It has been a rather dynamic period during the past months in old Europe. Many countries are on the verge of a total collapse, and lately we get alarming signals out of even the mighty Germany. By now, everybody knows what happened to debt levels in Greece, Italy and other nations. Only a few countries, such as Sweden, Denmark and a few others have actually managed to control the debt levels. Majority of the European countries have put on healthy debt levels between 2000 and 2010. Many leaders have been pushed to resignation, such as G Papp and Berlusconi. We sure live in interesting times….Below the Debt Quake by Mint.com:
With markets behaving more or less in a mano depressive fashion, it is a good time to read interesting articles, unless you are caught wrong in the market. The master of the mind on the human decision making, and the quiz he wants us to fail. Vanity Fair on Kahneman, and how humans think, perceive and make decisions;
Plainly put, a “heuristic” is a tool we use to simplify the decision-making process. For example, if you’re driving in the United Kingdom for the first time and don’t know the traffic laws, heuristics might help you correctly assume that a green light means go and a red light means stop. By applying what you already know about driving in America, you won’t have to waste hours reading up on England’s traffic laws. However, that same heuristic could prove harmful if you start driving in the right-hand lane, against traffic. Research psychologist Daniel Kahneman—Nobel Prize winner, and the subject of Michael Lewis’s article in this month’s issue, “The King of Human Error”—spent a great part of his life’s work discovering and cataloging the heuristics people use. Specifically, he concentrated on the situations where they lead us astray.
As the World is focused on what’s going on in Europe, the US politics haven’t stopped. A great in-depth look at the current political environment in America, from the Occupy Wall Street protesters to the President’s reaction to the Republican Primary. Courtesy Omid Malekan. Must see video below.
With majority of investors chasing the tail, markets are showing huge volatility. Last week we saw many new “smart” shorts entering the doomsday scenario trade. After the market put in the worst Thanks giving week since 1932, many were thrown into shorting everything. The same guys are now chasing shorts desperately. With HFT dominating, and front running every order, big shorts are finding themselves in a rather desperate situation. The Stoxx 50 is up +4%, so some of the new shorts are losing a whole years performance in a day. With liquidity at poor levels, many risk getting the Santa Rally completely wrong. This is from our Friday evening post;
Yes, it was an interesting session today, but the move up earlier today was probably telling us to cover the shorts. Despite our bearishness, we believe the market is reaching levels where the reward of shorting further is limited.
Although the squeeze is on, the Eurozone problems are still there. We are seeing the credit and equity markets dislocate today, so don’t get too carried away. Spiegel reports on the Continent staring into the Abyss;
Nothing works in Europe without Merkel. And the German chancellor isn’t just opposed to euro bonds. She also refuses to accept a move by the European Central Bank (ECB), backed by the French in particular, to buy up the bonds of ailing euro-zone countries on a much larger scale than it has done to date, in order to bring down the yields on those bonds. But that was not an official topic in Strasbourg, where Sarkozy assured his fellow leaders that France respected the independence of the ECB.
The latest out of Greece, where people face criminal charges and long imprisonment, for NOT cooking the books, is unfortunately telling us more about the mentality than all the research we have read on the Crisis. The head of Elstat has apparently not cooked the books, and therefore acted against the Greek national interest. This is simply great humor out of the country that gave us Democracy. From The FT;
Andreas Georgiou, who worked at the International Monetary Fund for 20 years, was appointed in 2010 by agreement with the fund and the European Commission to clean up Greek statistics after years of official fudging by the finance ministry.
“I am being prosecuted for not cooking the books,” Mr Georgiou told the Financial Times. “We would like to be a good, boring institution doing its job. Unfortunately, in Greece statistics is a combat sport.” (Full article here). For the best video explaining the Greek mess, check Debtocracy.
International investors are not buying Italian Bonds. Now the country is trying to get the domestic retail buyers to help out the country. What if this fails? Turn to the Chinese retail speculator? They should have promoted the BTP’s under special price this past Black Friday buy frenzy in the US. From Bloomberg;
The Italian Banking Association is promoting “BTP-Day” today, a plea for local investors to purchase government bonds and bills known as BTPs and BOTs, to help restore confidence in the nation’s sovereign market. Full video below.
We have learnt of many new words and phrases during the European Crisis. EFSF, PIIGS, Contagion and now the latest fashion word is the “Elite Bonds”. The “Elite” countries are now to issue bonds, to save the “Non Elite” countries. Again, the Europeans come up with nice phrases for bad ideas. Next up is “Leveraged Elite Bonds”…From the Euobserver;
Berlin is planning to team up with five other top-rated eurozone countries and issue joint ‘elite’ bonds, Die Welt newspaper reported Monday.
The ‘elite’ bonds would be issued by Germany, France, Finland, the Netherlands, Luxembourg and Austria – all with triple A assessments from credit rating agencies – in a bid to raise more money at low interest rates for themselves and, under strict conditions, for the troubled southern euro-countries, EU diplomats involved in the negotiations said.
The UK is also being “closely” consulted on the matter, the article said.
The Sunday edition of the paper had reported that Chancellor Angela Merkel and French President Nicolas Sarkozy are involved in secret talks on creating a tighter fiscal union with the euro-area, a club of the ‘super-Europeans’ willing to abide by the strict budget discipline proscribed by Berlin. (Full article here.)
Moody’s Investors Service warned on Monday the rapid escalation of the euro zonesovereign and banking crisis threatens the credit standing of all European government bond ratings, reports Reuters. ”While Moody’s central scenario remains that the euro area will be preserved without further widespread defaults, http://ftalphaville.ft.com/thecut/2011/11/28/766191/crisis-threatens-all-eu-ratings-moodys/
Retail sales on Black Friday rose by their biggest margin since 2007 to hit a new record, the FT reports, while online sales grew even faster, according to initial estimates. Store sales on the frenetic shopping day that follows the US Thanksgiving holiday expanded by 6.6 per cent from the previous year to $11.4bn, http://ftalphaville.ft.com/thecut/2011/11/28/765991/big-gain-in-black-friday-sales/
Brussels is threatening to sue Britain unless ministers significantly alter a landmark tax deal with Switzerland, in a dispute that will cast doubt over the £4bn to £7bn of expected proceeds for the Treasury,http://ftalphaville.ft.com/thecut/2011/11/28/766101/eu-threatens-legal-action-of-uk-swiss-tax-deal/
France and Germany are urgently preparing contingency plans to jump-start tighter eurozone economic governance, the FT reports, amid a growing realisation in Berlin that a deal endorsed by all 27 member states may take too long. http://ftalphaville.ft.com/thecut/2011/11/28/765971/tighter-eurozone-fiscal-plans-canvassed/
and much more….