EURO CRISIS: GENERAL
Euro Breakup Precedent Seen When 15 State-Ruble
Zone Fell Apart – BB
It was a currency union of 15 states in 1992. Two
years later, as budget deficits spiraled out of control, hyperinflation reigned
and economies shriveled, just two members of the Soviet Union’s ruble zone were left.
A Dysfunctional Nation – John
Mauldin / The Big Picture
European leaders launched the euro project in
the last century as an experiment to see whether political hope could become
economic reality. What they have done is create one of the most dysfunctional
economic systems in history.
The 5 possible parts of a “master plan” to save
the euro – Wonkblog
/ WP
1) A banking union, 2) Eurobonds, 3) More
stimulus, 4) But also… more oversight, 4) But also… more oversight
Credit Suisse Explains "The Real
Issue", And Why There Is Two Months Tops Until France Is In The Bulls Eye – ZH
Given the market’s adaptive learning behaviour,
we suspect that this finesse might last two. The eventual denouement should be
flagged by symptoms of the failure of the credit of EFSF/ESM and/or France.
The G20 should rise to the challenge (but
probably won’t) – bruegel
1) review Europe’s financial reform plans 2) express
readiness to provide support and 3) examine the need of coordinating
macroeconomic policies.
The eurozone as monetary crisis – alphaville
/ FT
Two simple charts. The crisis is very, very simple.
Two simple charts. The crisis is very, very simple.
Steen
Jakobsen: We spent considerable time today
discussing the "banking union" which seems to be the economists' and
policy makers' favorite panacea for the EU debt crisis. Our conclusion is that
we can't see why or how this will be the eventual solution.
Generic
news/market wrap-up: Spain, ECB, France
An Interesting Bailout in the Offing – Bruce
Krasting
In the crazy world of sovereign bailouts, we
may find Cyprus in a unique position. There may be competition for who provides the
bailout cash. If one was a Cypriot, and faced with the need to go hat in hand
for help, which way would they go?
ECB’s
latest report talks about why banks have difficulties loaning money because of
lack of capital and subordination. But the same logic should be applied to
sovereigns as well!
"Dead Before Arrival":
Bundesbank Shoots Down EU Banking-Union Proposal; Eight Lessons the EU Needs to
Learn – Mish’s
32-page research report from 5-June.
Full JPM note “Starting to think about the
EU summit on June 28/29”
Commentary: The crisis could go from ‘Spanic’
to ‘Quitaly’ to ‘Fixit’
Hans-Werner Sinn: In blatant violation of the Maastricht Treaty, the European
Commission has come forward with one bailout plan after another for Europe’s distressed economies. Now it
wants to socialize not only government debt by introducing Eurobonds, but also
banking debt by proclaiming a “banking union.”
Goldman
contemplates what could turn the jog to a run.
The European Scorecard: 2 Out Of 5 – ZH
Credit
Suisse: Europe 40% through the resolution of the European crisis but we suspect that
the next 60% is highly convex and binary and given our previous note on the
divergences of opinion, also unlikely.
EURO CRISIS: ECB / TARGET2
Don’t worry about Target2 – Felix
Salmon / Reuters
But what if the entire eurosystem fell apart,
and every country reverted to its own national currency? In that case, it’s
still hard to see how there would be much of a hit to Germany.
Monthly Bulletin, June 2012 – ECB
(pdf)
The TARGET2 circle of life – Sober
Look
A default on TARGET2 is a loss to the creditor
nation even if the legal creditor is a central bank. And when one nation
defaults to another, the pain is spread to the citizens, whether the default is
on bonds, loans, or TARGET2 liabilities.
EURO CRISIS: GERMANY
Two years, three sovereign bailouts, more than
a trillion euros in cheap ECB loans, and dozens of summits later, the latest
developments in Germany suggest that Berlin is moving to solve the continent's crisis. But the country’s idea of a
solution remains a system in which Berlin gets de facto and de
jure veto power over national budgets in return for eurobonds. That misses the
point: the crisis is not fiscal, but financial. It began, and it will end, with
the banks.
Niall
Ferguson and Nouriel Roubini: But before Europe gets anywhere near taking this
historical step, it must first of all show it has learnt the lessons of the
past. The EU was created to avoid repeating the disasters of the 1930s. It is
time Europe’s leaders – and especially Germany’s – understood how perilously close they are to doing just that.
German sovereign CDS widening is a troubling
sign – Sober
Look
To an economist this raises all sorts of
questions such as what is the "risk-free rate" for the euro. And how
can German paper be viewed as risk-free when German sovereign CDS is wider than
Verizon, IBM, Pfizer, Microsoft, etc. CDS? What this tells us is that investors are
becoming concerned about Germany's growing liabilities associated with the Eurozone.
The Fate of the Monetary Union Lies in
Germany’s Hands
The German government has begun opening the
door to shared debts for the first time in a profound change of policy,
agreeing to explore proposals for a €2.3 trillion (£1.9 trillion) stabilization
fund in order to stop the eurozone’s crisis escalating out of control.
EURO CRISIS: SPAIN
Spanish Bailout: The Collection – MoreLiver’s
Daily
EURO CRISIS: ITALY
Begins with
Spain (too small bailout), but the talk on Italy is the beef.
Italy, one of the founders of the European
Union, is now in the most critical of situations. If many different things do
not go well for the bel paese in the next year, it may attract the use of the
word “founder” in its other, more sinister meaning: to sink.
EURO CRISIS: GREECE
Citi Matrix Outcomes: If "Disorderly
Grexit" Then "VIX At 80" – ZH
Three
scenarios discussed: 1) Managed Grexit with firewall in place but insufficient
to remove EMU break up risk or risk aversion 2) Managed Grexit with firewall
implemented in response to Grexit 3) Disorderly Grexit with excessive
volatility in other markets
Barclays’ overview of the various scenarios in
the upcoming Greek elections. This also shows that the situation in Spain can not be divorced
from the Greek outcome.
Goldman’s complete Greek decision tree that is
set to unfold once again starting Sunday night. The one thing we can definitively
say: this is one tree that money definitely not grow on.
FED WATCH
Devil's Advocate – Tim
Duy’s Fed Watch
I think you can tell a story that the most
recent data is not sufficient to move Fed forecasts, in which case it remains
possible that the Fed does not implement any changes next week. I have to
admit to being a little nervous that we get a Fed "leak" over the
next few days in an effort to reset expectations ahead of the meeting.
F-O-M-C sitting in a tree…. – alphaville
/ FT
Credit
Suisse notes, among others
SWISS FRANC
$7 Million a Minute – Bruce
Krasting
The question of the hour is, “Can the SNB continue to intervene at this
pace?” My answer to this is, “Absolutely not”…The only option left for the
Swiss is exchange controls. They will make it very expensive to own Swiss
Francs.
This confirms that not only do we have a run on
periphery banks, with cash moving to Germany, but deposits are rapidly moving abroad as well. And Switzerland has become the main beneficiary
CHF: Systemic risk and the EU debt crisis – Saxo
Bank
Steen
Jakobsen: The chances of the peg at
1.2000 breaking have increased from less than 10 percent to more than 25
percent. Assuming the downside risk is parity (1.0000), the risk of 20 CHF big
figures gives a weighted risk of peg-breaking of: 5% (20 percent move x
25% chance = 5%).
The entire bond curve through the 5 year point
is now negative
The Eurozone, Swiss National Bank, Market
Strategy – David
Kotok / The Big Picture
We conclude that the massive expansion of the SNB balance sheet and the commitment to
the peg now combine to make the Swiss 10-yr bond the European benchmark. Switzerland is considered the highest-quality, most truly AAA-rated credit in Europe.
OTHER
Such As Pavlovian Markets – Grant
Williams / ZH
Things That
Make You Go Hmmm-newsletter
Sunday S&P Mullings – Macro
and Cheese
The New Normal called for long-term
deleveraging that would lead to lower growth than society had been accustomed
to. It called for more modest investment returns across asset classes, as the
leveraging of the economy reversed course. It called for increased regulation
and reduced globalization. Most importantly, it said there would be no V-shaped
recovery that is typically seen after a recession. It would be a long, hard
adjustment period with sustained high unemployment. It also called for a
transition of stress from private balance sheets to sovereign balance sheets.
Policy Challenges for the Financial Sector – PIMCO
Dodd-Franking, May 2012 – alphaville
/ FT
Is Global Finance a Ponzi Scheme? Ask a Russian Expert – View
/ BB
Back in February 1994, amid the turmoil of the
country's transition to a market economy, the mathematician organized a Ponzi
scheme called MMM.
The New Neuroscience of Choking – The
New Yorker
When the
stakes increase, you become more conscious of your actions – and start making
mistakes
Guest post: Michael Geismar’s blackjack strategy – Felix
Salmon / Reuters
When mathematician and blackjack expert
Jonathan Adler saw my post about hedge fund manager Michael Geismar’s antics at
the Vegas blackjack tables, he offered to explain just how silly Geismar was
being.