Aside from some brief Bloomberg dispatches to those with a live connections, we have simply stopped talking about what we call the Great European Circus (i.e. the succession of contradictory statements by eurozone political and monetary officials) since they have become so absurd as to become utterly boring.
The funniest part, if it only were not true, is the unfortunate coincidence between the warning issued to European officials by Mr Zhu Min, Vice-Governor of the Peoples Bank of China, in Hong Kong this morning and the announcement by Jean-Claude Trichet before the European Parliament of his about-face on collateral eligibility rules for 2011. Judge for yourself:
Mr Zhu Min :
"Greece is only one case, but it's only a tip of the iceberg. I don't think Greece will go bankrupt because it's still relatively small, but we don't see decisive action that tells the market. 'We can solve it, we can close it,' so the market is very volatile."
He called Spain and Italy the "main concern today."
Mr Trichet :
“It is the intention of the ECB’s Governing Council to keep the minimum credit threshold in the collateral framework at investment grade level (BBB-) beyond the end of 2010.
In parallel, we would introduce, as of January 2011, a graded haircut schedule, which will continue to adequately protect the Eurosystem.”
Our longstanding Thaler's Corner readers know how much I really hate to fire on the Frankfurt ambulance, but this decision by Mr T to unveil such an important move outside of the sleeping ECB post-meetings may bring back memories.
Fast Rewind to March 2009 :
Chinese Premier Wen Jinbao, 13 March 2009 :
“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets"
"To be honest, I am definitely a little worried."
(I call) on the United States to "maintain its good credit, to honor its promises and to guarantee the safety of China's assets."
Ben S. Bernanke, FOMC press release, le 18 march 2009 :
To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.
Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months
Back to the Future:
The important thing is that the man who holds the key to all those European funds, Mr T, finally makes a decision. To wrap up today's short note, I have taken an extract from his speech which may bring a smile to the faces of those who have been anxiously observing the recent turn of events.
In the current circumstances, where Europe faces further pivotal decisions, it is more important than ever to recognise that a prosperous union requires determined action by all.
Whatever direction the upcoming decisions regarding the current situation may take, the most important issue is that Europe’s policy-makers live up to their responsibilities.
Monetary Union in Europe is far more than a monetary arrangement. It is a union of shared destiny.
Wir teilen ein gemeinsames Schicksal. Nous partageons un destin commun. Condividiamo un destino commune. Compartimos un destino común.
For those still interested in the macro picture (yes, there are still a few), check out these figures:
· M3 and private-sector banking sector loans contracting (-0.4%) on the eurozone.
· Consumer spending in France for February declined -1.2%, vs expectations of +0.4%.
· In Italy, this indicator fell -0.5% in January, vs expectations of +0.1%.
· Check out the graph, below, illustrating the deflationist entropy, with inter-enterprise services prices, published this morning, down -1.5% y-o-y, the steepest fall since 1985.
Inter-enterprise services prices in Japan
Have a good day.
Asset allocation baises:
- Interest rates: We consider that history is still on the side of flattening, and our choices in maturities and structures, below, brings an added measure of protection.
- Equities: Stock markets remain generally murky, which, on the other hand, can be seen in the very low implied volatility levels of Eurostoxx options. We are beginning to see some opportunist switches (long or short) vs long option positions (calls or puts).
Moreover, beacuse of my conviction in the inevitability of a Greek bail-out, I am not proposing anymore the same hedging strategies (put ratios or ladders).
Disclosure: Long 20 years OAT and 30 years BTP Zero Coupons, EDF Corp 5 Years 4.5%, Grece 2 Y and 10 Y bonds