there is no backstop and therefore targets are unlikely to be met.
OTHER
$18 Trillion Remain Hidden In Offshore Banks By Global Elite – EconMatters
So said IMF’s research, and it does not even include any money being held in Switzaerland.
Things that make you go hmmm-report. – The Trader
Link to the pdf at the bottom of the post.
Sovereign default fairy tales and facts - take your pick – Saxo
Why is everyone so afraid of a default? Are we supposed to believe we have banished them forever? History is full of nations going bankrupt – and in no circumstances has it ever meant a complete loss of trading, credit, etc. Quite the contrary - it's precisely the default and accompanying devaluation that often sows the seeds of a recovery.
Summers Memo Provides Peek at Crisis Aftermath – DealBook / NYT
Or what Obama was made to read at the onset of the crisis. Also Mr. Krugman on the same.
The ETF First-Mover Effect – Index Universe
The first ETFs in a segment capture the largest market share. R2 of AUM rank and launch rank is a staggeringly high 0.81.
Global healing, 2012 vs. 2009 – Humble Student of The Markets
If we are indeed in a period of global healing, then can we expect the kinds of returns from stocks that we saw coming off the March 2009 bottom? The answer is a qualified no.
Global Challenges in 2012 – Christine Lagarde / IMF
Speech 23-Jan in Berlin. Growth and firewall needed, Japan’s debt mountain. Here’s WSJ’s article on it.
EMERGING
EM growth is passport out of West’s mess but has a price, says “Mr BRIC” – Reuters
Developing countries are increasingly disgruntled about the the richer world’s strangehold on global policies via the International Monetary Fund and the World Bank and most have responded coolly to the call for additional funds for the IMF which is fighting to stem the euro zone malaise.
31 hours of video lectures from Harvard Faculty of Arts and Sciences