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Friday, January 10

10th Jan - W/E: Best of the Week

Previously on MoreLiver’s:

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Wanted: Crusaders for 'More Europe'WSJ
Simon Nixon: Political leaders facing voters who are more disillusioned with the European project.

Public backing for EU crashes in wake of eurozone crisisThe World / FT
A Gallup poll, published on Wednesday, showed what a devastating impact the eurozone’s crisis has had on popular attitudes to the European Union. Nor is the collapse of confidence in the EU limited purely to countries that have been required to slash wages and benefits in return for international financial aid.

Europe’s Institutional Mismatches Will Create More Turbulence in 2014 than in 2013Bruegel
Europe’s institutional mismatches will not all be successfully resolved in 2014. But one can expect, and perhaps hope, that they will become clearer and start being debated more openly and broadly.

Analysis: Euro zone - reasons to be wary in 2014Reuters
EU elections, bank stress, German court, reform zeal, deflation.

Is Europe Growing Together or Growing Apart?Bank of Finland
While a core group of countries may be developing together, there appears to be at least seven identifiable groups of countries with different growth dynamics…These results provide awkward implications for policy, particularly for those who thought that simply having a union would draw countries closer together (endogenous OCA criteria)

Periphery business cycle monitorDanske Bank
Euro area periphery data continue their improvement and in line with this sovereign spreads have tightened further.

Summers Calls for U.S. Fiscal StimulusWSJ
Economists Spar Over U.S. Recovery WSJ
Economists John Taylor and Larry Summers exchanged pointed words Saturday about the best approach to spurring the economic recovery.

A Weekend of FedspeakTim Duy’s Fed Watch
Policymakers don't want to undershoot the recovery, but I don't sense they want to overshoot either.  That points toward cautious withdrawal of accommodation.  Pencil in somewhat stronger growth in 2014.  Pencil in a steady reduction in the pace of asset purchases until the program winds down at the end of the year.  Pencil in an extended period of low rates.  But also recognize that the tide of monetary policy is now receding

The Fed had no idea if the taper would terrify marketsWaPo
Fed Discusses Tool That May Eventually Help It Set RatesWSJ
Minutes try to reassure; plus an interesting par about financial vulnerabilitiesalphaville / FT
Minutes suggest it will be difficult to strengthen forward guidance furtherDanske Bank

Will the reforms speed growth in China?mpettis
I would argue that if China’s GDP continues to grow annually at above 7% in 2014 and 2015, this will be precisely because Beijing did not implement the reforms. Successful execution of the reforms, in other words, is exactly why growth rates will fall sharply.

Shadow Banking Risks Exposed by Local Debt Audit: China CreditBB
China’s audit of local governments exposed an increased reliance on shadow banking, swelling the risk of default on 17.9 trillion yuan ($3 trillion) of debt.

Did Soros Just Predict a China Crash?BB
George Soros probably shouldn't expect any warm invitations to Beijing -- not with the much-reviled short seller warning of a giant Chinese crash.

China Tells Banks to Improve Disclosures in Shadow-Lending FightBB
China’s banking regulator told lenders to publish data including off-balance-sheet assets and interbank liabilities as the government steps up scrutiny of the shadow-finance industry.

January Sentiment SummaryShort Side of Long
Managers exposure towards equities resembles group think * Retail investors continue to pile into global stock markets * Nasdaq speculators continue to maintain elevated bullish bets * Volatility Index is coiling into a compressed decision point…* Household exposure to stocks has risen to levels of 2007 top * Bund funds are experiencing a 7th consecutive monthly outflow * Speculators are once again pressing Treasuries with shorts * Funds continue to shun commodities as downtrend persists * Agricultural exposure is at one of the lowest levels in years… * Speculator are holding net long positions on the US Dollar * Hedge funds remain bearish on the overall PMs sector * Silver’s sentiment is now at one of the lowest levels in decades

Is the equity market really overvalued?TradingFloor
The spectacular bull market in equities last year has got the last standing bears out of their caves pushing the notion that markets are overvalued. Our view is that equity valuations have just normalised and they will continue up in 2014.

7+1 FX trades of 2014 Nordea
Scandies to parity: Short NOKSEK * Canada back to Earth: Long USDCAD * Safe haven no more: Long GBPCHF * Terms of trade: Short EURPLN * Too much tightening priced in: Long AUDNZD * LatAm rebalancing: Long MXNBRL * Least against most fragile: Long INRTRY * Too low: Long FX volatility

Deutsche Bank Offers Up Forex Wisdom for 2014WSJ

Central Banks Split on Stimulus in 2014 as Fed TapersBB
The erosion of the mostly synchronized stimulus that supported the world economy for the past six years has investors anticipating a stronger U.S. dollar and weaker Treasuries.

Shadow Banking BB
The scale of it is almost unfathomable: over $70 trillion worldwide. The Financial Stability Board says it poses “systemic risks” to the global financial system. It’s growing at phenomenal rates in China and India and booming in Western banking capitals as well.

Academics Who Defend Wall St. Reap RewardNYT
Major players on Wall Street and elsewhere have been aggressive in underwriting and promoting academic work.

Financial and Sovereign Debt Crises: Some Lessons Learned and Those ForgottenIMF
R&R: Extreme Debt Means 1930s-Style DefaultsBI
R&R are wrong about the EZ’s debt structure and the costs of mutualisationYanis Varoufakis

"Valuutan erottaminen valtiosta oli valtava virhe"TalSa
Professori Randall Wray uskoo, että eurokriisissä on kyse valtion ja valuutan erottamisesta. Hän haluaisi isoja muutoksia valuuttaunionin rakenteisiin. Rahapolitiikan itsenäisyyden tärkeys pitää ymmärtää

Latvian vuoro yrittää: muuttuuko paperi kullaksi? Jan Hurri / TalSa
Euro on kuin harkkomuotti, jonka avulla EU-maat yrittävät valaa paperirahaa kultarahan veroiseksi vakauden ankkuriksi. Länsimaisten valuuttojen klassinen kultakanta kesti kymmeniä vuosia mutta kariutui sata vuotta sitten ensimmäiseen maailmansotaan. Euro on nyt 15-vuotias ja viidettä vuotta velkakriisin kourissa – mutta ei hajalla. Vuoden alussa rahakoe laajeni Latvian verran.

Päivänpaiste sokaisee velkamyrskyn silmässä – Jan Hurri / TalSa
Eurokriisi näyttää tyyntyneen kuin paha myrsky olisi ohi. Kriisin oireet ovatkin rauhoittuneet – mutta syyt ovat ennallaan tai entistä pahempia: talous on heikompi ja velkataakka raskaampi kuin ennen kriisiä. Euroalue onkin ennemmin myrskyn silmässä kuin suojassa.

Huippuekonomisti Krugman: Euroon liittyminen oli Suomelle virhe HS