As Europe’s Economy is falling, and several countries basically are bankrupt, an effect by taking on too much debt, while the Economy abruptly slowed, why not take a look at how Sweden solved the Banking Crisis in the early 90′s. Sweden, now the Tiger of Europe, dealt with the Banking Crisis in a very organized and effective fashion. The Swedish way has a lot to teach the politicians of Europe, who give us conflicting messages on a daily basis. Below a great summary of the Swedish Crisis, what caused it and how Sweden solved it, and became one of the most healthy Economies of the World.
Euro Tarp, put it on your mind, as we will hear more about it. There are some “intelligent” people, trying to design the EZ Bail out. Once again, the set up needs to be geared, full of crap assets. Sounds familiar? The biggest problem with Europe beside the Debt problems, is the lack of growth. Europe is like an old lady nobody wants to dance with anymore, and that is irrespective of what make up you put on.
On the Euro Tarp by Streettalk;
The Eurozone bailout, now being referred to as Euro TARP, is doomed to fail. While nothing has been officially announced the markets are rallying broadly on the back of a news article published by CNBC on Monday. The details are lacking as to the actual structure but speculation is already running rampant across the financial markets as to what it might look like.
What is presumed is that Euro TARP will follow the proposal originally proffered by Tim Geithner on his European trip recently. That proposal had been widely dismissed by the G20 as they couldn’t come to terms on any type of structure. The current idea outlined by CNBC will bypass the G20 entirely and allow the European Investment Bank (EIB), a bank owned by the member states of the European Union, to take money from the European Financial Stability Facility (EFSF) and capitalize a special purpose vehicle (SPV) that it will create.
The SPV will then issue bonds to investors and use the proceeds to purchase sovereign debt of distressed European states, which will hopefully alleviate the pressure on the distressed states (PIIGS) and the European banks that already own their sovereign debt.
Full article here.
Day starts with a 1,6% Squeeze in the European Markets. Europe outperforming the ES Futures yet another day. Stoxx futures.
More charts below.
Citic Securities, China’s biggest publicly-traded brokerage, raised HK$13.2bn ($1.7bn) selling shares at the low end of a revised price range in Hong Kong, Bloomberg reports, citing two people with knowledge of the matter. The Shanghai-listed company sold 995.3m shares at HK$13.30 each, http://ftalphaville.ft.com/thecut/2011/09/28/687456/citic-securities-said-to-raise-1-7bn/
Anadarko Petroleum has asked advisers to sound out potential buyers for a collection of its Brazilian oil assets in a deal that could be worth up to $5bn, in the latest attempt by oil and gas explorers in the region to attract investment, http://ftalphaville.ft.com/thecut/2011/09/28/687421/anadarko-sounds-out-brazil-buyers/
Banks are being discouraged from big project-finance deals by new global capital rules and the eurozone crisis, the FT says, citing market participants who say infrastructure schemes will increasingly be funded by investors. Standards ordered by the Basel committee of international regulators will make large long-term loans harder to hold on banks’ balance sheets, http://ftalphaville.ft.com/thecut/2011/09/28/687371/banks-wary-of-financing-big-projects-2/
Market expectations for US inflation have dropped to their lowest level in a year and are now below the Federal Reserve’s unofficial target, as investors respond to the central bank’s latest attempt to stimulate the economy,http://ftalphaville.ft.com/thecut/2011/09/28/687321/us-inflation-expectations-lowest-for-a-year/
Some more color on today’s Shiller figures, and don’t forget the Long Term Chart at the bottom….
Data through July 2011, released today by S&P Indices for its S&P/Case-Shiller1 Home Price Indices, the leading measure of U.S. home prices, showed a fourth consecutive month of increases for the 10- and 20-City Composites, with both up 0.9% in July over June. Seventeen of the 20 MSAs and both Composites posted positive monthly increases; Las Vegas and Phoenix were down over the month and Denver was unchanged. On an annual basis, Detroit and Washington DC were the two MSA that posted positive rates of change, up 1.2% and 0.3%, respectively. The remaining 18 MSAs and the 10- and 20- City Composites were down in July 2011 versus the same month last year. After three consecutive double-digit annual declines, Minneapolis improved marginally to a decline of 9.1%, which is still the worst of the 20 cities.
Full report here.
Markets selling off as FT reports on the Split over Greek bail out terms. The market reached a “perfect” intra day top, after having surged big for two days now. Let’s see if today marks an abrupt reversal, as many bears forcefully had to close out the new “smart” longs they put on. As we said many times before, this is greed and fear at its most. Below the SPX channel, still holding both ways.
With the mega squeeze the market put in for the past days, we are approaching short term resistance. If you picked um some “dirt cheap” stuff at the bottom, don’t be too greedy…The IV Skew Divergence by Macro Story, is once again showing some disturbing patterns, and suggests the market should turn lower shortly.
Guest Post by Macro Story;
Once again we see divergence between the SPX and the implied volatility skew. In other words Monday’s rally did not quite pass the “smell test.” In fact in really stunk.
IV Skew VS SPX
Notice the divergence once again which does not support Monday’s rally. One data point is not enough to completely throw water on the “rally” but we have seen this before and it has resulted in the SPX correcting. Something to keep an eye on. Additionally with markets up so much the VIX at such elevated levels should have been down more than 5% on Monday.
Remember Argentina and when it Defaulted? What are the similarities, and what choices does Greece have? Below from Athens News;
ARGENTINA defaulted on almost $100 billion euros of external debt in December 2001, the largest such sovereign default at the time. The reasons that led to this were multiple and went back 30-40 years.
The Argentinian peso had been pegged to the US dollar for 11 years and in the efforts to defend the peg, the country’s foreign reserves were depleted. As the crisis unfolded, there was a massive exit of capital from the country by both foreign investors and domestic depositors. Eventually, the government put a limit on withdrawals. It led to riots, but people still lost their money.
After ceasing all payments on foreign debt, Argentina was shut out by the capital markets. There was an agreed debt exchange with a 76 percent haircut in 2005. However, a large number of creditors refused to participate, arguing that Argentina was asset-rich and they were entitled to their money.
Full article here.
The “smart” shorts, who shorted the Stoxx 50 on Friday, are out 12% in two days. That’s pretty bad annualized….This brutal move on the upside, the trader wrote about, is killing all shorts. The extreme moves are magnified by the many short gammas out there. We are just waiting for Biggs to turn bullish soon….Below Stoxx 50 index 3 day chart (and no, it is not an Internet company in 2000)
Piece on Long Term Investing, from DShort.
History has demonstratrated time and again that markets oscillate from very cheap to very expensive over many years. Further, we know that long periods of poor returns follow expensive markets, while long periods of rich returns follow cheap markets. These relationships can be capture quantitatively with fairly simple statistical models that offer surprisingly accurate forecasts about how the future is likely to unfold. Stories may be entertaining and intellectually compelling, but numbers don’t lie.
With this study we wanted to achieve two important objectives:
- To discover which measures of stock valuations carry meaningful information about future returns.
- To create a multi-factor model using the best indicators to forecast future stock market returns over horizons from 5 to 30 years.
Source: Vitaly Katsenelson (2011)
Conclusion; For the next 15 years however, we can say with some confidence that our best estimate of annualized returns is 1.43%, with an optimistic upside estimate of 5.4%.
Investors would do well to heed the results of robust statistical analyses of actual market history, and play to the relative odds. This analysis suggests that markets are currently expensive, and asserts a very high probability of low returns to stocks (and possibly other asset classes) in the future. Remember, any returns earned above the average are necessarily earned at someone else’s expense, so it will likely be necessary to do something radically different than everyone else to capture excess returns going forward.
Full article here.