Here are the best links from the past week. Sections this time: Euro Crisis: General / Euro Crisis: Greece / Euro Crisis: Spain / Central Banks / Views: Stock Markets / Other / Off-Topic
Usual Weekender posts coming up later. Don't forget, it will be Mother's Day on Sunday. Follow ‘MoreLiver’ on Twitter or Facebook.
EURO CRISIS: GENERAL
Why the Eurozone Crisis is Not Over – PIIE
Martin
Wolf, Financial Times on May 3: Wolf
believes that the euro area crisis in fact has barely begun and requires a
process of adjustment that could take a full decade and posed the question of
whether the member countries have the political will to make that process work
and resolve the crisis successfully. Audio
(mp3), Video
(youtube), Presentation (pdf),
Transcript
(pdf)
Europe’s finance ministers are currently
deciding on the legislation intended to implement the Basel III international agreement on bank
capital, leverage, liquidity, and risk management. This column argues that many
officials, within Europe and beyond, severely underestimate the importance of this debate for
reaching a global standard for financial regulation.
Are Europeans Turning Against Austerity? – PIIE
By focusing on tight spending rules at the
national level, the Fiscal Compact leaves only centralized euro area level stimulus
options available for European leaders. But such a development will help
strengthen the “European center” and expand the availability of jointly
guaranteed European debt.
Daniel Gros:
The real bargain should not be austerity
plus a Marshall Plan for the south, but rather continued austerity plus
labor-market reforms in the south, combined with more infrastructure investment
in Germany and other AAA-rated countries like the Netherlands.
Lies, Damned Lies And Statistics – Mark Grant
/ ZH
What I find particularly difficult is what they
are doing in Europe and continue to do because they are formulating systemic lies
and they are doing it knowingly, purposefully; with the single motivation being
to fool people. It can no longer be said that it is not systemic as the
European Union does not object, has not objected, so that even Germany and the
Netherlands and Finland have become accomplices to the schemes.
Are there any alternatives to austerity? Six
ideas for fixing Europe – Wonkblog
/ WP
1) More inflation from the ECB 2) More stimulus from euro zone countries that are in sound budget shape 3) Open the bailout fund for bigger countries 4) Eurobonds 5) More fiscal integration 6) Countries could just start leaving the euro zone
1) More inflation from the ECB 2) More stimulus from euro zone countries that are in sound budget shape 3) Open the bailout fund for bigger countries 4) Eurobonds 5) More fiscal integration 6) Countries could just start leaving the euro zone
Operation Self-Deceit New Documents Shine Light on Euro Birth Defects – Spiegel
Newly revealed German government documents
reveal that many in Helmut Kohl's Chancellery had deep doubts about a European
common currency when it was introduced in 1998. First and foremost, experts
pointed to Italy as being the euro's weak link. The early shortcomings have yet to be
corrected.
A tipping point in eurozone crisis talk – alphaville
/ FT
“Greece must be clear that it agreed to this rehabilitation program is no alternative, if it wants to remain a member of the Euro-zone,” As today’s FT notes, this was the first time the ECB had acknowledged in public the possibility of such an event.
“Greece must be clear that it agreed to this rehabilitation program is no alternative, if it wants to remain a member of the Euro-zone,” As today’s FT notes, this was the first time the ECB had acknowledged in public the possibility of such an event.
Hope lies on the far side of a European Summer of Discontent – Saxo
Bank
Steen Jakobsen:
Denial, Protest, Mandate for change. Austerity was the denial that led to
protests.
Probably the
most clear-headed article of the week: My
belief all along has been that each nation in the euro zone is committed to its
success. The European body politic has grown to support it as indispensible.
Moreover, unravelling the euro is a very difficult task. And so, I believe
political inertia alone will help see the euro through for most countries
unless we see a catastrophic banking system collapse…Greece can’t make it. Greece will exit the euro
zone. France has a mandate to redesign the institutional framework to include growth.
The Euro-Zone Becomes the Twilight Zone – Robert
Brusca / ZH
You can impose austerity for a year or two… But
not for a generation. In that sense Europe has no plan for Greece, or Spain or for Portugal. Its attempt to bully Greece by withholding funds
it already agreed to advance them is act of desperation. It is an admission I
think of how dangerous dissolution of the euro would be. Since there are no rules
no one knows how it would go. You can be sure that given the risks, the
remaining EMU members would make things as hard as possible on Greece to make them an
example that would keep others from leaving.
German Central Banks Signals Willingness for
Higher Inflation; Catastrophic Uncertainty vs. Catastrophic Certainty – Mish’s
The irony is attempts to prevent what is
certain (a eurozone breakup), unleashes the very “catastrophic uncertainty”
they seek to prevent.
Very nice
overview. Overnight the EFSF board agreed
to make an additional payment to Greece in order to keep it
technically solvent for a few more weeks
With increased talk of a country leaving the
euro zone, or even of the end of the whole project, it is worth sketching out
our view. Here are the main points of our view of Europe.
EURO CRISIS: GREECE
Greece: Next Steps – ZH
A key event over the next two weeks, during a time when Greece will most likely not have an active government in place is the May 15th maturity of €430 million in international-law bonds whose holders have not agreed to the terms of the PSI and thus demand full payment... of money that Greece does not have…An actual default on these could lead us right back to the “disorderly” default scenario that so many people were afraid of.
Greece: Next Steps – ZH
A key event over the next two weeks, during a time when Greece will most likely not have an active government in place is the May 15th maturity of €430 million in international-law bonds whose holders have not agreed to the terms of the PSI and thus demand full payment... of money that Greece does not have…An actual default on these could lead us right back to the “disorderly” default scenario that so many people were afraid of.
‘Loosening’ the memorandum – alphaville
/ FT
You can see how renegotiating the bailout would have come up at some point, as we reached 2015 without (in all likelihood) consistent primary surpluses from Greece.
You can see how renegotiating the bailout would have come up at some point, as we reached 2015 without (in all likelihood) consistent primary surpluses from Greece.
It's quite possible that the ECB will prove
unwilling to accommodate a weaker commitment to short-term austerity…The irony,
of course, is that it is the ECB's failure to aggressively ease in the face of
continent-wide budget cuts that allowed those cuts to translate into a painful
recession, which in turn fueled an austerity backlash.
Hope lies on the far side of a European Summer of Discontent – Saxo
Bank
Steen Jakobsen:
Denial, Protest, Mandate for change. Austerity was the denial that led to
protests.
Probably the
most clear-headed article of the week: My
belief all along has been that each nation in the euro zone is committed to its
success. The European body politic has grown to support it as indispensible.
Moreover, unravelling the euro is a very difficult task. And so, I believe
political inertia alone will help see the euro through for most countries
unless we see a catastrophic banking system collapse…Greece can’t make it. Greece will exit the euro
zone. France has a mandate to redesign the institutional framework to include growth.
In spite of all the rhetoric, Greece will make the May
payments. Whoever is in charge will get calls from Merkel, Lagarde, and Draghi
warning them of the global carnage that would ensue if they miss those
payments. I think in this case they are right. Missing €450 million of private
sector debt and €3 billion owned by the ECB would likely cause a global stock
market route of 5%
Perfect Storm: Part 2 – Macro
Man
a) 70% of Greece's debt is now made up
of official loans already disbursed: EUR 140bn. b) The ECB owns EUR 40bn of
Greek bonds. c) Greek banks currently repo EUR 140bn with the ECB.
Greece’s Election: Tough Choices and a Sense of Déjà vu – PIIE
Ahead of Greece’s new elections, the euro area and the Troika (the EU, the ECB and the IMF) will thus employ the Irish referendum strategy by rejecting Tsipras’s bluff and declaring the IMF program non-negotiable – and adding that a failure by Greece to adhere to it will cancel financial support and drive Greece from the euro area. We are already seeing this strategy put in motion
Ahead of Greece’s new elections, the euro area and the Troika (the EU, the ECB and the IMF) will thus employ the Irish referendum strategy by rejecting Tsipras’s bluff and declaring the IMF program non-negotiable – and adding that a failure by Greece to adhere to it will cancel financial support and drive Greece from the euro area. We are already seeing this strategy put in motion
EURO CRISIS: SPAIN
The Spanish Bank Bailout Begins – ZH
"Spain may pump public funds into its banking system to revive lending and its recessionary economy, Prime Minister Mariano Rajoy said Monday, signalling a policy U-turn. The government had pledged to not give money to the banking industry that is struggling in the wake of a collapsed, decade-long, housing boom. "If it was necessary to reactivate credit, to save the Spanish financial system, I wouldn't rule out injecting public funds, like all European countries have done"
"Spain may pump public funds into its banking system to revive lending and its recessionary economy, Prime Minister Mariano Rajoy said Monday, signalling a policy U-turn. The government had pledged to not give money to the banking industry that is struggling in the wake of a collapsed, decade-long, housing boom. "If it was necessary to reactivate credit, to save the Spanish financial system, I wouldn't rule out injecting public funds, like all European countries have done"
Bankia in the coalmine, looking like a dodo – alphaville
/ FT
As with Spain’s other banks, there are serious doubts as to whether anything like the appropriate level of provisioning has been done for problem loans.
As with Spain’s other banks, there are serious doubts as to whether anything like the appropriate level of provisioning has been done for problem loans.
Get Ready for the Spanish Bailout – EconoMonitor
Moreover, with economic indicators showing
Spain sinking further into recession, a turnround in the country’s economic
performance would require a significant shift in policy: monetary easing by the
ECB, a weaker euro, fiscal stimulus in the core, less front-loaded austerity in
the periphery, more international firewalls and debt mutualisation.
Spain has nationalised crippled lender Bankia in a dramatic move to contain
the esalating crisis and restore faith in the country's management.
CENTRAL BANKS
Draghi Departs the Solar System – naked
capitalism
I felt he sounded quite desperate about these
points. In fact, his answers to additional questions made it clear he is
fighting against a political machine that he may not have too much faith in. He
is absolutely correct on this aspect of the matter, but his words sounded more
like a plea than a policy statement...With economic delusion at one end and
political ineptitude at the other, it is becoming increasingly difficult to be
optimistic about the Eurozone’s future, even though I dearly wish it could work.
Is LTRO QE in disguise? – voxeu.org
The ECB has managed a massive expansion of its balance
sheet with long-term refinancing operations. This has been called the
equivalent of quantitative easing, as done by the Fed and the Bank of England. This column thus argues that the main obstacle for the ECB is not
tight limits on the purchase of government bonds. Rather, it is the absence of
a banking and fiscal union and the heterogeneity within the Eurozone that
reduces the effectiveness of the ECB instruments.
Buiter says bring out the helicopter – alphaville
/ FT
Willem Buiter and Ebrahim Rahbari at Citi. Essentially, they want central banks to do more…. much, much more. (Full pdf, registration required)
Willem Buiter and Ebrahim Rahbari at Citi. Essentially, they want central banks to do more…. much, much more. (Full pdf, registration required)
On the Odds of an Ease – Bruce
Krasting
I’m going to go against the consensus opinion.
The Fed is on hold until December. We will not see another LTRO operation this
year. If I'm right, what does it mean for those lines on that chart? Nothing
good.
Watchful Waiting – PIMCO
Today, the Federal Reserve itself faces an “unusually uncertain” period because it lacks a complete understanding of the potential side effects of its unconventional policy actions; in particular the elongated timeline of its zero interest rate policy and its massive money printing. What matters in shaping market expectations about inflation and deflation are the credibility of fiscal policy, the prospect for real economic growth and the central bank’s commitment to step back from the punch bowl.
Today, the Federal Reserve itself faces an “unusually uncertain” period because it lacks a complete understanding of the potential side effects of its unconventional policy actions; in particular the elongated timeline of its zero interest rate policy and its massive money printing. What matters in shaping market expectations about inflation and deflation are the credibility of fiscal policy, the prospect for real economic growth and the central bank’s commitment to step back from the punch bowl.
VIEWS: STOCK MARKETS
Nine Takeaways From Earnings Season – ZH
Goldman Sachs: Despite the positive surprises, full-year 2012 EPS estimates are unchanged relative to the start of earnings season, and currently stand at $105 vs. our top-down forecast of $100. Over half of consensus 2012 earnings growth is attributed to 4Q. Margins at 8.8% have hovered near peak levels for a year, but consensus expects a sudden jump in 4Q to a new peak of 9.1%. We forecast a further decline to 8.7%.
Goldman Sachs: Despite the positive surprises, full-year 2012 EPS estimates are unchanged relative to the start of earnings season, and currently stand at $105 vs. our top-down forecast of $100. Over half of consensus 2012 earnings growth is attributed to 4Q. Margins at 8.8% have hovered near peak levels for a year, but consensus expects a sudden jump in 4Q to a new peak of 9.1%. We forecast a further decline to 8.7%.
“Sell in May” Debunked? – MarketSci
Blog
I’ve assumed that each year the investor only
looked at the data available from 1930 up to that point in time, and invested
in whatever 6 months of the year had been the best for stocks. This is called
“walking the test forward”, and (to some degree) removes the benefit of
hindsight.
The Evolution of “Sell in May” – MarketSci
Blog
I show how the stock market’s best 6 months of
the year has evolved over the last 80+ years…
OTHER
The Future of Capitalism – Milken
Institute / Global Macro Monitor
1h video:
Niall Ferguson / Harvard, Ana Palacio / Spanish Council of State; former
Minister of Foreign Affairs, Peter Passell / Milken Institute, Raghuram Rajan /
Chicago Booth School of Business
Some genuine uncertainties – Buttonwood’s
/ The Economist
I am sure that many people will assign some
ideological bias to these questions but they seem to me to be reasonable issues
with which policymakers, investors and voters must grapple, let alone the
humble trade of columnists. The absolute certainty with which some people
proclaim on either side of these issues fills me with unease.
I think that in a couple of years, unless something
alters the current trends in money flows, we will come to know ETFs the way we
already know the securitization and packaging of sub-prime mortgages into
CDOs
Now lets look at how, as the ETF market has
grown, the clever boys and girls of finance have found ‘innovative’ ways of
pumping those ETFs up a bit, just like they did to Securities.
Press
release about the Basel Committee consulting on the fundamental review of
trading book capital requirements: This
consultative document presents the initial policy proposals emerging from the Basel Committee’s
fundamental review of trading book capital requirements. These proposals will
strengthen capital standards for market risk, and thereby contribute to a more
resilient banking sector. Full document: BIS (pdf)
The entire modern world has become too complex
for anyone to understand, and therefore, too complex for anyone to fix with
top-down rulemaking.
So as new asset or sub-asset classes are introduced,
in the short-run they are uncorrelated, and likely rally, because few own
them. But after the rally, many now own it, and the future correlations
are high because so many own it. The correlations ultimately depend on
two things: the underlying economics, and investor behavior. Investor
behavior is the dominant aspect of pricing.
JP Morgan Losses Special Post – MoreLiver’s
OFF-TOPIC
Lack of Trust – Caused by Institutional Corruption
– Is Killing the Economy
Chicago house music is the sound of global pop today. In the 90s, though, it
was on life support—until a new wave of producers, including Cajmere and DJ
Sneak, got the city doing the Percolator.
Update: Scale of the Universe – Chart Porn
Cary and Michael Huang have updated their
zoomable scale of everything (first seen in 2010). The graphics are nicer and
smoother, they’ve replaced the annotations with a scale in the corner, and
everything can be clicked on for popup detail.
The Purpose of Spectacular Wealth, According to a Spectacularly Wealthy
Guy – NYT
Unlike his former colleagues, Conard wants to
have an open conversation about wealth. He has spent the last four years
writing a book that he hopes will forever change the way we view the
superrich’s role in our society.
Mindless With Money – The
Psy-Fi Blog
We all know the feeling of mindlessness. You
get it when you drive the same roads as usual and get out at the end not
remembering anything about the journey, or when you eat a meal without tasting
it, or leave a meeting without the faintest idea what just happened. Yet to
everyone around us we’ve behaved just the same way we always do.
Two Years After The Flash Crash, Are Markets
Any Safer? – Forbes
…a cataclysmic plunge that seemed to defy all
reason and pulled back the curtain on high-frequency trading for millions of
investors who had no idea that computer-driven strategies account for the
lion’s share of daily market volume.