The best
articles from my posts of the ending week.
Previously on
MoreLiver’s:
EUROPE
Whither the Euro? Seeking
Resolutions for the Eurozone – CFA
Institute
Not
surprisingly, a major theme of this year’s CFA Institute European Investment
Conference in Prague was the prospect for the euro. Most speakers opined on the subject,
sharing and supporting their various arguments.
EU
Summit: Another Plan to Plan – economistmeg
All in all, this summit has teed up a number of issues
surrounding the creation of the SSM and a banking union that policy makers will
have to thrash out in the lead-up to and during the EU summit in Brussels in
December. EU leaders hardly addressed the issue of a common EZ budget, but Van
Rompuy highlighted that this too will be discussed in December.
Europe’s Indian summer to yield to a harsh winter of volatility – Saxo
Bank
Steen Jakobsen: The EU Summit in June was hailed as a
game changer and the big winner was the Spanish president Rajoy. Last week's EU
Summit was a different story, as the announced banking union remains merely a
plan to have a plan because Germany and Club
North have decided that 'conditionality' is an integral part of a future
compromise.
Taking
A Man At His Word – Fistful of
Euros
Especially now the ECB has become the in-tray into
which all the politically unpalatable and thus unresolvable issues ultimately
get dumped. The most recent example of this is the suggestion that Spain applying
for a precautionary credit line would be the ideal solution to the country’s
current dilemma since no money would actually need to change hands, making the
move easier to sell to the German parliament.
“Europhorics”, our most dangerous friends – Die
Zeit / presseurop
There are
the “Eurosceptics”, and there are “Eurohaters”. And then there are the “Europhorics”,
who are to be found among both intellectuals and politicians and who at least
as dangerous as the former. To them the EU is not a union, but a worldview –
and they are abusing it.
Europe’s Path to Disunity – Hans-Werner
Sinn / Project Syndicate
The assertion that the eurozone could be transformed into
a United States of Europe is no longer convincing. The path toward it is far
more likely to lead to a deep rift within Europe, because
turning the eurozone into a transfer and debt union would require more central
power than currently exists in the US.
Chart
of the week - Economic convergence in the euro area – bruegel
Current accounts are moving towards balance…Fiscal
balances are mostly moving towards a more sustainable zone, albeit with
difficulty in the case of Greece…Nominal unit labour costs are mostly going
down (with the exception of Italy) in the periphery and up in Germany, even if
the gap between the level of Germany and that of the other countries is still
large.
(Seemingly) Perpetually
Miserable Indices –
alphaville
/ FT
“Cancelling” QE debt – alphaville
/ FT
Bank of England’s governor on canceling government bonds acquired by the central banks
Bank of England’s governor on canceling government bonds acquired by the central banks
Chart of the week: The real
test of the euro – bruegel
The single
most pressing threat to the integrity, and perhaps also to the existence, of the
euro is the depth of the recession in southern European member states
The battle for the Sparkassen
begins – Brussels
blog / FT
This issue has always been a potential dealbreaker: how will Germany’s politically powerful network of small public banks — or Sparkassen — sit under the bailiwick of a single bank supervisor? Until now we’ve mainly seen diplomatic shadow-boxing on the matter. But that fight is beginning in earnest.
This issue has always been a potential dealbreaker: how will Germany’s politically powerful network of small public banks — or Sparkassen — sit under the bailiwick of a single bank supervisor? Until now we’ve mainly seen diplomatic shadow-boxing on the matter. But that fight is beginning in earnest.
EUROPE: ECB
TARGET
losses in case of a euro breakup – voxeu.org
Hans-Werner Sinn: As with the Eurozone crisis, the
TARGET debate shows little sign of disappearing quietly. This column argues
that the ECB has tolerated, if not created, huge TARGET imbalances that impose
a particular risk on the northern countries should the euro break up. It calls
for a fairer and more sustainable system – and suggests the US model may
offer some guidance.
What inflation? – alphaville
/ FT
Euroland M3
coming in below expectations and dropping again to 2.7.
Weakness the Eurozone credit
growth persists; stark contrast with the US – Sober
Look
The
stagnation in lending is in part due to banks deleveraging in order to improve
capital ratios for Basel III. But a big part of the issue is simply lack of
demand from borrowers.
EUROPE: PIIGS
Greekileaks: German-backed
plan for Greek bailout – The
World / FT
Greekileaks 2: The new draft
MoUs for Athens – Brussels
blog / FT
With Athens
and the so-called “troika” of international lenders close to a deal on an
overhauled bailout that would extend the programme by two years, the focus
today shifts to Brussels, where talks begin on round two of the revised Greek
rescue: how to pay for it
What Do Spain And Greece Have To Look Forward To? SocGen Answers: "Not A
Lot" – ZH
SocGen: The
moribund growth backdrop also begs the question what palpable difference any
relief over Spain or Greece (if it comes) will do to the long
end. The answer is probably not a whole lot.
USA
Presidential Election Preview
1: Timeline And Fiscal Cliff Flowchart – ZH
GS: The key
dates and likely paths to resolution of the "fiscal cliff"
Presidential Election Preview
2: Where They Stand And Why It Matters – ZH
GS:
Legislative inaction now a greater risk than legislative action * The fiscal
stakes are higher than they have been in decades * Monetary policy in
(political) focus
Presidential Election Preview
3: Swing States And The Horserace – ZH
Goldman finds that a divided government has on average produced considerably tighter fiscal policy - not a good sign.
Goldman finds that a divided government has on average produced considerably tighter fiscal policy - not a good sign.
MARKETS
Which
Assets Will Benefit From QE? – The
Short Side of The Long
Equity market internals continue to deteriorate, especially
in the Technology sector, which transitionally has had leading characteristics.
Q3
Earnings Season To Date Summary: Ugly... And Getting Worse – ZH
Goldman’s charts
FX
Comment: the macro week – Nordea
Bearish
tripwires – Humble
Student
Until I see a broader retreat in the major averages,
reduction in risk appetite, the public getting bullish, and relative underperformance
of cyclical stocks, I am still inclined to give the bulls the benefit of the
doubt.
Credit Guest: Chadburn, on full ahead? – Macronomics
/ MoreLiver’s Daily
S&P500 Q3
earnings: A struggle to meet revenue expectations – Saxo
Bank
Revenue is investors' focal point * Development does
not look good so far * Positive EPS surprises based on cost cutting do not
impress investors * Revenue surprise but EPS miss gets a stock hammered.
As Market Plunges, Bob
Janjuah Opines: "Tactical Short Risk Time" – ZH
Full note
from Nomura
Nordea Risk Perception Publication – Nordea
Modest
deterioration in sentiment – baseline still gradual improvement (or straight to
full pdf)
Gawd but the currency wars
are boring – alphaville
/ FT
Sure we’ve
got plenty of rhetoric, a Swiss franc floor and QE — but FX volatility is
touching recent lows.
G10 Weekly: Macro vs. market
divergence to end?
– Nordea
(pdf)
Macro vs.
market divergence to end? * US – Earnings and economic momentum *
USDJPY – Leaving the comfort zone * RIX – Our call for further easing is intact
QUANT / ECON / TRADING
Market
Timing and Roulette Wheels Revisited – Investment Risk
and Performance
In a 2001 Financial Analysts Journal article, we
analyzed the difficulty of beating a buy-and-hold strategy using active asset
switching. In this article, we present updated results. On average, during the
2000–11 time period, beating the market through market timing was difficult but
not as difficult, on average, as during the 1926–99 period. The ease or difficulty
of beating the market, however, varies tremendously over time. This reality has
major implications for performance measurement.
Does Academic Research
Destroy Stock Return Predictability? – SSRN
We study
the out-of-sample and post-publication return-predictability of 82
characteristics that are identified in the academic literature. The average
out-of-sample decay due to statistical bias is about 10%, but not statistically
different from zero. The average post-publication decay, which we attribute to
both statistical bias and price pressure from aware investors, is about 35%,
and statistically different from both 0% and 100%. Consistent with informed
trading, after publication, stocks in anomaly portfolios experience higher
volume, variance, and short interest, and higher correlations with portfolios
that are based on published anomalies. Consistent with costly (limited)
arbitrage, the post-publication return decline is greater for anomaly
portfolios that consist of stocks that are large, liquid, have high dividend
yields, and have low idiosyncratic risk. (full pdf from EFA2012)
Modern
Portfolio Theory: Bruised, Broken, Misunderstood, Misapplied? – CFA
Institute
If the global financial crisis has left us with any enduring
lessons, it’s that asset return distributions can be significantly skewed and
asymmetrical, and that fat tails are the norm rather than the exception. So how
can investment practitioners manage this reality?
Vol
of Vol – Falkenblog
The idea was simple. Instead of sorting by vol, they
sorted by vol of vol, and generate a rather large annualized return difference (10%) between the high vs. low
vol-of-vol buckets. It's a bit like the guys at Gillette coming out with 5
blades, applied to volatility.
Why diversification doesn't
work – The
Physics of Finance
The new
paper by physicist Tobias Preis and colleagues makes this point with probably
the largest data set used so far, looking at the stocks in the DJIA over about
70 years…a trending market, in either direction, induces significant
correlations among the DJIA stocks.
Mutual fund casinos still
skimming billions –
MarketWatch
Who loses?
You and the other 95 million American investors are losers in this casino.
Years ago Bogle figured out how to cut your losses. Here’s his secret: In the
real world of games, indexing beats actively managed funds
Wrestling With Forecasting – The
Capital Spectator
All
forecasts are wrong. That’s the nature of trying to look through the fog of
uncertainty for guidance on the future. Some forecasts are less wrong than
others, of course, but it’s always sensible to assume that the prediction du
jour contains noise. That doesn’t mean that forecasting is worthless, but it
does make predictions dangerous if you don't look at the estimates in
probabilistic terms. But that's hardly standard procedure in the wider world.
Thinking through the finer points for forecasting is too often neglected, and
sometimes ignored entirely.
Forcing frequent failures – Interfluidity
I’m
sympathetic to the view that financial regulation ought to strive not to
prevent failures but to ensure that failures are frequent and tolerable.
Financial
ecosystems can be vulnerable too – Opinion
/ FT
In general, greater complexity – more species and more
interactions among them – tends to make the system more vulnerable to
environmental shocks…Instead of addressing these fundamental issues, recent
regulatory changes seem to be adding further complexity.
Heterogeneity
at the IMF – mainly
macro
Their self criticism about the impact of austerity is
both unusual and commendable in equal measure. They also appear to recognise that
pushing Greece further
than it can or should go is stupidity of the highest order. They are producing
some of the best policy orientated empirical macro research at the moment. Yet
this is the same IMF that in May co-hosted a conference on Latvia that looked
very much like a PR job for the benefits of short sharp shock austerity. The
IMF’s attitude to austerity remains nuanced and country specific.
Special: 25th Anniversary of The Crash of '87 – MoreLiver’s
Daily
The Red Queen Effect – Farnam
Street
Running
faster just to stay in same place (finance, arms races, evolution)
IN FINNISH
Pankkiunioni ja
valehtelijoiden klubi – Olli
Pusa / Pankkiunioni
Seminaari euroalueen
finanssipolitiikasta (16.9.) – ETLA
(osa
presentaatioista ladattavissa)
Suomi on Pihalla – Juhani
Huopainen / US Puheenvuoro
Euroliittovaltio ja
suomalainen veronmaksaja – varautukaa rajuihin veronkorotuksiin ja hillittömiin
julkisten palveluiden leikkauksiin – tyhmyri
Kolumni: Taistelu, jonka poliitikot voittavat
aina – Finanssialan
Keskusliitto
Päättäjät elävät kuin tuhlaajapoika – Pauli
Vahtera / IL blogit
Hupsista – Kalle
Isokallio / IL blogit
Euroliittovaltiossa Suomi maksaisi jopa 8 miljardia
vuodessa ja leikkaisi omia menojaan saman verran – laskelma yleisön pyynnöstä – tyhmyri
Suomen Emu historiaa
eli kuinka meistä tehtiin hulttiopolitiikan maksajia – Heikki
Porkka / US Puheenvuoro
Pääkirjoitus: Suomi vetäytyy, kun muu
euroryhmä tiivistyy – HS
Eurokriisi vaikeuttaa Maastrichtin kriteerien
tulkintaa – Nordea
Eurokriisissä peli kovenee – Brysselin Kone / YLE
Brysselin koneessa
haastateltavana on perussuomalainen EU:n federalisaatiota vastustavan
EFD-ryhmän jäsen, europarlamentaarikko Sampo Terho. Hän on ainoana
suomalaismeppinä Europarlamentin talous- ja raha-asioiden valiokunnan
täysjäsen, ja siis hyvällä näköalapaikalla eurokriisin suhteen. Miten tilanne
hänestä tulisi ratkaista?
Pääkirjoitus: Suomi
vetäytyy, kun muu euroryhmä tiivistyy – HS