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Monday, March 12

12th Mar - When good looks matter most

BIS report from yesterday states the increased capital requirements for the European banks were a stupid idea. The eurocrats wanted to increase the confidence, which they perhaps managed to do - but simultaneously they decreased the financial activities of the banks. The idea was to save the economy - not the looks! Also LTRO gets a word in today's links.
Sarkozy is trying his best to look more socialist and more right-wing than either of his competitors. How sad. More Europe is probably the answer even for the little man's issues.  I just realized that 'Merkozy':  

  1. They see themselves as the reincarnation of Mitterand and Kohl, uniting the Europe
  2. They see themselves losing elections, unless they roll the blame on everyone else and look irreplaceable
  3. They want to minimize their domestic losses from the little European experiment and try to get everyone else involved and picking up the bill.

I would love to get some feedback and requests: I am on Twitter, Facebook, email and

Euro Crisis Press Summary – Open Europe
New Open Europe report: How to safeguard free movement in Europe; Sarkozy appeals to hard right by threatening to suspend EU open border policy and calling for a “Buy European Act”
Markets – Between The Hedges

Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT

Dear EBA, the central banks and emerging markets have got thisalphaville / FT
The central bank’s bank says those new European bank capital requirements DID dampen lending, prompt asset sales, and generally give everyone more to worry about in the past few months.

Finland’s still got a secretalphaville / FT
On the secret collateral agreement between
Greece and Finland

What Europe Could Have Learned From the U.S. Bank BailoutDealBook / NYT
As part of the bank recapitalization plan that went along with the 2009 bank stress tests, American regulators chose not to express its target as a ratio, since it can crimp lending… By contrast, American regulators stated in 2009 that banks had to hit a certain dollar amount of capital. As a result, banks could not achieve their capital targets by reducing assets.

Europe’s Trust DeficitProject Syndicate
The euro crisis thus offers Europe an opportunity to reestablish trust. Its national leaders need to reestablish the trust of their constituents by offering them straight talk. EU member states need to rebuild their trust in one another. And European countries facing the need for wrenching structural reforms need to restore social trust at home.

Mark Grant On The Increased Risks of Owning European Sovereign/Bank DebtZH
For those of you who are more aggressive and want a bigger play then I suggest shorting the debt or equity of the European banks. My best picks here are Spain, Italy and France.

Is Sarkozy's tough talk on EU open borders hot air?Open Europe
In a sudden turn of events, Sarkozy has replicated Hollande’s tactics, calling for a withdrawal from the Schengen treaty on open borders, if no serious reforms are undertaken.

Sarkozy threatens to end EU passport-free

Portugal to Fall, Greece to Leave Euro ZoneEconoMonitor
Nouriel Roubini interview on CNBC

Brussels Presses Spain for Budget Details on How Spain Will Reduce Deficit to 3% of GDP; Threatens 2 Billion Euros FineMish’s
Spanish unemployment exceeds 23% with youth unemployment at 49%. Austerity measures to further reduce the budget deficit from 8.5% to 3% over two years simply are not realistic.

Risk of Eventual Greek Default Remains High Despite Bond ExchangeResearch Recap
Moody’s: any future debt restructuring will involve not only losses for private-sector investors, but also likely include official sector involvement, with an accompanying escalation in political risks.

LTRO names n’ numbers, revisitedalphaville / FT
UBS: We (have) discussed…how usage approaching 10% of a bank’s funded book could represent a tipping point beyond which counterparties and investors would likely regard the bank as one unlikely to be run as a typical private-sector enterprise.

Is The ECB Masking Accelerating Deposit Flight In Italy And Spain?ZH
Spanish and Italian (SPIT) banks dominated the use of the ECB's LTRO facilities, while Finland/Germany/Luxembourg (FINGEL) banks took only modest amounts... but the rise in the ECB's deposit facility shows that FINGEL dominated the additions while SPIT increased only very marginally...

FOMC preview – Danske Bank (pdf)
FOMC Preview – MarketBeat / WSJ
FOM-C you in April – alphaville / FT
JPM Expects Fed To Acknowledge Inflation – ZH

Japan's Debt Disaster and China’s Non-Rebalancing Act: Economic Toxic Brew Portends Currency CrisisMish’s
Every country in the world understands the need for global trade rebalancing. Yet, politicians have done nothing but take stances that mathematically cannot work… This economic toxic brew will simmer until the pot explodes in a massive currency crisis at some unknown point down the road.

Global liquidity peak spells trouble for late 2012The Telegraph
The global liquidity cycle has already rolled over. Assuming that no fresh action is taken, world economic growth will peak within a couple of months and then fade in the second half of the year - with grim implications for Europe’s Latin bloc.

Daily FX Trading Activity: $4.7 TrillionZH
From the BIS report.

3 Charts On Not Buying The 'Global Recovery' Risk RallyZH
Economic positive surprises, US import volume, world trade volume

Cigars: Smoked and LayedMacro Man
As even large debt restructurings seem viable without CAC’s, the developed CDS market is actually pricing catastrophic NPV haircuts, as small NPV reduction will not guarantee a payment.

CDS DisclosureTF Market Advisors
Maybe seeing the CDS disclosure would help people understand the product better (which would be good for the market as a whole) and investors could skip the articles based purely on hype that do nothing to help make informed decisions.

Berenberg’s Schulz Says Greek Economy in 'Free Fall' – BB (mp3)
Lloyds's Lolay Says Euro Crisis ‘Far From Resolved’ – BB (mp3)
Rathbone’s Chillingworth Sees Euro Falling Against USD – BB (mp3)
Jefferies’s Darby Says China’s Economy Is Slowing – BB (mp3)
BizDaily: Japan's economy – BBC (mp3)
  Japan one year after the tsunami, Greek bailout and boss’s e-mail style

A New Financial GlossaryThe Daily Capitalist

Butt-Head AstronomerLetters of Note
Late-1993, renowned astronomer Carl Sagan learnt that Apple's forthcoming computer, the Power Macintosh 7100, had been given a codename of "Carl Sagan"

Six Tips on Writing from John Steinbeckbrain pickings