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Sunday, September 9

9th Sep - Weekender: World, Trading, Markets

Weekender's background readings. Feedback is appreciated - I really don't know what my three readers like.

 Previously on MoreLiver’s:
8.9. Weekender: Weekly Support (last week’s review, next one previewed)
7.9. US Close: BigU = QE3 (payroll special)

All the coverage on ECB’s decision is in my ECB Watch-post (continuously updated).

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George Soros: Why Germany Should Lead or LeaveProject Syndicate
If Europe is to escape its crisis, its leaders must awaken Germany to the misconceptions that are guiding its policies. At this point, that will not happen unless they persuade Germany to make a choice: become a benevolent hegemon or exit the eurozone.

Why early sovereign default could save the
The recent announcement by the ECB that it will start to buy Spanish and Italian sovereign debt has been warmly welcomed throughout Europe. But this column argues that by doing so the ECB is digging the euro’s grave. It says the solution is default, either through inflation or debt restructuring – and that debt restructuring has many advantages if it is done early enough.

Pierre Moscovici's speech at Bruegel Annual Meetingbruegel
“…where the eurozone stands at the moment, and what we think should be the path forward.”

Five myths about the euro crisisOpinion / WP
The Europeans will never get their act together * Greece’s departure from the euro zone would doom the single currency * German taxpayers will never bail out Greek (or Spanish or Italian) pensioners * If austerity measures continue, voters will revolt and extremists will take over * The euro crisis will tank the U.S. economy and could even swing the presidential election

Saving the euro: Tick tockThe Economist
Even if the ECB successfully intervenes, the euro zone’s politicians must ultimately determine the euro’s fate. Although work on a banking union has begun, they are many months away from actually setting one up. Leaders increasingly recognise the dangers of excessive austerity, but they still routinely demand harsh budgets as a token of merit. The debate about mutualising some government debt, which this newspaper thinks essential to restoring confidence, has barely begun. The vague German demand to shift political power to federal Brussels has hardly been broached in France.

An East European Perspective on the Euro CrisisPIIE
In the eastern part of the European Union, however, an illustrative contrast has arisen that tells us a lot about how to act and not to act in a financial crisis. The contrast between successful Estonia and Latvia on the one hand, and struggling Hungary and Romania on the other could hardly be greater or more instructive.

Iceland Shows Other Europeans How to Survive Bankruptcyreason
Small Atlantic nation enjoys growth and employment gains after failing to rescue its banks. Mainland Europe remains stuck with stagnation, decline, and ruinous "rescue" packages.

Recapitalisation of failed banks - some lessons from the Irish experienceBIS (pdf)
Address by Mr Patrick Honohan, Governor of the Central Bank of Ireland, at the 44th Annual Money, Macro and Finance Conference, Trinity College, Dublin, 7 September 2012.

54% of Germans Want Constitutional Court to Kill the ESM; Merkel's Disingenuous ReservationsMish’s

The Trade Impact of China on EMU: Is It Even Across Members?IMF

The promise and pitfalls of the euro zone’s plan for a banking unionThe Economist
The euro zone was woefully late in trying to stabilise its banks and ensure that taxpayers do not have to pay when they fail. Moreover, it is unlikely ever to create a regulatory system like America’s which allows the FDIC, for instance, to wind up a bank in a weekend. Banks in Europe tend to be larger as a share of national GDP than those in America, and European companies rely more on banks than American ones. More important, in a corporatist political culture, small banks are often tools of political patronage and big ones are treated as national champions.

Towards a European Banking UnionECB
By Vítor Constâncio, Vice-President of the ECB, Lecture to be held at the start of the academic year of the Duisenberg School of Finance, 7 September 2012

No One Happy Except Stock Market; Discord Emerges in Spain, Italy, Germany to ECB AnnouncementMish’s

What if Spain refuses to play Mario Draghi’s game?The Telegraph
So “Super Mario” did it. The European Central Bank president on Thursday announced “unlimited bond buying” to tame profligate eurozone members’ borrowing costs.

The Eurozone designs a halfway houseA Fistful of Euros
One implication is that Ireland and Portugal can’t look forward with too much certainty to full programme exit even if they perform exactly as envisaged under their programmes. Another is that the Eurozone could be running a fairly large after-care facility long after the peak of the crisis has passed.

Labor participation for men in the US hit the lowest level on record; decline among younger men is particularly sharpSober Look

Economic Surprise Index has turned positiveSober Look

Podcast: World Weekly with Gideon RachmanFT
After the conventions: the race for the White House: Did President Barack Obama’s Democratic convention speech convince the American electorate that he is worth another four years in the White House? Or has Mitt Romney begun to swing the race towards the Republicans? With the opinion polls at level pegging, Gideon Rachman is joined by John McDermott and Richard McGregor to discuss how the parties stand post convention.

Mitt Romney’s Fair ShareProject Syndicate
Joseph E. Stiglitz: Romney may not be a tax evader; only a thorough investigation by the US Internal Revenue Service could reach that conclusion. But, given that the top US marginal income-tax rate is 35%, he certainly is a tax avoider on a grand scale.

Thoughts on the Michael Woodford Paper….PragCap
Unless you’ve been sleeping under a rock for the past few days you’ve likely heard about Michael Woodford’s presentation at Jackson Hole.  The paper he presented (see here) is an expansive review of current Fed policy and potential policy options. The primary takeaway from Professor Woodford’s paper was his  endorsement of NGDP Targeting.   

The Federal Reserve's Balance Sheet: A Primer and ProjectionsFED
Overall, this suggests that market participants believe that unconventional monetary policy will be in place for some time, likely depressing longer-term interest rates for a number of years.

Expectations about the Federal Reserve's Balance Sheet and the Term Structure of Interest RatesFED
This paper provides a systematic assessment of the effect of the Federal Reserve's asset purchase programs on Treasury yields, with particular emphasis on the role of market expectations about the evolution of the Federal Reserve's balance sheet and of interest rates on the impact of the programs.

The anticipation of aggressive monetary expansion by the Fed woke up inflation expectationsSober Look

Analysis: I expect QE3 on Sep-13Calculated Risk

The Scary Math Behind The Mechanics Of QE3, And Why Bernanke's Hands May Be TiedZH

CPI inflation accelerated to 2.0% yoy in August – ASA
Industrial production increased by 8.9% yoy in August 2012 –ASA
Retail sales increased by 13.2% yoy in August – ASA
Fixed asset investment growth slowed in August – ASA
Real estate investments picked up slightly in August – ASA

Is The Chinese Growth Story Over?qfinance
Much has been said about the recent data coming out of China. Not only has the aggregate rate of growth fallen below 8% but recent

Podcast: In the Balance - Central bankers: too powerful or too weak? (25min) – BBC (mp3)
As the ECB brings in a new scheme to save the euro, the programme asks whether central banks have been over- reaching themselves. Have they been poking their noses into stuff that should be left to elected politicians? Plus central bankers' impenetrable jargon: In the Balance's resident comedian Colm O'Regan reckons parents could deploy that kind of language next time the kids ask for more pocket money. Discussing these issues with Lesley Curwen - naturally in the clearest way possible - are Randall Kroszner, former member of the Board of Governors of the Federal Reserve, who was chair of its Committee on Supervision and Regulation of Banking Institutions during the global financial crisis; Professor David Blanchflower, formerly a member of the Bank of England's interest rate-setting Monetary Policy Committee and economist Gabriel Stein, from the Official Monetary and Financial Institutions Forum.

Confronting the jobs crisis under tight fiscal
Many advanced country governments face the dual challenge of promoting job growth while pushing ahead with spending cuts. This column discusses how well-designed fiscal policy reforms can help boost employment without busting the government budget.

The state of the Macro WarsNoahpinion
In other words, monetary easing may be more popular among economists than was fiscal stimulus, but may end up being a harder sell. It's sad to say, but the Macro Wars may seem increasingly like the Trojan War, with the Pro-Easing Alliance playing the role of Cassandra...

Towards a steady-state economy?alphaville / FT
…our present money system can only function in a growing economy. Money is created as interest-bearing debt: it only comes into being when someone promises to pay back even more of it.

Why not to expect recovery anytime soonFree exchange / The Economist
Financial crisis recession will tend to result in a longer-term recessionary drag than a “normal” business cycle recession.

Understanding bubbly
Over the last two decades, US aggregate wealth has fluctuated substantially. This column presents research that takes a first step towards measuring the reasons why. It finds that most recent fluctuations are driven by bubbles and argues that models of rational bubbles with financial frictions can improve our understanding of recent macroeconomic history.

Taming the financial cycleBIS (pdf)
Speech by Mr Jean-Pierre Danthine, Vice Chairman of the Governing Board of the Swiss National Bank, at the 30th SUERF Colloquium, Zurich, 5 September 2012.

Tedtalks: The Informal/Underground EconomyGlobal Macro Monitor
Robert Neuwirth spent four years among the chaotic stalls of street markets, talking to pushcart hawkers and gray marketers, to study the remarkable “System D,” the world’s unlicensed economic network. Responsible for some 1.8 billion jobs, it’s an economy of underappreciated power and scope. (video 13 min)

Ageing, property prices and money demandBIS
When the baby boomers joined the workforce and started saving, money supply and property prices entered a rising trajectory. We conclude that demography was the long-run driver of this process, basing our argument on data from 22 advanced economies for the 1950-2010 period.

Rising home values in the face of stagnant incomesZH
For the first time since September of 2010, nearly two years ago, has the Case Shiller 20 City Index realized a year-over-year gain. Does this signify a sustainable turning point for the market? At this point it is too hard to tell for a couple of reasons.

Equity trading volumes in the US continue to shrinkSober Look

Explaining The Market's Brand New 15x Forward MultipleZH

S&P 500 Snapshot: Bad Jobs Report? Better Chance of Prompt QE!dshort

More on Disappearing Daytime vs Overnight VolatilityMarketSci
For the last 30 years, the daytime session has been more volatile than the overnight, usually by at least 50%. But over the last few years, the market has fundamentally changed and today, the daytime and overnight sessions are about equally volatile.

Global Valuation: 10 Year PE RatiosMebane Faber

Treasury Yields: Quick Updatedshort

Introduction to Computational Finance and Financial EconometricsCoursera
Free online course from University of Washington.

A Primer On Defining Indexing MethodologiesThe Capital Spectator

August 2012: The Month in ChartsAlphaNow / Thomson Reuters
Nice charts – but heavy webpage, expect trouble viewing them.

Book Bits | 9.8.2012The Capital Spectator

Saudi Arabia: an oil importer by 2030?Foreign Policy
Citigroup projects that the desert nation may become an oil importer in the next 20 years. "If Saudi Arabian oil consumption grows in line with peak power demand, the country could be a net oil importer by 2030," Heidy Rehman wrote in a 150 page report for the bank.

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