From the creator of the new normal, and the bimodal World, here are some points worth reading. By PIMCO’s El Erian via Foreign Policy.
The global economy is balanced precariously between total collapse and salvation. Here are four tipping points toward disaster and four things that could get it back on track.
The year 2012 is Europe’s moment of truth. If their dithering continues, European politicians will soon lose control of the continent’s economic and financial future. After all the excitement of 2011, it is also a make-or-break year for some Middle Eastern countries in the midst of tricky political transitions. Even the United States is being shaken out of its social slumber as concerns mount about income inequality and, more generally, the fairness of the “system.
(Full article here).
Guest Post by John Redwood.
Mr Osborne’s rhetoric on using the IMF to prop the Euro has firmed up more. He has always said the IMF should not lend money to prop up a currency, only a country in trouble. I interpret this to mean the IMF should not lend to any Euro member, as that would in my view be lending to prop a currency. Mr Osborne may define it less severely.
Now Mr Osborne is saying the UK should not make more money available to the IMF to lend to Euro members, unless and until France and Germany have made a larger contribution. He seems to have in mind those states putting more money into the European bail out fund. This is extremely unlikely. Germany thinks the problem countries should do more to rein in their own deficits. France is becoming financially strained herself and is not looking for more ways to spend money. That would seem to mean no more UK money for these purposes, which would be excellent news.
As we have been pointing out over the past days. Diminishing volumes have managed “fooling” too many people into the long trade. The extended Santa Rally has once again made people nervous for missing out on the “goldilocks” scenario. With the inverted panic we have seen where people now hate theta, and the VIX has collapsed, it is time for great caution. Price action and breadth is not suggesting this is a healthy market. The Trader suggested last week that we should be trading below 1300 shortly. Let’s see how many confident investors we actually have out there. Next stop 1275. We’d love to see the market action “down there”.
Meanwhile risk off charts.
Guest Post by Bill Mitchell.
The Euro leaders are having another Summit in Brussels today – another one – the 17th in two years. I think they are getting used to the nice wine and sumptuous food that is served up. Little ever comes from these summits that is of any productive import. This time they plan to set in concrete balanced budget rules to be embedded into the national legislation of EU member states yet at the same time propose job creation and growth strategy. The job creation strategy is allegedly going to focus on the youth of Europe who are becoming unemployed and excluded in increasing numbers as time goes by. The lunacy is that Europe’s youth started losing their jobs some years ago yet the leaders are now expressing concern. Also over the weekend, there was a leaked German proposal for today’s summit detailing how Greece should leave the Eurozone and become a German colony. My how audacious our Teutonic friends have become!
(Full article here).
The Greek deals talks are not reaching that magic deal. Wonder what the Greek people feel regarding becoming a German Colony? Meanwhile, the precious metals have reached up to the weekly resistance levels.
Bank of America is shaking up the leadership of its investment bank as it looks to find its footing in a difficult market environment, says Reuters, citing a memo sent to employees on Sunday by co-chief operating officer Tom Montag. http://ftalphaville.ft.com/thecut/2012/01/30/856791/bofa-shuffles-investment-bank-leaders/
US banks fear that any recovery in the US housing market will be further delayed as a result of moves to remove credit ratings from American regulations, which will boost banks’ capital requirements by billions of dollars, http://ftalphaville.ft.com/thecut/2012/01/30/856631/us-banks-warn-against-new-risk-weightings/
British and Swiss regulators are likely to begin enforcement proceedings against UBS for shortcomings that allowed a London trader to make unauthorised trades last year, the WSJ says, citing people familiar with the situation. In September, http://ftalphaville.ft.com/thecut/2012/01/30/856521/ubs-to-face-discipline-from-regulators/
Iran’s oil minister said on Sunday that oil sales to “some countries” would be halted soon, amid pressure from the parliament that the government should pre-empt a looming European embargo, the FT http://ftalphaville.ft.com/thecut/2012/01/30/856541/iran-to-halt-exports-to-some-countries/
Europe’s carmakers are crying foul over a proposed trade agreement between the European Union and India, which they say would restrict access to one of their most important but highly protected markets, http://ftalphaville.ft.com/thecut/2012/01/30/856531/europes-carmakers-hit-out-at-india-trade-deal/