“Spain is not Greece”
– ELENA SALGADO, SPANISH FINANCE MINISTER, FEBRUARY, 2010
“Spain is neither Ireland nor Portugal”
– Elena Salgado, Spanish FInance Minister, 16 November, 2010
“Greece is not Ireland”
– George Papandreou, Greek Finance Minister, 22 November, 2010
When Silvio was “kicked out”, The Trader gave him a maximum of two years before he would be back, only this time with greater power, as the austerity has hit Italy for real. A year has passed, and people are chanting “Silvio, Silvio, come back”. From the Gueardian.
He may have been jeered from office last year. He may be on trial accused of paying for sex with a 17-year-old girl. And last week a prosecutor in Milan asked for him to be locked up in jail for three years and eight months for allegedly shady business practices.
But this weekend, Italy was abuzz with speculation that Silvio Berlusconiis planning a comeback – and could return to lead the right into an early general election, perhaps as standard-bearer of a party bent on withdrawing Italy from the euro.
Gust post by Peter Tchir of TF Market Advisors.
Do we finally get details out of Europe?
Spain has finally made the “formal” request for aid. There is another summit. Expectations for anything positive seem incredibly low. There seems to be a scramble to shoot down anything that is said out of Europe. It really doesn’t matter what is said, the negatives and potential negatives, and imagined negatives get the traction.
Details will be required for the market to
- Believe anything real is going to occur and Europe isn’t just trying to prop up the markets with talk
- Analyze the impacts of any programs to figure out what they will actually do and what they can accomplish
Today, so far we are back to disappointment and fear mode. Some of the fear seems to be overdone, again, such as what Juncker said about “restructuring” for the financial system. His quote seems to be directed at the financial system in Spain, which does need to be restructured, but has been taken to apply to the country. Without details it is speculation either way, but is another example where right now the market is in the mood to price in the worst interpretations of every statement. Details are needed.
Many leading indicators are pointing lower. Further on the subject of leading indicators, the mighty QE and the overvalued markets. By Hussman Funds.
In recent months, our measures of leading economic pressures have indicated the likelihood of an oncoming U.S. recession. Our view is based on the analysis of leading/coincident/lagging indicators (see Leading Indicators and the Risk of a Blindside Recession) as well as more statistical signal processing methods that extract “unobserved components” from noisy data (see the note on extracting economic signals in Do I Feel Lucky?). As Lakshman Achuthan at the ECRIhas noted on the basis of different but related evidence, the verdict has been in for a while. The interim has been little more than waiting for the coincident data to catch up to the leading evidence that is already in place.
This wait is by no means over. As Achuthan has observed, economic data such as GDP and employment data are heavily revised over time. Very often, the first real-time negative GDP print occurs about two quarters after the recession actually begins. It is only later that the data are revised to show an earlier downturn. For that reason, it’s important to pay attention to the joint action of numerous economic data points, rather than selecting any specific indicator as an “acid test.” The joint evidence suggests that the U.S. economy has entered a recession that will later be marked as having started here and now.
The following chart shows the most leading economic component (blue) that we infer from a broad composite of economic indicators. This component has a lead of several months, relative to broadly observed economic data. Importantly, even the observable data has now predictably turned down, as evidenced for example by the “surprising” weakness in the Philly Fed data last week. We expect further weakening in employment data, coupled with an abrupt dropoff in industrial production and new orders.
Mutualising sovereign bonds is equivalent to forming a linear combination of the underlying bonds, i.e. a portfolio of them. Hence the risk associated to the portfolio is a function of the risks of the constituents and their correlations.
- In tranquil periods these risks have a linear nature,
- In periods of turmoil non-linearities appear, namely due to extreme events, that induce non-linear -or tail- risks.
Figure 1 shows the quarterly cross-sectional average correlations (from 2005Q1 to 2012Q2) for the Sovereign bond yields of all the Eurozone countries (solid blue), the core countries (dotted red), the peripheral countries (doted and dashed green), and the peripheral countries but Greece (dashed purple).
Prior to the crisis correlations were very close to unity, reflecting the almost perfect co-movements among the yields. Since the beginning of the crisis the correlations have sharply decreased for all countries and groups of countries. From a risk perspective, the creation of the Eurobonds may be seen as appropriate since the benefits (creditworthiness, resilience, stability, and liquidity) offset the slight increase of risk associated to the small correlations.
“This threatens to turn the June (28) summit into a fiasco which may well prove fatal because it will leave the rest of the euro zone without a strong enough firewall to protect it against the possibility of a Greek exit,” Soros wrote.
“Even if a fatal accident can be avoided, the division between creditor and debtor countries will be reinforced and the “periphery” countries will have no chance to regain competitiveness because the playing field is tilted against them.” (CNBC)