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Tuesday, February 7

7th Feb - ECB agrees to swap

ECB sending Greek bonds to EFSF is basically a very important piece on both ECB policy, on rescue vehicles’ future use and obviously for Greece, as the ECB participation in the bond swap increases the effective haircut level. Very, very interesting. Thank you for offering all our future tax revenues to saving French and German banks. Bonus question: guess why I thanked the flower pot for 6-Feb-2012?

Huge post. It is happening in all fronts now - all regions, all dimensions (political, strategic, markets), all asset classes. Only things not moving are the FX market and the politicians. A very short morning post tomorrow. I'm experimenting: I will not break the latest post, so it will be fully visible both on feed reader and the blog's front page. When I post another one, I will put a jump break to this post. What do you think, more or less convenient?

News – BTH
Markets – BTH
Recap – GMT

Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT
The hazards of crisisFree exchange / The Economist
I don't know whether the euro zone has figured out a way to muddle through this mess. It seems pretty clear to me that the euro zone has not done the things I thought it needed to do to make it through, but at the moment it isn't that easy to figure out what the ECB's actual underlying strategy is.

The Elephant in the Room Is Spain, Not ItalyNew Economic Perspectives
The decision for Europe’s bosses is this: they must ultimately confront the consequences of their policy choices. They can destroy the eurozone by continuing with the same failed mix of policies or by salvaging it by adding what has been missing from the outset: a mechanism for shifting surpluses to the deficit regions in the form of productive investments(as opposed to handouts or loans).

Great Debate: Will the euro survive the debt crisis? Professional Wealth Management
CIO of ML Wealth Management EMEA says yes, senior economist of Roubini Global Economics says no.

Merkel seeks to save marriage of convenience presseurop
Roundup of what the newspapers in Europe are saying about Merkel’s support to Sarkozy.

TARGET2 balance of the Bundesbank – Increased risks for Germany?Natixis
Instead of focusing on TARGET balances, one should evaluate the risks for Germany by directly referring to the risks involved by the liquidity supply of the Eurosystem (SMP, CBPP, ELA). Losses are borne by the Eurosystem as a whole, according to the capital share of each country. Hence, the size of individual TARGET2 balances is irrelevant for country specific risks.

Euro Adds To Gains As ECB Willing To Exchange Greek Debt MarketBeat / WSJ
The ECB will forgo gains on any Greek bonds it bought in the secondary market at a discount, instead sending them to the EFSF.

Rumors That ECB Will Transfer Greek Bonds To EFSFPeter Tchir / ZH
The ECB could have taken the loss directly and just printed money for that loss.  So this demonstrates an unwillingness to print money.  The ECB could take the loss and get capital from the member states.  By using the EFSF rather than new capital calls, it is a sign that countries are at the limit of what they will contribute.

It's Time To End the Greek Rescue Farce Spiegel
Whether it be an escrow account or a budget commissioner, the latest demands by Germany show just how absurd negotiations over Greece's future have become. It is high time to bring an end to this tragicomedy.

What’s The Latest On Greece? MarketBeat / WSJ
Nice roundup, with what's ahead-calendar.

EU commissioners go off-message on
EU commission chief Jose Manuel Barroso has given reassurances his institution wants Greece to stay in the eurozone, after one of his commissioners suggested an exit is being considered and another downplayed the devastating effects of such a scenario.

EURUSD in squeeze mode as Greek deal or no deal looms Saxo
(Even with a deal) the risk remains that the spotlight simply shifts to the next shaky sovereign after Greece signs on the dotted line. And as we mentioned yesterday, the social upheaval element in Greece is ever-present, and there is also the risk of a change of heart if snap elections proceed in April and put a new political party in power.

Podcasts from Bloomberg:
Daiwa’s Lewis Says Greece Will Be Left With High Debt – BB (mp3)
UBS’s Yu Says Euro Will Weaken to $1.15 by Year End – BB (mp3)
Nomura’s Sondergaard Says Europe Buying Time for GreeceBB (mp3)
Hopkins’s Hanke Says Greek Economy Is ‘Imploding’ – BB (mp3)

UBS On LTRO: 'One More Is Not Enough' ZH
UBS: next LTRO will not be the last…The LTRO is likely to be different things to different banks in different countries at different times.

LTRO-ing, with Magnus alphaville / FT
UBS: anxious fixed income investors have been encouraged to re-benchmark or overweight again domestic sovereign bond positions, now that banks have access to plentiful and cheap ECB funding. Investors do not seem to have extended this behaviour shift to cross-border sovereign debt investing

Full Scenario Analysis Of LTRO 2.0 Size Implications ZH
Credit Suisse believes LTRO 2.0 will see a gross uptake of EUR500-650bn, notably above current consensus around EUR325bn.

Deutsche Bank Treasures Its Reputation (For Making Economically Questionable Decisions) So Much That It Turned Down Free Money Dealbreaker
…some of the classier European banks (DB, Barclays, Standard Chartered, etc.) have refused to take three-year 1% money against pretty cats-and-dogs collateral, not because they can necessarily get a better economic deal elsewhere, but…

European Nash Equilibrium Collapses - Bank Bailout Stigmata Is Back At The Worst Possible Time ZH
If everyone uses LTRO, fine. If only some do, those banks will be shunned by other banks, as they are “bad”.

What's Wrong With the ECB Institutional Investor
The article from 2001 blamed the central bank for bad communications and questioned its monetary policy. Not much has changed, apparently.

Here Is Why David Tepper Will Not Make A Repeat "Balls To The Wall" Appearance Any Time Soon ZH
Morgan Stanley: I think QE3 will end just as badly as QE2…I would feel better if earnings and economic growth were accelerating like during QE2. But they aren’t.

Fed’s QE Crisis Programs: A Visual History MarketBeat / WSJ
Charts and text from Nomura and Morgan Stanley

Brent WTI Back To $20 - Some Thoughts On What's Next From Goldman ZH
Goldman Sachs recommends shorting WTI time spreads: short May, long June

Brent-WTI spread wider on Iran fears and US supplies Sober Look
Anecdotal evidence suggests numerous Iranian families now unable to buy food. The regime will become increasingly belligerent externally in order to suppress domestic issues. This may put additional upward pressure on Brent crude, widening the spread further.

Europe at an energy
A new investment cycle is taking place, as infrastructure built 30-40 years ago needs to be replaced. If we take the right strategic decisions now, investments will cost less and avoid disruptions in the longer term.

Global liquidity fail — the role of skewed incentivesalphaville / FT
Fundamental factors like lax supervision of the banking system and a lack of fiscal discipline clearly played a role in generating the current crisis, but the role played by global liquidity surpluses and deficits was arguably as big if not greater. At the very least it acted as the catalyst which pushed the system’s fault lines to their limits.

Against Risk Parity, Redux The Aleph Blog
Trading asset prices to parity given historical risk is a fool’s game.

Global Investment Returns Yearbook 2012 Credit Suisse (pdf)
64 pages of country analysis and a jungle of charts.

Global liquidity - concept, measurement and policy implications BIS (pdf)
This report analyses global liquidity from a financial stability perspective, using two distinct liquidity concepts. One is official liquidity, which can be used to settle claims through monetary authorities and is ultimately provided by central banks. The other concept is private (or private sector) liquidity, which is created to a large degree through cross-border operations of banks and other financial institutions.

Institutional investors set to dump poor hedge fund performers Pensions & Investments
Big round of manager changes expected after year of bad returns

The dramatic final days of MF Global alphaville / FT
Some slides and commentary from the trustee’s investigation.

Credit: Conditions Are Improving The Short Side of Long
No matter how bad things look, risk assets will not sell off significantly unless credit markets freeze. And the credit markets are improving.

Berlusconi in Winter The Atlantic
In his most extensive interview since leaving office, the former Italian prime minister on what he's learned from being forced out, what he hasn't, and why he still wants to transform Italy.

An Ivy League Education in Computer Science for FreeHistorySquared
List of universities offering free CS courses and a suggested curriculum.

10 Tips on Writing Well from David Ogilvy brain pickings

'Old Traders' - Chapters I – IX HITC