24th Sep - US Close: Bring out the clowns

So we wait the end of the week and news from Spain. Meanwhile, Merkel to meet Draghi and Lagarde in closed meetings in the coming 2 days. They are not going to be talking about golf. My conspiracy theory du jour is that the eurocrats want to prepare the leverage of the ESM because of Greece. They will kick out Greece after the US elections, and need to have enough of nominal backstoppage in place for Spain and Italy. Bond market support from the ECB, bank loans from the ESM? 

Some commentators believe that while the eurocrats are clearly worried and prepared to act, they miss the original point - too much debt, too little bank capital. The need for sovereign restructurings and bank recaps either through credit or equity injections is critical. Banks are not stupid, and prefer to wait for the eventual bailouts, instead of accumulating the funds by themselves. Why dilute yourself when you can beg?

From an outside source: the officials of a major nation (off-the-record, of course) believe ECB’s previous governor Mr. Trichet was "a clown, dangerous and destroyed the continent’s economy". They also see the odds of euro surviving very low – around 1 in 3. My domestic readers are probably happy to know that Finland’s economy is expected to crash around 20% if it stays in the eurozone, but stay unchanged if it leaves.

Previously on MoreLiver’s:

24.9. US Open: Quad'it? + Views

24.9. EU Open

23.9. Weekender: Off-Topics & Finnish

23.9. Weekender: Economics & Markets

23.9. Weekender: Europe, US, Asia

22.9. Credit Guest: Zemblanity

22.9. Disregard This Post (links to euro breakup analysis)

21.9. Weekender: Weekly Support (weekly reviews and previews)

21.9. Weekender: Best of The Week

Roundups and Commentary

News – Between The Hedges

Markets – Between The Hedges

Recap – Global Macro Trading
The Closer – alphaville / FT

Roundup – A View From My Screens

USD Posts Gains as Dow Drifts Lower – BNY Mellon

  Summing up the state of play in Greece

The T Report: I Love It When a Plan Comes Together – TF Market Advisors

Tyler's US Summary: Winners Lose As Safety Outperforms – ZH

Reference

TV: Bloomberg, BBC

Debt crisis: live – The Telegraph

The Euro Crisis Blog – WSJ

Tracking Europe’s Debt Crisis – NYT

FX Options Analytics – Saxo Bank

European 10yr Yields and Spreads – MTS indices

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EUROPE

Buiter on good news, bad news – alphaville / FT

Good: ECB’s OMT, ESM agreements, pro-Europe election results. Bad: banking union talks. PIIGS.

Spanish Military Threatens Treason As Catalonia Seeks Secession Referendum – ZH

Spain Warns Catalonia Separatists of Treason Charges in Military Court – Mish’s

Viva España? Spain’s other crisis – alphaville / FT

There’s nothing like a financial crisis to bring out a surge of nationalism. In Spain’s case the situation is especially serious and seemingly getting worse. So much so that some argue that the growing constitutional crisis could soon eclipse the country’s fiscal problems. The two, you see, are very closely entwined.

Turning German (or trying to) – alphaville / FT
Credit Suisse’s charts of trade balances. The PIIGS trade deficit is narrowing, but mostly because of decreased imports (they’re broke, after all). Also, goods are and services are a minor part of Spain’s current account balance.

Proposal to Leverage ESM to 2 Trillion Euros; Is Merkel's Rubber Stamp Ready? – Mish’s

The ESM is supposed to have €500 billion of firepower of which Germany's contribution is €190 billion. The nannycrats want to leverage that to €2 trillion. If they do, losses of 25% will wipe out the entire ESM.

An unpleasant surprise may lurk in euro zone GDP numbers – MacroScope / Reuters

The euro zone economy may be doing far worse than most economists want to believe. That’s not good news for a central bank trying to rescue the single currency through a hotly-contested bond purchasing programme that has yet to get started.

USA

Excuses Not To Do More – Tim Duy’s Fed Watch

I think the story here is that fiscal stimulus is only a temporary measure, not a long-run solution.  The long-run solution is dealing with the debt overhang, which can be addressed with more aggressive monetary policy.

Geopolitics and the Dollar – Marc to Market

The confrontation with Iran is widely perceived as the most worrisome geopolitical event on the horizon…face-off between Japan and China over the disputed islands.

Dallas Fed Fisher on Monetary Policy – The Big Picture

Remarks before the Harvard Club of New York City Sep-19-2012

STOCK MARKETS

Global Equity Markets: Returns and Composition – The Big Picture

Couple of charts and tables from JP Morgan

QE Infinity and US Stock Market – David Kotok / The Big Picture

Quick calculations pointing to higher stock prices during this decade, assuming Fed keeps its word on unemployment targeting.

OTHER

Chart of the week: EM fx reserves – beyondbrics / FT

After years of accumulation, emerging markets are not stockpiling the dollars as they once were. Currency depreciation worries, slowing exports, a possible end to the commodity supercycle – there are various reasons why overflowing reserves might hold less appeal. But some countries are bucking the trend.

Carrying liquidity as far as you can – alphaville / FT

BoaML takes a look at the interest rate differentials as exchange rate drivers.

The Roots of Chinese/Japanese Rivalry – Project Syndicate

Much like in Germany in the 1840’s, when appeals to private enterprise converted the entire middle class to nationalism, China’s capitalist restoration has awakened mass nationalism. Hundreds of millions now see themselves as sharing in the nation’s dignity, and are eager both to contribute to it and to defend it from insult.

IN FINNISH

Urpilainen: Suomi ei hyväksy kriisirahaston kasvattamista – YLE

Valtiovarainministeri Jutta Urpilaisen mukaan EU:n pysyvän kriisirahaston kasvattaminen ns. vivuttamalla oli hiljattain esillä euroryhmän kokouksessa Kyproksessa. (otsikko virheellinen: Urpilainen ei tämmöistä luvannut. Hienoa touhua taas suojatyölaitokselta...)

Nordea: "EVM:n vivuttaminen lisäisi julkisen rahan riskiä" – TalSa

EVM:n vivuttaminen olisi ristiriidassa Suomen politiikan kanssa. Nyt on haettu vakuuksia omille lainarahoille, mutta vivuttamisen jälkeen sanottaisiin suoraan, että näillä rahoilla oltaisiin valmiita ottamaan vastaan ensimmäiset tappiot, jotta yksityiset sijoittajat välttyisivät omiltaan, von Gerich sanoo. Vastustamista on helppo perustella. Vivuttaminen toisi julkisille rahoille lisää riskiä ja voisi muuttaa sijoittajien kannustimia väärään suuntaan, hän toteaa.

Stubb: Suomelle tarjoillaan eurokeskustelussa mustaapekkaa – MTV3

Stubbin (kok) mielestä kansainvälisessä mediassa on nyt halukkuutta hämmentää eurokeskustelua tuomalla esiin kantoja, jotka eivät todellisuudessa edusta Suomen linjaa. (=olkaa hiljaa!) 

Talousnobelisti: Euroalueelle pankkiunioni, talletussuoja ja yhteiset velat – TalSa

Talousnobelisti Joseph Stiglitzin mukaan euroalueelle tarvitaan pankkiunionia, talletussuojarahastoa ja yhteisiä velkoja – ja nopeasti. Muuten kriisi uhkaa repiä koko järjestelmän hajalle.

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