Guest Post Weekender by MoreLiver.
What a week – Super EFSF proposed last weekend, shorting bans continued, financial transaction tax (FTT) gaining ground. Now even Barroso is switching to the same hypomanic gear as Trichet. Somebody please send them more lithium before it’s too late.
During the week the proposed Death Star (leveraged EFSF) has been mostly shot down by commentators: it has been argued that it does not solve the underlying fundamental problems of the eurosystem, leverage would not be credible, ECB’s commitment is uncertain and above all, markets are not impressed, as the EFSF and the Death Star-EFSF is too little, too late.
Expect more can-kicking and soothing the voters by playing the bad cop to PIIGS and the banks. As the banks are weak, the bad cop routine will be limited to indirect threats like the shorting ban, FTT and HFT. They will not make additional moves until the EFSF is ratified.
Thursday evening headlines: Friday Watch – Between The Hedges
Friday evening headlines: Today’s Headlines – Between The Hedges
This week on FT Alphaville
Weekly Bull/Bear Recap: Sep 26-30 – Rational Capitalist
Succinct Summation of Week’s Events – The Big Picture
Next Week’s Tape: Hoping for Hiring – MarketBeat / WSJ
** NEIN, NEIN, NEIN, and the death of EU Fiscal Union – The Telegraph
Evans-Pritchard: “the Bundestag will not prop up the ruins of monetary union for much longer…There will be no fiscal union, Eurobonds, debt pool, EU treasury, fiscal transfers. There will be a stability union – or no monetary union…If this means the euro will shed some members or blow apart – as it almost certainly does – then the rest of the world must prepare for the day.”
** Delusions About Easy Fixes for Europe, Dreaming During the Calm Before the Storm – EconoMonitor
“Fabius Maximus”: At least the eurocrats now publicly recognize the seriousness of the situation, but are ready to only fix the banks.
The European recession of 2011/12 – alphaville / FT
JPM: more slow and late crisis containment expected, which makes creating a base for future recovery difficult.
Peter Oborne ‘Idiot’ Comments Prompts EU Spokesman To Storm Off Newsnight – Mish’s
Video from a BBC round table talk. Oborne was right, by the way.
Transaction Taxes and Transparency – London Banker
In favor of the tax.
EU’s financial transaction tax is feasible, and if set right, desirable – voxeu.org
Avinash Persaud: burden should be on HFT that provides liquidity only when the markets don’t really need it.
We’re Getting Closer – Bruce Krasting
Chair of IASB said “European banks carried out “blatant breaches” of IFRS in valuing their holdings of Greek debt.”, Krasting: possible that EU banks try to wash this over one more time in their Q3 statements, think near impossible to issue annual reports for 2011 without full disclose.
Finland’s CB Gov Liikanen: Europe under stress – ways ahead – BIS
Fiscal correction, bank capitalization, economic governance.
Bundesbank’s Weidmann: Germany’s role in the global economy – BIS
Either existing EMU framework is completely changed, or incentives for fiscal policy are strengthened.
Euro Money Market Survey Sep 2011 – ECB (pdf)
EFSF / “DEATH STAR”
** Levering the EFSF — privately… and painfully – alphaville / FT
Nomura: leverage is simply asking for ECB balance sheet expansion. Private money would not like it, because there are correlated default risks between the guarantor pool and the asset portfolio of the EFSF. Loss tolerance of the sovereign guarantor is limited, and that’s why structured sovereign finance is not a big business.
** Germany’s vote simply kicks the euro can down the road to Cannes – The Telegraph
“It’s a solution to a problem that no longer exists. Back in July the eurozone crisis was a multi-billion euro problem. Now it’s a multi-trillion euro problem…The debate moves on to Cannes in November and the next G20 summit, by when the crisis will have entered another acute phase”
** German bailout vote is ‘too little, too late’ – The Telegraph
RBS: rescue fund too small, leaving ECB to prop up the system, Germany’s IPF: collapse of monetary union now appears unavoidable.
** Europe moves toward bailout fund — knowing the real debate is to come – WP
$4T bonds of heightened credit risk countries, $0.4T bank losses from investments in sov bonds and other financial institutions, $0.2T bad bonds in ECB. Complete disagreement how to proceed.
What Would It Take to Save Europe? – Economix / NYT
Simon Johnson: periphery cannot devaluate, cut wages or pull austerity. The real questions are whether Italy will get complete and unfettered access to ECB, and when we will know.
Leveraging the EFSF – Marginal Revolution
“Who will fund the leverage? BRICS? American investors? Ultimately other Europeans? All of those parties already can construct their own leveraged positions in Italian government debt, if they wish.”
German and French hypocrisy – Fintag’s Newsletter
“The euro-TARP will soon become the world’s largest ever toxic bucket of subprime debt… 31 Dec. There will be 2 Euros.”
Moral Judgment and Bad Economics from the ECB – The Street Light
ECB’s policy prescriptions are being guided more by ideology and moral judgment than by sound economics.
Remember that the endgame is a Greek default – Humble Student of The Markets
Favors a Swedish-style bailout (recap banks with public money and partial nationalization). Overview of recent articles.
Thinking about the endgame – BNY Mellon
Greek civil servants block troika from entering finance ministry – euobserver.com
Special cabinet meeting coming on Sunday. The austerity measures sure don’t seem to be very popular.
Looking Back To the Late ’80s For ‘Contagion’ Guidance – Real Clear Markets
This time there is no fiscal or monetary help: “What is surprising to many is the sheer number of players (debt claims) and the disastrous deficiency of chairs (productive assets). The mad scramble for those remaining chairs will be impolite and unfortunately violent.”
In Good, Somewhat Ironic News, SEC Now Plans To Punish Stupidity – Dealbreaker
“The best way to prevent garden-variety, negligent, looks-pretty-shitty-but-isn’t-obviously-a-crime financial shenanigans isn’t to pick one poor sucker out of every hundred and send him to jail for a decade. It’s to seek reasonable penalties, based on clearly proven negligence rather than tenuous criminality, in more cases.”
SEC Report On Credit Raters Finds Leaks And Conflicts Of Interest – ZH
“`large’ credit rater appeared to leak pending rating”: includes a scribd link to the SEC summary report
“International Policy Implications and Lessons From the Global Financial Crisis” – Econbrowser
Seven research papers from a recent conference.
Le Spleen de Morgan Stanley – alphaville / FT
Includes Moody’s Analytics comments. Exposure to euro area, is MS the next BoA?
Morgan Stanley CDS – Is China Part Of The Problem? – ZH
Peter Tchir: While BAC follows mortgage markets, MS has moved only with China moving. Maybe MS’s holdings and exposure to EM bond markets should be watched more closely?
China: The Risks of a Hard Landing Are Growing – MarketBeat / WSJ
With comments from Barclays: growth could slow to 4.5% in 2012.
Beijing’s Response to Default Will Be Key – The Source / WSJ
Capital inflows into China in August rose to $32.6 billion from $5.8 billion in July – probably Chinese money heading home as mainlanders look to deleverage in case of a credit crunch.
A guide to China CDS – alphaville / FT
Market getting bigger, activity slowly picking up, snippetis from an old Citi research note on who the buyers and sellers are.
Fund flows: EM floodgates swept away – beyondbrics / FT
** You Don’t Have Alpha – Quantivity
Abnormal returns reward regime-sensitive risk premia traded via established systematic trading methodologies.
Buffett Says European Bank(s) Have Asked Him For Money – ZH
Text outtakes and video of a five-minute interview.
Research and Publishing – World Beta
Mebane Farmer’s Cambria links to their six recent investing-related research papers
Only wise investors are dumb enough to invest in these markets – tradingfloor.com
At some point, it will be wise to enter the stock markets, and it has to be done before everyone else thinks it is time.
Another Huge Earnings Miss Coming? – The Big Picture
“if the economy goes into recession, the earnings forecasts are horribly wrong. They might be so wrong that one can make the case that the market might be overvalued.”
Notes from the DoubleLine Lunch with Jeffrey Gundlach – The Reformed Broker
Short commentaries on almost everything.
Good at Chess? A Hedge Fund May Want to Hire You – DealBook
The history, current status and future of hiring gamers to investment roles
Michael Lewis: California and Bust – Vanity Fair
Michael Lewis and Meredith Whitney in muniland – alphaville / FT
Sutor, ne ultra crepidam – Self-Evident
Occupy Wall Street:
Wall Street Protest Starting to Look Like Egypt – Washington’s Blog
Matt Stoller: Boston Fed – “Avoid Engaging with Any Demonstrators” – naked capitalism
Matt Stoller: OWS Is a Church of Dissent, Not a Protest – naked capitalism
Wall Street Protest: Time for Conservative Endorsements – ZH
Understanding the Theory Behind Occupy Wall Street’s Approach – Rortybomb
Future Shock: Techno-Paranoia Narrated by Orson Welles – brain pickings
Red-Blooded Risk: The Secret History of Wall Street – Amazon
Aaron Brown’s latest book is worth every penny.
Statistical Science and Philosophy of Science: Where Do (Should) They Meet in 2011 and Beyond? – RMM Journal
Several journal articles and conversations
The (mis)reporting of statistical results in psychology journals – andrewgelman.com
Fifth of the journal articles contain stat errors, sixth have their significant results wrong. Higher error rate when the error supports research hypothesis or the journal is of lower ranking.
Twitter tweets our emotional states – WP
Proof that Mondays stink. Don’t miss the good graphic.
Very good – a console on the page open all the time to test the lessons.
Retrieving stolen digital devices: Difference Engine: To catch a thief – Babbage / The Economist
The Pentagon’s Cyberstrategy, One Year Later – Foreign Affairs
“More destructive cyberweapons are being created every day, and an increasingly sophisticated technology black market virtually guarantees that they will eventually land in the hands of the United States’ enemies. Robust defenses are no longer a luxury, they are a necessity.”
Social Media Report – State of The Media Q3 2011 – The Big Picture
Slides from Nielsen, who, what, where, why.