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Monday, April 30

30th Apr - From Austerity to Growth

So now the incoming Mr Hollande is sugared with talks of increasing the European Investment Bank's capital, in order to promote growth instead of austerity. This sounds very political to me, as new 100 billion at an institutional bank account will hardly make any difference in the current environment. They should really just concentrate on solving the Spanish problem. 

We are now back to the announcement games, while we wait for the legal fudge that would allow the ESM to spend money against its treaty. So...first commitments and money are collected for an entity that is immune from prosecution, and it will circumvent its treaty even before it is officially launched? And this will create goodwill among the creditor countries? Or was this already agreed upon beforehand among the European heads of state?

Here are the US market close regulars and select article links. You can get update notifications by following ‘MoreLiver’ on Twitter or Facebook. Contact me with any questions or suggestions. Before the stuff, a quick reminder:

In addition to today's US Open Briefings and Morning Briefings, I posted the following during the weekend:
29th Apr - Weekender: Off-Topic – not related to finance or markets
29th Apr - Weekender: Trading & Research  - views, quant stuff, people, education
29th Apr - Weekly Support  - weekly reviews and previews
28th Apr - Best of The Week  best from my last week’s posts

Have fun!

Markets – Between The Hedges
The Closer – alphaville / FT

Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank

More money for EU investment bank as leaders re-focus on growtheuobserver
The EIB move could be an anticipatory concession towards Francois Hollande, the front-runner in this weekend's second round of the French presidential elections.

France and the Netherlands Strike BackProject Syndicate
Jean Pisani-Ferry: In France, the Netherlands, and elsewhere, many citizens view Europe as a threat to their way of life. Telling them that the euro is an unfinished construct that requires even more commitment is a hard call for politicians.

A European macro-question for Paul Krugman Kantoos Economics
One proposed solution is for Germany to employ fiscal stimulus at home, to increase domestic inflation and increase investment and spending. Simon Wren-Lewis goes as far as to argue that this is what a truly but hypothetical European government would do. I disagree: a European government would employ stimulus in the periphery, not Germany.

What Should Europe Do?Tim Duy’s Fed Watch
If capital is relatively mobile, it would be difficult to prevent a loan in Spain from making its way to Germany, so I am not sure the ECB can produce a differential monetary policy.  Second, it is not clear that easing lending conditions in the periphery would encourage additional spending.  I don't think it will be all that easy to reverse the process of private sector deleveraging in the periphery simply by easing lending conditions. 

European Growth Pact Begins to Take ShapeCredit Writedowns
The European Investment Bank (EIB) appears to be at the center of the new thinking. In particular, reports suggest that an investment program of as much as 200 bln euros is being considered…The important take away is that the austerity agenda in Europe may have run as far as it can, given the political instability/backlash that it is sparking.

Chart of the Day: Eurozone retail sector’s sharp contractionCredit Writedowns

ING’s Knightley Says Austerity Pact on Shaky GroundBB (mp3)

Barclays’s Callow Says Political Risk Grows in EuropeBB (mp3)

Menuet Says Franco-German Relations May SourBB (mp3)

Ludicrous Proposal by Harvard Economics Professor to Force Taxpayers to Buy Spanish Bonds; Mish's Five-Point Alternative Proposal Mish’s
1) take any money (IMF, EFSF) 2) return to peseta 3) haircut 4) devalue 5) lower VAT and corporate taxes.

The brain drain in Spain is mainly to Spain's gainFree exchange / The Economist
Spanish engineers working in Germany may therefore benefit not only the German economy—and the workers themselves, obviously, which should not be neglected—but Spain, too: in the short run, migration takes away pressure from budgets as the Spanish unemployed don’t claim benefits but move to Germany instead. In the long run, there is a pool of highly skilled workers who have not fallen victim to hysteresis effects and can be re-activated for the Spanish economy once the crisis is over.

Sell in May?The Big Picture
Great set of charts from The Chart Store showing the performance for the month of May going back to 1928

Q1 earnings season wrap-up: IT continues to shineSaxo Bank
With 275 companies having reported in the S&P 500 we have enough data to do an interim update on the earnings season so far. The 'winner' is once again IT - strongly outpacing the other sectors. On the other hand, most sectors are now experiencing declining profit margins.

Mini Tech BubbleThe View from The Blue Ridge
To better understand the dynamics of exponential revenue growth and the repeated forecast errors made by investors generation after generation, we highly recommend John Hussman’s analysis

Kicking a central bank when it’s downalphaville / FT
Japan eased… the yen appreciated. Nomura has some charts

Solvency II securitisation slapdown!, from Fitch alphaville / FT
Fitch Ratings thinks Solvency II’s capital charges could make it uneconomic for insurers to hold structured finance assets, relative to corporate or covered bonds. This matters because the ultimate implication is that if banks can’t fund lending, or transfer their loan risk to what have historically been huge buyers, they will make fewer loans.

Global TrendsThe Trader
Below are some projections of some of the trends that will dominate the World going forward.

Interdealer broker: 'I'm one of those shouting guys on a trading floor'The Guardian
Joris Luyendijk talks to a broker about the punishing hours, entertaining clients, making money and how to cut a deal