Updated Nov 28
This Weekend, The Sunday Headlines Begin on Saturday
NYT: Banks Build Contingency for Breakup of Euro
Bloomberg: Europe's Single Currency May Unravel Before Action, UBS Says
Bloomberg: Euro in Longest Losing Stretch in 18 Months
The Telegraph: Prepare for riots in euro collapse, Foreign Office warns
Reuters: Greece may miss 2012 selloff target due to Euro crisis
The problem with the extreme pessimism is that it presumes that everyone is completely stupid. That in itself is a wrongly placed assumption. If someone takes Merkozy for total idiots, I am pretty sure that is wrong. I am quite confident they are not, and they are not stone deaf either. They will respond, the question is speed, force, and whether the market is convinced or not. The lack of details given so far has been stunning. That the market has bought any of the "fixes" without the details is amazing, but the crowd is getting more pessimistic with each passing announcement.
Nevertheless, here are the "solutions":
Yahoo! Finance: Germany, France plan quick, new Stability Pact: report
Reuters: Euro zone integration may pave way for ECB bond action-officials
Economic Times (India): IMF readies 600-billion-euro rescue plan for Italy: Report
Within the next 24 hours, I suspect both lists are gonna get even longer.
The naysayers are out in force; you know what that usually means....
A bounce is probably in order.
Post-Mortem Monday (Update 1, Nov 28)
Rumors of IMF rescue plan were roundly denied, and the Franco-German stability pact remained sketchy at best. A euroland-within-euroland debt issue was also denied. Last, and not least, the notion of further leveraging of the EFSF was also denied. Whew, that is a heckaofalot of denials. So while the rally seemed tenuous and on low volume, the fact is that it didn't disintegrate when all of the denials arrived.
The market tell is, and will be, $DB, $CS, $ING; these three are Euro financial ADRs and yet are not within a PIIGS bloc. So, they represent the exposure to the Eurozone debt problem, and the liquidity problems all in one fell swoop. Add in some Euro exposure (due to their original denomination), and voila, you can tell whether the market move intraday is going to hold up. Today, $ING was up 12% out of the blocks, and didn't give much back. KISS, and that is as simple as it gets.
Market sent us everyone a message: the market is leaning short and punished those that stayed short. After the close today, Fitch kept the U.S. ratings but moved the outlook to Negative. Market reaction? Nada. We could be moving into a mode where bad-news fatigue is setting in again, and all bad news is good. 'Tis the season, after all.
Showing posts with label Euro. Show all posts
Showing posts with label Euro. Show all posts
Saturday, November 26, 2011
Friday, November 25, 2011
Merkel vs Eurozone: Ms Lagarde (IMF) Enters
Structural Flaws of the Euro Exposed
The Euro experiment cannot continue in its current form, period. Fiscal harmony only works when the net export and fiscal equations are also harmonized. Since it is too late for that to be established, we are now back to old-school economics. Countries need to have individualized foreign exchange capabilities. Greece, Italy, and Spain need to devalue their domestic currencies dramatically to pay for their debts. Oops, there is no such thing as a domestic currency. We can dance around the different topics, but absent debt write-off, and simultaneous governmental intervention to prevent an all-out European banking crisis, the Euro experiment is entering its final stages.
Liquidity? Nope. Solvency is the Problem.
The headline is that European bank liquidity has dissolved. The actual problem is that the cause of this is that solvency of European banks is the question. The Merkozy debate is really about how to solve the solvency issue because without a solution, a liquidity solution is nowhere to be found. We will be able to figure out who the survivors will be at a later date; for those currently long European bank equities, the answer is that no one will be left unscathed.
Germany is Pathetic For Many Reasons
Without the PIIGS, you could say that the Euro or Mark vs the USD should be much, much higher. If that were the case, then the German economy would be in a world of hurt. If anything, Germany has benefited from the weak Euro the most; Siemens, BMW, et al have all made money that would have gone to their global competition if the Euro didn't have these problems. For Germany to now turn around and behave in a holier-than-thou way is pathetic at best. Chancellor Merkel is playing a dangerous game, because responding to internal German politics will result in a much weaker German economy in the medium term, and potentially in the very short term if the European economy implodes. However, Chancellor Merkel holds all the cards at the moment, and whether she is bluffing or just stupid is irrelevant. She holds all the cards and needs to get all the concessions she can, while she can. However, Germany, and thus Europe, cannot solve this problem by itself.
Dear IMF: Require Sales of Gold to Help Solve
The IMF is required to solve this multi-faceted Prisoner's Dilemma exercise. The IMF purchases out the individual country, after securing all the gold reserves of that country. Period. Absent that, let the ECB flail around. Although it was widely criticized, the IMF put itself in this position when dealing with the Asian currency crisis. Some believe that the IMF created more problems than it solved. That is Monday-morning quarterbacking at is worst. Individual countries dramatically devalued their currency, took the austerity measures under IMF auspices, the population worked its collective ass off, the debts were repaid early, and growth resumed. That is the ONLY blueprint that now remains. Delaying acceptance of this is making it worse. Much, much worse.
Update (Nov 27): Sacre bleu! Ms Lagarde and IMF Right on Cue
The is no shortcut around a problem the size of Italy. This blog has suggested that the PIIGS be required to put up their family silverware (gold to be precise) to partially collateralize further rescue efforts. It has taken a month and a half (of time that we did not have) for these developments suggested here. The naysayers will look at the IMF plan/rumor and start throwing bombs at it; to which I say that TARP and POMO did what they were supposed to do, which is to avoid imminent depression, and allow the banking system heal. From that point, the economy could find a path back from the brink.
The objectives of TARP and POMO were achieved; the U.S. avoided instantaneous depression. That the banking system didn't use the steep yield curve along with much harsher government measures attached to TARP, is on someone else. Not the programs themselves. When you apply that analogy here, the IMF shouldn't be ignored.
The Euro experiment cannot continue in its current form, period. Fiscal harmony only works when the net export and fiscal equations are also harmonized. Since it is too late for that to be established, we are now back to old-school economics. Countries need to have individualized foreign exchange capabilities. Greece, Italy, and Spain need to devalue their domestic currencies dramatically to pay for their debts. Oops, there is no such thing as a domestic currency. We can dance around the different topics, but absent debt write-off, and simultaneous governmental intervention to prevent an all-out European banking crisis, the Euro experiment is entering its final stages.
Liquidity? Nope. Solvency is the Problem.
The headline is that European bank liquidity has dissolved. The actual problem is that the cause of this is that solvency of European banks is the question. The Merkozy debate is really about how to solve the solvency issue because without a solution, a liquidity solution is nowhere to be found. We will be able to figure out who the survivors will be at a later date; for those currently long European bank equities, the answer is that no one will be left unscathed.
Germany is Pathetic For Many Reasons
Without the PIIGS, you could say that the Euro or Mark vs the USD should be much, much higher. If that were the case, then the German economy would be in a world of hurt. If anything, Germany has benefited from the weak Euro the most; Siemens, BMW, et al have all made money that would have gone to their global competition if the Euro didn't have these problems. For Germany to now turn around and behave in a holier-than-thou way is pathetic at best. Chancellor Merkel is playing a dangerous game, because responding to internal German politics will result in a much weaker German economy in the medium term, and potentially in the very short term if the European economy implodes. However, Chancellor Merkel holds all the cards at the moment, and whether she is bluffing or just stupid is irrelevant. She holds all the cards and needs to get all the concessions she can, while she can. However, Germany, and thus Europe, cannot solve this problem by itself.
Dear IMF: Require Sales of Gold to Help Solve
The IMF is required to solve this multi-faceted Prisoner's Dilemma exercise. The IMF purchases out the individual country, after securing all the gold reserves of that country. Period. Absent that, let the ECB flail around. Although it was widely criticized, the IMF put itself in this position when dealing with the Asian currency crisis. Some believe that the IMF created more problems than it solved. That is Monday-morning quarterbacking at is worst. Individual countries dramatically devalued their currency, took the austerity measures under IMF auspices, the population worked its collective ass off, the debts were repaid early, and growth resumed. That is the ONLY blueprint that now remains. Delaying acceptance of this is making it worse. Much, much worse.
Update (Nov 27): Sacre bleu! Ms Lagarde and IMF Right on Cue
The is no shortcut around a problem the size of Italy. This blog has suggested that the PIIGS be required to put up their family silverware (gold to be precise) to partially collateralize further rescue efforts. It has taken a month and a half (of time that we did not have) for these developments suggested here. The naysayers will look at the IMF plan/rumor and start throwing bombs at it; to which I say that TARP and POMO did what they were supposed to do, which is to avoid imminent depression, and allow the banking system heal. From that point, the economy could find a path back from the brink.
The objectives of TARP and POMO were achieved; the U.S. avoided instantaneous depression. That the banking system didn't use the steep yield curve along with much harsher government measures attached to TARP, is on someone else. Not the programs themselves. When you apply that analogy here, the IMF shouldn't be ignored.
Sunday, September 11, 2011
More News From Europe (Hint: None Good)
It's Sunday, Markets Will Open Soon
Unlike 2008, when the Fed actually tried to do something, the silence of their European counterparts in 2011 is deafening and troubling.
Bloomberg: Greek ‘Orderly’ Default Can’t Be Ruled Out, Roesler Tells Welt
Reuters: Euro seen under pressure on lack of G7 support
Are Gold-backed EUR bonds Inevitable?
Perhaps the only answer is to require the PIIGs to sell their familysilver gold or use it to partially collateralize EUR-denominated bonds (and no tranching, please). Is there any other solution that actually works? Stabilize the EUR, keeps the unity, and thereby stabilizing global equity markets. Not sure why this hasn't been floated more strongly. Guess we will see.
Unlike 2008, when the Fed actually tried to do something, the silence of their European counterparts in 2011 is deafening and troubling.
Bloomberg: Greek ‘Orderly’ Default Can’t Be Ruled Out, Roesler Tells Welt
Reuters: Euro seen under pressure on lack of G7 support
Are Gold-backed EUR bonds Inevitable?
Perhaps the only answer is to require the PIIGs to sell their family
Saturday, September 10, 2011
Euros For Nothing, Greek Islands for Free
Maybe Europe Should Outlaw Weekends Altogether
The G7 is meetings, and the blurbs are coming out, slowly. Highlights isn't really the right word, but...
Reuters: Marseille lays bare G7 differences and lack of policy room
Guardian: Greece on verge of default as doubt grows over €8bn bailout
Of course, BHO is golfing, so it cannot be all that bad.
Soon, we will be able to afford to travel to Europe again (at least southern Europe).
I doubt this is what The Vapors meant by "Turning Japanese."
The G7 is meetings, and the blurbs are coming out, slowly. Highlights isn't really the right word, but...
Reuters: Marseille lays bare G7 differences and lack of policy room
Guardian: Greece on verge of default as doubt grows over €8bn bailout
Of course, BHO is golfing, so it cannot be all that bad.
Soon, we will be able to afford to travel to Europe again (at least southern Europe).
I doubt this is what The Vapors meant by "Turning Japanese."
Monday, September 5, 2011
OK, So She's (Merkel/DAX) a Dog...
Europe Wakes Up, Looks at Screens, and Starts Hitting Bids
Well, that was resolved quickly. The DAX hit a new 3-month low, as Europe returns from its August-long holiday, takes in the information, and eureka! Nothing has changed, except that in the U.S., employment numbers are woefully below the +500,000 jobs necessary to turn the ship around.
As long as the DAX continues lower, and the issues in Europe remain unresolved, the S&P 500 has little hope of sustainable upside. Closet technicians look at the daily charts and say...no meaningful support until 1120, another 30 handles lower.
Well, that was resolved quickly. The DAX hit a new 3-month low, as Europe returns from its August-long holiday, takes in the information, and eureka! Nothing has changed, except that in the U.S., employment numbers are woefully below the +500,000 jobs necessary to turn the ship around.
As long as the DAX continues lower, and the issues in Europe remain unresolved, the S&P 500 has little hope of sustainable upside. Closet technicians look at the daily charts and say...no meaningful support until 1120, another 30 handles lower.
Sunday, September 4, 2011
Drumbeat Against the Euro Banging Loudly
The populist popular press is out early today
FT: The worst of the euro crisis is yet to come
Reuters: Euro bond would get member's weakest rating (S&P)
Of course, bloggers/FX advisory sites are out, en masse
FX Daily: EURUSD: Hold short as selling accelerates
Zero Hedge: Merkel Loses Big, See Ya (ok, so i summarize)
3-day weekends have not been good for global equity markets (Federal Reserve Bank announced emergency liquidity measures, Soc Gen, October 1987, all occurred on a Tuesday following a long weekend).
S&P Futures down only 5, gold up (of course). Just a bunch of screen jockeys playing poker with each other, and some irrelevant babble about a lower Aussie Dollar can be ignored for now. We will see when Europe opens. More as it comes in.
FT: The worst of the euro crisis is yet to come
Reuters: Euro bond would get member's weakest rating (S&P)
Of course, bloggers/FX advisory sites are out, en masse
FX Daily: EURUSD: Hold short as selling accelerates
Zero Hedge: Merkel Loses Big, See Ya (ok, so i summarize)
3-day weekends have not been good for global equity markets (Federal Reserve Bank announced emergency liquidity measures, Soc Gen, October 1987, all occurred on a Tuesday following a long weekend).
S&P Futures down only 5, gold up (of course). Just a bunch of screen jockeys playing poker with each other, and some irrelevant babble about a lower Aussie Dollar can be ignored for now. We will see when Europe opens. More as it comes in.
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