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Wednesday, March 28

28th Mar - The Count Room

A lot of articles, interesting that Spain is getting a lot of bad press. Also Japan’s crash is either seen as imminent or a possibility – but no-one seems to deny that it is looking shaky (me on Spain).

All eyes are on the weekend’s eurocrat techno rave party, where they will supposedly agree on a larger rescue vehicle by combining and/or running simultaneously the EFSF and ESM. Again, the commentary is highly skeptical that it will work for long. Goldman is already thinking ahead and sees all the trash buried in a special vehicle. This would circumvent any democratic inconveniences and clean up the balance sheets of the operators.

As I did not post during the day (even MoreLiver has to occasionally work a bit), I've included the US Open regular links as well. If you want something, you know where to find me: let's meet outside the count room.


US OPEN
News And Market Re-CapRanSquawk / ZH
The euro zone todayMacroScope / Reuters
  Who’d be a central banker?
The Lunch Wrapalphaville / FT
EM New York headlinesbeyondbrics / FT
Morning MarketBeatMarketBeat / WSJ
  When Will Earnings Matter Again?
EZ Crisis Daily Press SummaryOpen Europe
  EU official: Spain should tap eurozone bailout fund to recapitalise banks; Spanish PM: Ministries will be required to cut their budgets by 14-15%

US CLOSE
MarketsBetween The Hedges
Recap – Global Macro Trading (on holiday)
The Closeralphaville / FT

Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT
FX Options Analytics – Saxo Bank

EURO CRISIS: GENERAL
Goldman On Europe: "Risk Of 'Financial Fires' Is Spreading" ZH
Risk remains high, EFSF/ESM size not enough, seniority constraints and governance limitations. A sustained realignment of rate differentials unlikely. A Redemption Fund (just like euro bond, but without the paperwork) is likely next step.

Three EU agencies fail MEPs' ethics testeuobserver.com
MEPs in the budgetary control committee looking at the accounts of EU institutions on Tuesday (27 March) suspended the procedure for three agencies whose staff is said to be too close to the industry they deal with.

Why Europe's Banks Trail in Deleveraging ProcessWSJ
Very nice article: US on Basel I and Europe on Basel II, US banking shaped by past crisis. Also takes a look at some future scenarios.

The economic and fiscal challenges facing EuropeBIS (pdf)
N.Y. FED CEO William C Dudley on 27-Mar

Spring Election Fever Grips EuropeThe Euro Crisis / WSJ
Dates and overview

Europe Drops Most In 3 Weeks As LTRO Stigma Hits New HighsZH
Good chart roundup of the recent moves: The LTRO Stigma, the spread between LTRO-encumbered and non-LTRO-encumbered banks, has exploded to over 107bps (from under 50bps at its best in mid Feb when we first highlighted it)

EURO CRISIS: SPAIN
Spain in the spotlightalphaville / FT
With that in mind, how relieved should we have been when Spanish banks borrowed from the ECB’s LTRO? The flotation device, that also tied sovereigns and their banks closer together, may have cost more than we thought.

The rain in SpainMacro Business
…there is simply no way that the private sector will be able to continue to make payments on the debts it has accumulated during the period of significantly higher income. This is a major unaddressed issue. This is why we continue to see a rise in bad and doubtful debts in the Spanish banking system which, under direction from the Government, banks continue to merge.

On Spain’s coming under the watchful eye of the Troika in 2012Credit Writedowns
The rumor roiling markets is that contingency is being made for Spain to access the Troika programs. The government has denied these rumors. But they persist nonetheless. And this is not the first time we have heard this.

Spain, A Slightly Bigger KickTF Market Advisors
Spain seems to have been issuing even more guarantees than Italy and to even worse institutions from a credit perspective (ie, ones that are more likely to rely on the guarantee for actual payment), so the trajectory of Spanish debt is concerning. The maturity of the debt issued is better than Italy and better than I expected.

RBS’s Gallo Says Spanish Risk Rally a MistakeBB (mp3)

EURO CRISIS: OTHER PERIPHERY
Eurozone periphery governments "encouraging" banks to buy sovereign debtSober Look

Lessons LearnedISDA
On Greek credit event: In our minds, the most striking thing about the entire situation was the wholesale shift in sentiment regarding the potential risks of a credit event. In the space of a few months, it went from being a big issue to a non-issue (though it really should not have been an issue at all).

EURO CRISIS: ECB / LTRO / TARGET2
About that broken ECB transmission mechanismalphaville / FT
The growing role of secured lending in financial markets means that financial intermediation would suffer enormously from any paralysis in sovereign bond transactions.

Credit contraction stopped by ECBDanske Bank (pdf)
Looking forward we expect credit to remain stable in the first half of 2012 and foresee a moderate credit expansion in the second half of 2012, which should help to support a pick-up in euro area growth. However, we expect to see substantial country divergence. Lending in Germany may pick-up significantly this year as the economy gains further momentum while lending in several peripheral countries may well continue to contract.

The Firewall- An IrrelevancyMark Grant / ZH
The LTRO money is beginning to run dry and unless they do another one and take the debt at the ECB up to $6 Trillion or the EU starts handing out money like candy upon the street corner the debts cannot be paid…. When the time comes that the LTRO play is over and when the Fed shuts off the spigot then the Hell that will be paid will be lining up at everyone’s doors demanding cash and not accepting anymore IOU’s.

EURO CRISIS: EFSF /ESM
Europe Leaks It Will Fix Crushing Debt Problem With €940 Billion Of More EFSFESM DebtZH
1) Of the bombastic €940 billion in headline bailout money, only €300 billion or so will actually be available… 2) Europe is already preparing for the fade of the impact of the LTRO…3) Europe is back to the old mode of thinking that more debt will fix debt, even as the banking sector is forced to delever ahead of Basel III and due to shareholder requirements. This simply means that the eye of the hurricane over Europe's sovereign debt is about to pass. Those who miss 7% yields on BTPs won't have long to wait. Reality is once again starting to reassert itself.

EU – EFSF & ESM – A whole lot of nothingTF Market Advisors
Then the ESM, just like the EFSF (which may still need to issue €137 billion) will issue bonds whenever it needs money, and only use the “capital calls” in extreme circumstances.  This is actually far worse than having the money up front – as problematic as that may be, because this plan will shift virtually the entire burden to Germany and France if it ever gets used.

ASSET CLASS VIEWS
FX: Is the Easter bunny here yet?Saxo Bank
Range-trading induced by the central banks

Notes From the CIMA Conference 2012market folly
This event focused less on specific stock picks and more on stock process

Standard Chartered’s Henderson Sees Weak EuroBB (mp3)

JAPAN
The great Japan crash still not imminentalphaville / FT
Tetchiness about Japanese bonds seems to be reaching an all-time high lately. But JGBs are not, so far, playing along… The yen has, nonetheless, seen something of a weakening recently, thanks to the BoJ’s Valentine’s Day intervention.

Chinese Business Media Cautions Japanese Bond Bubble Is Ready To Burst, Anticipates 40% Yen Devaluation ZH

Mrs. Watanabe Prepares To Blow The JGB Bubble: Household Holdings Of Japanese Bonds Slide To Lowest In 7 Years ZH
Combing through the Japanese quarterly flow of funds report shows something very disturbing - the last bastion of JGB ownership, Japan's households, have started to shift out of bonds, which are now yielding 0.27% for the retail 5 Year bond, and about 1.00% for the 10 year, and are now putting their money straight into mattresses.

Banks, Bonds, and Equities; Japanese Yen Devaluation Could Trigger China CrisisHistorySquared

OTHER
The balance sheet recession, charted alphaville / FT
Nomura’s Richard Koo has been banging on about the similarities between Japan’s balance sheet recession and the current financial malaise for a long while. His main point has always been that the financial system won’t recover unless corporates and households complete their deleveraging journey.

Summarizing The True Sad State Of The World In Two ChartsZH
public debt/GDP projections for several countries and income equality

Disappearing DeficitsiMFdirect
In our work at the IMF, we sometimes discover that governments choose to employ accounting devices that make the deficit smaller without actually causing any pain, and without actually improving public finances. In ideal accounting, this would not be possible. In real accounting, it sometimes is.

Banking Regulator Calls for End of ‘Too Big to Fail’DealBook / NYT
It’s a radical indictment of the nation’s financial system. The lead essay, which is endorsed by the president of the Dallas Fed, contends that despite the great crisis of 2008, a cartel of megabanks is still hindering the economic recovery and the institutions remain too big to fail.

9 economic mythsPragmatic Capitalism
Rosenberg’s and Roche’s views on: Bonds are in a bubble, The LTRO saved Europe, It’s clear sailing ahead, Housing is embarking on a full fledged recovery, No hard landing in China, The surge in gas

OFF-TOPIC
My generation should repay its good luckJohn Kay
Most parents want to give their children opportunities to live a life better than their own. But when we act together, we aggressively pursue our own interests at the expense of our children and grandchildren: a bizarre paradox of perverse collective action.

Former equity derivatives structurer: 'The key is values'The Guardian
Joris talks to a former structurer at a bank who argues the culture of finance should be more like rugby's, less like football's

In their own words…The Guardian
Who works in finance? And what do they do all day? Read anonymised self-portraits of the working lives of people in the finance sector.

Brain drainSpectator
Neuroscience wants to be the answer to everything. It isn’t

The Special Issue SpotterBlogging on brain and behaviour