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| Crisis-on: safe haven and Europe again correlate negatively. |
Here are the Monday evening’s links. You can keep in touch with "MoreLiver" through Twitter, Facebook, email and paper.li.
Here’s what I posted during the weekend: Euro Crisis + Other, Economics, Weekender: Trading & Off-Topics, Weekly Support, Best of the Week
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
FX Options Analytics – Saxo Bank
EURO CRISIS
What is at stake in the French election – bruegel
What is at stake in the French election – bruegel
French voters are angry and politicians are struggling to respond to their anger. But from a market perspective, there are only three serious topics: first, public finances; second, competitiveness; and third, the country’s stance in Europe. The question is whether the next president will have the ability to tackle them without exacerbating the citizens’ anger.
Dominique Moisi: The French perceive no real difference between an incumbent who has not kept his promises and a challenger whose promises are untenable. A suicidal denial of reality seems to unite the candidates and their supporters, best formulated as follows: “Don’t address serious issues, such as the national debt, during the election campaign, and we will not expect you to confront them seriously when you are in power.”
Ireland and Spain, while living up to the rules of the Stability and Growth Pact, were not fiscally prudent considering the macroeconomics of a currency union, whereas Germany, by violating the deficit limits, did what good economics would prescribe. (Sadly, it seems to have forgotten this lesson.) Two conclusions follow: first, the Stability and Growth Pact was utterly inappropriate for such a monetary union; second, this crisis is also about fiscal policy, even in Spain and Ireland.
Christine Lagarde: Emerging Market Nations Will Get More Power in the IMF – TIME
…sees no alternative to the strict austerity policies being imposed on many peripheral European countries, says the double dip recessions in Italy and Ireland just announced come as no surprise, and notes that IMF reforms will shift 6% of current quotas to dynamic emerging and developing countries.
EUR Surging As FX Repatriation Rears Its Ugly Head Again – ZH
EUR strength is just another bad sign, as Europeans selling foreign assets for cash is euro positive.
EUR strength is just another bad sign, as Europeans selling foreign assets for cash is euro positive.
LTRO Bank Stigma Widest Since LTRO Announcement – ZH
and the 3Y EUR –USD swap basis is dropping, just like in last August and November.
and the 3Y EUR –USD swap basis is dropping, just like in last August and November.
EURO CRISIS: SPAIN
Dalio and his team believe that funding gaps will soon force Spain, the EU, and/or the ECB to take extraordinary measures to save the country and its financial system from economic disaster.
Spain Government May Take Over Some Regions' Finances; Spanish 10-Year Yield His 6.15%, CDS at Record High; Mission Impossible – Mish’s
History suggests the more eurocrats resists a default for Spain, the bigger the resultant mess. Greece should be proof enough. However, eurocrat clowns have no common sense, no economic sense either, and they do not care about history. Expect a gigantic eurozone mess as efforts to kick the can do nothing but make matters worse.
Corruption and collusion fuelled an epic asset bubble – Macrowonders
In the 90s, Spain set up a system whereby "Independent Property Valuations" company would be independent entities on which banks would have to rely on when issuing a mortgage. Immediately after the system was in place, banks and independent valuers bought stakes in each others thereby aligning their interests.
The Spanish sovereign-banking loop – Open Europe
Banks must simply be allowed to fail. Ultimately, purging the bad practices and poor management which helped fuel the boom and bust in Spain will be vital for the long term health of the banking sector and the economy.
JPMorgan’s Tom Elliott Sees Bailout for Spain – BB (mp3)
VTB’s MacKinnon Says Spanish Banks ‘Are in Trouble’ – BB (mp3)
Peterson’s Kirkegaard Says Spanish Bailout too Costly – BB (mp3)
ASSET CLASS VIEWS
Q2 Commodity Outlook: Oil markets looking for right balance – Saxo Bank
Energy markets will face a bumpy road ahead as geo-politics once again, just like a year ago with Libya, has intensified the unpredictable nature of oil markets.
If China misses the new official growth target of 7.5 percent it can still pull something out of the hat near-term – drastic rate cuts, more stimulus and public spending and at least postpone the unthinkable for another year.
Q2 Monetary Policy: Major central banks – Saxo Bank
We expect more QE before the end of the year with the ‘Bernanke Put’ alive and well and ready to spring into action in either of three negative scenarios. The hurdle for more LTROs still requires an imminent meltdown of the Eurozone banking system.
Q2 FX Outlook: USD rally to get back on track – Saxo Bank
The USD’s marginal weakness in Q1 was a stellar performance relative to intermarket conditions. In Q2 we suspect this will quickly lose momentum and that the complacency that was the hallmark of Q1 will yield to more volatility.
Q2 Equity Outlook: The pendulum swings again – Saxo Bank
The pendulum in global stocks is swinging back to mean historical valuations but it will probably take several years to close the gap as we expect some disruptions ahead.
Q2 Market Comment: The great balancing act – Saxo Bank
Our theme for Q2 is “The great balancing act”, which we define as the reaction function to the massive compounding of policy errors. While central banks have managed to keep crises at bay for now their policies continue to inflict harm.
Yield Forecast Update – Danske Bank (pdf)
Euro debt crisis and growth worries dominate sentiment
OTHER
The buck shrinks here – Free exchange / The Economist
a central bank is somehow unable to provide adequate stimulus when interest rates can't be reduced any more…Yglesias: Higher inflation in the future is more or less equivalent to a negative interest rate...But boosting inflation or randomly invalidating currency are bizarre and unpalatable proposals for the economic and political elite. Scrapping cash, on the other hand, is simple and elegant, which is why it will happen some day soon.
a nation that is now desperate enough to nationalize foreign entities. Argentina, still unable to access capital markets years after its restructuring appears to be hitting an irrational wall again
Liquidity Isn't Capital – ZH
As Barclays notes today, the major financials alone look set to need over EUR120 billion in capital to bring their credit risks down to acceptable levels to be able to openly access capital markets once again. This means a median 30% of current equity market capitalization has to be raised.
Reading the Tea Leaves when there is No Tea – TF Market Advisors
Everyone is trying to figure out what is going to happen next. Investors are looking clues and signals as to the next big move. The problem is that liquidity is so poor, moves that might normally signal a shift in sentiment or risk, are now just noise.
Deutsche Bank’s Hooper Does Not See More Fed Stimulus – BB (mp3)
OFF-TOPIC
Why Everyone Believes in Magic (Even You) – Live Science
Even the most die-hard skeptics among us believe in magic. Humans can't help it: though we try to be logical, irrational beliefs — many of which we aren't even conscious of — are hardwired in our psyches.
Watch the watch disappear – The World / FT
You wait ages for a powerful and influential person to be caught trying to hide an extremely expensive watch – and then two come along at once.
The Most Dangerous Gamer – The Atlantic
Never mind that they’re now among the most lucrative forms of entertainment in America, video games are juvenile, silly, and intellectually lazy. At least that’s what Jonathan Blow thinks. But the game industry’s harshest critic is also its most cerebral developer, a maverick bent on changing the way we think about games and storytelling. With his next release, The Witness, Blow may cement his legacy—or end his career. In a multibillion-dollar industry addicted to laser guns and carnivorous aliens, can true art finally flourish?
The Geometry of God – brain pickings
The striking kaleidoscopic patterns of European cathedral ceilings