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Friday, January 31

31st Jan - W/E: Best of the Week

Here are the ”best” from my posts of the ending week. Last week’s edition here.

Herr Nein: The Bull in the Euro Zone's China Shop Photos Spiegel
German Central Bank head Jens Weidmann has developed a reputation in Europe for saying no to everything. He is skeptical of efforts to save the euro and isn't shy about saying so. But is he right?

Bundesbank calls for capital levy to avert government bankruptcies Reuters
Bundesbank's Stunner To Broke Eurozone Nations ZH
Germany's Bundesbank said on Monday that countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help.

Rehabilitation could still hurt, AQR watchalphaville / FT
Financials: What I learned at DavosMorgan Stanley

Squaring the Eurozone’s Vicious Circle Project Syndicate
Against this background, European policymakers and regulators must take action to encourage banks to diversify their sovereign-debt holdings. Of course, a common fiscal backstop (along with a single banking supervisor) would eliminate the bias. But there is strong resistance to the fundamental changes to the eurozone’s architecture that this would require. A more feasible solution would be to introduce an explicit regulatory bias against home-country sovereign-debt holdings.

The ECB is much too stodgyBruegel
The euro fuelled a leveraged bet that went bad. The ECB is best positioned to orchestrate the painful sharing of losses. If the ECB does not reinvent itself for the times, it will be hobbled by its obsolescence and by increasingly acrimonious politics. And the flawed euro project will be further damaged.

Euro area deflation monitorDanske Bank
The lower inflation is not contradicting stronger growth in the euro area, in our view. Lower commodity prices have increased purchasing power and the most recent decline in core inflation is due to methodological changes and not a result of a drop in wage growth. Real wage growth has shown a clear improvement from its previous decline.

Euro Jobless Record Not Whole Story as Italians Give Up BB
Bloomberg survey reveals serious labour and social crisis in Europe – New Europe
While economists predict unemployment in December stayed at an all-time high of 12.1 percent, with about 19 million jobless, that tally excludes legions of adults who would also work if they could. Bloomberg calculations for the third quarter show a wider total of 31.2 million people of all ages are either looking for jobs, willing to do so though unavailable, or else have given up.

Fed Foward-Guidance Fallacies And The Untenable Status QuoZH

And The Taper ContinuesTim Duy’s Fed Watch
But what seems more clear is that the US is about to be hit by another disinflationary shock.  That deserves careful attention, because inflation, I think, is at this moment the most important variable to watch as far as Fed policy is concerned.  The Fed is pushing forward with tapering on only the forecast of future inflation.  That forecast appears under threat. 

China: UBS Says Market Wants Default as Risks to Pile UpBB
The market wants policy makers to allow the first onshore bond default to reduce long-term hazards to the financial system.

Monitor: Chinese Credit CrunchDanske Bank

5 Takeaways From the Emerging Market Rout of 2014WSJ
Don’t blame the Fed * Not all emerging markets are the same * Expect investors to discriminate * Countries that dither may need bailouts * The contagion still could spread *

Flash Comment: Mapping the EM sell-offDanske Bank
The dominant trigger is likely to have been worries about Chinese growth and the financial situation in China. However, local factors have also contributed to the ‘EM hurricane’. Overall, we can identify three characteristics of the sell-off. The hardest hit countries are those with large external imbalances (such as Turkey and South Africa), commodity exporting countries (like Brazil and Russia) and countries with rising domestic political/regime uncertainty (such as Ukraine and Turkey).

GEM Currencies OversoldShort Side of The Long
GEM currencies have been in a downtrend for almost 3 years * Weakness in GEM currencies can usually mark a crisis low *

The EM line in the sandHumble Student
It seems that the problems currently faced by selected EM currencies are due to local conditions, e.g. the problems in Argentina are unrelated to the problems in Turkey, and the risk of a global EM currency crisis sparked by Fed tapering is well under control.

2014: The year of emerging emergencyTradingFloor
Emerging markets got into trouble when the Fed first mentioned the taper. But now that the turmoil has become widespread and is beginning to affect developed economies' asset prices, a peep behind the curtain does not reveal a pretty sight.

Emerging Markets - Emerging Crisis or Media Hysteria?dshort

Turkey - helping the lira, killing the economy?Danske Bank

Turkey - Das BootMacroMan

Rajan Warns of Policy Breakdown as Emerging Markets FallBB
India’s central bank Governor Raghuram Rajan (former IMF chief economist) warned of a breakdown in global policy coordination after the Federal Reserve further cut stimulus, weakening emerging-market currencies from the rupee to the Turkish lira.

Steen Jakobsen: Russia a catalyst for EM and global troublesTradingFloor
EM crisis unlikely to go away * Devaluation worries gather momentum * Hike in interest rates a disease

The IMF is Courting New Risks with a Change in Policy on Debt Restructuring PIIE

“Currency collapses and output dynamics: a long-run perspective”alphaville / FT

Eurostako hyötyä Suomelle? Akateeminen talousblogi

Kruunu ottaa omansa – viisi havaintoa kiristyvästä verotuksesta EVA
EVA: Verojen korotuskierre kurittaa Suomea – EK

Milloin asuntomarkkinoilla alkaa tapahtua?Tyhmyri

Luottamusindikaattorit kääntyivät laskuunEK
Yritysten luottamus talouteen heikkeniYLE