Eventually, the enlargement of cross-border capital flows and their concentration on Eurozone countries brought about by the euro will have to be unwound. Only when these flows reflect long-term viable investment opportunities will they no longer constitute a danger for the stability of the euro.
This requires a shrinking of current account deficits as well as surpluses of EZ countries. However, in view of the structural savings surpluses of some EZ member countries, intra-area current account adjustment alone will probably not be enough. What is also required is a redirection of the current account surpluses to countries outside the Eurozone. If the private sector is unable to do this because of its reluctance to assume exchange rate risk, the public sector may have to help. In any case, an increased demand for foreign assets will lower the exchange rate of the euro, which will facilitate efforts by the deficit countries to overcome recession by an expansion of exports.
Guest post by Peter Tchir.
I remain confused at these levels. I continue to look at the various markets and come away without a strong opinion. Over the course of the year I have had strong opinions. They have worked out, though I got short too early and long too early, the trades worked well. So not having a strong opinion is unusual.The two exceptions are when I look at CDS and when I look at Apple, but my conclusions there come out completely contradictory.
IG18 at 85. I’ve written about this many times and have been right. I even managed to call the bounce off of 98 back to 102 (it went to 103.5) and back tighter. I find the reasons for that call to continue to play out, and as we approach the September roll and the often disappointing September new issue calendar there are more reasons for this tightening to continue. The problem is that it will not tighten if Apple weakens significantly.
Apple is a Macro Asset Class. We seem to be in one of those periods where Apple has transcended just being a single company, and is an asset class of its own. This isn’t just because it is such a big portion of U.S. indices, though that is a part of the story. What I’m seeing is bears buying into Apple to cover some of their shorts. They are getting hurt on shorts in virtually every area. They hate the market and the economy, but the pain on shorts is too much so they have to cover. Many can’t bring themselves to buy anything since the stench of slow growth, failing Europe, fiscal cliff, etc., is so overpowering, except in the case of Apple. They can bring themselves to buy Apple. It is loved, has done well, investors don’t look at you like you have 4 eyes if you say you own Apple.
Guest post by Azizonomics.
I find myself in the middle of a huge blowup between Max Keiser and Tom Woods over Mises, Menger and Austrian economics and feel that this is an opportune moment to express some doubts I have regarding contemporary Austrian methodology.
I am to some extent an Austrian, on three counts.
First, I subscribe to the notion that value is subjective; that goods’ and services’ values differ according to different individuals because they serve various uses to various users, and that value is entirely in the eye of the beholder.
Second, I subscribe to the notion that free markets succeed because of the sensitive price feedback mechanism that allocates resources according to the real underlying shape of supply and demand and conversely the successful long-term allocation of labour, capital and resources by a central planner is impossible (or extremely unlikely), because of the lack of a market feedback mechanism.
What will the Fed do this weekend? What if the Jackson Hole is another “promise you nothing” meeting? What if the Bernanke Put expires? From Biderman.
It is a bizarre stock market we live in when the wonder is who is gaming whom regarding the Fed this weekend. The Wall Street Journal’s John Hilsenrath today writes as if it is almost certain that the Fed will announce an easing in Jackson Hole. But maybe the Fed is gaming Hilsenrath’s reputation as the Fed’s unofficial mouthpiece to have him sell some more sizzle. Remember, Hilsenrath first promised a Fed easing in early June, which helped stop and reverse May’s sharp stock market selloff. Yet the Fed actually did nothing at the June meeting. Every few weeks since, seeming to coincide with a stock sell off, Hilsenrath writes another story promising an easing soon.