Previously
on MoreLiver’s:
EUROPE: GENERAL
Euro exit and depreciation would bring economic gains – The
Telegraph
In an exclusive extract from his updated book,
Roger Bootle explains why allowing a country such as Greece to leave the euro is
not as hard as critics think.
IMF loses all faith in the euro project – The
Telegraph
The IMF is the leader of the Eurosceptic camp
now.
The Lion in the Grass – John
Mauldin / The Big Picture
Topics: Europe and Japan. Very good
JP Morgan: In this narrow sense, there is a first mover
advantage for a core country exiting.
Back to the brink – Free
exchange / The Economist
But while they resist the policies that could
make a real difference in solving the problem—real sovereign risk-sharing, real
euro-zone-wide bank guarantees backed by the ECB, and higher inflation in Germany—each new intervention will buy a bit less time. And the capital flight
from the periphery will continue and peripheral recessions will deepen. And
then, one day, it may all come apart in a flash.
Very good
comments from Moody’s – read it. If short on time, alphaville
/ FT has a shorter summary.
Josh Rosner: Eurozone Crisis – No More Safe Havens – naked
capitalism
The longer it takes for political leaders to
offer their constituents full disclosure and transparency, the more costly any
solution will be.
As the pressures toward disintegration of the
euro increase and the deep social unrest in Spain, Italy, and other countries
erupts, the INET Council of the Euro zone members felt compelled to issue a brief report
that creates a vision of how the euro zone could be repaired and redesigned at
this desperate juncture.
Under the new regime, France is now cozying up to
its new anti-austerity, pro-money-printing allies, Italy and Spain. This makes sense
when one considers that France's economy is more
akin to that of its southern neighbors than it is to the German economy.
Strangely, the French bond market hasn’t figured this out just yet.
I didn't think it was possible, but my
confidence in the ability of European policymakers to pull the Continent out of
crisis continues to fall. This is saying
a lot because I had virtually no confidence to begin with.
The euro has completely broken down as a
workable system and faces collapse with “incalculable economic losses and human
suffering” unless there is a drastic change of course, according to a group of
leading economists.
How A Country Rationally Exits The Eurozone – Gonzalolira
Once the political decision to exit the EMU has
been taken by a country’s leadership, this is what it has to do
Essentially, the bank runs also shift the
credit risk of peripheral banks from the local depositors to the Germans. While
the Germans kick and scream about not wanting to take on credit risk through
Eurobonds, they are already taking on similar risk through the banking system
How the euro was saved – Free
exchange / The Economist
In June, Peter Berezin of the Bank Credit
Analyst adopted the viewpoint of someone looking back on the crisis from the
year 2021, and described what today must seem like a hopelessly idyllic
outcome:
Implementation, implementation, implementation – alphaville
/ FT
Morgan Stanley: despite this progress in principle, many investors are still finding some dissonance in the message from the European policymakers, i.e., the bureaucrats in Brussels who proposed the plan, and the domestic politicians, i.e., the heads of state or government, who approved the plan... However, only partial – but meaningful – progress on banking integration was ultimately endorsed, while there was silence on fiscal integration.
Morgan Stanley: despite this progress in principle, many investors are still finding some dissonance in the message from the European policymakers, i.e., the bureaucrats in Brussels who proposed the plan, and the domestic politicians, i.e., the heads of state or government, who approved the plan... However, only partial – but meaningful – progress on banking integration was ultimately endorsed, while there was silence on fiscal integration.
EUROPE: ECB
Interview Mario Draghi: Interview with Le Monde – ECB
“We stand ready to do more, if our powers were
to be strengthened.”
Speech
Benoît Cœuré, presentation slides here
Nowotny "Hilsenraths" EUR, Futures By Reviving Doomed
"Red Herring" Discussion Of ESM Banking License – ZH
There are good reasons not to expect the ESM to
get a banking license any time soon… Second, there are profound arguments
against granting the ESM a banking license… Thirdly, it is not clear what kind
of controls could be put into place.
Draghi on *that* transmission mechanism – alphaville
/ FT
How can the ECB support rates in Germany, when they have to depress rates in the periphery? It is for this
reason we think that the Bundesbank has been holding back ever more bund supply
at auction — since it must now act semi-independently to ease the squeeze in
the bund market.
Many German officials, including Angela Merkel,
aren’t thrilled by the idea of the ECB intervening in the debt markets. They’ll
have something to say about this, no doubt. For the time being, then, all we
have are some ambiguous remarks by Mario Draghi, the one man who could, in
theory, put a stop to the euro crisis. That’s cause for some relief. But it’s
very far from a plan.
Draghi Blinks. Maybe. – Tim
Duy’s Fed Watch
Until policymakers fundamentally rethink their
approach to the crisis, expect the optimisim-pessimism cycle to continue.
Right now, the best case scenario I see is that the ECB will act to hold the
Eurozone largely together, but at the cost of protracted recession.
Sceptics abound as Mario Draghi's ECB bond 'bluff' electrifies global
markets – The
Telegraph
The ECB has opened the door to emergency
support for the Spanish and Italian bond markets, setting off a blistering
rally on bourses across the world.
Goldman Sachs: Broken transmission and non-standard ECB policy – ZH
(instead of SMP) The ECB may therefore look to
support private-sector financing more directly, by further easing of collateral
eligibility, increased liquidity support to the banking sector and outright
purchases of private-sector assets originating in both the bank and corporate
sectors.
EUROPE: PIIGS
The more pressure you put on the front end … it
is saying that the near-term risk of default is going up through the roof. It’s
exactly the dynamic you saw in all of the other curves before they went into a
bailout. You actually saw things like the Greek curve invert.
According to Der Spiegel, the IMF Wants to Stop
Aid to Greece as soon as the ESM is up and running in September. At that time Greece would become
bankrupt.
GDP of $1 trillion for all of Spain, with 140 billion euros
of regional government debt or 13% of GDP.
things are
still not too painful - Spain’s average funding cost is still 4.1
per cent, at an average maturity of 6.4 years — but it is getting awfully ugly
awfully quick.
The claims are self-serving spin by Europe’s incompetent policy elite. Once
again, they are blaming the victim for the consequences of their own
scorched-earth monetary, fiscal, and regulatory policies.
What exactly will be the mechanism to effect a Spanish sovereign
bailout? – Credit
Writedowns
I would suggest the only real possibility to
save the euro from complete collapse is the ECB stepping in. And by stepping in
I mean giving a backstop beyond mere monetisation. Short of this, the euro zone
will fail and Spain (and Italy) will default. This will be apparent in a short period of months.
Spain is battling to avert a fully-fledged
sovereign rescue after borrowing costs spiralled out of control, with dangerous
knock-on effects in Italy and Eastern Europe.
Strategic Briefing: The Spanish Risk Factor – The
Capital Spectator
Views on Grexit: a summary of German media – bruegel
UBS FX Strategy note and couple of lines from GS as well
Credit Suisse: Greece – the return of
the drachma is becoming more likely – ZH
The probability that some form of local currency is reintroduced has increased in our view, and is now greater than 50% on a 1-year horizon. This doesn’t necessarily mean Greece imminently needs to leave the EU/euro area – the new currency and the euro could be run in parallel – although that too has become more likely in our view.
The probability that some form of local currency is reintroduced has increased in our view, and is now greater than 50% on a 1-year horizon. This doesn’t necessarily mean Greece imminently needs to leave the EU/euro area – the new currency and the euro could be run in parallel – although that too has become more likely in our view.
Buiter’s now predicting Grexit probability of 90% – alphaville
/ FT
USA: FED
Strategic Briefing: Is The Fed Set To Roll Out QE3? – The
Capital Spectator
An early FOMC preview: the menu of options – alphaville
/ FT
As usual we won’t play the percentages; instead we’ll just run through the possibilities and list a few of the potential complicating factors involved with each of them.
As usual we won’t play the percentages; instead we’ll just run through the possibilities and list a few of the potential complicating factors involved with each of them.
Bank of
America’s table and discussion of the options
One More Dance
– PIMCO
We are witnessing a synchronized slowdown
worldwide that is beginning to affect corporate profits. The most likely
right-tail event is the Federal Reserve launching another round of quantitative
easing.
STOCKS
The Abysmal Earnings Season Explained In Two Charts – ZH
World’s Ugliest Chart Contest – Global
Macro Monitor
The stock
markets are not looking really hot.
In Case Of Collapsing Earnings, Expand Multiples And Pray – ZH
The correlation between the S&P 500 in the
last two years and the P/E multiple shows that performance has been driven
almost entirely by multiple-expansion alone. Forward P/E is now getting close
to recent peaks suggesting the market is far from cheap and on a longer-term
view (based on both an as-reported and operating basis), the S&P 500
appears expensive
TRADING
Mindless Money Series:
Part1:
Focus on Failure – The
Psy-Fi Blog
Part2:
Don’t Oversimplify – The
Psy-Fi Blog
Part3: Hold
the Big Picture – The
Psy-Fi Blog
Part 4:
Stay Resilient, Be Prepared – The
Psy-Fi Blog
Part 5:
Avoid Overspecification – The Psy-Fi
Blog
Trading Diary talk:
Weekend
Project: Optimize Your Trading For Better Profitability – bclund
The #1
Indicator Professionals Focus On – The
Trader’s Journal
ECONOMICS
A Dynamic Factor Model of the Yield Curve as a Predictor of the Economy – The
Big Picture
The nonlinear model is used to investigate the
interrelationship between the phases of the bond market and of the business
cycle. The results indicate a strong interrelation between these two sectors.
The proposed factor model of the yield curve exhibits substantial incremental
predictive value compared to several alternative specifications. This result
holds in-sample and out-of-sample, using revised or real time unrevised data.
Something Big happened in the early 70s – Noahpinion
After that point, real average wages have
stayed unchanged. Why? Bretton Woods, oil crisis, technology?
Bubbles and Bailouts: Why Some Economists Failed – Mark
Thoma / The Fiscal Times
I don't think this failure can be blamed on
economists. There was no shortage of effort from many of us to get policies
like these enacted. The question is why nobody listened.
OTHER
Equity markets are looking “dodgy” – Kiron
Sarkar / The Big Picture
Europe, US GDP, China, stock markets
Lie Detection 101 for Financial Analysts: How to Spot Manipulators and
Actors – CFA
Institute
Aaron
Brown: Economists and regulators liked
rocket scientist methods because they had been accepted on the trading floor,
and also in the executive suite. Few took the time to understand them. (Part
1 here)
The summer of tail risk: How we're playing FX, bonds, commodities – Saxo
Bank
European
crisis is not over until the heavy-weights sit down and agree on the future.
Saxo Bank’s quarterlies
Q3 FX Options Outlook: Buying opportunity? – Saxo
Bank
Q3 Commodity Outlook: Weather, geo-politics
and growth battle – Saxo
Bank
Q3 Bond Analysis: Nordic yields reflect sheer
madness – Saxo
Bank
Q3 Equity Outlook: The most unloved asset
class – Saxo
Bank
Q3 Monetary Policy: Outlook for major central
banks – Saxo
Bank
Q3 FX
Outlook: Back to the strong USD future – Saxo
Bank
Q3 Market Comment: Denial or change? – Saxo
Bank
Q3 Macro
Outlook: 2011 Déjà vu – Saxo
Bank
Q3 Market Comment: Denial or change? – Saxo
Bank
OFF-TOPIC
Goldman Sachs’ articles on
Olympics
The
Olympics As A Winning FX Strategy – ZH
Would the Euro area Make a Medal-Winning Olympic Team? – ZH
Would the Euro area Make a Medal-Winning Olympic Team? – ZH
Searching for Clues to Calamity – NYT
The problem is, no one knows if there is a
point at which a climate system shifts abruptly. But some scientists are now
bringing mathematical rigor to the tipping-point argument.
Dicing With The Climate – Krugman
/ NYT
In the long run, we are all extinct.
Global Warming's Terrifying New Math – Rolling
Stone
Three simple numbers that add up to global
catastrophe - and that make clear who the real enemy is
World braced for new food crisis – FT
The world is facing a new food crisis as the
worst US drought in more than 50 years pushes agricultural commodity prices to
record highs. Corn and soyabean prices surged to record highs on Thursday,
surpassing the peaks of the 2007-08 crisis that sparked food riots in more than
30 countries. Wheat prices are not yet at record levels but have rallied more
than 50 per cent in five weeks, exceeding prices reached in the wake of Russia’s 2010 export ban.
Darpa Wants You to Be Its Hackathon Guinea Pig – Wired
If living in a college dorm for two months
while you’re prodded by government officials in a “short-fuse, crucible-style
environment” is your idea of summer fun, the Defense Advanced Research Projects
Agency would like a word with you.
How a Medieval Friar Forever Changed Finance – View
/ BB
The system that generates these 21st-century
accounting figures -- the numbers that run our nations and corporations -- was
first codified by a Renaissance friar named Fra Luca Bartolomeo de Pacioli. He
was at one time more famous, as a mathematician, than his collaborator Leonardo
da Vinci.
“Is he coming? Is he? Oh God, I think he is.” – GQ
The story of the Norway massacre, as told by
the survivors.
What Would Winston Do – Reuters Magazine
The world is in crisis-mode because political
leaders refuse to lead, and “think” with their poll numbers. We could look to
the heavens for a miracle. Or we could look to Winston Churchill
The ‘Busy’ Trap – NYT
Busyness serves as a kind of existential
reassurance, a hedge against emptiness; obviously your life cannot possibly be
silly or trivial or meaningless if you are so busy, completely booked, in
demand every hour of the day.
Act Fast, but Not Necessarily First – HBR
Those of us who find time to step back and
think about the big picture, even for a few minutes, have a major advantage. If
every one else moves too quickly, we can win by going slow.