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Marc Chandler

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  • The Euro At A Crossroads? [View article]
    LKofEnglish...ironically that deflation you seek of is still being coupled with inflation in much of the periphery. Also I would urge care in throwing around acronyms. The EU is not collapsing. It is a political entity. The euro or EMU may collapse, though I doubt it (as I have argued on these pages).
    Jan 28 09:42 AM | Likes Like |Link to Comment
  • A Few Thoughts About Q4 U.S. GDP [View article]
    Bull on what ? I specifically say Q1 12 will not be as strong. I would like to see your data that says GDP is usually revised down. I do not believe the data shows an asymmetrical bias in the preliminary release, though of course there may be short-run streaks.
    Jan 27 06:33 PM | Likes Like |Link to Comment
  • Deja Vu All Over Again? [View article]
    Knight says ECB balance sheet is going to increase by another 500 to 1 trilion euros....That assumes the take down of the next LTRO, I think. I am not convinced that QE is always currency negative. Look at the yen and Swsis franc and sterling. When it comes to the dollar, the dollar rallied after QE2 was announced. That is later sold off is beside the fact and has something mroe,I would argue to do with ECB tightening. The dollar's performance after QEI partly has to be understood in the context of the huge dollar recovery/rally from July 2008 (euro =$1.60) to late Oct 08 ($1.2330). I also think that the quantity of money explanation of currency movement has been largely superceded, but in any event consider the difference between the ECB (and BOJ) buying lower quality assets that the US and BOE. Doesn't it also matter than European money supply growth is slowing sharply despite the expansion of the ECB's balance sheet ?
    Jan 27 02:52 PM | Likes Like |Link to Comment
  • Euro And S&P 500 Correlations Revisited [View article]
    While I partly agree, I know too that the foreign exchange market reflects more than growth differentials.
    Jan 18 05:13 AM | Likes Like |Link to Comment
  • Analyzing Greece's PSI Agreement [View article]
    Excellent question HarryHope and frankly I do not know for sure as European officials have not been very candid on this issue. I suspect, however, that it is about politics not economics. It is about a country defaulting under monetary union. I know, many purists will argue that if a creditor does not get their full money back, it is a default. Yet in the world I live in, a default has more meaning like that, in a similar way that all people that kill other people are not murders. Murder has a special meaning as does default. Debt forgiveness is not default. Default is not just being late making a payment--after all don't most (US) businesses habitually pay their bills late, say 60 days ? Default is a special legal state, though of course in the vernacular it takes on various means that conflate such legal differences.

    So bottom line, I suspect European officials want to avoid triggering CDS because it means default and reputational risk. I may be wrong and as you know it won't be the first or last time. Yet if some one else has a better hypothesis, I am all ears.
    Jan 17 03:25 PM | 1 Like Like |Link to Comment
  • Analyzing Greece's PSI Agreement [View article]
    Ah Aidol, but it does matter. If the PSI goes through and private sector holders of Greek sovereign bonds get a 50% haircut on nominally, but it does not trigger the credit default swaps, surely that is different from CDS being triggered. It has been obvious to me and I have written so in these pages for some time that investors in Greek bonds will not get their full funds back.

    I have also argued here that dropping out of the euro zone is not the answer either. It would still have euro debt. Whatever competitive gains it record will be short lived as inflationary forces would also be triggered. The economic contraction would be deeper and unemployment higher.

    In addition, many who call for Greece to drop out think that the fallout can be contained. Many also thought that fallout from Lehman would be contained. I wouldn't want to bet on that. I think risk is a function of credibility and capability. The chances of a broader contagion (credibility) may be relatively low--say 1 in 10, but the capability (perhaps the end of EMU and the end of political stability in Europe) is so great that it is no wonder that so few elected officials are really advocating Greece leaving. That does not even mention the lack of mechanism to evict it. Polls indicate the vast majority of Greek citizens want to stay in EMU.

    You are not alone and stand in esteemed company. Many in the US and UK press, several noble prize winning economists, some MPs in Germany, Finland, Austria, and the Netherlands and many in the blogosphere, suggest Greece should leave the monetary union. No prime minister or finance minister. No central bank head. Neither the IMF nor the WB, nor the EU have advocated Greece leaving.

    I continue to believe that the situation in Europe should best be understood as characterized by three No's: No ECB sovereign back stop. No Euro bond. No euro zone break up.
    Jan 16 03:05 PM | Likes Like |Link to Comment
  • Nervous Consolidation, Waiting For The Other Shoe To Drop [View article]
    I hear you..., though would note the net short euro position has been making records for past several weeks and the euro has continued to decline. While as you can see I look at the IMM positioning, I do recognize that the fx market is largely a cash market and the BIS estimates average daily turnover for the euro dollar pair at $1.5 trillion, making the futures market, even with these record net short euro positions, the tail on a large dog.
    Jan 16 12:27 PM | Likes Like |Link to Comment
  • Successful Sovereign Auctions Lift Tone, For Now [View article]
    Tipster, I do not know the January effect in sovereign bonds you ask about. I do suggest that this month the cash freed up in maturing issues and paid in interest almost offsets in full the anticipated new supply of sovereign bonds in the euro zone. I do think that the 3-year funding and collateral rule changes and the lower cost for accessing dollars are important and have reduced the extreme tail risks.
    Jan 15 05:57 PM | 1 Like Like |Link to Comment
  • The Euro Experiment Is Failing [View article]
    My point is simply that the Greek government has not advocated devaluation and has indicated the opposite, commitment to the euro. Those advocating that Greece drop out of the EMU and devalue do not think a devaluation is bad for Greek citizens as they claim that it would revive the economy and boost competitiveness. In my work that SA publishes, I have been clearly euro negative. My forecast was for $1.29 at the end of last year and $1.20 for mid-2012. Some in the markets may expect the euro zone to break up. I do not. I have argued that the investment climate is characterized by three no's: no ECB back stop for sovereigns, no European bond and no EMU break up. I see no contradiction in that view and that the euro is going to depreciate further. That others may agree with you is immaterial to me. You claimed that the periphery want to devalue and I say show me the evidence. I argue devaluation is not an easy way out as you contend and that it would produce a economic, political and social crisis that could make the current crisis look like a tea party.
    Jan 15 05:37 PM | 1 Like Like |Link to Comment
  • The Euro Experiment Is Failing [View article]
    So we do agree, that there are no senior elected Greek officials that have advocated devaluation. Some economists may say it is in Greece's interest to devalue but Greek officials know better. An MP in Merkel's party calling for Greece to leave the EMU is not the same thing as Greek officials seeking devaluation. Moreover, I would point to the numerous surveys that show the vast majority of Greek people want to stay within the euro as evidence counter to the charges that Greece wants to devalue. This may seem like a minor point, but I think it is important to understand Greece's current position, given your thesis that the experiment is failing.
    Jan 14 05:49 PM | 1 Like Like |Link to Comment
  • The Euro Experiment Is Failing [View article]
    Doug, you claim that euro zone countries want to devalue to decrease the debt load, and while I understand the theory, is there any evidence in speeches or in actions that this is true? Dropping out to devalue, does NOT allow countries to "print their debt problems away". Many, like Greece have debt owed to foreigners in euros. Reintroducing a new and weaker drachma will make it harder not easier to service this debt. And given the structure and capacity of a country like Greece, a weaker, a devalued drachma may not boost exports as much as some have suggested. As you note, higher inflation would be triggered and this would quickly erode whatever boost in competitiveness is achieved by a devaluation.
    Jan 14 03:03 PM | Likes Like |Link to Comment
  • Draghi Fans The Flame Of Euro Short Covering [View article]
    usikpa, thanks. Yes, i have written a bit about this. Here is what I see going on, but of course do not have a "smoking gun", just another example of forensics in fx. Oct2010, the fact hat the 3-month risk reversals more showing increasing premium for euro puts, even while the euro fell, gave me confidence in my call that the euro was going to come off on ideas that the longs were buying puts for insurance as they were nervous. Now euro falling but put premium is diminishing. Why ? The large pools are short euros and are buying relatively cheap calls for protection. I also know some who have rolled their bearish euro options into spot positions.

    Note too that 3m vol has come off hard and now around 12.4% is the lows since last July. I had written earlier this week about the risk squeeze in part because of the extreme positioning and sentiment. However, it has been quite mild thus far. Will write more about this soon.
    Jan 13 07:58 AM | Likes Like |Link to Comment
  • The Euro Experiment Is Failing [View article]
    In the early 1960s, a Chinese premier what he thought about the political conseqences of the French revolution and he said it was too early to tell. In my work I argue that euro was born half formed--like a child that spends 9 months inside the womb and then even after birth is still developing. Many speculators bet against the US 11 years after the Declaration of Independence and don't forget after the revolution (or war for indepdendence), there was Shay's Rebellion and then in 1812 another war against the world's largest empire at the time. Of course I agree the euro is under strain and that is is an existential crisis, but I argue in my work the EMU is likely to survive in part because that is the least bad option (the European elites have no other vision).
    Jan 11 12:04 PM | Likes Like |Link to Comment
  • Big Surge In U.S. Consumer Credit [View article]
    "Consumer credit jumped $20.4 bln in November, nearly three times larger than the consensus expected. The recent string of US economic data has surprised the market to the upside by such a magnitude and for a sufficient duration that economists will likely make an adjustment in their forecasts, possibly just in time for the January data to show some moderation after what appears to be the strongest quarterly growth in over a year."
    Jan 10 10:34 PM | Likes Like |Link to Comment
  • A Surprising International Comparison Of Average Hours Worked [View article]
    "While many will be initially surprised by the data, on reflection it makes intuitive sense. In crude terms, wealthier countries typically work smarter--more capital intensively--than poor countries, not longer. Contrary to conventional wisdom, the lack of Greek competitiveness, for example, does not seem to lie in hours working but with the combination of productivity and wages/benefits (unit labor costs)."
    Jan 10 10:31 PM | Likes Like |Link to Comment
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