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Saturday, March 3

3rd Mar - Weekender: CDS gone Greek, Post LTRO-tic

This weekend's reading package is stuffed with some very good general articles on Europe, and a large dedicated section on the CDS markets in light of the Greeky developments (see also this and this). Hope you enjoy,  I would love to get some feedback and requests: I am on Twitter, Facebook, email and paper.li


EURO CRISIS: GENERAL
Eurozone Wrapup: Unemployment Rate 10.7%, Highest Since 1999; Manufacturing PMI Contracts 7th Month; German Retail Sales Unexpectedly FallMish’s
Very nice roundup of the week’s European economic news

Europe againThe Big Picture
Good roundup of European situation. Italy is in far better shape than Spain, in spite of its higher headline debt to GDP. Spanish and Italian bond spreads continue to converge – I remain of the view that Italian bond yields will decline below equivalent Spanish bonds

European Solidarity - "Everybody Knows The Spanish Are Lying About The Figures”ZH
Because with nobody having any real clue what state the real global economy is in, and everyone knows it is far worse than represented yet central banks throwing gobs of liquidity in an attempt to mask a problem that stems precisely by the kind of inaction that this kind of intervention perpetuates, we can guarantee that the next time around we have adverse statements about the various European economies, it will not be a lie, but an understatement.

Spain Forecasts 24.3% Unemployment In 2012, 1.7% GDP ContractionZH

The EIB now wants to be senior like the ECB; private bond holders don't stand a chance in subordination circusSober Look

EURO CRISIS: ECB / TARGET2/ LTRO
TARGET2: A Channel for Europe’s Capital FlightPIMCO
The large TARGET 2 positions developing among national central banks in the eurozone reflect capital flight from the periphery to the core and de facto introduce transfer and burden sharing elements of a common fiscal policy. Monetary policy ends up substituting for fiscal policy without going through the same democratic channels that governments’ expenditure and taxation decisions entail. Taxpayers in the eurozone are contingently liable for eventual losses incurred by the Eurosystem’s monetary policy operations.

Weidmann’s ECB agitation more dangerous than WeberBreakingviews / Reuters
Weidmann is worried that collateral which the ECB is accepting from banks in return for its massive liquidity injections isn’t sufficiently good – and that strong national central banks, such as his, could be on the hook for losses.

Bundesbank: Balances in the TARGET2 Payments System – a Problem?Cesifo (pdf)

Euro zone crisis over – for nowBreakingviews / Reuters
…a commitment by governments to fiscal discipline across the euro zone has enabled the ECB to give banks ultra-cheap funds. But the contagion demon is dozing, not dead.

They’re back! (thanks to Ltro 2)alphaville / FT
We’ll get some insight into what the banks actually did with the Ltro funds via the March lending survey, and banks’ quarterly filings on sovereign bond holdings.

EURO CRISIS: GREECE & CDS (see also this and this)
What Are Repercussions If CDS Hedging Fails?The Big Picture
Why would anyone ever buy a CDS? Does this mean that sovereign debt cannot be hedged? Why would anyone buy any sovereign debt other than the very strongest nations?

CDS trigger seen by mid-MarchIFR
CDS traders are sticking to their baseline scenario of CACs being exercised sometime between March 8 and March 12, at which point CDS should trigger. ISDA has previously signalled the use of CACs to reduce the principal of the bonds should trigger CDS, and the Committee certainly left the door open for a future trigger in a statement today.

Greek Official Warns Debt HoldoutsDealBook / NYT
“There is just no money for holdouts,” said Petros Christodoulou, who has been at the forefront of Greece’s debt restructuring process since it began last summer. “We are prepared for legal challenges but the risk here is that people are trying to be too smart.”

Did your grandma buy Greece CDS or what?alphaville / FT
The fact that there isn’t a lot of explanation given for why the DC rules the way it does has been a source of frustration for buyside participants.

Worrying about Greece’s CDS for the wrong reasonsFelix Salmon / Reuters
when Greece finally defaults, owners of credit protection will be forced to get a payout. Whereas those owners right now have the option: they can take the payout if they want it, or they can hold on to their CDS position if they would rather do that. I don’t see why having that option would make anybody upset.

CDS, Huh. What It Is Good For? Absolutely Nothin?MarketBeat / WSJ
Despite all these “buts,” many in the market also feel that the episode with Greece has exposed some shortcomings in CDS acting as a form of insurance against losses on sovereign credit.

Greek PSI exchange summary - an offer you can't refuseSober Look
Here is a brief summary of the PSI exchange offer. It's a great deal - why would anyone become a holdout?

Is Greece a Failed State?Foreign Policy
Not yet. But it’s running out of time -- and money.

CREDIT
Blackrock on credit strategyPragmatic Capitalism
Bullet points and the video of a recent interview, I agree with all the ideas.

It's a matter of time before luck runs out for the US TreasurySober Look
In 2011 the US Treasury saw increased investments by both foreign and domestic buyers of its paper. Much of that success however has been due to special circumstances and is not necessarily repeatable going forward.

Life as Libor Traders Knew It Seen as AbusiveBB
Regulators probing the alleged manipulation of global interest rates are focusing on what traders involved in setting the benchmark say were routine discussions condoned by their superiors.

OTHER
February 2012: The Month in ChartsAlpha Now / Thomson Reuters
Very good charts.

Ray-man running hedge fund in his own imageFT
Those close to him describe him as intense, loyal and personable. Yet in running Bridgewater, Mr Dalio has earned himself a more severe reputation…

Finding a way to make finance less sacredOpinion / Reuters
The modern incarnation of the Israelites’ golden calf should be stripped of the trappings of holiness. It is better for finance to serve the genuine economic good on earth than to aspire to an unmerited place in heaven.

Key functions of asset managementvoxeu.org
Professional asset managers are responsible for investments worth around €40 trillion worldwide. This column looks at the role of asset managers in investing society’s long-term savings, highlighting the key differences with investment banks.

Will Wall Street Ever Face Justice?Opinion / NYT
The Financial Crisis Inquiry Commission, which Congress created to examine the full scope of the crisis, was given a budget of $9.8 million — roughly one-seventh of the budget of Oliver Stone’s “Wall Street: Money Never Sleeps.”

Bank Of America Joins Goldman In Cutting Its Q1 GDP ForecastZH
On the back of a very weak consumption report, we have lowered Q1 GDP growth from 2.2% to 1.8%... Unfortunately, we believe the risk of a recession rises in the second half. The sudden stop in fiscal policy at the end of the year will likely cause a sharp slowing in growth. If it is handled badly, it could cause an outright recession.

Yen’s Fall Keeps Market GuessingThe Source / WSJ
Given the close correlation between the currency pair and the level of U.S. and Japanese yield differentials in the past, there seems little reason to believe that the yen will do anything but fall even further.

A Complete Information Diet is a Must for Market SurvivalThe Reformed Broker
A guest post of the tools and methods to keep up-to-date.

Strategic Briefing: Crude Oil ImportsThe Capital Spectator

London Is Eating New York’s LunchNYT
How did London surpass Wall Street? In part because even in a world of electronic trading, brokers still want to know there is a human being at the other end of their 0’s and 1’s. London’s working hours overlap with those in the U.S., the Middle East and Asia; New York’s don’t. The more significant reason, however, is regulation.

Evaporating Japanese Pension Fund AssetsTestosterone Pit
On one side is an investment environment of near-zero yields, declining real estate values, and a stock market that is down 75% from its peak in 1989. On the other side is a ballooning retirement-age population who enjoys the longest life expectancy in the world. But these investments have to fulfill the promises made to current and future retirees, however impossible that may be. So the one thing they don’t need is pension fund assets evaporating from an asset management firm.

OFF-TOPIC
To predict, go with your gutWonkblog /WP
Individuals who have higher trust in their feelings can predict the outcomes of future events better than individuals with lower trust in their feelings.

The world’s oldest "Yo mama" joke is 3,500 years oldio9.com

Twitter, the Startup That Wouldn't DieBusinessweek
Life inside successful Web startups—especially the really successful ones—can be nasty, brutish, and short. As companies grow exponentially, egos clash, investors jockey for control, and business complexities rapidly exceed the managerial abilities of the founders.

Book Bits For SaturdayThe Capital Spectator