To round up the week, couple of thoughts on the markets and some relaxing bedtime reading.
Previously on MoreLiver’s:
Let's first take a look at the Spanish 10 year bond yield chart. Last summer the yield spikes were contained by the ECB's bond purchases (Securities Market Program SMP), until markets realized it is a bad idea, and not a substitute for real quantitative easing. Then before last Christmas ECB announced two rounds of cheap credit (Long-Term Refinancing Operations LTRO) to banks against collateral (mostly crisis country bonds were used).
Couple of weeks ago when Draghi came out with his believe me-speech, another drop in yields followed. But what has happened outside these central bank actions? Nothing. The path of least resistance has been up, all the time up. The charts are saying that the political leaders have not helped at all.
I am betting that the above picture will continue until the point of either 1) a full fiscal union or 2) a break-up with realistic haircuts and much-needed exchange rate adjustments is reached. The second chart shows the 5 year credit default swap price on the Spanish bond. As the SMP was not intervening in this market, the above story is even clearer here.
The Spanish bond prices are near levels where the crisis could reignite - but there is a chance that the politicians will open the floodgates and let the ECB drown the markets in liquidity. If we would get a political solution and ECB action, the above ever-worsening trend with only temporary blimps of improvement would end for now.
My view is that the problems are too big: Greece will utterly fail, Portugal and Ireland are in need of more help, while Spain will surely and Italy most probably will continue deteriorating. Just looking at the house price index in Spain kind of proves the pessimistic vision: the deleveraging has only started, and at least 300bn will be needed on top of the 100bn already promised to them.
My last week's views did not play out perfectly: I was bearish on EURUSD and expected the stock indices to rise in the early part of the week and towards the end of the week become disillusioned and drop. The EURUSD did what I told it to do, but stock prices failed to drop. I heard the Friday's trading volume was the lowest this year since 4th July, the US independence day.
I am still bearish on EURUSD, but expect it to trade in a range of 1.24-1.22, maybe even the whole week. I'd very much would like to see lower prices in the stock indices, and would like to buy around 1360-1350 if a dip comes. The European calendar is mostly empty next week, but that does not mean there won't be contradictory and surprising statements of support from the talking heads. Plenty of US data coming, so I suggest you take some time to read my Weekly Support post.
and now to off-topic articles!
How Apple and Amazon Security Flaws Led to My Epic Hacking – Wired
In the space of one hour, my entire digital life was destroyed… In many ways, this was all my fault.
and response: How Not To Get Hacked – Slate
The four things you need to do right now to avoid the fate of tech writer Mat Honan.
You crack dealing piece of trash – Letters of Note
When, in 2007, Cleveland councillor Michael Polensek heard that local 18-year-old constituent Arsenio Winston had been arrested for selling crack cocaine to an undercover officer, he went straight for the jugular and wrote him the following furious letter
Seven Tricks Your Mind Plays on You (and How to Fight Back) – lifehacker
Universe Fly-Through – The Big Picture
Nearly 400,000 galaxies are represented in an animation derived from the Sloan Digital Sky Survey (SDSS) data release 7. Miguel Arago and Alex Szalay of Johns Hopkins University and Mark Subbarao of the Adler Planetarium created this amazing view.
10 Rules for Students, Teachers, and Life by John Cage and Sister Corita Kent – brain pickings
Free Textbooks Shaking Up Higher Education – TIME
Open-source textbooks, free for students to use and for professors to modify, are being developed by more companies and adopted in more classrooms. They may work hand-in-hand with the rise in free online courses to revolutionize the way we view—and pay for—higher education.
What did you say? I can't hear you… – Letters of Note
On June 10th of 1967, Spencer Tracy — a Hollywood star who was nominated for nine Best Actor Oscars during his career, two of which he won — passed away after suffering a heart attack at the home he shared with his partner, Katharine Hepburn. Eighteen years later, Hepburn wrote him a letter.
The Science of How Music Enchants the Brain, Animated – brain pickings
How harmony, melody, and rhythm trigger the same reward systems that drive our desires for food and sex.
If Planets Were the Distance of the Moon – The Big Picture
Part 1: The Battlefield – Fabius Maximus
In the Olympics of Algorithms, a Russian Keeps Winning Gold – technology review
Google's Petr Mitrichev is the all-time champion of competitive programming, a little-known sport where tech giants scout for talent.
Man living with a Grizzly bear – This Blog Rules
How To Name Your Hedge Fund: Most Common Firm Names – market folly
Power Tools – Opionator / NYT
Entertaining piece on logarithms.
A Short Film Imagines a Creepy World as Seen Through Augmented-Reality Contacts – Slate
Cosmology on Bloomberg
Mapping the Cosmos, From Scythes to Superclusters – BB
Black Holes Jam on Bass to Accompany Star Creation – BB
Black Holes Once Stirred a Seething Cosmic Cauldron – BB
Life on Earth May Owe Its Existence to Black Holes –BB