Dull
markets – and all the commenting is on the FED and the ECB. Next I am posting two separate
posts for both events. Today's articles on euro crisis gave me few ideas: if even Draghi acknowledges there are redenomination risks priced in the bond yields, and Germany is laissez-fairing the whole issue, is Germany fed up with the currency union and prepared to kick out one or several members? Greece is an obvious candidate, but how about Spain and Italy? If they are too big to bail out, and too big to support via an eventual fiscal union, isn't devaluation and eventual return to markets the cheapest way? I mentioned this way back last October that when the talking heads start telling the same story, something is cooking.
Previously
on MoreLiver’s:
Weekender: Views & Off-Topics
(my thoughts)
Weekender: Weekly Support (updated!)
News – Between
The Hedges
Markets – Between
The Hedges
The Closer
– alphaville / FT
Tyler’s US Summary – ZH
VIX,
Credit, And Treasuries Warn As Stocks Yawn
Debt
crisis: live – The
Telegraph
The Euro
Crisis Blog – WSJ
FX Options
Analytics – Saxo
Bank
European
10yr Yields and Spreads – MTS indices
EUROPE
The euro is coming to an end – Die
Welt / presseurop
Draghi, Merkel, Hollande and Juncker may be
fond of standing behind the euro in a demonstrative display of unity. It no
longer makes sense, writes the Die Welt am Sonntag. Europe's differences are too big for a
single currency.
The vision of a Europe without nations, with nothing to
kill or die for, is very valuable. Although imagining it isn’t hard to do,
building it is. By stating the vision, the euro’s fathers claimed all the
glory. The difficult details were left to their successors, who must now either
make good on Europe’s promise or recognize that this wonderful project was premature and
try to unwind it in the least costly way.
A European political union is a foolish idea – Otmar
Issing / FT
Political union is impossible to achieve within
a few years. It cannot be a means of crisis management. And here comes the
dangerous part: any proposals, for example, to extend the amount and scope of
financial support mechanisms premised on further integration in the future.
51% of Germans Believe Germany Better Off
Outside Eurozone, 71% Favor Greece Leaving; Implications on Constitutional
Court Ruling – Mish’s
Given that Germany is better off outside the
eurozone, and the eurozone is arguably better off without Germany, hopefully,
the constitutional court will say it's time to put all of this to voters,
including whether Germany should stay in the eurozone. Unfortunately, I expect
the court will OK both the ESM and the Merkozy treaty, but give further
warnings to Merkel and the ECB that 500 million euros is the limit.
Proposed EU sovereign CDS regulation is useless – Sober
Look
Most analysts expect this rule to have very
little impact on sovereign CDS or bond spreads or even investor behavior.
Instead it will introduce tremendous bureaucracy, allowing EU regulators to
hire armies of people to monitor compliance.
EUROPE: ECB
When Draghi isn't everything – Free exchange
/ The Economist
He has to know which euro zone he's allowed to
save before he can save it…But this is no longer the ECB's crisis to solve. It
might have been, at one point. Political leaders, by acknowledging the real
possibility of exits, have taken on full responsibility for whether and how the
crisis is brought to an end.
Last week they spoke comforting words, but I
saw only the frightening aspects of the euro-crisis – Fabius Maximus
Although entertaining as gallows humor, last
week’s statement by ECB President Mario Draghi illustrates important but seldom
discussed aspects of the euro-crisis. Here we read and annotate the text.
Was Mario Draghi’s promise to save the euro
unrealistic? – Wonkblog
/ WP
German opposition matters: Germany’s Bundesbank is the largest shareholder in the ECB. It doesn’t have a
direct veto, but criticisms by the Bundesbank might make financial markets
worried that the ECB will eventually scale back its bond purchases. And that
would defeat the whole point of Draghi’s plan, which is to restore market
confidence.
Quantifying “convertibility risk” – alphaville
/ FT
Nomura takes a look at the FX risk premium (=renomination to sovereign currencies): A crude measure is simply the CDS adjusted 5-year spreads of member states to Germany. As of today those spreads are around 50bp and 80bp at the 5-year maturity for Italy and Spain respectively, down from 135bp and 180bp three or four days ago.
Nomura takes a look at the FX risk premium (=renomination to sovereign currencies): A crude measure is simply the CDS adjusted 5-year spreads of member states to Germany. As of today those spreads are around 50bp and 80bp at the 5-year maturity for Italy and Spain respectively, down from 135bp and 180bp three or four days ago.
Draghi may have tried to deliver a fait
accompli to European officials by promising to deliver a game changer, but we
think the market will be disappointed. We anticipate that pressure will return.
Can Spanish 2-year yields really decline another 200 bp or the can the 10-year
decline another 100 bp ? The return of pressure will underscore the urgency and
push European officials to address the more difficult decisions in September.
Moody's: "The ECB Can Do No More Than Buy
Time" – ZH
Its actions alone will not resolve the debt
crisis. Resolution will ultimately rest on achievement of fundamental changes
to member states’ budgetary positions and debt stocks, on structural economic
changes required to stimulate growth, and on institutional reform to the
economic and fiscal governance of the euro area. Each change will take years to
accomplish.
Insight: ECB thinks the unthinkable, action
likely weeks away –
Reuters
The ECB is thinking the unthinkable to save the
euro, including resuming its controversial bond-buying program and possibly
even pursuing quantitative easing - in effect printing money.
USA: FED
Economists React: Don’t Expect QE3 This Week – Real
Time Economics / WSJ
Analysts tended to argue that the central bank needs to see two more jobs data releases before reaching a consensus on the need for more stimulus. Many say they see the Fed as much more likely to act at its subsequent policy-setting meeting, scheduled for Sept. 12-13.
Analysts tended to argue that the central bank needs to see two more jobs data releases before reaching a consensus on the need for more stimulus. Many say they see the Fed as much more likely to act at its subsequent policy-setting meeting, scheduled for Sept. 12-13.
Fed May Be in Whatever-it-Takes Mode, But It
May Not Take it This Week – MarketBeat
/ WSJ
If the Fed doesn’t act, if the Wednesday policy statement comes and it doesn’t include a QE3 announcement, the market is sure to get the usual knee-jerk reaction, a sharp sell-off as the bets are unwound with computerized speed and human alacrity. But it won’t take long before traders wrap their heads around the next FOMC meeting, or the August Jackson Hole confab, and start putting the QE3 bets back on.
If the Fed doesn’t act, if the Wednesday policy statement comes and it doesn’t include a QE3 announcement, the market is sure to get the usual knee-jerk reaction, a sharp sell-off as the bets are unwound with computerized speed and human alacrity. But it won’t take long before traders wrap their heads around the next FOMC meeting, or the August Jackson Hole confab, and start putting the QE3 bets back on.
Bad Habits: The Greenspan Put – The
Psy-Fi Blog
So the markets are not pre-empting the Fed, nor
is the Fed driving the markets: the markets are forcing the Fed to respond to
its liquidity habit. Weaning them away
from this is going to take leaders with great vision and great determination:
so most of us will probably be better off betting on the continuation of the
Greenspan Put.
Charting The Diminishing Multiple Expansion
Benefits Of Fed Action – ZH
As soon as the Fed-sponsored money-supply 'flow' expansion ended, so the P/E multiple-expansion ended (and indeed reversed very quickly).
As soon as the Fed-sponsored money-supply 'flow' expansion ended, so the P/E multiple-expansion ended (and indeed reversed very quickly).
OTHER
When money isn't everything – Free
exchange / The Economist
There is no case (or no realistic case) in
which a central bank loses the technical ability to adjust demand, but there
are situations in which the central bank can only raise demand in ways that
reduce the welfare of a critical constituency. In such cases, demand can only
be raised through programmes which adjust the distribution of the returns to
more demand across political interest groups, which requires fiscal action.
Alpha generation becoming difficult as risk
asset correlations rise – Sober
Look
IN FINNISH
EVM-lainojen
ensisijaisuus on ihan roskaa – Talouselämä
Voittaako länsimainen yhteiskuntamalli? – Hannu
Visti