Weekend! Some of the collateral-manufacturing for the ECB has been really absurd, as Peter Tchir's two posts point out. Greece's PSI and elections are a complete mystery. This week's price action confirmed the fears - markets saw through the bluffs and muddle-through attempts, LTRO was okay but does not solve the problems and Sarkozy is lagging in the polls. The next president of France will be, ahem, less pro-Brussels.
The current strategy of the eurocrats is due for a complete overhaul, and again nothing will happen until everything is spent. Just like in the country runs of the nineties, where pegs were defended until all foreign reserves were spent, the eurocrats will pump up the ECB's balance sheet until everyone knows that the core countries will not or cannot recap their wonderful master in Frankfurt am Main.
If you are just returning from extended weekends, fear not, as MoreLiver never sleeps. With Press Digest, Best of The Week and my editorials Bimodal Future, Addicts in Recovery and The Beatings Will Continue you should be able to get up to speed easily. The 2012 collection of predictions and Calendar have been updated. You can follow me on Twitter and Facebook and email me for suggestions and requests.
- MoreLiver
Joke of the Week: SARKOZY "END OF EURO WOULD MEAN END OF EUROPE, END OF PEACE" – BBG
News 6-Jan evening – BTH
Recap 6-Jan – GMT
PAST WEEK
US Macro – Calculated Risk
Wrap-up – The Pragmatic Capitalism
Politics this week – The Economist
Business this week – The Economist
NEXT WEEK
The Big Picture – Random Roger
Week Ahead – A Dash of Insight
Weekly Focus – Danske (pdf)
EU: Week Ahead – euobserver.com
Economic Calendar – fxstreet.com
Monthly Economic Calendar – fxstreet.com
Economic Calendar – BB
EU calendar – europa.eu
FX option vols – Saxo
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS
“German Success Recipe” or Blip? – Testosterone Pit
Throughout the 90s, following its reunification, Germany was the "sick man of Europe," marked by growing unemployment, stagnation, and lacking innovation… Clearly, the “German success recipe” will be tested in 2012. If there are more declines in export orders, GDP will take a significant hit, even if the Eurozone makes it through the year intact.
German Factory Orders Drop Most in Nearly 3 Years – Mish’s
It is amusing to see how other writers portray a story vs. what I would say about the same data.
Merkozy On the Verge of Losing Sarkozy – MarketBeat / WSJ
French President Nicolas Sarkozy is trailing socialist Francois Hollande in his bid for re-election, a danger for the euro zone that markets appear to have overlooked.
Fiscal union and easing a must: Rarely has policymaking been this poor. Sooner than later, the citizens of these nations will say, No more!, and political instability will result.
Cross-border banking and national supervision – is there a conflict? – voxeu.org
The global crisis has pushed government finances to breaking point. Forced to bailout their domestic banks, they have come to realise some harsh truths in the words: “Banks are international in life and national in death”. This column explores whether a supranational financial supervisor might be able to alleviate the pressures on national regulators and governments, particularly in Europe, and what barriers lie in the way.
ECB / BONDS
Barclays Estimates ECB Losses On Bond Purchases At €30 Billion, Or Nearly Half Of Eurosystem Capital – ZH
A quick reminder that the ECB is joint and several: i.e., losses are socialized. Germany will be delighted.
Assuming that the PSI moves forward and the aid tranche is made, an election is likely in April and therein lies potentially a significant hurdle for investors. The odds-on favorite to win the election is the New Democracy Party.While the former Socialist government and the current technocrat government appears willing to continue to pursue austerity, the New Democracy, at least in opposition, resists. It is opposed, for example, to any more wage cut or tax increases. Could that not be a Trojan Horse?
Would A Ponzi By Any Other Name Smell As Bad? – Peter Tchir / ZH
This program seems to ensure the destruction of the entire banking system and the sovereign if any reasonably large participant fails. We have gone for “sovereign ceiling” to “weakest link” in terms of credit. If this program become common and larger, we have effectively linked all the banks in the system, and the sovereign, to the WEAKEST bank.
More crazy manufactured collateral for the ECB. Tchir: If the Japanese created the “zombie” banks the Europeans are perfecting them.
High Yield new issue came to a grinding halt in Europe. The primary markets effectively shut down. And now time took over, and as time went on, maturities got shorter and so did durations.
French spreads grinding wider – Sober Look
The widening has been almost linear for the past 6 days.
CEE
Austro-Hungarian troubles – Macroscope / Reuters
Austria’s consolidated bank exposure to Hungary €41bn.
How will the eurozone crisis affect central and eastern Europe? – beyondbrics / FT
In the longer term, the strong reliance on FDI and on net capital inflows as main drivers of growth will not resume for the next few years. Similarly, a reliance on export-led growth will be hampered by low growth and possibly recession in the eurozone.
ASSET CLASS VIEWS
Morgan Stanley On Why The Gig Is Up – ZH
"What we have on our hands is a good old fashioned quagmire" is how Morgan Stanley's Mike Wilson sets up his surprisingly non-sheep-like perspective on the troubles that US equity investors may be about to face.
Bonds Versus Stocks In Three Charts – ZH
Morgan Stanley’s research. Adjusted for volatility and draw-down stocks are simply not as attractive from a relative-value perspective currently. Cyclically adjusted, credit markets are also priced for more concern than stock markets and thus either suggest being market-neutral in stocks (if forced to hold) or buying high-yield bonds (if bullish as they are priced 'cheaper' than stocks).
Monthly Chart Book – Goldman Sachs / ZH The 94-page research piece is embedded at the bottom of the page, after the Weekly Kickstart.
Most, Least Passive Ways Of Investing In Equity Getting Increasingly Close To Each Other – Dealbreaker
Goldman Sachs’s piece has good correlation charts. Also, private equity has a lot of cash and ends up overpaying and underperforming, leaking takeover premiums to the general market.
Markets update - Credit - The Hungarian dances – Macronomics
Correlation Nation (let’s go to the charts) – The Reformed Broker
Very nice correlation charts from Factor Advisors.
Momentum for Dummies – World Beta
Goldman's Stolper Speaks, Sees EUR Downside To 1.20: Time To Go All In? – ZH
But also: 1.20 to 1.45 in less than a year? Inserted into our regular forecasts, such a gloomy short-term scenario would also imply a very substantial and steep rally later in the year. We are less sure about that assumption than we were, though the notion that EUR/$ rallies by 25 big figures in less than a year is more common than some often assume.
But also: 1.20 to 1.45 in less than a year? Inserted into our regular forecasts, such a gloomy short-term scenario would also imply a very substantial and steep rally later in the year. We are less sure about that assumption than we were, though the notion that EUR/$ rallies by 25 big figures in less than a year is more common than some often assume.
OTHER
Week in Review: Trading Strategy – mathfinance.cn
Further downturn in Europe would have significant spillovers for Asia, Asia has capacity to respond to a new downturn.
UBS’s Cashin: one only has to look at the dramatic fall in the black market value of the Iranian Rial versus the U.S. Dollar, to know that the country is under a tremendous amount of pressure.
Repo and Securities Lending – NY FED (pdf)
We provide an overview of the data requirements necessary to monitor repurchase agreements (repos) and securities lending markets for the purposes of informing policymakers and researchers about firm-level and systemic risk. We start by explaining the functioning of these markets, then argue that it is crucial to understand the institutional arrangements. Data collection is currently incomplete. A comprehensive collection should include six characteristics of repo and securities lending trades at the firm level: principal amount, interest rate, collateral type, haircut, tenor, and counterparty.
DIY investing and the IKEA effect – Abnormal Returns
Why do do-it-yourself investors persist in building their own portfolios in spite of the evidence that they will likely underperform on a risk-adjusted basis?
By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.
Housing and the Economic Recovery – NY FED
Speech by W.C. Dudley, President/CEO of NY FED: With additional housing policy interventions, we could achieve a better set of economic outcomes than with just monetary policy alone.
DIVERSION
Book Bits For Saturday – The Capital Spectator
Solitude and Leadership – The American Scholar
If you want others to follow, learn to be alone with your thoughts. This lecture was delivered to the plebe class at West Point in Oct 2009.
“Useless” degrees are just as needed, and what exactly does a degree mean today?
This true story is movie material. Article from 2007.