Eurozone

You've just crossed over...

Merkel warned that Germany might be overwhelmed by its bailout efforts—a reluctance that turned Germany into a punching bag. Yet risks are staggering.

It is one thing for Tom Stolper to release precious tidbits about what is not going to happen in the future on a weekday - for those we are very grateful. But doing so on god's (or is that Goldman's) day is truly a first. In a note just blasted out, it would appear there is no rest for the Stolper, and according to the world's most admired FX strategist (remember: batting 0.000 is just as useful as batting 1.000), "Dollar downside forces on the rise" and that Goldman is positioned "short the USD again"... Just as Goldman was positioned long the Russell 2000 literally the minute the market topped on Thursday (no joke - check it). And to think it was only three weeks ago that the same strategist saw downside risks for the EURUSD to 1.20...

A brief and comprehensive summary of the main events in the past week, both good and bad.

German individual investors are gobbling up Greek sovereign bonds!

Festive Friday fun:

• FITCH TAKES RATING ACTIONS ON SIX EUROZONE SOVEREIGNS
• ITALY LT IDR CUT TO A- FROM A+ BY FITCH
• SPAIN ST IDR DOWNGRADED TO F1 FROM F1+ BY FITCH
• IRELAND L-T IDR AFFIRMED BY FITCH; OUTLOOK NEGATIVE
• BELGIUM LT IDR CUT TO AA FROM AA+ BY FITCH
• SLOVENIA LT IDR CUT TO A FROM AA- BY FITCH
• CYPRUS LT IDR CUT TO BBB- FROM BBB BY FITCH, OUTLOOK NEGATIVE

And some sheer brilliance from Fitch:

• In Fitch's opinion, the eurozone crisis will only be resolved as and when there is broad economic recovery.

And just as EUR shorts were starting to sweat bullets. Naturally no downgrade of France. French Fitch won't downgrade France. In other news, Fitch's Italian office is about to be sacked by an errant roving vandal tribe (or so the local Police will claim).

With everything from stocks and bonds to 'roo bellies rising as one trade, it may be a good time to ask: what's priced into the market's uptrend? We say "bad news is priced in" when negative news is well-known and the market has absorbed that information via the repricing process. When the market has absorbed all the "good news," then we say the market is "priced to perfection:" that is, the market has not just priced in good news, it has priced in the expectation of further good news. Markets that are priced to perfection are fiendishly sensitive to unexpected bad news that disrupts the expectation of continuing positive news. So what have global markets priced into this uptrend across virtually all markets? 

• Greek Debt Wrangle May Pull Default Trigger (Bloomberg)
• Italy Sells Maximum EU11 Billion of Bills (Bloomberg)
• Romney Demands Gingrich Apology on Immigration (Bloomberg)
• China’s Residential Prices Need to Decline 30%, Lawmaker Says (Bloomberg)
• EU Red-Flags 'Volcker' (WSJ)
• EU Official Sees Bailout-Fund Boost (WSJ)
• EU Delays Bank Bond Writedown Plans Until Fiscal Crisis Abates (Bloomberg)
• Germany Poised to Woo U.K. With Transaction Tax Alternative (Bloomberg)
• Ahmadinejad: Iran Ready to Renew Nuclear Talks (Bloomberg)
• Monti Takes On Italian Bureaucracy in Latest Policy Push to Revamp Economy (Bloomberg)

He said, “Rising commodity prices, uncertainty in the Middle East, the spreading European debt crisis, increased frequency of “extreme weather events” and U.S. fiscal issues are “persistent” problems that will continue to spur market volatility and sway asset prices in the global economy. This is great news for gold. Goldman Sachs noted in a report on Jan. 13th that futures will advance to $1,940 an ounce in 12 months.  Morgan Stanley forecasts the yellow metal will climb to a record of $2,175 by 2013, said analysts Peter Richardson and Joel Crane in their research report.

Which is why we were delighted that after months of modest confusion on the topic, the Congressional Committee on Financial Services (including subcommittee chairman Ron Paul), have demanded that not only Geithner make his stance on a US-funded IMF bailout of Europe crystal clear, but that they are openly opposed to "American taxpayer dollars being used to bail out Europe...through additional contributions to the IMF." We are curious to see just how Geithner will weasel his way out of responding to this: perhaps the only logical stall tactic is to reply that he will be busy helping Mitt Romney in his tax "revisions" over the next several months.

Update: literally seconds after this article was posted, we receive news that the IMF will seek Saudi contribution to the European bailout fund. There you have it - you enjoy that implicit US protection Saudi emirs? It is about to cost you.

While it is best to pray that NASA will find some very rich and not so intelligent life on Mars so it can bail out the world as it sinks deeper and deeper into a untenable debt hole (which somehow can be "filled" only by issuing more debt at least according to tenured economists at ivy league institutions), a strategy of planning for a realistic outcome may not be a bad idea. The question then is who in the world has some/any spare leverage capacity to incur even more debt and use the proceeds to fund a Eurozone-American-Chinese collapse. Enter the Economist's "wiggle-room index." The publication, best known for recently introducing the "shoe thrower index" (remember the Arab Spring and how Fed induced runaway inflation generated a "democratic" revolution across MENA?) has compiled a list of those developing world countries which still have capacity to provide credible global bailout capital (in fiat form of course - after all that is the only thing that the Ponzi understands) or as the Economist says, the "emerging economies that have the most monetary and fiscal firepower." So if you are on this list (ahem China, Indonesia and Saudi Arabia) - our condolences - you are about to be dragged into the epic slow-motion ongoing collapse of the developed world, kicking and screaming, with some 44 caliber persuasion if needed, but you will be there, before it all falls apart. The time to repay all favors to Uncle Sam is coming.

After Wikipedia and Wikileaks shone light on science, history and politics, Wikirating may bring open source financial transparency to the web. Attempting to iron out structural problems of traditional rating procedures, Wikirating is open source, fully transparent and retrieves its results from participants input. Initiated by Austrian mathematics Dorian Credé and and finance whiz Erwan Salembier, ratings are derived from weighted user input. They stress to point out that their model will improve with rising user input who also have a say in improving the formulae used.

All you need to read.

It’s in their blood.

The one we have all been waiting for. Stolper about to be 9 out of 9 with a 0.000 hit rate.