The best
article links from my ending week’s posts. Spain's downgrade, Liikanen's report on reforming banking and IMF's confession that austerity is not working.
Previously on MoreLiver’s
EUROPE
The IMF and the euro crisis:
Less cash, more impact – The Economist
The IMF needs to change tack if Spain asks for a bail-out
Poll: Is the Objection to
Using the ESM’s Bailout Money to Purchase Bad Loans Appropriate? – CFA
Institute
72% Yes. Each of the objecting nations sees the ESM
as a negotiating lever to ensure that troubled eurozone nations implement
conservative fiscal policies and that their troubled banks rebuild the sanctity
of their capital structures. In other words, bailout monies are only to be used
as a final option once all other measures are exhausted.
The Bump In The Night – Mark Grant / ZH
We have no solution for Cyprus, no answer for Spain and no plan for Greece as the IMF has made
two things quite clear. Number one is that they will not give Greece any more
money and number two is that they expect Europe to take the unavoidable
financial hit and that it will not be them that is going to get left holding
the proverbial bag.
S&P Will Downgrade France And Italy Next, CDS Implies – ZH
What might debunk OMT euphoria? – Economistmeg
Excellent
list and discussion of possible future bad news.
OMT is so 2013 – alphaville
/ FT
The market has been waiting for Spain to request its very
own Enhanced Conditions Credit Line for quite a while now. It’s the road to
OMT. And for a (very) little while just last week while it appeared we were
only a weekend away. But it’s now looking increasingly like we are not gonna
get to see any OMT buying at all in 2012. Sad.
An overlooked currency war in
Europe – Daniel Gros / voxeu.org
Switzerland has pegged its currency to the euro at a level that helps it sustain a 12%
current-account surplus and one of the lowest unemployment rates in Europe. This column argues that the Swiss
peg involves currency manipulation that is, as far as Europe is concerned, the same order of
magnitude as China’s intervention. It has had a significant impact on the euro exchange
rate and a non-negligible effect on the EZ economy.
Sherlock Holmes (herein
played by Buchheit) says: debt reprofiling – alphaville
/ FT
Buchheit (who helped mastermind the Greek
restructuring at Cleary Gottlieb) and Gulati on the options now facing the
eurozone’s sovereign debtors and those holding the purse strings.
EUROPE: SPAIN
Target2 chart du jour – alphaville
/ FT
Spanish
TARGET2 balance decreased for the first time since the crisis began.
S&P downgrades Spain – alphaville
/ FT
Spain Dissed by S&P – Marc
to Market
Spanish aid request a step closer – Nordea
While everybody was waiting for Moody’s
decision on the Spanish rating, Standard & Poor’s was the one firing the
next bullet. Still, the S&P 2-notch downgrade to BBB- just left Spain within investment
grade, albeit with a negative outlook.
The Eurozone's commitment to
supporting Spanish banks questioned by S&P, others – Sober
Look
The good news is that Spanish banks' borrowings
from the ECB fell in September, following the ECB's commitment to do
"whatever is necessary" to make sure Spain (and others) stay in
the Eurozone - reducing the redenomination risk. Nevertheless the latest data
from the nation's banking sector still shows declines in lending and losses
associated with rising bad loan balances.
EUROPE: LIIKANEN REPORT
The case for structural
reforms of banking after the crisis – BIS (pdf)
Erkki Liikanen, Governor of the Bank of Finland
and Chairman of the High-level Expert Group on the structure of the EU banking
sector, at the European Commission, Brussels, 2 October 2012.
The Liikanen report - is size
the elephant in the room? – bruegel
A more fundamental point is that it is not
clear that legal separation reduces governments’ incentives to bail-out
troubled banks and lowers systemic risk instead of shifting it to other parts
of the banking sector. The reasons for saving troubled banks go beyond
protecting insured depositors…From an economists’ point of view the question
then becomes, should you prefer structural regulation (i.e. quantity
regulation) or price regulation through higher capital requirements or high
taxes for big banks.
The Liikanen review: Into the
ring – The Economist
A European report recommends yet another way to
ring-fence banks
IMF
IMF Sees Heightened Risks
Sapping Slower Global Recovery – IMF
IMF revises forecast down, global growth
projected at 3.3 percent this year. World trade slumps, hurting emerging
markets, developing countries. Prospects could improve if clouds over euro
area, U.S. “fiscal cliff” are lifted
World Economic Outlook: Coping
with High Debt and Sluggish Growth – IMF
IMF Sees ‘Alarmingly High’
Risk of Deeper Global Slump – Bloomberg
IMF cuts global growth
forecast; prods Europe, U.S. – Reuters
The IMF cut its global growth forecast on
Tuesday for the second time since April and warned U.S. and European
policymakers that failure to fix their economic ills would prolong the slump.
Prepare for probable
disappointment, IMF
– alphaville
/ FT
The
assumptions behind IMF’s growth forecasts are risky.
The IMF game changer – alphaville
/ FT
IMF has played bad cop to the global economy
for generations now, enforcing austerity, conditionality and accountability
wherever it goes. And, for the most part, it’s the emerging world that’s
suffered most. Recanting on some of these closely held beliefs, especially now
that the bitter medicine is predominantly being applied to the developed world,
is awkward to say the least.
MARKETS
G10 Weekly: Severe headwinds facing the Swedish
economy – Nordea
In this week’s edition of G10 weekly we
elaborate on the severe headwinds facing the Swedish economy. We also address
the process of global deleverage, which appears to be far from over.
Perspectives Oct 2012: A new monetary era – Pictet
Q3 earnings won’t be good,
but might not matter much – alphaville
/ FT
Stock Market Troubles – The
Short Side of Long
When I look at the current condition of US
stocks, it definitely reminds me of previous cyclical bull market tops just as
the business cycle expansion was coming to an end. Be it overbought prices,
narrowing breadth participation, tightening credit spreads, extremely prolonged
complacent volatility, overly bullish
sentiment readings without a bear in sight or the fact that the Long Bond refuses
to sell off - it all links to the economic fundamentals deteriorating rather
rapidly.
Nordea Risk Perception
Publication – Nordea
(pdf)
Sideways trading across financial asset classes
as markets continue to acknowledge 1) European politicians becoming more
vigorous and 2) central banks showing their ammo * The tendency with seeping
vols is clearly reflected in Nordea Risk Perception Index * Movements however
still muted and correlations are high between asset classes * Going forward,
vols can easily loose further ground on the back of ECB and continued weak
economic data that keeps markets in tight trading ranges * With only the past
year in mind, risk sentiment can quickly shift and timing may be apt for
entering tail risk hedges at current historic cheap levels
Investing in credit markets, with matrices – alphaville
/ FT
When Career Risk Reigns – John
Mauldin / The Big Picture
A tour of recent research, which shows that
correlations among a wide variety of asset classes are increasing. It comes as
no surprise to serious investors that it is getting ever more difficult to
construct a diversified portfolio.
Currencies: The weak shall
inherit the earth –
The Economist
New government priorities and an enthusiasm for
unconventional monetary policy are changing the way the currency markets work
ECONOMICS, REGULATION
Implementation of capital
standards: assessment reports published by Basel Committee – BIS
Three
reports assessing the rules that will implement Basel III in the European Union, Japan and the United States.
Triparty repo and the
clearing bank risks – Sober
Look
Repo markets have functioned well for decades. However
this recent paper published by the NY Fed (below) outlined potential systemic
risks in the tri-party markets that became apparent in 2008. The concerns are
not with the repo market itself or the lenders/borrowers under the contract,
but with the clearing banks that facilitate triparty repo transactions.
Repo transactions and shadow
banking – Sober
Look
We continue to get questions about the repo markets
and the structure of repo transactions. The attached paper from the Financial
Stability Board provides a good overview of repo and securities lending markets
(including rehypothecation practices).
Magnus, on spending our way
out of the Mumps – alphaville
/ FT
According to George Magnus of UBS, most of the western world has now been struck by the latter. And — contrary to popular belief — the disease is underpinned not by western profligacy, but possibly the very opposite phenomenon. Too much thrift.
According to George Magnus of UBS, most of the western world has now been struck by the latter. And — contrary to popular belief — the disease is underpinned not by western profligacy, but possibly the very opposite phenomenon. Too much thrift.
Global Economy Course
materials – NYU
Stern Economics
Required
MBA course now online. Full course contents, including the textbook
(pdf)
Professor Woodford and the
Fed – Gavyn
Davies / FT
Professor Michael Woodford of Columbia University is an extremely
renowned macro-economist, and rightly so, but only recently has he occupied a
central place in market thinking. Since his paper on US monetary policy at Jackson Hole, and the favourable remarks which
Ben Bernanke made about him, everyone is trying to understand what his
influence on the Fed might eventually mean.
Don’t call it money printing,
rubiks cube edition
– alphaville
/ FT
HSBC had joined the cohorts of the “don’t call
QE money-printing” brigade. We thought this was a great positive for the
mainstream analyst community. Moreover, we thought their explanation was really
good.
Rubiks Revolutions – alphaville / FT
This post is a continuation, in which we apply
the analogy to the crisis so far.
OFF-TOPIC
Keynesian Investing: Changing
Facts, Changing Minds
– The
Psy-Fi Blog
John Maynard Keynes’ remarkable investment
record as the effective Chief Investment Officer of Kings College Cambridge over a period of a
quarter of a century. It’s a fascinating insight into the evolution of
one individual from underperforming, overconfident, macro-based and
behaviorally biased to an outperforming, realistic, stockpicking rationalist.
What makes you
"click" with someone else? – Bakadesuyo
Would You Want to See
Everything Your Doctor Writes About You? – The
Atlantic
We might
not like everything we read, but a new trial found that giving patients easier
access to our exam notes gets us more involved in effective care.
In the New World of
Spies – The
New York Review of Books
To put it differently, the members of the
Russian elite may no longer aspire to launch international Communist revolution,
as they did in the 1930s. But they do aspire to change the Western norms and
behavior that they see as standing in their way: they want to make Americans
and European less interested in human rights, more accepting of corruption, and
perhaps more amenable to Russian investment and Russian oligarchs.
Creative blocks – aeon
The very laws of physics imply that artificial
intelligence must be possible. What's holding us up?