...picked from my ending week's post. Come back later for my usual Weekender-posts.
Previously
on MoreLiver’s:
Fri: EU Open
Thu: US Open
My views
& comments:
EUROPE: END GAME
And Then There Is Disaster C – John
Mauldin / The Big Picture
I have contended for some time that Europe is faced with two choices: Disaster
A, which is the break-up of the eurozone, or Disaster B, which is the creation
of a fiscal union, which keeps the euro more or less intact. Over the last few
months I have come to realize that there is indeed a third option, which now
looks increasingly possible. This is rather sad, as the third option is just an
even worse Disaster C.
Political/policy risks in the
EZ are rising – Kiron
Sarkar / The Big Picture
Currency's Days Seen Numbered: Investors Prepare for Euro Collapse – Spiegel
Banks, companies and investors are preparing
themselves for a collapse of the euro. Cross-border bank lending is falling,
asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro
remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar's structure
isn't in doubt.
We haven't forgotten how to make depressions – Free
exchange / The Economist
If the euro zone can't manage more cooperation than
the gold bloc did—in particular, by permitting a monetary boom in the surplus
economies of the core and avoiding the temptation to extract the greatest
concessions possible from those peripheral economies on their heels—then it
would be surprising if the end of the one didn't strongly resemble the end of
the other.
In fact, he argues, if even one country left —
whether a troubled country like Greece or rich country like Finland — that
would trigger a chain reaction that would eventually split the whole euro zone:
“The exit of any single country from the EMU, at the present time when large imbalances
have been accumulated, would likely lead to a bank run, which would cause the
EMU payments system to break down and with it the EMU itself.” (the article is here,
also full pdf)
Early Retirement for the Eurozone? – Project
Syndicate
Nouriel
Roubini: Germany and the ECB are now relying on the hope that large-scale liquidity will
buy time to allow the adjustments needed to restore growth and debt
sustainability in the eurozone periphery. But, if a eurozone breakup can only
be postponed, delaying the inevitable would merely make the endgame worse –
much worse.
If there’s a rough trend in the data, it’s for
small and mostly non-Eurozone countries to issue under English law, perhaps in
search of the credibility or good signal of such a framework. But for the rest of them, its sovereign debt
and we’re not even supposed to discuss default and they’ve pinky-promised that
they’ll pay it back. But legally, they could rewrite the terms in the morning.
EUROPE: BANKS
A Waiting Game
– Golem XIV
I think
the big banks are hoarding and waiting. Each hopes not to fall first. Those who
do fall will be picked clean by those still standing. This is what the bail out
money is being used for…
Eurocrisis lessons from banking regulation: create collateral in return
for support – bruegel
The similarities between banks and countries in
a monetary union are striking…Eurozone countries are trying to stop an evolving
liquidity and solvency crisis without resorting to all-out liquidity support,
while at the same time limiting transfers and ruling out further integration as
a way to improve control over policy and budgets. This is close to trying to
regulate countries in the way we regulate banks.
EUROPE: ECB
The ECB's end of the bargain – Free
exchange / The Economist
The inflation obsession is leaving the central
bank more involved in the economy and more politically overextended than it
would be if it focused on maintaining stable growth in demand.
Should ECB Sell Bunds? – Marc to
Market
EUROPE: GERMANY
Chancellor Angela Merkel wants Europe to move toward an ever closer union
in a bid to solve the euro crisis. But she is already pushing at the limits of
what is possible under the constitution. The debate about holding a referendum
on transferring power to Brussels is gathering momentum in Germany.
Bundesverfassungsgericht risk strikes again – alphaville
/ FT0
UBS recently organised a call with Professor Franz Mayer of the University
of Bielefeld, to explain what the German constitutional court might be thinking
on whether the European Stabilisation Mechanism is in keeping with German law.
(link
to the full UBS doc)
EUROPE: PIIGS
Is The Italian Elephant About To Break Loose
Again? – Fistful
of Euros
While the situation inside his country appears
to be deteriorating, Mario Monti has been doing the rounds of European capitals
in an attempt to drum up support. While in Helsinki he raised an eyebrow
or two when he warned that without a serious plan to bring down interest rates
disaffection with the euro in his country could easily grow to dangerous
proportions. Crying wolf, or a piece of insider information? Probably a bit of
both.
State-backed bond-buyers? – alphaville
/ FT
What ails the bond markets, and makes them
unable to do their job of price-clearing in the present moment, is now beyond
any fiscal backstop’s ability to fix – even one monetarily enhanced. The fix,
like the problem, either reaches monetary-scale or there will eventually be a
sequence of painful write-downs as the fiscal transfer of choice.
USA
A
macrolook: I want to argue that the
failure of the economy to accelerate and below-target inflation, combined with
more negative than positive warning signals, argue for additional Fed easing in
September. That, however, has been the
case for months, and during that period Bernanke has not moved the Fed to that
easing…On net, I think the outcome of the September FOMC meeting remains a
toss-up.
More good news. Now what? – alphaville
/ FT
We’re less sure that this means QE is unlikely.
The possibility remains that Europe will again flare up once vacation is over, and the risks from the
fiscal cliff are unchanged. With inflation seemingly having rolled over in
recent months with the decline in commodity prices, the argument can be easily
made that the Fed is currently undershooting its inflation target while (as is
all too plain) continuing to also dramatically miss on the unemployment side of
its mandate.
Deflation Probabilities on Our Radar Screen – Atlanta
FED
Readings from the financial market indicate the
likelihood of a sustained deflation is currently about 15 percent, or a bit
less. That's up from earlier in the year, but not nearly as high as in 2010.
STOCK MARKETS
The Equity Hitchhiker’s Guide to the Global Galaxy – Bank
of America Merrill Lynch (pdf)
25 pages
from 6-Aug (requires FT alphaville Long Room registration)
Who’s “buying” this rally? – alphaville
/ FT
RBC and Goldman second-guessing the investors.
How to Identify the Cheapest Stocks (Part 2 of 4) – Turnkey
Analyst
Part 1
(avoiding losses) here
A Primer To Intraday Market Moves – ZH
S&P
index analysis
Reports of the Death of Equities Have Been Greatly Exaggerated – GMO
(pdf)
A muted Vix
– alphaville
/ FT
How can it be that the Vix index is trading at five-year lows when expectations are anything but bullish?
Do Decomposed Financial Ratios Predict Stock Returns and Fundamentals
Better? – Turnkey
Analyst
We investigate the prediction of excess returns
and fundamentals by financial ratios, which include dividend-price ratios,
earnings-price ratios, and book-to-market ratios, by decomposing financial
ratios into a cyclical component and a stochastic trend component. We find both
components predict excess returns and fundamentals.
OTHER
In Search Of Lost Demand – Fistful of
Euros
Why is the global economy hamstrung by heavy
debts and weak banks? Or put another way, why doesn’t deleveraging happen, and
the weight of debt reduce, and why doesn’t the economy expand so the weak banks
can once more become robust and healthy ones? Short answer, it’s the demand
side stupid!
Sovereign Debt Restructurings 1950 - 2010: Literature Survey, Data, and
Stylized Facts – IMF
The first complete dataset of sovereign
restructuring cases, covering the six decades from 1950–2010; it includes 186
debt exchanges with foreign banks and bondholders, and 447 bilateral debt
agreements with the Paris Club. We present new stylized facts on the outcome
and process of debt restructurings, including on the size of haircuts, creditor
participation, and legal aspects. In addition, the paper summarizes the
relevant empirical literature, analyzes recent restructuring episodes, and
discusses ongoing debates on crisis resolution mechanisms, credit default
swaps, and the role of collective action clauses.
Once again the recovery has been derailed and the
outlook remains subdued * Many roadblocks to be passed before euro crisis
tapers off * Tight financial and fiscal conditions keep euro area in recession
* High uncertainty to keep US growth below trend despite better fundamentals *
China has room to manoeuvre, policy stimulus to lift growth by year-end *
Policymakers digging deeper in toolboxes – central banks to ease further
Full
schedule and list of papers to be presented. Click the titles on the pdf for
the full papers (directory here)