Good morning! LTRO’s shine has grown darker, as market participants are beginning to understand that it is not a solution, instead it is just another place to store and hide the eventual losses arising from a decade of current account imbalances and investments into risky assets. Discussion has clearly moved to TARGET2-system – Buiter’s piece from last week is probably the best article on the topic (pdf here).
I would love to get some feedback and requests: I am on Twitter, Facebook, email and paper.li I was busy during the weekend. If you had a life during the weekend and were not following me, here’s what you missed:
Weekender: CDS gone Greek, Post LTRO-tic usual linkfest, lots on Greek CDS’s, usual euro + others
Credit Guest: Modicum of relief LTRO participation heavy on periphery debt, increasing systemic risk
Weekly Support weekly roundups and the next one previewed
Press Digest Economist, Telegraph, Spiegel in 10min.
Best of The Week Select links from my last week’s posts.
Joke of the day: Solvency II sounds like Basel II for banks. That worked really well in 08. – Sober Look
Quote of the day: As a general rule of thumb, any time you see an article about “Target 2,” it is important. – Marginal Revolution
News roundup – Between The Hedges
News roundup – The Trader
Daily – Danske Bank (pdf)
Morning Briefing – BNY Mellon
There are a number of similarities between the issues facing investors today and those present at the end of the 1970s.
Market Preview – Saxo Bank
There are a number of similarities between the issues facing investors today and those present at the end of the 1970s.
Market Preview – Saxo Bank
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS: GENERAL
Unintended Consequences – John Mauldin / The Big Picture
Peter Sands, the head of Standard Chartered (a British commercial bank), warns that the new money runs the risk of “laying the seeds for the next crisis.” He wonders what happens in three years’ time when all that debt needs to be refinanced. That seems a reasonable question, as finding a spare €1 trillion will not be a lot easier in three years.
The Lull – Mark Grant / ZH
LTRO, Greece, Portugal and possibly Spain, France, IMF & Europe.
Credit demand, supply, and conditions: A tale of three crises – voxeu.org
As the Eurozone crisis continues, lending to the real economy has fallen significantly. But it is difficult to know if this is due to a drop in demand for loans or a drying up of supply. Using data for small- and medium-sized companies in 11 Eurozone countries, this column identifies the effects of the crisis on credit demand, supply, and conditions.
Corporate balance-sheet adjustment: New stylised facts and their relevance for the Eurozone – voxeu.org
It is not just governments, banks, and households that need to look again at their finances: big businesses do too. This column looks at balance-sheet adjustments by large companies in Germany and Japan and argues that a better understanding of how companies adapt will help policymakers trying to bring about structural change in their economies – particularly within the Eurozone.
French-German Border Shapes More Than Territory – NYT
The closeness of and the differences between Germany and France.
Next Phase in Merkel’s Desperate and Risky Gamble – Testosterone Pit
But now, Merkel has raised the stakes by roping in three powerful allies and lining them up against Hollande—a desperate and risky gamble to keep Sarkozy in power.
EURO CRISIS: ECB, LTRO, TARGET2
Wall Street’s weekend LTRO conversation: Stealth sovereign bailouts – ZH
SocGen, Citigroup views
SocGen, Citigroup views
I don’t see the core to this game – Marginal Revolution
Mr Weidmann proposed last week that Germany’s Target 2 claims should be securitised. Just think about this for a second. He demands contingent access to Greek and Spanish property and other assets to a value of €500bn in case the eurozone should collapse.
EONIA rate averaging due to the 3Y LTRO’s – Sober Look
The end result is that ‘Euro-core’ has an ‘accommodating’ monetary stance with low lending rates and excess liquidity, while the periphery faces an effectively ‘restrictive’ monetary stance while it needs exactly the opposite.
The issue with LTRO-II is not the spike in Deposit Facility – Sober Look
The issue with LTRO-II is therefore not the spike in the Deposit Facility. It is with the fact that Eurozone periphery (plus French and Belgian) banks end up using far more of the facility than banks from the "core" (particularly Germany).
Now that’s what I call a Target – neilcollinsxxx
One of the mysteries, to me, of the Greek crisis has been why there should be any deposits left in the local banks…The Bundesbank has recycled the euros through Target2, but its ambitious new chairman is now grumbling publicly about whether he will ever see its money back
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EURO CRISIS: GREECE
My Big Fat Greek Restructuring - The Week Ahead – TF Market Advisors
Excellent article, ahead of the Thursday’s PSI deadline, Peter explains the different types of Greek debt, PSI strategies for different bond holders, and CDS strategies.
Excellent article, ahead of the Thursday’s PSI deadline, Peter explains the different types of Greek debt, PSI strategies for different bond holders, and CDS strategies.
Troika Believes Third Greek Bailout Worth Up To EUR50 Billion Needed – eFX News
Spiegel reports this part of the report has been deleted from the troika report due to pressure from the German government. (After the bailout II has been ratified, this one comes out… – ML)
We think bondholders would be interested to see the collateral agreement made public, just to be clear on how it works and whether or not it does affect them (say on negative pledge, credit events etc). And can’t Finnish MPs have a proper look too?
The market is already quoting CDS on the new Greek bonds – Sober Look
The dealers are already quoting CDS on the new PSI exchange Greek bonds. These are quoted at around 20 points upfront and the bets are on for the next Greek credit event. But the markets are starting to shift focus away from Greece and onto Portugal, with volumes for Portuguese sovereign CDS picking up and spreads continuing to stay wide.
OIL
Oil prices up - will oil company EPS rise too? – Saxo Bank
Four years ago, strategists from the big investment houses got it wrong: they believed the oil price level was sustainable. Their estimates for EPS increased sharply for the years 2008-2010
We thank BCA Research (March 1 Special Report) for compiling this list of oil/energy shock events. Every one of them led to a temporary spike in the oil price.
Here Are The Winners In An Oil Price Shock – ZH
Goldman Sachs: Our oil convergence monitor tracks the relative performance of the Energy sector vs. S&P 500 against the price of oil (measured by the 2-year oil swap). Currently, Energy equities are about 1.5 standard deviations cheaper then the oil price would suggest (based the relationship over the past three years. Last Friday GS: every $10 increase in crude prices cuts US GDP by 1%.
Goldman Sachs: Our oil convergence monitor tracks the relative performance of the Energy sector vs. S&P 500 against the price of oil (measured by the 2-year oil swap). Currently, Energy equities are about 1.5 standard deviations cheaper then the oil price would suggest (based the relationship over the past three years. Last Friday GS: every $10 increase in crude prices cuts US GDP by 1%.
OTHER
“Everyone knows that the Spanish are lying about the figures” – The Big Picture
Long overview of multiple topics.
Combined with strong yen and real interest rates that are stubbornly positive (unlike in the US), the economic environment in Japan seems to require an almost perpetual program of quantitative easing.
Will Central Bankers Be The Next Unchosen People? – ZH
Heavy on Japanese QE analysis, SocGen: How long before the populist anger today directed against bankers is directed towards central banks for something like paying too much attention to inflation when x million people are out of work. Economists will provide camouflage for such populism. The cure will be worse than the disease, they will say.
Heavy on Japanese QE analysis, SocGen: How long before the populist anger today directed against bankers is directed towards central banks for something like paying too much attention to inflation when x million people are out of work. Economists will provide camouflage for such populism. The cure will be worse than the disease, they will say.
Equities, there's life (and value) after default! – Macronomics
A look at previous defaults (Argentina, Russia) and what then happened to the stock markets.
OFF-TOPIC
Why Anti-Authoritarians are Diagnosed as Mentally Ill – Mad In America
Americans have been increasingly socialized to equate inattention, anger, anxiety, and immobilizing despair with a medical condition, and to seek medical treatment rather than political remedies. What better way to maintain the status quo than to view inattention, anger, anxiety, and depression as biochemical problems of those who are mentally ill rather than normal reactions to an increasingly authoritarian society.
On News Sources – The Aleph Blog
List of blogs that the “The Aleph” follows, and how.
The Best Seat in the House – WSJ
Tom Cruise's 20-speaker system, Steven Spielberg's hidden entrance: Deluxe screening rooms in private homes have emerged as the epicenter of Hollywood's most exclusive social network.
Translated excerpts from the diary of a Russian Spetsnaz officer who served for more than a decade as one of the Kremlin’s fighters in the Chechen wars. Article from Sunday Times Oct-2010
Form and Fortune – The New Republic
Steve Jobs’s pursuit of perfection—and the consequences
A Curated Linkfest For The Smartest People On The Web – Simoleon Sense