Not much
material, so only one Weekender-post. Views: Euro crisis to drag on, risk
markets bullish for the early part of the week, but I am expecting a reversal
around mid-week: stock markets are still in a modestly rising but wildly sawing
channel, and we’re near the upside again. If I had to trade, cautious longs on
Monday, flat after a day or two, and prepare to get long during the possible correction. See the Special: ECB WATCH for more.
Previously
on MoreLiver’s:
Weekender: Weekly Support (just updated)
EUROPE
The global crash: Japanese lessons – The Economist
After five
years of crisis, the euro area risks Japanese-style economic stagnation
Jens Weidmann: 55 years for stability – BIS (pdf)
Interview
with Dr Jens Weidmann, President of the Deutsche Bundesbank, and Helmut
Schlesinger, former Bundesbank President, published in the staff magazine of
the Bundesbank on 27 July 2012. (Bundesbank did in fact break the
ERM in the early nineties, just as I have said previously)
One Money, (Too) Many Markets – Project
Syndicate
The euro was not created for purely economic
reasons. If it is deemed a worthwhile project for political reasons, and is
viewed as mutually beneficial to all participants, the eurozone could be made a
viable venture – though certain minimal structural conditions must be met.
With the euro-crisis threatening the economies
of Europe, the United States, and Asia, the usual suspects are coming up for blame. Bankers and corrupt
regulators face scorn from the left and much of the right. Yet those perhaps
most responsible for the world's dismal economic future have names many would
not recognize. Indeed, the people who have done the most to screw up Europe would be able to walk down almost
any street in the world without being recognised. It's time to meet them!
EUROPE: PIIGS
S&P Downgrades 15 Italian Financial
Institutions, Says Country Faces Deeper Recession Than Previously Thought – ZH
Citigroup’s
long note. Spain and Italy require 700bn for a two-year
programme.
EUROPE: ECB
Maybe Draghi’s speech wasn’t a disaster after
all – Wonkblog
/ WP
Jens Weidmann, the German representative on the
ECB board, was the lone dissenter from the new bond-buying proposal. And
Weidmann couldn’t get any of the other members to agree with him.
No left tail for a while – The Tail Chaser
To watch are the same variables: Target2
Claims, Deposit Flights and banks’ equities and credit. These are the
‘convertibility premia’ Super Mario pulled as excuses to get the bond buying
within his mandate.
What’s with the eurozone update? – Marginal
Revolution
He’s daring the Germans to zap him, knowing he
stands some chance of going down in history as the central banker who saved the
eurozone, knowing that he has nowhere else to go, knowing the Germans have
nowhere else to go, and knowing that he has nothing to lose from being fired or
otherwise emasculated. He also knows he
has a lot of other eurozone nations on his side.
The Great Draghi Re-think – alphaville
/ FT
Oppenheimer is very much looking for the sort
of rally we saw post-LTRO, although he accepts it could be volatile. But
Goldman are telling their clients to go long European “high sales growth” and
short the American equivalent, while also targeting a dollar/euro rate of 1.30.
Mario Draghi's rescue plan for the euro – Free
exchange / The Economist
Backing up words with more words is always a
problem, particularly when there are so many moving parts, as in the euro area.
In an ominous sign, Spanish 10-year bond yields climbed back above 7%. Now they
know what Mario really meant, the markets may remain unconvinced until his plan
actually takes off.
ECB Judo – Macro Man
So this leaves TMM reluctantly agreeing with the
consensus view that markets will try and force Rajoy to ask for EFSF help. And
while it might seem too obvious, especially given that the Draghi Put lies
below, the framework he laid out yesterday will take some weeks to come to
fruition (notably, the German Constituional
Court ruling on ESM). That
is not to say that the ECB will be unable to act until late-September, however.
More that without substantial pressure on Spain & Italy, that it cannot be
pre-emptive.
What did you really expect from the ECB? – Humble
Student
The ECB is prepared to give the politicians
cover to rescue the euro, but there is a quid pro quo involved. Don't expect
immediate action, but this will be the normal back-and-forth of a negotiation
process that will drive the markets crazy.
Draghi Continues Handwaving as EuroCrisis
Worsens – naked
capitalism
The problem is that Draghi has to keep the
markets appeased until September 12, when the German Constitutional Court will
presumably lift the injunction against having the German president sign the
treaty that creates the permanent rescue fund, the ESM (my connected German
buddies believe the judges are just about certain to lift the injuction, even
if it were to take some tortured reasoning to get there). The second obstacle
that has to be overcome is that Spain and Italy have to ask for aid.
Why is that necessary? Because formal aid comes with strings attached.
Draghi'ing his heels: thoughts on the ECB, MPC
& FOMC this week
– Saxo
Bank
I am sympathetic to the argument that until the
measures are firmly put in place, the resultant uncertainty is negative for
sentiment and for the EUR and broader risk assets BUT if all of these
suggestions and commitments eventually pass through into physical measures then
they would potentially amount to the ‘bazooka’ of policy that the markets have
been craving for months (if not years).
Hedge-Fund Investor Jen, a Euro Bear, Gives
Draghi Thumbs Up – MarketBeat
/ WSJ
Stephen Jen is a pronounced euro bear, but he gave a ringing endorsement of Mario Draghi’s new game plan for the euro zone’s debt crisis Thursday, even as markets were disappointed
Stephen Jen is a pronounced euro bear, but he gave a ringing endorsement of Mario Draghi’s new game plan for the euro zone’s debt crisis Thursday, even as markets were disappointed
MARKET VIEWS
Commodities – Barclays
/ FT Long Room (pdf)
Commodities – Credit
Suisse / FT Long Room (pdf)
Commodities – Deutsche
Bank / FT Long Room (pdf)
Commodities – UBS
/ FT Long Room (pdf)
Strategy Matters – Goldman
Sachs / FT Long Room (pdf)
A clearer path to a lower risk premium: The
lack of immediate concrete action in today’s ECB announcement led to a sell-off
in markets. Near term, this volatility could continue. But, on a slightly
longer horizon, the path that the ECB has set out is likely to lead to lower
perceived tail risks by equity markets and therefore a lower risk premium. (free registration required)
JPMorgan's Tom Lee: One Of The Best Stock
Market Indicators Has 'Decisively Turned Up' – BI
Economic
surprise index has been picking up.
HIGH FREQUENCY TRADING
Wall Street used to bet on companies that build
things. Now it just bets on technologies that make faster and faster trades.
Interview With A High-Frequency Trader – ZH
HFTs can model other traders’ behavior. When
someone trades through Scottrade or Interactive Brokers, their order has a
unique number attached to it – the same number every time a client places an
order. This number is bundled with all relevant trade information (time, price,
etc.) and sold as an encrypted “enhanced data feed.” An HFT can then use those
past results to predict the trader’s behavior.
TRADING
Switzerland on Tuesday revealed its foreign exchange reserves now total 365 billion
francs ($374 billion), a rise of 50 percent in just three months and taking it
to a dizzying 62 percent of Swiss annual output. A small Alpine country with a
big banking industry is now the world's sixth-largest reserves holder, behind
only much larger or resource-rich countries like China, Japan, Russia and Saudi Arabia.
Post Hoc Ergo Propter Hoc – Above
the Market
data-mining in the investment world — leading
to claims of fancy-sounding “proprietary models” and “black boxes” – can also
be a highly questionable endeavor. The markets produce so much data that
coincidence alone accounts for many systems which backtest successfully
Sorting Countries on Value – Mebane
Faber
a great article “The Hedgehog’s Error” on
Morningstar that does a simple quant sorting of global countries based on value
(P/B). Not surprisingly he finds that
sorting on value, aka buy low sell high, works.
More importantly he unveils a database of French Fama international data
on a country level basis
Artificial Intelligence: The Answer to Wall
Street’s Data Deluge
– Institutional
Investor
Asset Allocation and Portfolio Management: Is
the Industry Shifting to a New Paradigm? – CFA
Institute
The traditional asset management approach may
have worked in the 1990s, during what proved to be an exceptionally long period
of stability. But clearly it has not worked in the past 15 years.
How to Get High Returns From High Volatility
Stocks – Falkenblog
Such research confirms my thinking that
prejudices are more important than statistics when analyzing complex data,
because people tend see what they believe rather than vice versa. Thus,
developing good prejudices is more important than developing good econometric
skills
Risk Premia Harvesting Through Momentum – Turnkey
Analyst
this paper explores momentum with respect to
what makes it most effective. We do this by first combining cross-sectional
relative strength momentum with time series momentum. We then explore the
factor most rewarded by momentum… Diversification is considered the only free
lunch in the investment world. This paper suggests that momentum is probably
the other free lunch.
OFF-TOPIC
Engineers Unveil First Casimir Chip That Exploits
The Vacuum Energy –
technology
review
The Porn Convention – Forbes
Book Bits – The
Capital Spectator
Meet the Man Who Put the ‘@’ in Your E-Mail – Wired
Extra-terrestrial life: Closer to encounter – The Economist
As the latest rover arrives on Mars to assess
its hospitality, astronomers are learning more about possibly habitable worlds
beyond the solar system
The Heretic – The Morning News
For decades, the U.S. government banned
medical studies of the effects of LSD. But for one longtime, elite researcher,
the promise of mind-blowing revelations was just too tempting.
30 open questions in physics and astronomy – Locklin
on Science