None of the articles today are critical must-reads, but most of them have interesting long-term points and background thinking - enjoy!
News – Between The Hedges
Markets – Between The Hedges
Recap – Global Macro Trading
The Closer – alphaville / FT
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS: GENERAL
It’s Mostly Fiscal (Transfer) – alphaville / FT
What the (IMF) is — rather openly — talking about here is official sector involvement from the eurozone creditors. No OSI to plug a future financing gap — the IMF walks.
What the (IMF) is — rather openly — talking about here is official sector involvement from the eurozone creditors. No OSI to plug a future financing gap — the IMF walks.
Perhaps the risk that a Greek debt restructuring would cause a financial meltdown was always minimal, and quiescent markets were to be expected. But, in that case, why all the fuss? The answer should be clear by now: interest-group politics and policy elites’ worldview.
Migration of sovereign debt from private hands to public institutions – Sober Look
The hope is that this shift will provide enough time and flexibility for these nations to eventually tap the private markets again. But given these GDP trends and the "cheating" that's going on with respect to these debt to GDP ratios, the public institutions (and therefore the Eurozone taxpayer) will have to wait a long time and take losses along the way before this becomes a reality.
Greek CDS Settlement – 3 Wrongs Do make a Right – TF Market Advisors
So although I’m fairly certain Portugal will have a Credit Event, I would not be willing to bet that they don’t find a way to make the PSI come out in such a way that new bonds traded much closer to par, potentially negating the value of the CDS…In Spain and Italy, where CDS trades at 410 and 355 respectively, the risk/reward is still in your favor for several reasons.
BizDaily: The secret of German success – BBC (mp3)
German unemployment is at a twenty year low, its deficit is falling and exports grew by over 10% last year. Business Daily has been out on the road in search of the secret of German success.
ASSET CLASS VIEWS
BONDS: Sovereign Debt: Don’t panic – Free exchange / The Economist
America can't ignore its debt issues forever. But it would be a huge mistake to panic at the first sign of rising Treasury rates and rush headlong into short-term austerity.
BONDS: Emerging Markets Snapshot – Danske Bank (pdf)
Still optimistic, but getting more neutral
STOCKS: James Montier: The risk to corporate profits – Pragmatic Capitalism
unless households start to re-leverage or the current account improves significantly, and assuming that the government moves toward some form of deficit reduction plan, corporate profits are likely to struggle. From this perspective, a structural break in profit margins looks to be difficult to support. So, for the time being we will continue to base our forecasts on the mean reversion of profit margins.
STOCKS: Weekly Market Comment: An Angry Army of Aunt Minnies – Hussman
If you examine the components of the S&P 500 individually, you’ll quickly find that the majority of those stocks are also at or through their own upper Bollinger bands. In overvalued, overbought, overbullish, rising-yield conditions, those extensions are often resolved in unison, which is what produces the characteristic “air pocket” where the index can give up weeks or sometimes months of upside progress in a handful of sessions (h/t the trader)
ECONOMICS
Potential output: Risking permanent damage – Free exchange / The Economist
Two spectacular failures stain 20th century macroeconomic policy in America: the Great Depression and the Great Inflation. They share an important ingredient: in both, policy makers could not properly gauge the economy’s potential output, i.e. its productive capacity.
Hatzius On The Three Reasons The Recovery Is Overstated – ZH
GS: The US economic data over the past few months have clearly outperformed expectations…1. Warm weather has pulled forward activity 2. The inventory cycle has helped 3. Gas prices are starting to cut into real income…there are several reasons to believe that the recent data may have overstated the strength of the US economic data.
GS: The US economic data over the past few months have clearly outperformed expectations…1. Warm weather has pulled forward activity 2. The inventory cycle has helped 3. Gas prices are starting to cut into real income…there are several reasons to believe that the recent data may have overstated the strength of the US economic data.
Bernanke: "The Federal Reserve and the Financial Crisis" Part 1/4 – Calculated Risk
The first lecture (about 1 hour) discusses monetary policy history, the tools and goals of the reserve - and he spent some time on the gold standard.
In the Balance: The Sweet Spot – BBC (mp3)
How to pursue austerity without damaging growth? It's the challenge of our times in many developed economies. The extent of spending cuts and tax rises in Greece has been endlessly debated, so too Spain, which in the past week fell out with Brussels over deficit reduction targets. So is there a sweet spot - where cutting spending will not hurt the economy?
CHINA
I try to lay out what are the various possible paths open to China. The scenario concerns trade. China’s current account surplus has declined sharply from its peak of roughly 10% of GDP in the 2007-2008 period to probably just under 4% of GDP last year. Over the next two years the forecast is, depending on who you talk to, either that it will rise significantly, or that it will decline to zero and perhaps even run into deficit.
Will China's 'Soft' Landing Be 'Hard' On Global Exporters? – ZH
UBS: China imports a lot from East and Southeast Asian economies and is the largest market for almost all major economies in the region…First, exports to China have become increasingly important for some large developed economies such as Japan, Germany and the EU in general…Second, some large emerging market economies may find it increasingly difficult to “decouple” from China.
UBS: China imports a lot from East and Southeast Asian economies and is the largest market for almost all major economies in the region…First, exports to China have become increasingly important for some large developed economies such as Japan, Germany and the EU in general…Second, some large emerging market economies may find it increasingly difficult to “decouple” from China.
The supercycle is so over, iron ore edition – alphaville / FT
OTHER
Be very, very quiet – we’re hunting AIGs – alphaville / FT
SEC report: 74% of CDS trading activity comes from 9 houses, 87% from 15 houses.
SEC report: 74% of CDS trading activity comes from 9 houses, 87% from 15 houses.
Weeks When Decades Happen – John Mauldin / The Big Picture
Instead of lamenting over the past, investors should be coming to grips with the trends of the future: the internationalization of the RMB, the rise of cheaper and more flexible automation, and dramatically cheaper energy in the US.
Fitch Ratings’report from Feb 3 for free
OFF-TOPIC
When journalists take money from Wall Street – Felix Salmon / Reuters
This is one of those issues, a bit like the exact meaning of “off the record”, where everybody thinks they know what the standard is, but everybody also thinks it’s different.
5 Things That Surprised Me About A Career on Wall Street – The Big Picture
Sure, there are frustrations, and there are people who focus on the piles of money to be made, to the detriment of all else. If that’s your focus, you will have missed out on some very important life lessons.