Spain Update: Running From The Bulls? [View article]
zero, i wouldn't buy ANY bonds from the eurozone long term, the death spiral from spain, italy et al will drag even the good credits down with them... not to mention the currency risk..
Spain Update: Running From The Bulls? [View article]
zero, it depends on what your time horizon is, buying periphery bonds in the spring of 2012 would have been a great trade.
for a long term hold on spanish or any other periphery bonds, the major driver will be the macro data that Marc is writing about today, especially GDP growth
with its debt and deficits, Spain needs growth to be sustainable.
It's not happening.
the market obviously believes that it will (someday) but i do not as long as they are in the euro.
in my view there is a policy inconsistency between spain having enough growth to pay its debts, and remaining in the euro
good article ! Mr Carney is going to have a chance in the UK to show if his sterling record in canada was luck or competence (i always assume luck, just as i always assume stupidity rather than conspiracy)
what is interesting to me is that canada is down more than the australian market in the last few weeks, even though australia would be more leveraged to commodity prices and more exposed to china
Would A War With North Korea Be Bad For Stocks? [View article]
the core of the black swan / tail risk / quadrant four is:
-supposedly extremely small probability of something bad occuring -really big downside if it does occur
one thing about North Korea that does worry me: they have absolutely nothing to lose if there is another global economic/financial crisis, but every other country does
that asymmetry make them powerful
also, there are strategies less than an all out nuclear attack that they could do, that would difficult to respond to: eg what is the US response to an EMP attack directed against japan ?
i'm looking for some insurance and the best i can come up with is OTM calls on gold, i've bought some and i'm buying some more...
keep in mind that exchange and capital controls are part of the standard moves for terminally indebted countries like japan.
what that means is that the connected insiders will get their money out (like cyprus) but the ordinary people won't.
look at the history of the UK. the UK had exchange controls for UK residents from WW2 until 1979, when Thatcher was elected and took them off (baroness Thatcher RIP)
Italy approves plan to pay €40B to settle a giant outstanding balance with private companies. The debts became a source of distress for the country's corporate sector when bank credit to businesses dried up. The government hopes paying its bills will stimulate the economy, but says the decision to make good on its commitments wasn't easy: "We have to follow a path between helping our economy recover and maintaining budget discipline," Italy's Economic Minister notes. [View news story]
ok, so gov't not paying vendors doesn't count against EU deficit rules?
hey, if the ECB finally decides to do something to help SME financing, maybe they can extend credit to small and medium enterprises that have unpaid bills from governments...
Marc, i just wanted to take this opportunity to thank you for all your articles, you are my #1 source on all of the euro stuff.
On point 2, yes Indymac is a precedent, but so is the Italian bank tax in 1992 (http://bit.ly/14CCUmS)
as i understand it, the italian bank tax was not for a failing banking sector, but was a revenue grab to try to keep italy in the ERM
THAT'S the precedent that should make depositors in euro-periphery banks nervous.
Also, were there any cypriot banks that were still solvent? if so, the deposit taxes for those bank depositors were a revenue grab, and were not really a case like indymac.
Cyprus: The Unique Template In 9 Theses [View article]
bix, i do not believe #1 and #7 are in tension, to me it indicates that the euroelite will have to take more and more radical action to keep the euro going.
If you look at the work of Reinhardt-rogoff, in a sovereign debt and financial crisis, the banks typically get into trouble and have to be supported by the central bank. http://bit.ly/LgZ4Q7
what happens is that the central bank usually ends up with a policy inconsistency between their price level or exchange rate target - and supporting the banks
in almost all cases, the central bank supports the banks, and their currency peg collapses, or they lose all control of the money supply.
as a result, you usually get a big devaluation, then a big inflation.
my guess is that the euroelite, including germany, will accept the inflation, no matter how bad it gets. with the ECB holding down interest rates a euro hyperinflation solves the piigs debt to gdp problem...
The Italy (EWI -3.7%) and Spain (EWP -3.1%) ETFs lead a now-tumbling Europe (FEZ -1.8%) as - maybe we're being too simplistic here - Eurogroup President Dijsselbloem has more or less told anybody with greater than €100K in deposits at what could be a troubled bank they need to think about getting their money out. Italy's Unicredit and Intesa Sanpaolo are halted down more than 5%. EUFN -2.4%. [View news story]
if you look at the Reinhardt-Rogoff "prototype" for a financial crisis (http://bit.ly/LgZ4Q7), europe is at the stage where the failing banks are supported by the central bank, and capital controls are being imposed.
according to the R-R prototype, the next stage would usually be a big euro devaluation, followed by serious inflation.
so far, the "bank runs" in europe are depositors moving their money from PIIGs banks to german banks. my view is the eurozone will finally blow up when people start moving their money out of german banks to protect themselves from inflation.
Europe closes a wild day higher across the board, but sharply down from earlier levels. Stocks popped at the open following Friday afternoon's rally stateside and then soared after early polls showed Italians voting in a Brussels-friendly way. Later results, however, showed just the opposite. In the European tradition of making them vote until they get it right, another election could be in the offing. Stoxx 50 +0.8%, led by Germany +1.4%. After being up about 4% earlier, Italy +0.5%. Also up sharply early, the euro -0.2% to $1.3164. [View news story]
i don't understand the initial rally based on exit polls, Berlusconi getting more votes than polls suggest is a known issue...
"Assume that we have agreed that kurtosis is a measure of the degree of fat-tailedness of the process (a scaled fourth moment of the distribution). For all variables, the kurtosis depends on a very small number of observations — for instance, nearly 78% of the total kurtosis of the US stock market for 10,000 observations of data depends on one single observation"
Kurtosis is so sensitive to single data points that extrapolating trends in kurtosis is really reckless.
-huge runup in the exchange rate -huge runup in real estate prices
following RR's prototype, the next stages would be expected to be falling stock prices and further real estate declines, leading to banking problems, and after that a currency crash.
Weekend Developments: Signal And Noise [View article]
yes, Iceland's unemployment rate has doubled since before the financial crisis, but Greece and Spain have quadrupled, and Ireland has tripled.
http://bit.ly/ZWlg7p
when countries get themselves into the state that Iceland or Greece were/are, none of the choices are good
what Iceland did was not a panacea, but their unemployment graph does not look like greece/spain/ireland etc...
http://bit.ly/ZWkU0r
Spain Update: Running From The Bulls? [View article]
Spain Update: Running From The Bulls? [View article]
for a long term hold on spanish or any other periphery bonds, the major driver will be the macro data that Marc is writing about today, especially GDP growth
with its debt and deficits, Spain needs growth to be sustainable.
It's not happening.
the market obviously believes that it will (someday) but i do not as long as they are in the euro.
in my view there is a policy inconsistency between spain having enough growth to pay its debts, and remaining in the euro
Canada - Running Out of Luck? [View article]
what is interesting to me is that canada is down more than the australian market in the last few weeks, even though australia would be more leveraged to commodity prices and more exposed to china
Currency Positioning: It Is Not About The Dollar [View article]
japan has had zero nominal gdp growth since the early 1990's
http://bit.ly/YTZvrX
the new Abe/Kuroda regime is trying to change that, but rising rates makes the debt stabiliztion equation harder
arguing that that 300% debt to gdp is sustainable at low interest rates unfortunately reminds me of Joe Stiglitz' argument here
http://bit.ly/115KWjh
Would A War With North Korea Be Bad For Stocks? [View article]
-supposedly extremely small probability of something bad occuring
-really big downside if it does occur
one thing about North Korea that does worry me: they have absolutely nothing to lose if there is another global economic/financial crisis, but every other country does
that asymmetry make them powerful
also, there are strategies less than an all out nuclear attack that they could do, that would difficult to respond to: eg what is the US response to an EMP attack directed against japan ?
i'm looking for some insurance and the best i can come up with is OTM calls on gold, i've bought some and i'm buying some more...
Japan's Excessive Money Printing Self Destructive [View article]
what that means is that the connected insiders will get their money out (like cyprus) but the ordinary people won't.
look at the history of the UK. the UK had exchange controls for UK residents from WW2 until 1979, when Thatcher was elected and took them off (baroness Thatcher RIP)
Italy approves plan to pay €40B to settle a giant outstanding balance with private companies. The debts became a source of distress for the country's corporate sector when bank credit to businesses dried up. The government hopes paying its bills will stimulate the economy, but says the decision to make good on its commitments wasn't easy: "We have to follow a path between helping our economy recover and maintaining budget discipline," Italy's Economic Minister notes. [View news story]
what kind of "austerity" is that ?
of course, Spain and Greece (and probably most of the others) have been doing the same for several years
http://on.wsj.com/12tGzTW
http://bit.ly/10EoZrb
hey, if the ECB finally decides to do something to help SME financing, maybe they can extend credit to small and medium enterprises that have unpaid bills from governments...
Forex: 4 New Views [View article]
On point 2, yes Indymac is a precedent, but so is the Italian bank tax in 1992 (http://bit.ly/14CCUmS)
as i understand it, the italian bank tax was not for a failing banking sector, but was a revenue grab to try to keep italy in the ERM
THAT'S the precedent that should make depositors in euro-periphery banks nervous.
Also, were there any cypriot banks that were still solvent? if so, the deposit taxes for those bank depositors were a revenue grab, and were not really a case like indymac.
Cyprus: The Unique Template In 9 Theses [View article]
If you look at the work of Reinhardt-rogoff, in a sovereign debt and financial crisis, the banks typically get into trouble and have to be supported by the central bank. http://bit.ly/LgZ4Q7
what happens is that the central bank usually ends up with a policy inconsistency between their price level or exchange rate target - and supporting the banks
in almost all cases, the central bank supports the banks, and their currency peg collapses, or they lose all control of the money supply.
as a result, you usually get a big devaluation, then a big inflation.
my guess is that the euroelite, including germany, will accept the inflation, no matter how bad it gets. with the ECB holding down interest rates a euro hyperinflation solves the piigs debt to gdp problem...
The Italy (EWI -3.7%) and Spain (EWP -3.1%) ETFs lead a now-tumbling Europe (FEZ -1.8%) as - maybe we're being too simplistic here - Eurogroup President Dijsselbloem has more or less told anybody with greater than €100K in deposits at what could be a troubled bank they need to think about getting their money out. Italy's Unicredit and Intesa Sanpaolo are halted down more than 5%. EUFN -2.4%. [View news story]
according to the R-R prototype, the next stage would usually be a big euro devaluation, followed by serious inflation.
so far, the "bank runs" in europe are depositors moving their money from PIIGs banks to german banks. my view is the eurozone will finally blow up when people start moving their money out of german banks to protect themselves from inflation.
Europe closes a wild day higher across the board, but sharply down from earlier levels. Stocks popped at the open following Friday afternoon's rally stateside and then soared after early polls showed Italians voting in a Brussels-friendly way. Later results, however, showed just the opposite. In the European tradition of making them vote until they get it right, another election could be in the offing. Stoxx 50 +0.8%, led by Germany +1.4%. After being up about 4% earlier, Italy +0.5%. Also up sharply early, the euro -0.2% to $1.3164. [View news story]
http://on.wsj.com/VIxYYC
Trading A Defiant Market Against An Import Warning [View article]
Falling Tail Risk = The New Secular Bull? [View article]
http://bit.ly/XSXWVI
"Assume that we have agreed that kurtosis is a measure of
the degree of fat-tailedness of the process (a scaled fourth
moment of the distribution). For all variables, the kurtosis
depends on a very small number of observations — for
instance, nearly 78% of the total kurtosis of the US stock
market for 10,000 observations of data depends on one
single observation"
Kurtosis is so sensitive to single data points that extrapolating trends in kurtosis is really reckless.
Australian Business Confidence Soars Despite Warnings [View article]
http://bit.ly/LgZ4Q7
-huge runup in the exchange rate
-huge runup in real estate prices
following RR's prototype, the next stages would be expected to be falling stock prices and further real estate declines, leading to banking problems, and after that a currency crash.