Sunday, September 25, 2011
($EURUSD, $MACRO) Billionaire investor George Soros, speaking on the sidelines of the IMF meeting, said that the crisis is worse than the global financial crisis in the wake of the collapse of Lehman Brothers in the fall of 2008.
“In 2008 the right authorities to deal with the crisis were in place. Now they have to be created,” Soros said.
$UBS Chief Executive Oswald Gruebel resigned on Saturday, taking responsibility for a recent rogue trading incident that cost the Swiss bank at least $2.3 billion in losses.
The board named Sergio Ermotti, the bank’s European head, as interim CEO and launched a search for a permanent successor, UBS said.
Saturday, September 24, 2011
($SPX, $SPY) There is a tremendous amount of uncertainty about the European situation and we jumping around constantly as each new headline or rumor hits. While many market participants aren't very optimistic about a solution they are also afraid of being squeezed by whatever talk emerges from the G20 meeting this weekend.
There are plenty of negatives out there and the technical picture reflects it. After the breakdown in early August, we have been bouncing around in a wide trading range for more than a month. We tested the upper resistance levels a couple of times on rumors and news that Greece was saved once again, but those moves didn't hold and the selling this week took us right to the bottom of the trading range around 1115 to 1120 of the S&P 500.
We held that level yesterday and managed a very weak oversold bounce on light volume today, but we are in a very precarious position. The testing of the support is weakening it and I don't believe the market will be able to do much to the upside until it breaches support and produces a capitulation event of some sort. Too many folks are hoping this level will hold, and the market always likes to crush any hope before it turns back up.-R.Shark
There are plenty of negatives out there and the technical picture reflects it. After the breakdown in early August, we have been bouncing around in a wide trading range for more than a month. We tested the upper resistance levels a couple of times on rumors and news that Greece was saved once again, but those moves didn't hold and the selling this week took us right to the bottom of the trading range around 1115 to 1120 of the S&P 500.
We held that level yesterday and managed a very weak oversold bounce on light volume today, but we are in a very precarious position. The testing of the support is weakening it and I don't believe the market will be able to do much to the upside until it breaches support and produces a capitulation event of some sort. Too many folks are hoping this level will hold, and the market always likes to crush any hope before it turns back up.-R.Shark
Cramer on $SPX, $SPY
Oh man, true bear market action today.
"Don't be short ahead of what might be a deal this weekend over in Europe."
Believe me, there's not much more to it.
This is short-covering on rumors of Merkel getting her hands dirty or the IMF stepping up or a French TARP or a Middle East investment.
We don't get that? I think we go right back down Monday.
"Don't be short ahead of what might be a deal this weekend over in Europe."
Believe me, there's not much more to it.
This is short-covering on rumors of Merkel getting her hands dirty or the IMF stepping up or a French TARP or a Middle East investment.
We don't get that? I think we go right back down Monday.
($FXI) Marc Faber about China
"If we define a bubble as excessive credit growth and artificially low interest rate, then China has had a gigantic bubble. Now, will it collapse or will it just slow down, that is a different issue but some sectors of the economy will collapse."
Jim Rogers Blog: Latest CNBC Video Interview
Jim Rogers Blog: Latest CNBC Video Interview: Topics: commentary on the recent market turmoil, currencies and politics; Jim Rogers is an author, financial commentator and successful...
Friday, September 23, 2011
($EURUSD, $MACRO) ECB May Step Up Crisis Response Next Month, Council Members Say
Sept. 23 (Bloomberg) -- The European Central Bank may step
up efforts to boost growth and ease financial-market tensions as
early as next month, Governing Council members said.
Austria’s Ewald Nowotny and Belgium’s Luc Coene said in
Washington that potential measures include the reintroduction of
12-month loans to banks. Asked if an interest-rate cut is
warranted, Coene said while that wouldn’t help to bring down
longer-term borrowing costs, “the ECB has never ruled out things
beforehand.”
“If the data in early October shows that things are worse
than we anticipated we will look at the kind of decisions we
have to take for that,” he said in an interview late yesterday.
European policy makers are under pressure from counterparts
around the globe as their failure to contain the region’s
sovereign-debt crisis stokes concern the world is on the brink
of another recession. Their comments come as European officials
debate how to increase the size of their bailout fund to restore
confidence in its firepower.
With money-market tensions increasing, the ECB has already
reintroduced a six-month loan and continues to offer banks as
much cash as they want at its benchmark rate in weekly, monthly
and three-month refinancing operations. It last conducted a 12-
month loan in December 2009.
“The ECB will probably discuss reintroducing a 12-month
tender,” Nowotny told reporters in Washington today. “We could
perfectly do that when we feel there is an urgent need for that
-- I don’t think so for the moment, but it could be in two
weeks,” Coene said. The ECB council next convenes on Oct. 6.
Rate Cut Forecasts
Economists at Barclays Capital, JPMorgan Chase & Co. and
Royal Bank of Scotland Plc predict the ECB will also be forced
to reverse course on interest rates after raising them twice
this year to curb inflation. The benchmark rate is currently 1.5
percent, compared with near-zero for the U.S. Federal Reserve
and Bank of Japan, and the Bank of England’s 0.5 percent.
ECB policy makers are attending the annual meetings of the
International Monetary Fund and World Bank in Washington.
President Jean-Claude Trichet gives a speech here at 4:30 p.m.
German council member Jens Weidmann said a new recession is
“unlikely” and the global economic situation is better than
current sentiment would imply. Even so, the risk that turbulence
on financial markets spills over into the real economy cannot be
excluded, he said, adding the ECB has shown in the past that
it’s “ready to provide the market with liquidity, also with
longer maturities if necessary.”
G-20 Pledge
Finance chiefs from the Group of 20 yesterday pledged a
“strong and coordinated international response to address the
renewed challenges facing the global economy.”
Many G-20 members pressed Europeans to follow through on a
July plan to expand the powers of the region’s rescue fund,
Japanese Finance Minister Jun Azumi told reporters.
European parliaments are focused on approving the July
agreement to expand the scope of the 440 billion-euro ($594
billion) European Financial Stability Facility to allow it to
buy the debt of stressed euro-area governments, aid troubled
banks and offer credit lines. Its current role is to sell bonds
to fund rescue loans for cash-strapped governments.
‘Problematic Discussions’
“We really, really hope that it will be up and running by
mid-October, but you know yourself how problematic the
discussions in some countries are,” Nowotny said. After legal
ratification, it may take another six to eight weeks for the
EFSF to start intervening, he added.
The ratification process has drawn fire from some investors
for being protracted and failing to provide the fund with enough
cash to prevent the crisis leaking beyond Greece. Curbing the
scope of policy makers to do more is the suspicion taxpayers in
AAA-rated countries such as Germany and Finland would balk at
stumping up even more rescue cash.
That has fanned speculation Europe may eventually ratchet
up the fund’s spending power, perhaps by using the bonds it
sells as collateral to borrow more cash from the ECB. Another
proposal is to mimic a U.S. program established following the
2008 collapse of Lehman Brothers Holdings Inc. by allowing the
fund to offer the ECB credit protection for buying more
sovereign bonds.
EFSF Firepower
“It is very important that we look at the possibility of
leveraging the EFSF resources and funding to have a stronger
impact and make it more effective,” European Union Monetary
Affairs Commissioner Olli Rehn said in Washington yesterday.
French Finance Minister Francois Baroin said separately that
policy makers “need the right firewall to prevent contagion”
and can discuss giving the fund “the necessary strength.”
Weidmann has said he opposes turning the EFSF into a bank
that can refinance itself at the ECB as it would amount to
“monetizing state debt.” Coene also said he’s “not sure that
will be a good idea.”
Coene signaled reluctance to step up the central bank’s
government bond purchase program even after the IMF said Sept.
20 the ECB “must continue to intervene strongly” in European
debt markets to “maintain orderly conditions.”
“I think it has been a helpful element in the beginning
but of course it cannot be a structural element of the system,”
the Belgian central banker said. “The main reason was that we
wanted to keep the transmission of monetary policy as good as
possible until the moment that the EFSF will be able to take
over” the bond buying, he said.
The ECB was forced to restart the purchases last month
after governments failed to convince investors they can solve
the crisis which, according to a research paper published by the
ECB this week, is putting the survival of the euro at risk. ECB
Executive Board member Juergen Stark, a co-author of that paper,
resigned this month to protest the bond program.
ECB Vice President Vitor Constancio said in Frankfurt last
night that sustained bond purchases by the central bank would
only delay the fiscal adjustments that euro-area governments
need to make.
So far, only seven of the euro area’s 17 governments have
ratified the upgrade of the EFSF.
up efforts to boost growth and ease financial-market tensions as
early as next month, Governing Council members said.
Austria’s Ewald Nowotny and Belgium’s Luc Coene said in
Washington that potential measures include the reintroduction of
12-month loans to banks. Asked if an interest-rate cut is
warranted, Coene said while that wouldn’t help to bring down
longer-term borrowing costs, “the ECB has never ruled out things
beforehand.”
“If the data in early October shows that things are worse
than we anticipated we will look at the kind of decisions we
have to take for that,” he said in an interview late yesterday.
European policy makers are under pressure from counterparts
around the globe as their failure to contain the region’s
sovereign-debt crisis stokes concern the world is on the brink
of another recession. Their comments come as European officials
debate how to increase the size of their bailout fund to restore
confidence in its firepower.
With money-market tensions increasing, the ECB has already
reintroduced a six-month loan and continues to offer banks as
much cash as they want at its benchmark rate in weekly, monthly
and three-month refinancing operations. It last conducted a 12-
month loan in December 2009.
“The ECB will probably discuss reintroducing a 12-month
tender,” Nowotny told reporters in Washington today. “We could
perfectly do that when we feel there is an urgent need for that
-- I don’t think so for the moment, but it could be in two
weeks,” Coene said. The ECB council next convenes on Oct. 6.
Rate Cut Forecasts
Economists at Barclays Capital, JPMorgan Chase & Co. and
Royal Bank of Scotland Plc predict the ECB will also be forced
to reverse course on interest rates after raising them twice
this year to curb inflation. The benchmark rate is currently 1.5
percent, compared with near-zero for the U.S. Federal Reserve
and Bank of Japan, and the Bank of England’s 0.5 percent.
ECB policy makers are attending the annual meetings of the
International Monetary Fund and World Bank in Washington.
President Jean-Claude Trichet gives a speech here at 4:30 p.m.
German council member Jens Weidmann said a new recession is
“unlikely” and the global economic situation is better than
current sentiment would imply. Even so, the risk that turbulence
on financial markets spills over into the real economy cannot be
excluded, he said, adding the ECB has shown in the past that
it’s “ready to provide the market with liquidity, also with
longer maturities if necessary.”
G-20 Pledge
Finance chiefs from the Group of 20 yesterday pledged a
“strong and coordinated international response to address the
renewed challenges facing the global economy.”
Many G-20 members pressed Europeans to follow through on a
July plan to expand the powers of the region’s rescue fund,
Japanese Finance Minister Jun Azumi told reporters.
European parliaments are focused on approving the July
agreement to expand the scope of the 440 billion-euro ($594
billion) European Financial Stability Facility to allow it to
buy the debt of stressed euro-area governments, aid troubled
banks and offer credit lines. Its current role is to sell bonds
to fund rescue loans for cash-strapped governments.
‘Problematic Discussions’
“We really, really hope that it will be up and running by
mid-October, but you know yourself how problematic the
discussions in some countries are,” Nowotny said. After legal
ratification, it may take another six to eight weeks for the
EFSF to start intervening, he added.
The ratification process has drawn fire from some investors
for being protracted and failing to provide the fund with enough
cash to prevent the crisis leaking beyond Greece. Curbing the
scope of policy makers to do more is the suspicion taxpayers in
AAA-rated countries such as Germany and Finland would balk at
stumping up even more rescue cash.
That has fanned speculation Europe may eventually ratchet
up the fund’s spending power, perhaps by using the bonds it
sells as collateral to borrow more cash from the ECB. Another
proposal is to mimic a U.S. program established following the
2008 collapse of Lehman Brothers Holdings Inc. by allowing the
fund to offer the ECB credit protection for buying more
sovereign bonds.
EFSF Firepower
“It is very important that we look at the possibility of
leveraging the EFSF resources and funding to have a stronger
impact and make it more effective,” European Union Monetary
Affairs Commissioner Olli Rehn said in Washington yesterday.
French Finance Minister Francois Baroin said separately that
policy makers “need the right firewall to prevent contagion”
and can discuss giving the fund “the necessary strength.”
Weidmann has said he opposes turning the EFSF into a bank
that can refinance itself at the ECB as it would amount to
“monetizing state debt.” Coene also said he’s “not sure that
will be a good idea.”
Coene signaled reluctance to step up the central bank’s
government bond purchase program even after the IMF said Sept.
20 the ECB “must continue to intervene strongly” in European
debt markets to “maintain orderly conditions.”
“I think it has been a helpful element in the beginning
but of course it cannot be a structural element of the system,”
the Belgian central banker said. “The main reason was that we
wanted to keep the transmission of monetary policy as good as
possible until the moment that the EFSF will be able to take
over” the bond buying, he said.
The ECB was forced to restart the purchases last month
after governments failed to convince investors they can solve
the crisis which, according to a research paper published by the
ECB this week, is putting the survival of the euro at risk. ECB
Executive Board member Juergen Stark, a co-author of that paper,
resigned this month to protest the bond program.
ECB Vice President Vitor Constancio said in Frankfurt last
night that sustained bond purchases by the central bank would
only delay the fiscal adjustments that euro-area governments
need to make.
So far, only seven of the euro area’s 17 governments have
ratified the upgrade of the EFSF.
($EURUSD, $MACRO) GERMANY'S SCHAEUBLE SAYS BROAD G20 CONSENSUS THAT HIGH DEFICITS MAIN REASON FOR CRISIS
SAYS BROAD CONSENSUS IN G20 TO CONTINUE ON THE PATH TO REDUCE DEFICITS
SAYS EUROPE GENERALLY ON THE RIGHT PATH TO REDUCE DEFICITS
G20 WELCOMED DECISIONS OF EURO-SUMMIT FROM JULY TO STRENGTHEN EFSF, URGED QUICK IMPLEMENTATION
ALL EURO-COUNTRIES WILL IMPLEMENT EURO-SUMMIT DECISIONS UNTIL MID-OCTOBER THE LATEST
SAYS DOES NOT MAKE SENSE TO SPECULATE ABOUT NECESSITY FOR ADDITIONAL DECISIONS ON GREECESCHAEUBLE SAYS HE CAN NOT SAY IF ADDITIONAL PLANS HAVE TO BE MADE FOR GREECE
SCHAEUBLE ON GREECE - EUROPEANS KNOW THEIR RESPONSIBILITY AND WILL ACT ACCORDING TO THIS
EUROPEAN FINANCE-MINISTER WILL DISCUSS SITUATION OF THEIR BANKS IN EARLY OCTOBER
RICH COUNTRIES MUST FULFILL THEIR COMMITTMENTS FOR DEFICIT-REDUCTIONS FROM TORONTO-SUMMIT
SAYS BROAD CONSENSUS IN G20 TO CONTINUE ON THE PATH TO REDUCE DEFICITS
SAYS EUROPE GENERALLY ON THE RIGHT PATH TO REDUCE DEFICITS
G20 WELCOMED DECISIONS OF EURO-SUMMIT FROM JULY TO STRENGTHEN EFSF, URGED QUICK IMPLEMENTATION
ALL EURO-COUNTRIES WILL IMPLEMENT EURO-SUMMIT DECISIONS UNTIL MID-OCTOBER THE LATEST
SAYS DOES NOT MAKE SENSE TO SPECULATE ABOUT NECESSITY FOR ADDITIONAL DECISIONS ON GREECESCHAEUBLE SAYS HE CAN NOT SAY IF ADDITIONAL PLANS HAVE TO BE MADE FOR GREECE
SCHAEUBLE ON GREECE - EUROPEANS KNOW THEIR RESPONSIBILITY AND WILL ACT ACCORDING TO THIS
EUROPEAN FINANCE-MINISTER WILL DISCUSS SITUATION OF THEIR BANKS IN EARLY OCTOBER
RICH COUNTRIES MUST FULFILL THEIR COMMITTMENTS FOR DEFICIT-REDUCTIONS FROM TORONTO-SUMMIT
($EURUSD, $MACRO) European shares fell on Friday, extending the previous session's steep losses, on fresh concerns that European banks would take further writedowns on their Greek debt exposure, after Deutsche bank said that banks' write downs on Greek bonds could be higher than the 21% foreseen in July agreement.
($EURUSD, $MACRO) FINNISH PARLIAMENT'S FINANCE COMMITTEE SAYS RECOMMENDS PARLIAMENT APPROVE NEW EFSF POWERS
HEAD OF FINNISH PARLIAMENTARY COMMITTEE: PROPOSES EFSF GET BANK SHARES AS COLLATERAL IF BANKS RECAPITALISED
HEAD OF FINNISH PARLIAMENT COMMITTEE: USE OF NEW EFSF POWERS SHOULD ALWAYS REQUIRE PARLIAMENT APPROVAL-Reuters
HEAD OF FINNISH PARLIAMENTARY COMMITTEE: PROPOSES EFSF GET BANK SHARES AS COLLATERAL IF BANKS RECAPITALISED
HEAD OF FINNISH PARLIAMENT COMMITTEE: USE OF NEW EFSF POWERS SHOULD ALWAYS REQUIRE PARLIAMENT APPROVAL-Reuters
($EURUSD, $MACRO) EU COMMISSION: 420 BILLION EUROS OF CAPITAL HAS BEEN INJECTED INTO EUROPEAN BANKS SINCE 2008
RECAPITALISATION OF EUROPEAN BANKS IS CONTINUING
IF EUROPEAN BANKS HAVE TO BE RECAPITALISED, EITHER THEY GO TO MARKETS OR THEY TURN TO MEMBER STATES
DON'T BELIEVE THE RUMOURS THAT ALL EUROPEAN BANKING SYSTEM NEEDS RECAPITALISATION-Reuters
RECAPITALISATION OF EUROPEAN BANKS IS CONTINUING
IF EUROPEAN BANKS HAVE TO BE RECAPITALISED, EITHER THEY GO TO MARKETS OR THEY TURN TO MEMBER STATES
DON'T BELIEVE THE RUMOURS THAT ALL EUROPEAN BANKING SYSTEM NEEDS RECAPITALISATION-Reuters
($MACRO) Central planning has failed. Keynesian strategies have failed. We keep covering up bad debt with pretend accounting measures and gimmicks. Authorities and politicians wish to stretch things out given the election cycle and hope things improve. Dealing with serious problems with half-measures means you just extend the problems. Sometimes it’s just as well to let things go; make those pay that are at fault including shareholders and bondholders. Let the free markets work.-D.Fray
($EURUSD, $MACRO) Credit Suisse on Eurozone break-up: The most interesting scenario in our view is that of Italy leaving the Euro voluntarily. The cost/benefit of Italy leaving the Euro looks a lot less clearcut than for the rest of the periphery. Losses to core EU banks would be around €300bn, €630bn to peripheral banks excluding Italy and €150bn to the ECB. We think the chance of a general break-up of the Euro is just 10%. Peripheral currencies would fall by about 50%, pushing net foreign liabilities to 200-250% of GDP for the peripheral countries excluding Italy.
($SPX, $SPY) Stocks fell, pushing the MSCI All- Country World Index of 45 nations into a bear market for the first time in more than two years, after the worsening European debt crisis and threat of a U.S. recession erased more than $10 trillion from equities since May.
The MSCI index, which slipped 0.3 percent as of 1:33 p.m. in Hong Kong today, has lost more than 20 percent since peaking on May 2, meeting the common definition of a bear market. -Bloomberg
The MSCI index, which slipped 0.3 percent as of 1:33 p.m. in Hong Kong today, has lost more than 20 percent since peaking on May 2, meeting the common definition of a bear market. -Bloomberg
$EURUSD : Posted an outside down day yesterday and the followed through to the downside today. It is at the lowest level now since Jan, and the Jan low, which is the low for the year, near $1.2865, is the next big target, though of course the $1.30 level looms first of psychological import. The implied volatility is near 17.5% currently. Vol has increased as the euro has slid. Even though the specs at the IMM are short euros, the relationship between vol and the spot action warns that a falling euro is still the pain trade for the larger market. The $1.35-$1.36 area should offer important resistance now. -M.Chandler
Jim Rogers Blog: Reuters Video Interview: A Recession Is Coming
Jim Rogers Blog: Reuters Video Interview: A Recession Is Coming: "We are going to have another lost decade. We are making enormous mistakes running the US economy" - Jim Rogers, in Reuters Jim Rogers is...
Marc Faber Blog: Fox Business News: Best Fed Reserve Decision In A ...
Marc Faber Blog: Fox Business News: Best Fed Reserve Decision In A ...: Marc Faber talks to Fox Business News, live from Hong Kong Marc Faber is an international investor known for his uncanny predictions of t...
($EURUSD, $MACRO) Coene Says ECB May Act Next Month If Data Worse Than Expected
Sept. 23 (Bloomberg) -- The European Central Bank may act
to address risks to growth as soon as next month should economic
data disappoint, Governing Council member Luc Coene said.
“The ECB has never ruled out things beforehand,” Coene,
who heads the Belgian central bank, said in an interview in
Washington late yesterday when asked if an interest-rate cut
were warranted. “If the data in early October shows that things
are worse than we anticipated we will look at the kind of
decisions we have to take for that.”
European policy makers have come under pressure from
counterparts around the world as a failure to contain the
region’s sovereign-debt crisis stokes concern the world is on
the brink of another recession. Economists at Barclays Capital
and Royal Bank of Scotland Plc predict the ECB will reverse the
two rate increases it implemented earlier this year.
Potential measures by the ECB include the reintroduction of
longer-term bank loans, with maturities of 12 months or even
longer, Coene said. He added that cutting the benchmark rate
“certainly would not help” in bringing down longer-term rates.
“We could perfectly do that when we feel there is an urgent
need for that -- I don’t think so for the moment, but it could
be in two weeks,” Coene said, referring to the ECB extending
long-term bank loans. The ECB is scheduled to meet Oct. 6. The
benchmark rate is currently 1.5 percent, compared with near-zero
for the U.S. Federal Reserve and Bank of Japan, and the Bank of
England’s 0.5 percent.
G-20 Pledge
Coene was in Washington for annual meetings of the
International Monetary Fund and World Bank. Finance chiefs from
the Group of 20 pledged in a joint statement late yesterday a
“strong and coordinated international response to address the
renewed challenges facing the global economy.”
Many G-20 members pressed Europeans to follow through on a
July pledge to expand the powers of the region’s rescue fund,
Japanese Finance Minister Jun Azumi told reporters.
Euro-area services and manufacturing shrank for the first
time in more than two years in September, a survey of purchasing
managers showed this week, deepening concern that Europe may
return to a recession.
Coene signaled reluctance to step up the central bank’s
government bond purchase program even after the IMF said Sept.
20 the ECB “must continue to intervene strongly” in European
debt markets to “maintain orderly conditions.”
Temporary Measure
“I think it has been a helpful element in the beginning
but of course it cannot be a structural element of the system,”
the Belgian central banker said. “The main reason was that we
wanted to keep the transmission of monetary policy as good as
possible until the moment that the EFSF will be able to take
over” the bond buying, he said, referring to the European
Financial Stability Facility.
So far, six governments have ratified the upgrade of the
440 billion-euro ($595.41 billion) EFSF.
The ECB was forced to restart the purchases last month
after governments failed to convince investors they can solve
the crisis which, according to a research paper published by the
ECB this week, is putting the survival of the euro at risk. ECB
Executive Board member Juergen Stark, a co-author of that paper,
resigned this month to protest the bond purchases.
Coene indicated he opposes a proposal to turn the EFSF into
a bank that can refinance itself at the ECB in order to boost
its firepower.
“I’m not sure that will be a good idea,” he said. “If
they do it at market conditions, fine, but once we are in a
variable rate system then it is going to be at the market
conditions -- then there is not going to be a guarantee” that
they will get preferable rates, he said.
Coene also said that Dexia SA, the Paris and Brussels-based
lender to local governments that was bailed out in 2008, is “not
in trouble,” and hasn’t sought dollars from the ECB in a “long
time.” Dexia last month reported the largest quarterly loss in
its history because of provisions to sell assets and a writedown
of Greek debt, bringing shareholder equity to a two-year low.
to address risks to growth as soon as next month should economic
data disappoint, Governing Council member Luc Coene said.
“The ECB has never ruled out things beforehand,” Coene,
who heads the Belgian central bank, said in an interview in
Washington late yesterday when asked if an interest-rate cut
were warranted. “If the data in early October shows that things
are worse than we anticipated we will look at the kind of
decisions we have to take for that.”
European policy makers have come under pressure from
counterparts around the world as a failure to contain the
region’s sovereign-debt crisis stokes concern the world is on
the brink of another recession. Economists at Barclays Capital
and Royal Bank of Scotland Plc predict the ECB will reverse the
two rate increases it implemented earlier this year.
Potential measures by the ECB include the reintroduction of
longer-term bank loans, with maturities of 12 months or even
longer, Coene said. He added that cutting the benchmark rate
“certainly would not help” in bringing down longer-term rates.
“We could perfectly do that when we feel there is an urgent
need for that -- I don’t think so for the moment, but it could
be in two weeks,” Coene said, referring to the ECB extending
long-term bank loans. The ECB is scheduled to meet Oct. 6. The
benchmark rate is currently 1.5 percent, compared with near-zero
for the U.S. Federal Reserve and Bank of Japan, and the Bank of
England’s 0.5 percent.
G-20 Pledge
Coene was in Washington for annual meetings of the
International Monetary Fund and World Bank. Finance chiefs from
the Group of 20 pledged in a joint statement late yesterday a
“strong and coordinated international response to address the
renewed challenges facing the global economy.”
Many G-20 members pressed Europeans to follow through on a
July pledge to expand the powers of the region’s rescue fund,
Japanese Finance Minister Jun Azumi told reporters.
Euro-area services and manufacturing shrank for the first
time in more than two years in September, a survey of purchasing
managers showed this week, deepening concern that Europe may
return to a recession.
Coene signaled reluctance to step up the central bank’s
government bond purchase program even after the IMF said Sept.
20 the ECB “must continue to intervene strongly” in European
debt markets to “maintain orderly conditions.”
Temporary Measure
“I think it has been a helpful element in the beginning
but of course it cannot be a structural element of the system,”
the Belgian central banker said. “The main reason was that we
wanted to keep the transmission of monetary policy as good as
possible until the moment that the EFSF will be able to take
over” the bond buying, he said, referring to the European
Financial Stability Facility.
So far, six governments have ratified the upgrade of the
440 billion-euro ($595.41 billion) EFSF.
The ECB was forced to restart the purchases last month
after governments failed to convince investors they can solve
the crisis which, according to a research paper published by the
ECB this week, is putting the survival of the euro at risk. ECB
Executive Board member Juergen Stark, a co-author of that paper,
resigned this month to protest the bond purchases.
Coene indicated he opposes a proposal to turn the EFSF into
a bank that can refinance itself at the ECB in order to boost
its firepower.
“I’m not sure that will be a good idea,” he said. “If
they do it at market conditions, fine, but once we are in a
variable rate system then it is going to be at the market
conditions -- then there is not going to be a guarantee” that
they will get preferable rates, he said.
Coene also said that Dexia SA, the Paris and Brussels-based
lender to local governments that was bailed out in 2008, is “not
in trouble,” and hasn’t sought dollars from the ECB in a “long
time.” Dexia last month reported the largest quarterly loss in
its history because of provisions to sell assets and a writedown
of Greek debt, bringing shareholder equity to a two-year low.
Cramer on $SPX, $SPY
Could have been better. I wanted it down more -- much more. This bogus rally at the end was about hope. The market didn't take out any key levels that would inspire panic and wholesale capitulation.
That's not good enough. That's not what we want.
You want to get to the bottom of this? We need people to say, "Forget about it. Get me out. There's no hope." The rally at the close tells me, "Nope -- not yet."
It's too bad. Keep your powder dry, as this is not how to bottom.
That's not good enough. That's not what we want.
You want to get to the bottom of this? We need people to say, "Forget about it. Get me out. There's no hope." The rally at the close tells me, "Nope -- not yet."
It's too bad. Keep your powder dry, as this is not how to bottom.
($SPX, $SPY) Yesterday we saw some of the worst action since the bank crisis. The point loss was big, volume heavy and breadth very poor, but what is probably the worst statistic is that we had 15 stocks hitting new 52-week highs while 1450 were hitting new lows. The very high level of new lows makes it clear that this is a market that has not been healthy for a while. The vast majority of stocks have been struggling, notwithstanding the big bounce last week, and the action today caused major breaks in what little support there was.
Technically, the S&P 500 barely managed to hold above the closing lows of 1119 but, as I've written a number of times, I believe it is destined to fall and that we won't have a healthier market until that happens. We may be oversold enough for some sort of bounce in the near term, but I believe that today's lows will be breached in the next few days of trading.
This very poor technical action merely reflects the terrible news flow. The uncertainty in Europe is as great as ever, the U.S. economy is showing no signs of improvement and, most important, the Fed has proven to be toothless.
The one positive the bulls can point to is that negativity is extremely high. On the other hand, just because folks are negative doesn't mean they have already sold. It takes a real leap to conclude that the bulls have all been washed out, especially since they were feeling pretty good just two days ago.
We can safely conclude that the market is in a downtrend and is on the brink of making a new 12-month low. Unless you are a hero who is overly anxious to try to call a market turn, it is probably a good time to stay defensive and wait for market conditions to improve.-R.Shark
Technically, the S&P 500 barely managed to hold above the closing lows of 1119 but, as I've written a number of times, I believe it is destined to fall and that we won't have a healthier market until that happens. We may be oversold enough for some sort of bounce in the near term, but I believe that today's lows will be breached in the next few days of trading.
This very poor technical action merely reflects the terrible news flow. The uncertainty in Europe is as great as ever, the U.S. economy is showing no signs of improvement and, most important, the Fed has proven to be toothless.
The one positive the bulls can point to is that negativity is extremely high. On the other hand, just because folks are negative doesn't mean they have already sold. It takes a real leap to conclude that the bulls have all been washed out, especially since they were feeling pretty good just two days ago.
We can safely conclude that the market is in a downtrend and is on the brink of making a new 12-month low. Unless you are a hero who is overly anxious to try to call a market turn, it is probably a good time to stay defensive and wait for market conditions to improve.-R.Shark
Goldman Sachs stopped out of long $EURUSD
Having traded for a while quite closely to our stop, our long EUR/$ recommendation has finally been stopped out for a theoretical loss of 4.2% including carry.
We recommended this idea on the back of two main assumptions: continued Dollar downside pressure and a gradual decline in the fiscal risk premium in the Eurozone. The latter has obviously been rising in recent months, but at the same time Dollar downside pressures also intensified through July and August as illustrated by very weak BBoP data in recent months. As a result, EUR/$ remained range bound for most of the summer. However, the recent sharp increase in risk aversion, much of this originating in Europe, and upward pressure on the USD across a wide range of currencies lately, has pushed the cross below our 1.35 closing stop.
We recommended this idea on the back of two main assumptions: continued Dollar downside pressure and a gradual decline in the fiscal risk premium in the Eurozone. The latter has obviously been rising in recent months, but at the same time Dollar downside pressures also intensified through July and August as illustrated by very weak BBoP data in recent months. As a result, EUR/$ remained range bound for most of the summer. However, the recent sharp increase in risk aversion, much of this originating in Europe, and upward pressure on the USD across a wide range of currencies lately, has pushed the cross below our 1.35 closing stop.
($BAC) Bank of America is in talks to sell its stake in NPC International NPCI.UL Inc for more than $800 million, Bloomberg reported citing two people with knowledge of the discussions.
Two private-equity firms will jointly bid for NPC, the biggest U.S. Pizza Hut franchisee, and will have to get past arranging debt financing for the deal, Bloomberg reported citing the people.-Reuters
Two private-equity firms will jointly bid for NPC, the biggest U.S. Pizza Hut franchisee, and will have to get past arranging debt financing for the deal, Bloomberg reported citing the people.-Reuters
($ORCL, $GOOG) Oracle Corp on Thursday estimated it suffered roughly $1.16 billion of damages from Google Inc's alleged copyright and patent infringement of Java technology used in the Android operating system.
In a court filing, Oracle said Google's claim that the damages sought exceeded $2.2 billion "mischaracterizes" a report by Oracle damages expert Iain Cockburn, a Boston University business professor.
The lowered damages estimate is one-fifth the maximum $6.1 billion that Oracle had earlier sought in the case.
In a court filing, Oracle said Google's claim that the damages sought exceeded $2.2 billion "mischaracterizes" a report by Oracle damages expert Iain Cockburn, a Boston University business professor.
The lowered damages estimate is one-fifth the maximum $6.1 billion that Oracle had earlier sought in the case.
($MACRO) The world's major economies on Thursday pledged to prevent Europe's debt crisis from undermining banks and financial markets, and said the euro zone's rescue fund could be bolstered.
Under pressure from investors to show action, finance ministers and central bankers from the Group of 20 economies said they would take all steps needed to calm the global financial system.
"We commit to take all necessary actions to preserve the stability of banking systems and financial markets as required," the group, including the United States and China, said in a communique after a dinner meeting on Thursday.-Reuters
Under pressure from investors to show action, finance ministers and central bankers from the Group of 20 economies said they would take all steps needed to calm the global financial system.
"We commit to take all necessary actions to preserve the stability of banking systems and financial markets as required," the group, including the United States and China, said in a communique after a dinner meeting on Thursday.-Reuters
Thursday, September 22, 2011
($EURUSD) A dramatic Hail Mary appeared in the FX markets earlier this morning following the circulation of a rumor, since attributed to Goldman sales, that the FRBNY is preparing to slash its FX swap line with the ECB rate, which would in turn make it virtually free to borrow Dollars from the Fed and make the Libor funding market completely irrelevant as the Fed would give dollars to European banks for virtually no money. Frankly, we will believe it when we see it, especially when one considers the source. Why it is none other than the firm's Dominic Wilson who reminded us today that Goldman clients should "Stay long EUR/$, opened at 1.4085 on 18 March 2011, with a target of 1.50 and a stop on a close below 1.35, now at 1.3545"... well make that 1.339 when the supposedly Goldman-initiated rumor hit and has since pushed the currency to nearly 1.35. The problem is this rumor is, without confirmation, patent bullshit, as the last thing the Fed need is for Republican to take it to task, this time completely justified, for sending dollars abroad on a cost-free basis just to bail out Europe again. We would fade this rumor all the way, especially with the EURUSD about 100 pips rich to pre-rumor fair value. Furthermore should the EURUSD close below 1.35, which it will, look for major stop loss signals to be activated which purely on technicals will send the EUR far lower.-T.Durden
($EURUSD, $MACRO) GEITHNER: EXPECT EU LEADERS TO ACT WITH MORE FORCE IN COMING WEEKS
GEITHNER: EU LEADERS WON'T ALLOW GREECE TO BE NEXT LEHMAN
GEITHNER: EUROPE MUST PUT IN PLACE A BETTER FINANCIAL FOUNDATION
GEITHNER: EFFECTS ON CONFIDENCE FROM EU CRISIS BEEN BIGGER
GEITHNER:EU TO FACE 'YEARS AND YEARS' OF DIFFICULT FINANCIAL PRESSURE
GEITHNER: EU LEADERS WON'T ALLOW GREECE TO BE NEXT LEHMAN
GEITHNER: EUROPE MUST PUT IN PLACE A BETTER FINANCIAL FOUNDATION
GEITHNER: EFFECTS ON CONFIDENCE FROM EU CRISIS BEEN BIGGER
GEITHNER:EU TO FACE 'YEARS AND YEARS' OF DIFFICULT FINANCIAL PRESSURE
($EURUSD, $MACRO) ECB STUDY, COAUTHORED BY JUERGEN STARK, SAYS FISCAL IMBALANCES IN EURO ZONE RISK UNDERMINING STABILITY, SUSTAINABILITY OF THE EMU
LATEST EMU RULE CHANGES CONTINUE TO REFLECT STATES' UNWILLINGNESS TO TRANSFER NECESSARY DEGREE OF SOVEREIGNTY OVER ECONOMY TO EUROPEAN LEVEL
NOT CLEAR IF LATEST REFORMS ARE SUFFICIENT TO ENSURE SOUND FISCAL POLICIES
NATIONAL BUDGET DEFICITS SHOULD BE APPROVED AT EUROPEAN LEVEL IF SAFE LEVELS EXCEEDED
THERE SHOULD BE AUTOMATIC FINES FOR DEFICIT EXCEEDING 3 PCT OF GDP
STATES SHOULD GO INTO FINANCIAL RECEIVERSHIP IF ADJUSTMENT PROGRAMMES NOT ON TRACK
LATEST EMU RULE CHANGES CONTINUE TO REFLECT STATES' UNWILLINGNESS TO TRANSFER NECESSARY DEGREE OF SOVEREIGNTY OVER ECONOMY TO EUROPEAN LEVEL
NOT CLEAR IF LATEST REFORMS ARE SUFFICIENT TO ENSURE SOUND FISCAL POLICIES
NATIONAL BUDGET DEFICITS SHOULD BE APPROVED AT EUROPEAN LEVEL IF SAFE LEVELS EXCEEDED
THERE SHOULD BE AUTOMATIC FINES FOR DEFICIT EXCEEDING 3 PCT OF GDP
STATES SHOULD GO INTO FINANCIAL RECEIVERSHIP IF ADJUSTMENT PROGRAMMES NOT ON TRACK
($MACRO) N.Roubini about the financial crisis
The latest economic data suggests that recession is returning to most advanced economies, with financial markets now reaching levels of stress unseen since the collapse of Lehman Brothers in 2008. The risks of an economic and financial crisis even worse than the previous one – now involving not just the private sector, but also near-insolvent sovereigns are significant.
($MACRO) HSBC’s preliminary China Manufacturing Purchasing Managers’ Index, or “flash” PMI, fell to a two-month low in September, indicating a broadening slowdown in the Chinese economy, with industrial output swinging from a modest expansion to a deterioration.
The headline PMI for the month was 49.4, down from 49.9 in August, HSBC said in a statement Thursday.
The preliminary version of the PMI’s output index fell to 49.2 in September, down from 50.2 in August and below the 50 level dividing expansion from contraction.
The headline PMI for the month was 49.4, down from 49.9 in August, HSBC said in a statement Thursday.
The preliminary version of the PMI’s output index fell to 49.2 in September, down from 50.2 in August and below the 50 level dividing expansion from contraction.
($EURUSD, $MACRO) Corporate Bond Risk Surges to Highest in 2 1/2 Years in Europe
Sept. 22 (Bloomberg) -- The cost of insuring Europeancorporate debt surged to the highest in 2 1/2 years, accordingto prices for credit-default swaps. The Markit iTraxx Crossover Index of swaps on 50 companieswith mostly high-yield credit ratings rose 43.5 basis points to848.5, according to JPMorgan Chase & Co. at 8 a.m. in London,the highest since April 2009. The Markit iTraxx Europe Index of 125 companies withinvestment-grade ratings jumped 12.25 basis points to 199.25,the highest since March 2009. Bank bond risk also soared, with the Markit iTraxxFinancial Index of swaps on the senior debt of 25 lenders andinsurers climbing 19.5 basis points to 308.5, the highest sinceSept. 12 based on generic prices. The subordinated-note gaugerose 33 basis points to 535, the highest since Sept. 13. A basis point on a credit-default swap protecting 10million euros ($13.6 million) of debt from default for fiveyears is equivalent to 1,000 euros a year. Swaps pay the buyerface value in exchange for the underlying securities or the cashequivalent should a borrower fail to adhere to its debt agreements.
($SPX, $SPY, $MACRO, $EURUSD) U.S. stocks fell sharply Wednesday after the Federal Reserve moved to lower interest rates on consumer loans with a $400 billion debt-swap program that was widely expected, and noted “significant downside risks” to the economic forecast.
Also, a downgrade of several Italian bank ratings by Standard & Poor’s kept alive investor concerns over Europe’s sovereign-debt situation. -MarketWatch
Also, a downgrade of several Italian bank ratings by Standard & Poor’s kept alive investor concerns over Europe’s sovereign-debt situation. -MarketWatch
Wednesday, September 21, 2011
($EURUSD, $MACRO) Several leading Republicans send a letter to the Fed
Dear Chairman Bernanke,
It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.
It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.
We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.
Ultimately, the American economy is driven by the confidence of consumers and investors and the innovations of its workers. The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated.
We respectfully request that a copy of this letter be shared with each Member of the Board.
Sincerely,
Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor
It is our understanding that the Board Members of the Federal Reserve will meet later this week to consider additional monetary stimulus proposals. We write to express our reservations about any such measures. Respectfully, we submit that the board should resist further extraordinary intervention in the U.S. economy, particularly without a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people.
It is not clear that the recent round of quantitative easing undertaken by the Federal Reserve has facilitated economic growth or reduced the unemployment rate. To the contrary, there has been significant concern expressed by Federal Reserve Board Members, academics, business leaders, Members of Congress and the public. Although the goal of quantitative easing was, in part, to stabilize the price level against deflationary fears, the Federal Reserve’s actions have likely led to more fluctuations and uncertainty in our already weak economy.
We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers. To date, we have seen no evidence that further monetary stimulus will create jobs or provide a sustainable path towards economic recovery.
Ultimately, the American economy is driven by the confidence of consumers and investors and the innovations of its workers. The American people have reason to be skeptical of the Federal Reserve vastly increasing its role in the economy if measurable outcomes cannot be demonstrated.
We respectfully request that a copy of this letter be shared with each Member of the Board.
Sincerely,
Sen. Mitch McConnell, Rep. John Boehner, Sen. Jon Kyl, Rep. Eric Cantor
($EURUSD, $MACRO) IMF Sees 300 Billion-Euro Credit Risk to Europe Banks in Crisis
Sept. 21 (Bloomberg) -- The European debt crisis has
generated as much as 300 billion euros ($410 billion) in credit
risk for European banks, the International Monetary Fund said,
calling for capital injections to reassure investors and support
lending.
Political squabbling in Europe over ways to fight contagion
and delays in implementing agreed measures are raising concerns
about the risk of defaults by governments, the IMF said. Banks
in turn face “funding challenges” because of investor concern
about their potential losses from government bonds they hold,
with some relying heavily on the European Central Bank for
liquidity, it said.
“A number of banks must raise capital to help ensure the
confidence of their creditors and depositors,” the IMF wrote in
its Global Financial Stability Report released today. “Without
additional capital buffers, problems in accessing funding are
likely to create deleveraging pressures at banks, which will
force them to cut credit to the real economy.”
The Washington-based IMF yesterday cut its global growth
forecast and predicted “severe’ repercussions if policy makers
fail to stem the debt turmoil that’s threatening to engulf Italy
and Spain. Bank recapitalization, through public injections if
necessary, should come in addition to “credible” strategies by
governments to reduce their public debt, the IMF said today.
Japan, U.K.
The ECB and peers in the U.K., Switzerland, Japan and the
U.S. last week said they’ll provide unlimited three-month money
to lenders in three tenders starting October. That was after
funding dried up for European banks in general, and French
lenders in particular, amid concern Greece is headed for a
default.
Credit Agricole SA and Societe Generale SA had their long-
term credit ratings cut one level this week by Moody’s Investors
Service, which cited their reliance on short-term funding and
Greek exposure.
The fund said its assessment of the potential credit risks
of European banks isn’t a calculation of their capital needs,
which would require a “fully fledged stress test.” It said its
analysis was based on published data from the European Banking
Authority’s stress test and Bank for International Settlements
figures.
The IMF also called on the U.S. and Japan to craft fiscal
plans for the medium term, “particularly given the many adverse
global economic and financial repercussions that would follow
from failure to adequately deal with U.S. fiscal problems.”
Emerging Markets
Emerging-market banks are not sheltered from the
consequences of weaker global growth, the IMF said. It estimated
that their capital adequacy could be dented by 6 percentage
points under a scenario that combines several shocks.
Calls by IMF Managing Director Christine Lagarde to
recapitalize European banks where shunned by officials from
Germany to Spain, with ECB President Jean-Claude Trichet
describing the fund’s methodology on capital as different from
his own institution’s.
Analysts at Credit Suisse Group AG in a Sept. 15 research
note estimated that European banks may have a capital deficit of
165 billion euros at the end of 2012 “given higher regulatory
capital demands and funding markets requiring larger capital
cushions.”
The IMF analysis measured the size of spillover on banks
from credit-related strains in the bond markets of Greece,
Ireland, Portugal, Belgium, Italy and Spain and used spreads on
credit default swaps.
The IMF said banks’ “spillover” from sovereign debt alone
amounts to about 200 billion euros. Adding banks’ holdings of
bank assets whose value has also fallen in the crisis countries
brings the total as high as 300 billion euros.
generated as much as 300 billion euros ($410 billion) in credit
risk for European banks, the International Monetary Fund said,
calling for capital injections to reassure investors and support
lending.
Political squabbling in Europe over ways to fight contagion
and delays in implementing agreed measures are raising concerns
about the risk of defaults by governments, the IMF said. Banks
in turn face “funding challenges” because of investor concern
about their potential losses from government bonds they hold,
with some relying heavily on the European Central Bank for
liquidity, it said.
“A number of banks must raise capital to help ensure the
confidence of their creditors and depositors,” the IMF wrote in
its Global Financial Stability Report released today. “Without
additional capital buffers, problems in accessing funding are
likely to create deleveraging pressures at banks, which will
force them to cut credit to the real economy.”
The Washington-based IMF yesterday cut its global growth
forecast and predicted “severe’ repercussions if policy makers
fail to stem the debt turmoil that’s threatening to engulf Italy
and Spain. Bank recapitalization, through public injections if
necessary, should come in addition to “credible” strategies by
governments to reduce their public debt, the IMF said today.
Japan, U.K.
The ECB and peers in the U.K., Switzerland, Japan and the
U.S. last week said they’ll provide unlimited three-month money
to lenders in three tenders starting October. That was after
funding dried up for European banks in general, and French
lenders in particular, amid concern Greece is headed for a
default.
Credit Agricole SA and Societe Generale SA had their long-
term credit ratings cut one level this week by Moody’s Investors
Service, which cited their reliance on short-term funding and
Greek exposure.
The fund said its assessment of the potential credit risks
of European banks isn’t a calculation of their capital needs,
which would require a “fully fledged stress test.” It said its
analysis was based on published data from the European Banking
Authority’s stress test and Bank for International Settlements
figures.
The IMF also called on the U.S. and Japan to craft fiscal
plans for the medium term, “particularly given the many adverse
global economic and financial repercussions that would follow
from failure to adequately deal with U.S. fiscal problems.”
Emerging Markets
Emerging-market banks are not sheltered from the
consequences of weaker global growth, the IMF said. It estimated
that their capital adequacy could be dented by 6 percentage
points under a scenario that combines several shocks.
Calls by IMF Managing Director Christine Lagarde to
recapitalize European banks where shunned by officials from
Germany to Spain, with ECB President Jean-Claude Trichet
describing the fund’s methodology on capital as different from
his own institution’s.
Analysts at Credit Suisse Group AG in a Sept. 15 research
note estimated that European banks may have a capital deficit of
165 billion euros at the end of 2012 “given higher regulatory
capital demands and funding markets requiring larger capital
cushions.”
The IMF analysis measured the size of spillover on banks
from credit-related strains in the bond markets of Greece,
Ireland, Portugal, Belgium, Italy and Spain and used spreads on
credit default swaps.
The IMF said banks’ “spillover” from sovereign debt alone
amounts to about 200 billion euros. Adding banks’ holdings of
bank assets whose value has also fallen in the crisis countries
brings the total as high as 300 billion euros.
($EURUSD, $MACRO) Cramer on Europe
Sure, Italian banks are real bad. Spanish banks? No thanks. But it is these three French banks that the world seems to want to break. These three banks are the ones that everyone is whispering "don't lend to."
These three, which are pretty much like JPMorgan (JPM), Bank of America (BAC) and Wells Fargo (WFC), in terms of importance to France, but feel more like Lehman, Bear and Countrywide -- or Citigroup, Wachovia and Washington Mutual, name your poisoned bank -- are what is holding us hostage right now.
They will remain holding us hostage until we get some sort of government action because of their lack of transparency about what they own, how much they are lending against collateral (are they lending 40-1 against Greek bonds?), and how they are valuing the sovereign bonds.
We've been held hostage on this issue for some time. We know that the stocks of these three banks are rolling over just the way the stocks of our biggest banks did in 2008, hence all of the Lehman analogies that we all dread.
That, I think, Secretary Geithner put to rest. But the story does grow more acute. We are in a bizarre Mexican standoff as these banks need everyday funding. Yet if you help fund them, you are hostage to them. You want to stop the contagion beyond France? Don't give these three money. If you are a money fund, don't buy their paper. If you are China, don't risk it. If you are a British bank already in trouble with your government, don't try to pick up the additional yield that you can get from lending to them.
And if you are an American bank and you want to be able to say to investors "we are not exposed to France," you have to get your money back NOW.
So, the lender of last resort will be the government, or whatever governmental entity that wants to be the lender of last resort. But someone has to be the lender of last resort.
What's so strange, at least from my point of view, is that we know these governmental lending pipes worked here. Of course they didn't go away until our banks got TARP and raised a ton of money.
The French haven't taken those last two steps, though. We are still in the early part of the crisis, because nothing's been done to resolve it.
So, why not panic? Because there is a path. It is a path to break the "they can't get private funding, they get downgraded by ratings agencies, they have to pay up even more and they default" cycle that so many really are betting will happen. In fact, I still believe that's the operative bet over there. That's why the stocks can keep going down. It is why the stocks are STILL shorts because the solution at this point involves a level of dilution that would be positively Citigroup-like at best.
Every morning we wake up and hear one or two or all of these banks is going down and remember that nothing's been solved yet -- but it can be solved. If you had unlimited abilities -- including clairvoyance -- you would sell all stocks the moment you are about to hear that some institution cut off funding for the French (China? US? UK?) and then buy them back after everyone knows what you know.
I don't know anyone that good. But that's the ticket for the moment.
These three, which are pretty much like JPMorgan (JPM), Bank of America (BAC) and Wells Fargo (WFC), in terms of importance to France, but feel more like Lehman, Bear and Countrywide -- or Citigroup, Wachovia and Washington Mutual, name your poisoned bank -- are what is holding us hostage right now.
They will remain holding us hostage until we get some sort of government action because of their lack of transparency about what they own, how much they are lending against collateral (are they lending 40-1 against Greek bonds?), and how they are valuing the sovereign bonds.
We've been held hostage on this issue for some time. We know that the stocks of these three banks are rolling over just the way the stocks of our biggest banks did in 2008, hence all of the Lehman analogies that we all dread.
That, I think, Secretary Geithner put to rest. But the story does grow more acute. We are in a bizarre Mexican standoff as these banks need everyday funding. Yet if you help fund them, you are hostage to them. You want to stop the contagion beyond France? Don't give these three money. If you are a money fund, don't buy their paper. If you are China, don't risk it. If you are a British bank already in trouble with your government, don't try to pick up the additional yield that you can get from lending to them.
And if you are an American bank and you want to be able to say to investors "we are not exposed to France," you have to get your money back NOW.
So, the lender of last resort will be the government, or whatever governmental entity that wants to be the lender of last resort. But someone has to be the lender of last resort.
What's so strange, at least from my point of view, is that we know these governmental lending pipes worked here. Of course they didn't go away until our banks got TARP and raised a ton of money.
The French haven't taken those last two steps, though. We are still in the early part of the crisis, because nothing's been done to resolve it.
So, why not panic? Because there is a path. It is a path to break the "they can't get private funding, they get downgraded by ratings agencies, they have to pay up even more and they default" cycle that so many really are betting will happen. In fact, I still believe that's the operative bet over there. That's why the stocks can keep going down. It is why the stocks are STILL shorts because the solution at this point involves a level of dilution that would be positively Citigroup-like at best.
Every morning we wake up and hear one or two or all of these banks is going down and remember that nothing's been solved yet -- but it can be solved. If you had unlimited abilities -- including clairvoyance -- you would sell all stocks the moment you are about to hear that some institution cut off funding for the French (China? US? UK?) and then buy them back after everyone knows what you know.
I don't know anyone that good. But that's the ticket for the moment.
$MOO technical- interesting
Look at the chart of Market Vectors Agribusiness ETF (MOO). I think you can see the top easily, and also the potential for a fresh break.
Let's do the math on the chart: The top of the pattern is $58 and the bottom is $51, which nets us $7. If we then take $7 from $51, that yields a target near $44. Considering my view that spike lows tend to keep prices contained on the first trip down, I'd say it's not unreasonable to believe MOO can easily work its way back toward the August low.-H.Meisler
Let's do the math on the chart: The top of the pattern is $58 and the bottom is $51, which nets us $7. If we then take $7 from $51, that yields a target near $44. Considering my view that spike lows tend to keep prices contained on the first trip down, I'd say it's not unreasonable to believe MOO can easily work its way back toward the August low.-H.Meisler
($SPX, $SPY) The market is overbought both in the intermediate and short term, breadth has been narrowing and the ratio of the KBW Bank Index to the S&P is on the verge of making a lower low. I now see one more indicator that is close to turning negative for the first time in weeks: the McClellan Summation Index. It won't take much to push it over and down.-H.Meisler
($MACRO) The Bank of England's Monetary Policy Committee earlier this month voted 8-1 to keep its stock of bond purchases unchanged at 200 billion pounds ($314.5 billion), with Adam Posen again casting a lone vote to increase the scope of the central bank's quantitative-easing program, according to minutes of the meeting released Wednesday. The minutes showed MPC members voted 9-0 to hold the bank's key lending rate steady at 0.5%. "For most members, the decision of whether to embark on further monetary easing at this meeting was finely balanced since the weakness and stresses of the past month had significantly strengthened the case for an immediate resumption of asset purchases," the minutes said. For some members, a continuation of the conditions seen over the past month "would probably be sufficient to justify an expansion of the asset-purchase program at a subsequent meeting," the minutes said.
Cramer on $ORCL, $ADBE, $MSFT, $QQQ, $NDX
When you combine the fear and the loathing of tech with the lowered expectations set by the analysts, you get a real cushion going. And that's what I saw with Oracle and Adobe tonight, two trashed stocks that could have some lift when they gave you a decent -- not great, but decent -- outlook.
Seasonality can't save everything, as I said on tonight's show. But numbers have really come down for lots of tech companies, so it is one of those "if you just show up" moments, and you can do OK.
This is very important for this market right now, because we need leadership that can withstand Europe, and tech can do that. We know we have the foods and the beverages and the health cares to some extent. We have the utilities for certain.
But we haven't got and will not get the banks, and that late-day collapse in the cyclicals shows you how vulnerable the group is.
That's why tech is the fulcrum here. If we get more bounce off of Adobe, Oracle and Microsoft off the big dividend boost, then we know that this group can be "go to" on European weakness, perhaps through year-end.
Seasonality can't save everything, as I said on tonight's show. But numbers have really come down for lots of tech companies, so it is one of those "if you just show up" moments, and you can do OK.
This is very important for this market right now, because we need leadership that can withstand Europe, and tech can do that. We know we have the foods and the beverages and the health cares to some extent. We have the utilities for certain.
But we haven't got and will not get the banks, and that late-day collapse in the cyclicals shows you how vulnerable the group is.
That's why tech is the fulcrum here. If we get more bounce off of Adobe, Oracle and Microsoft off the big dividend boost, then we know that this group can be "go to" on European weakness, perhaps through year-end.
Cramer on $XLU, $ED
Is there some sort of program going on in utilities? Did someone say that utilities are the new growth industry? Are there about to be a spate of takeovers?
I mean this move is extraordinary.
The group is one of the hottest in the whole market. What gives?
I think it is the yield differential. We've got a ton of tax proposals out there, but I am not hearing anything that says the tax on dividends is going to be boosted. At the same time, you can't get any yield from bonds to speak of and the upside is, well, nil.
Take the case of Con Ed, a stock that's up 26% in a year. It is not a growth stock. It is a safe stock.
But it doesn't matter. You take that dividend, reinvest it and you get a total home run!
Con Ed!
What's so significant about this? Utilities are the ultimate low-risk names. They are NOT the ultimate high-reward names.
Yet you are getting that combination.
So, sure, it might be a program. And, yes, it might be moving the utilities market. But the main thing is that this is what happens when you have a next-to-no-interest rate environment on the eve of Operation Twist.
Remarkable.
I mean this move is extraordinary.
The group is one of the hottest in the whole market. What gives?
I think it is the yield differential. We've got a ton of tax proposals out there, but I am not hearing anything that says the tax on dividends is going to be boosted. At the same time, you can't get any yield from bonds to speak of and the upside is, well, nil.
Take the case of Con Ed, a stock that's up 26% in a year. It is not a growth stock. It is a safe stock.
But it doesn't matter. You take that dividend, reinvest it and you get a total home run!
Con Ed!
What's so significant about this? Utilities are the ultimate low-risk names. They are NOT the ultimate high-reward names.
Yet you are getting that combination.
So, sure, it might be a program. And, yes, it might be moving the utilities market. But the main thing is that this is what happens when you have a next-to-no-interest rate environment on the eve of Operation Twist.
Remarkable.
Jim Rogers Blog: Debt Crisis: The Scandinavian Example In The Early...
Jim Rogers Blog: Debt Crisis: The Scandinavian Example In The Early...: The same thing happened in Scandinavia in the early 90`s. Everybody went bankrupt they had a horrible time but they wrote everything off, th...
$SPX, $SPY: My feeling yesterday was not entirely wrong after all, since in the last trading hour we had an abrupt sell-off, particularly in the tech stocks. The shenanigans of the government intervention, irresponsible media hype and corrupt high frequency trading platforms (Algorithms), have turned the market into a casino for now, and a bad one at that where the spots on the dice change daily.
Tuesday, September 20, 2011
($EURUSD, $MACRO) Slovenia's government falls after confidence vote
Slovenia's left-leaning government has been ousted in a confidence vote in parliament.
The ouster pushes the small eurozone nation into further political instability during Europe's debt crisis.
Prime Minister Borut Pahor's government faced the motion after months of disagreements between ruling coalition partners and several resignations of Cabinet ministers.
The opposition has accused the government of corruption and mishandling of the economy.
The vote Tuesday in the 90-seat assembly was 51 against the government and 36 for. Other lawmakers abstained or were absent.
The political deadlock could jeopardize Slovenia's contribution to the European rescue fund for other debt-strapped eurozone nations.
The ouster pushes the small eurozone nation into further political instability during Europe's debt crisis.
Prime Minister Borut Pahor's government faced the motion after months of disagreements between ruling coalition partners and several resignations of Cabinet ministers.
The opposition has accused the government of corruption and mishandling of the economy.
The vote Tuesday in the 90-seat assembly was 51 against the government and 36 for. Other lawmakers abstained or were absent.
The political deadlock could jeopardize Slovenia's contribution to the European rescue fund for other debt-strapped eurozone nations.
Goldman Sachs technical $EURUSD
Overall backdrop remains negative, but 1.3599 an important ST pivot. Over the past 24-hours the market has on a number of occasions attempted to push below 1.3599 (the 76.4 retrace of last week’s bounce) but hasn’t been able to sustain below that point. In simple terms as long as that point holds further range bound trading is quite possible. A meaningful (even 4-hour chart based) close below that point could argue that the market is beginning a more meaningful down move. Important daily chart pivot/support points beyond that are last week’s low at 1.3494 and the converged possible ABC equality target from the May highs and 50% retrace of the June ‘10/May ’11 rally; 1.3447-1.3408.
Cramer on $OIL, $WTI, $GLD, $JJC, $MACRO
We never draw any good conclusions from anything. Take oil. If oil is really coming down, as we heard endlessly today, do you know how good that would be? It would be such a major breakthrough. So many companies would be able to beat their estimates if that happened. It would be extraordinary.
Or when gold goes down, as much as I love the precious metal -- and I do -- when it goes down we should be thinking, "Hey, things might not be that bad after all." Or, "Maybe there is a plan that can save Greece and, while costing a ton, keeps things from cascading into a depression."
Or when copper goes down, maybe thinking, "China uses 35% of the world's copper and if it is going down maybe Chinese inflation will be going down with it."
Nobody says this stuff.
Which is why it is so darned gloomy all of the time.
Or when gold goes down, as much as I love the precious metal -- and I do -- when it goes down we should be thinking, "Hey, things might not be that bad after all." Or, "Maybe there is a plan that can save Greece and, while costing a ton, keeps things from cascading into a depression."
Or when copper goes down, maybe thinking, "China uses 35% of the world's copper and if it is going down maybe Chinese inflation will be going down with it."
Nobody says this stuff.
Which is why it is so darned gloomy all of the time.
Trading Ideas: Bailout Rebellion in Germany Heats Up
Trading Ideas: Bailout Rebellion in Germany Heats Up: For the first time ever, a clear majority (60%) of Germans no longer sees any benefits to being part of the Eurozone, given all the risks, ...
Marc Faber on Commodities ($OIL, $WTI, $JJC, $DBB)
As far as commodities are concerned, I think the global economy is slowing significantly and the demand for industrial commodities will not grow that fast.
($EURUSD, $MACRO) Chancellor Angela Merkel’s authority is being undermined by leading members of her coalition partners, the FDP and CSU parties, who have openly challenged her policy on the euro. There is growing speculation that her coalition may collapse, prompting a return of the right-left grand coalition of conservatives and SPD.
($SPX, $SPY) It’s been a very difficult market to position but an easier market for day-trading if that’s your thing. Most investors want risk management tools more than ever and sometimes just being out of the market is wisest. At least many must feel this way since they’ve withdrawn over $75 billion from equity funds since April. This confirms they don’t trust markets and being on the sidelines is their risk management tool. Equity markets are nervous (high VIX) and jumpy with rumors creating volatile conditions.-D.Fray
($AAPL) Usually investors seek safety in bonds, gold or even other currencies. But now Apple given its large $75 billion in cash and popular product line up now is also becoming a safe-haven. Investors must be frantic in search of just where to park their cash in this current environment. But, it also begs another question: Where does Apple park all that cash anyway? U.S. banks? I doubt it. No, even they must invest it in Treasurys or well-regarded commercial paper.
Of course this just leads us to wonder what really is safe nowadays. Apple and Treasurys seem a safe place while gold and commodities seem to have lost some of their luster at least lately.
Apple must seem as the only safe haven or investment for portfolio managers these days. It’s an incredibly good company but also much over-owned. This could lead to a problem eventually.-D.Fray
Of course this just leads us to wonder what really is safe nowadays. Apple and Treasurys seem a safe place while gold and commodities seem to have lost some of their luster at least lately.
Apple must seem as the only safe haven or investment for portfolio managers these days. It’s an incredibly good company but also much over-owned. This could lead to a problem eventually.-D.Fray
($EURUSD, $MACRO) N. Roubini on Greek default
Greece should begin an "orderly" default and voluntarily leave the euro in order to escape a "vicious cycle of insolvency, low competitiveness and ever-deepening depression," economist Nouriel Roubini said in a guest column published Monday in the Financial Times. Other options, such as a sharp weakening of the euro, a rapid reduction in Greece's unit labor costs or a rapid deflation in prices and wages appear unlikely or impractical, said Roubini, a New York University professor and chairman of Roubini Global Economics. While the process would be traumatic, a return to the drachma and a sharp depreciation in its value "would quickly restore competitiveness and growth, as it did in Argentina and many other emerging markets which abandoned their currency pegs," he said.
($EURUSD, $MACRO, $UBS) An unidentified Chinese state-run bank has halted foreign-exchange swaps with several European banks, with the suspension believed to include BNP Paribas SA and UBS AG, according to reports citing unnamed sources. The Chinese bank involved is the "most active" in the market for trading those products according to Dow Jone Newswires, which reported that the halt began Monday. Societe Generale SA and Credit Agricole SA are also included in the ban along with BNP and UBS, according to Reuters
Monday, September 19, 2011
Cramer on $SPX, $SPY
Last Monday I said you could short and short all strength, and then Tim Geithner told us that there will be no more Lehmans. The press reports would have you believe he was booed from the stage and Lehman here we come. I think, though, you have to think of all these pieces as one puzzle: an intractable problem that is being worked out sloppily and terribly while many stocks work their way higher right through it because we are NOT going to have a Lehman moment where gobs and gobs of capital will be destroyed.
That's what you have to focus on today in the opening. That's what you have to focus on when the futures take out whatever key levels that technicians are thinking about. Although I bet that almost no one will.
That's what you have to focus on today in the opening. That's what you have to focus on when the futures take out whatever key levels that technicians are thinking about. Although I bet that almost no one will.
($SPX, $SPY) On Friday the S&P has reached the lower end of the resistance area I have discussed (1220 to 1230). But, again, momentum is on the side of the market -- so, even if it backs off from here, it ought to stage at least one more attempt to the upside. Yes, some of the shorter-term indicators are struggling, but it still feels too soon to be too bearish.-H.Meisler
($EURUSD, $MACRO) IMF's Traa says Greece should not resort to higher and higher taxes.
IMF's Traa says Greece must reduce public sector's claims to resources.
IMF's Traa says Greece has made impress progress but further progress is needed.
IMF's Traa says concerned that Greek EU/IMF program does not have broad political support.
IMF's Traa says Greece must reduce public sector's claims to resources.
IMF's Traa says Greece has made impress progress but further progress is needed.
IMF's Traa says concerned that Greek EU/IMF program does not have broad political support.
($LYG) Lloyds Banking Group PLC said on Monday that Tim Tookey, group finance director and a board member, would step down at the end of February to pursue a post outside banking. Tookey joined Lloyds in April 2006 as deputy group finance director and took his present post and directorship in October 2008. Lloyds said it would begin a search for a successor. Shares of Lloyds Banking recently were off more than 4%.-MarketWatch
($EURUSD, $MACRO) GREEK FINMIN SAYS MUST EXIT VICIOUS CYCLE OF DEBT CRISIS AS SOON AS POSSIBLE
GREEK FINMIN SAYS JULY 21 EU SCHEME CAN SECURE THE VIABILITY OF GREEK DEBT
SAYS LIQUIDITY PROBLEM IN GREEK ECONOMY IS TOP PRIORITY
SAYS MUST DO ALL THAT IS NEEDED TO ATTAIN COMPETITIVENESS
SAYS RECESSION TO REACH -5.5 PCT IN 2011
SAYS TARGET IS TO HAVE PRIMARY SURPLUS IN 2012
SAYS GREECE MUST STOP CREATING DEFICITS, MORE DEBT
SAYS GOVT FORCED TO MAKE UP FOR FISCAL SHORTFALL WITH NEW MEASURES
SAYS 2012 BUDGET PRIORITY WILL BE CUTTING SPENDING-Reuters
GREEK FINMIN SAYS JULY 21 EU SCHEME CAN SECURE THE VIABILITY OF GREEK DEBT
SAYS LIQUIDITY PROBLEM IN GREEK ECONOMY IS TOP PRIORITY
SAYS MUST DO ALL THAT IS NEEDED TO ATTAIN COMPETITIVENESS
SAYS RECESSION TO REACH -5.5 PCT IN 2011
SAYS TARGET IS TO HAVE PRIMARY SURPLUS IN 2012
SAYS GREECE MUST STOP CREATING DEFICITS, MORE DEBT
SAYS GOVT FORCED TO MAKE UP FOR FISCAL SHORTFALL WITH NEW MEASURES
SAYS 2012 BUDGET PRIORITY WILL BE CUTTING SPENDING-Reuters
($EURUSD, $MACRO) Germany's Social Democrats beat Angela Merkel's conservatives in a regional vote in Berlin on Sunday, handing the chancellor her sixth election defeat this year ahead of a key euro zone vote in parliament in two weeks' time.
Merkel's center-right coalition suffered a further setback when their junior coalition partners at the national level, the Free Democrats (FDP), failed to clear the five percent threshold needed to win seats -- for the fifth time this year.
The beleaguered FDP, which had attempted to attract voters in Berlin with its increasingly euro-skeptic tactics, plunged to 1.8 percent from 7.6 percent in 2006, preliminary results showed.
Their eroding support nationwide could destabilise Merkel's center-right coalition, analysts said.-Reuters
Merkel's center-right coalition suffered a further setback when their junior coalition partners at the national level, the Free Democrats (FDP), failed to clear the five percent threshold needed to win seats -- for the fifth time this year.
The beleaguered FDP, which had attempted to attract voters in Berlin with its increasingly euro-skeptic tactics, plunged to 1.8 percent from 7.6 percent in 2006, preliminary results showed.
Their eroding support nationwide could destabilise Merkel's center-right coalition, analysts said.-Reuters
($EURUSD, $MACRO) Greece’s ability to avoid default hangs in the balance this week as international monitors get set to assess whether Prime Minister George Papandreou can meet the conditions of rescue loans. The Greek leader canceled a U.S. visit that was to begin yesterday, saying he needed to remain in the country for a “critical” seven days.
“The Greek situation could be coming to a head,” said Khiem Do, the Hong Kong-based head of multi asset strategy at Baring Asset Management, which oversees about $10 billion. “Some hair cut might be needed for Greece if it doesn’t receive additional funding. That could create a domino effect in countries like Spain, Italy and Portugal. That’s what the market is fearing.”
European Union and International Monetary Fund inspectors will hold a teleconference call today with Greece’s Finance Minister Evangelos Venizelos to judge whether the government is eligible for its next aid payment, due next month.
“The Greek situation could be coming to a head,” said Khiem Do, the Hong Kong-based head of multi asset strategy at Baring Asset Management, which oversees about $10 billion. “Some hair cut might be needed for Greece if it doesn’t receive additional funding. That could create a domino effect in countries like Spain, Italy and Portugal. That’s what the market is fearing.”
European Union and International Monetary Fund inspectors will hold a teleconference call today with Greece’s Finance Minister Evangelos Venizelos to judge whether the government is eligible for its next aid payment, due next month.
Sunday, September 18, 2011
($EURUSD, $MACRO) Time for a Smaller and Stronger Eurozone -M. El-Erian (PIMCO)
The euro is central to Europe's economic prosperity, financial stability and political harmony. Moreover, given America's own set of economic challenges, a well-anchored euro is critical to placing an increasingly multi-polar world economy back on the path of high growth and job creation.
The euro should, indeed must, be saved. And it can be saved provided Europe is willing to make hard structural and institutional decisions.
Difficult choices are often avoided in favor of the "status quo." This tends to be the path of least resistance. But there is no status quo in today's Europe. Absent a change in approach, the crisis will continue to spread, fragmentation pressure will mount and the Euro will be even more vulnerable to policy mistakes and market accidents.
The time has come for the eurozone -- Germany and France in particular, but also Austria, Finland and the Netherlands -- to decide how they would like European integration to evolve; and they need to do so quickly. They have two conceptual choices: restore stability to the current, heterogeneous zone; or opt for a smaller but stronger one.
Neither option is easy, and both are very controversial. They involve substantial upfront costs and high likelihood of collateral damage and unintended consequences. Also, with implementation fraught with risks, they require an unsettling level of policy experimentation, innovation and responsiveness.
Yet both options dominate the path currently pursued by Europe which, distressingly, involves a growing threat of an uncontrolled and disorderly fragmentation of the eurozone and the euro. Already, the hard-earned credibility of some key regional institutions has been exposed to excessive risk, including the European Central Bank, which is central to the longer-term well being of Europe.
Most political visionaries would opt for the first approach -- doing whatever it takes to maintain the current zone, and do so for as long as it takes. But there should be no doubts here. This is a very expensive proposition that involves widespread, multi-year cross-guarantees and subsidization. Yet it entails significant uncertainties, given that certain peripheral economies face not just a big debt crisis but also a deep-rooted growth crisis.
Indeed, many economists would caution core European countries on such a big challenge. After all, the underlying problems go well beyond political disputes. They also involve difficult design and engineering challenges.
Economists rightly point out that, under this first approach, the core economies could use their stronger balance sheet to assume the debt of the weak peripherals but, critically, there is little they can do to enable them to grow properly. With such considerable open-ended exposure, this is an expensive and risky path, both upfront and over time.
This path should only be pursued if core countries have more than "assurances" that the weak peripheral economies are both able and willing to fundamentally change their economic governance, institutions and behavior. There must also be credible pre-commitment mechanisms. Unfortunately, these are very difficult to implement. Moreover, the social appetite for adjustment in some peripheral economies is understandably near exhaustion, complicated by the wrong perception that austerity is being "imposed" by "rich" neighbors.
The alternative is for Europe to bite the bullet and opt for a smaller but stronger zone. Certain weak peripheral economies (Greece and, possibly, 1-2 others but, importantly, not Italy) would restructure their debt and take a sabbatical from the euro. In doing so, they would gain greater domestic policy flexibility to deal with both their debt and growth crises. Meanwhile, the remaining members of the zone would be able to proceed more rapidly towards a more complete and stronger economic union.
This second path also involves significant costs and risks, especially given the high likelihood of upfront disruptions. Remember, there are no mechanisms for an orderly exit from the zone. Trade flows would be dislocated for a while. Also, it would become obvious that certain European banks face both capital shortfalls and asset quality problems. And, to add to the uncertainties, contagion winds would blow throughout the smaller zone.
Yes, pursuing a smaller but stronger zone involves risks and costs, too. This is part of Europe's unfortunate reality: At this stage, there are no easy and costless options to solve the region's growing turmoil. Fortunately, this second approach has an important benefit, both in absolute terms and relative to other alternatives: it can put the zone on a firmer longer-term footing.
Making this difficult choice would ensure that the underlying resilience and soundness of Europe, which are still considerable, are preserved and enhanced for many future generations. There is little time to waste.
This post originally appeared in Handelsblatt.
The euro should, indeed must, be saved. And it can be saved provided Europe is willing to make hard structural and institutional decisions.
Difficult choices are often avoided in favor of the "status quo." This tends to be the path of least resistance. But there is no status quo in today's Europe. Absent a change in approach, the crisis will continue to spread, fragmentation pressure will mount and the Euro will be even more vulnerable to policy mistakes and market accidents.
The time has come for the eurozone -- Germany and France in particular, but also Austria, Finland and the Netherlands -- to decide how they would like European integration to evolve; and they need to do so quickly. They have two conceptual choices: restore stability to the current, heterogeneous zone; or opt for a smaller but stronger one.
Neither option is easy, and both are very controversial. They involve substantial upfront costs and high likelihood of collateral damage and unintended consequences. Also, with implementation fraught with risks, they require an unsettling level of policy experimentation, innovation and responsiveness.
Yet both options dominate the path currently pursued by Europe which, distressingly, involves a growing threat of an uncontrolled and disorderly fragmentation of the eurozone and the euro. Already, the hard-earned credibility of some key regional institutions has been exposed to excessive risk, including the European Central Bank, which is central to the longer-term well being of Europe.
Most political visionaries would opt for the first approach -- doing whatever it takes to maintain the current zone, and do so for as long as it takes. But there should be no doubts here. This is a very expensive proposition that involves widespread, multi-year cross-guarantees and subsidization. Yet it entails significant uncertainties, given that certain peripheral economies face not just a big debt crisis but also a deep-rooted growth crisis.
Indeed, many economists would caution core European countries on such a big challenge. After all, the underlying problems go well beyond political disputes. They also involve difficult design and engineering challenges.
Economists rightly point out that, under this first approach, the core economies could use their stronger balance sheet to assume the debt of the weak peripherals but, critically, there is little they can do to enable them to grow properly. With such considerable open-ended exposure, this is an expensive and risky path, both upfront and over time.
This path should only be pursued if core countries have more than "assurances" that the weak peripheral economies are both able and willing to fundamentally change their economic governance, institutions and behavior. There must also be credible pre-commitment mechanisms. Unfortunately, these are very difficult to implement. Moreover, the social appetite for adjustment in some peripheral economies is understandably near exhaustion, complicated by the wrong perception that austerity is being "imposed" by "rich" neighbors.
The alternative is for Europe to bite the bullet and opt for a smaller but stronger zone. Certain weak peripheral economies (Greece and, possibly, 1-2 others but, importantly, not Italy) would restructure their debt and take a sabbatical from the euro. In doing so, they would gain greater domestic policy flexibility to deal with both their debt and growth crises. Meanwhile, the remaining members of the zone would be able to proceed more rapidly towards a more complete and stronger economic union.
This second path also involves significant costs and risks, especially given the high likelihood of upfront disruptions. Remember, there are no mechanisms for an orderly exit from the zone. Trade flows would be dislocated for a while. Also, it would become obvious that certain European banks face both capital shortfalls and asset quality problems. And, to add to the uncertainties, contagion winds would blow throughout the smaller zone.
Yes, pursuing a smaller but stronger zone involves risks and costs, too. This is part of Europe's unfortunate reality: At this stage, there are no easy and costless options to solve the region's growing turmoil. Fortunately, this second approach has an important benefit, both in absolute terms and relative to other alternatives: it can put the zone on a firmer longer-term footing.
Making this difficult choice would ensure that the underlying resilience and soundness of Europe, which are still considerable, are preserved and enhanced for many future generations. There is little time to waste.
This post originally appeared in Handelsblatt.
($MACRO) There is not much doubt that President Barack Obama’s deficit-reduction plan will top $1.5 trillion, but the key question is by how much.
In his speech to a joint session of Congress, Obama said he would present “an ambitious deficit plan” to a new congressional supercommittee on Monday. The supercommittee is looking for ways to cut deficits by at least $1.5 trillion.
Experts said it is just sound politics for Obama to surpass that goal. Analysts were divided about whether Obama will “go big” with a plan to cut the deficit by $3 trillion or more or “go small” with a proposal nearer $2 trillion. -MarketWatch
In his speech to a joint session of Congress, Obama said he would present “an ambitious deficit plan” to a new congressional supercommittee on Monday. The supercommittee is looking for ways to cut deficits by at least $1.5 trillion.
Experts said it is just sound politics for Obama to surpass that goal. Analysts were divided about whether Obama will “go big” with a plan to cut the deficit by $3 trillion or more or “go small” with a proposal nearer $2 trillion. -MarketWatch
Saturday, September 17, 2011
($RIMM) Research In Motion's BlackBerry Messenger service was disrupted by an apparent service outage on Friday, adding a further headache as the company reels from a dismal earnings report.
The messaging service, popularly known as BBM, has proved a strong selling point as RIM expands beyond its corporate base to a younger audience and into emerging markets.
The Canadian company said via Twitter that it was aware of some customers in Canada and Latin America reporting issues with the service. Support teams were investigating, it said.
A Reuters correspondent in Bogota received this text message from Colombian operator Comcel: "Esteemed user, BlackBerry informs us that the chat service is unstable at the international level. We will advise you when it has been re-established."
The messaging service, popularly known as BBM, has proved a strong selling point as RIM expands beyond its corporate base to a younger audience and into emerging markets.
The Canadian company said via Twitter that it was aware of some customers in Canada and Latin America reporting issues with the service. Support teams were investigating, it said.
A Reuters correspondent in Bogota received this text message from Colombian operator Comcel: "Esteemed user, BlackBerry informs us that the chat service is unstable at the international level. We will advise you when it has been re-established."
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