I am still updating the 2011 and 2012 posts. Bond auction day on Thursday and Iran is still very much on the table. As a solution to the debt crisis, there are only inflation or deflation. Bond markets are assuming it will be deflation, so the element of surprise is with the inflation scenario. Until there are clear signs of inflating the debt away, I really don't see how gold could begin a serious rally to new highs, unless it is thought of as the ultimate counterparty risk hedge. I really don't understand who would be buying US, EU core or Japanese bonds at the current yield levels.
Then again, I am old enough to remember that for the past twenty years I've had the bond collapse view but no trades, and the ones with both the view and the trade are not among us anymore. In Europe, some analysts are pointing that the LTRO is working just fine and the money is just flowing to shorter end of the yield curve. That would make sense - earn the carry, avoid big duration risk and just worry about muddling through for the next twelve months or so.
On the other hand, the ECB deposit facility has made new highs after the 2011, so the theory that banks are just hoarding the liquidity until the New Year has been proven false. THat was behind the drop in EURUSD during the European hours.
Today some good links and reads.The first pic shows a traffic sign for "bumbs ahead". For MoreLiver it is the sign for a bimodal distribution: inflation or deflation?
- MoreLiver
Quote of the Day: Overall, European credit gauges are still performing very poorly given that the European debt crisis “can-kicking” solution is supposedly at hand, which remains a large red flag. – BTH
To the links:
News Jan-1 evening – BTH
Recap Jan-1 – GMT
FX option vols – Saxo
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS
The Ultimate Demise of the Euro is a Matter of When, Not If – Wall Street Pit
I could perhaps see some kind of relatively stable, long-term deal coming out of this process if there was a robust enforcement mechanism, and if political commitments made today were credible and binding on future politicians. But there isn’t, and they aren’t.
European Credit Markets Tanking Ahead Of Key Issuance Day – ZH
Nowhere is that pressure more obvious than in French government debt spreads which have popped over 40% in the last week, ahead of tomorrow's huge issuance and redemptions.
Euro Declines After Bund Auction, Hungary CDS Soars To Record, Massive New Issue Discount In UniCredit Stock Sale – ZH
With roundup of analyst comments on the auction.
With roundup of analyst comments on the auction.
ECB: Large deposits do not imply that LTRO has failed – Danske (pdf)
2011 / 2012
2012: The Predictable – The Big Picture
All that can be predicted accurately is repeated behavior and trends will continue until some force is impaired on them: Merkozy meet, end-of month & expiry date manipulation, hedge funds crowding in same stocks, deficits increase etc etc.
Top Firm Shares Major Lessons / Observations From 2011 – HITC
Jefferies has sent the January 2012 edition of its quarterly client newsletter 'Jefferies Insights' to all clients and prospects of the firm.
Look on the bright side of 2012 – alphaville / FT
BoAML lists some positives, as the general mood for 2012 is so dark.
Question #6 for 2012: Unemployment Rate – Calculated Risk
STOCK MARKET
On Risk Concerns And Over-Optimism – ZH
US economic surprise indicator has peaked again and economists are currently upgrading their forecasts…creates significant room for disappointment and implicitly, equity underperformance.
High Stock Correlations Could Be Here to Stay – MarketBeat / WSJ
Outlines a recent research report from BCA.
Stocks to Rebound in …..2027? – World Beta
The relative performance of bonds vs. stocks is often cited as a reason why stocks are cheap right now. The Japanese experience teaches us that the stocks could remain cheap for 15 years.
A new duality – credit and zero-bound interest rate risk – characterizes the financial markets of 2012, offering the fat left-tailed possibility of unforeseen policy delevering or the fat right-tailed possibility of central bank inflationary expansion.
The Gross paranormal, a.k.a the time depreciation of money – alphaville / FT
Comments the above. Whether it’s via deflation or inflation, time depreciation of money (or wealth) is now guaranteed.
DIVERSION
So, What's Your Algorithm? – WSJ
You probably hate the idea that human judgment can be improved or even replaced by machines, but you probably hate hurricanes and earthquakes too. The rise of machines is just as inevitable and just as indifferent to your hatred.