The hoaxes remain and grow more cumbersome and obvious every day - and yet, the headline-reading machines and self-referentially-biased managers of stocks justify just one more BTFD episode. To wit, Mark Grant discusses the Greek buyback debacle with its political (and entirely not economic) mandate, noting "Mr. Draghi knows the truth and Ms. Lagarde knows the truth and their credibility is whacked once again;" Berlusconi's potential return in Italy and the hoax of any pretense of an entente cordiale re-emerging between north and south flies out the window; the 'tax the rich' hoax as a solution for years of profligate spending and the 'then vs us' meme that is increasingly spewed forth from DC; and the ultimate hoax of Bernanke's money printing morasse. Happy Monday.
Shuffle Rewind 03-07 Dec " Only When I Sleep " (The Corrs, 1997)
This week in review (compared to Fri 30 Nov COB):
Click on day for related post, on title for song.
Hmmm… Need to find another way to kill time until Year End. Morning highs, lunch time lows and then trailing the US. EGBs on the stronger side with augurs seeing a weakening Germany and calls for lower rates putting the EUR under pressure. Ok, Germans: now work! Somebody has to pay the bills!
"Bruttosozialprodukt " (Bunds 1,3% +1; Spain 5,45% -1; Stoxx 2597 -0,3%; EUR 1,295 -20)
Strong start in Risk to take out new 2012 highs in Equities and trying to retrace near 2012 Credit lows, too. Core EGBs cool. Bunga Square’s rug pulling scuttled all that easy living by noon, weighting on the Periphery and boosting Core EGBs. ECB gloomy. Equity – bond divergence not a flyer yet, though… US sideways and Risk Watchers back to scanning European politics. EUR falling of the carpet.
"Magic Carpet Ride" (Bunds 1,29% -6; Spain 5,46% +8; Stoxx 2605 +0,6%; EUR 1,297 -100)
Lather. Rinse. Repeat. Over and over. Europe doing about fine on its own and with an urge to test higher risk levels, in absence of negative news. Spanish BONOs feeling sad… US look more fickle. Is the fruit getting bad? Question of Muppets getting nervous out of boredom, or what?
"Furry Happy Monsters" (Bunds 1,35% -4; Spain 5,38% +15; Stoxx 2589 +0,1%; EUR 1,307 -10)
Lather. Rinse. Repeat. Europe doing about fine on its own and with an urge to test higher risk levels, in absence of negative news. US more fickle on FCDRE. If this goes on until year-end… If it wasn’t for a bit of FCDRE… Tick. By. Tick. Movements. Equities high. Soft Core closing on historic lows.
"11 O’Clock Tick Tock " (Bunds 1,39% -2; Spain 5,23% -1; Stoxx 2587 +0,3%; EUR 1,308 +20)
Fiscal Cliff Discussion Risk Event still very much alive. Spain maths on budget. Italian maths, French… Bah… Still feels like things are a bit out of touch with reality here (equities vs. bonds). And that Greek buy-back looks really, really generous. Outwordly. Then again, best way to get rid of private ownership. After the OMT, the OPM… Obviously, other people’s money. PMI paint a slightly less bleak picture, but on rock bottom levels.
"Out Of Touch" (Bunds 1,41% +3; Spain 5,24% -6; Stoxx 2580 unch; EUR 1,306 +50)
“The euro has profound economic advantages and is the most powerful symbol of European integration,” said 11 EU foreign ministers. What were they smoking?
Hey, this was cuddle time-week! A big Hug for everyone: Bonds, Equities, Periphery, ah, Periphery bonds! Greece…
As Super Mario said himself on Friday, albeit in a different context: “We were living in a Fairy World”. Cute way of spelling it out.
Fairies, rainbows, wonderful world… Let’s put IZ on the case!
"Somewhere Over The Rainbow" (Bunds 1,38% -6; Spain 5,30% -30; Stoxx 2580 +1,1%; EUR 1,301 +50)
S&P futures are bleeding back down again after-hours (and EUR -30pips) as Moody's announces the downgrade of the EFSF and ESM from AAA to Aa1. "Moody's decision was driven by the recent downgrade of France to Aa1 from Aaa and the high correlation in credit risk which Moody's believes is present among the ESFS' and ESM's entities' largest financial supporters." Of course, this is nothing to worry about as we are sure that some Middle East sovereign wealth fund will still buy their bonds? Or China? Or Supervalu?
- *MOODY'S DOWNGRADES ESM TO Aa1 FROM Aaa, EFSF TO (P)Aa1 FROM Aaa
Not entirely surprising given the underlying rating moves - but yet more AAA-rated collateral bites the dust.
Europe rather direction-less on its own. Equities still rather firmer than not; with Bonds just the same. Macro data generally rather bleak, although expectations have been put so low lately that anything about palatable will do. Peeking over the Pond to see whether Fiscal Cliff discussions could scuttle things. Here late valuations are such that numbers should be really good to get things going. So: Drifting. Chatting. Checking.
"What's Up?" (Bunds 1,38% +1; Spain 5,3% -2; Stoxx 2580 unch; EUR 1,301 +30)
Looks like yesterday put into practice: Let’s thank everyone to turn around markets, when they sink. Nothing to break the barn stomp in Periphery bonds (but themselves). Italy brilliantly stuffed its primary dealer at a 2-year low. Core EGBs holding quite steady, given ROn in Risk and Periphery. Strong US GDP revision – but, as expected anyway. Given the actual level in Risk, good numbers are seen as given. Nothing weak, no more, never. Swimming in a Sea of (Risk) Love. Watch the Event / Headline risk on FC (& Greece. The math still seems quite odd…). Hard Periphery (especially Spain) slap-back in the afternoon, though.
"Sea Of Love" (Bunds 1,37% unch; Spain 5,32% +1; Stoxx 2579 +1,3%; EUR 1,298 +50)
Once more, not much own stuff to chew on Europe’s own. Drifting. EGBs very strong on (relative) equity weakness. Periphery starting to glow like the ZZ Top Eliminator. In absence of any strong lead, need to start thanking everyone for input and support (Mario, Ben, Angie, Chrissie… Anyone working on the Fiscal Cliff. Mariano & Mario. Wolfie...). New paradigm put into practice: nothing will ever be weak again, nothing. And watch out for FC Ping-Pong! And I Thank You!
"I Thank You" (Bunds 1,37% -6; Spain 5,31% -20; Stoxx 2547 +0,4%; EUR 1,293 unch)
Where will the €10bn for the buyback come from? This is far from clear but it is hard to imagine it being found anywhere other than the bailout funds, meaning a new transfer of around €9bn will be needed. This again poses significant political problems as leaders in Germany, the Netherlands and Finland (to name but a few) try to convince their parliaments (and public) that this is not more money into a black hole. It has been suggested that some of the other mechanisms mentioned below could be used to fund the buyback, but this looks impossible since they are being tapped to fill the existing funding gap. These substantial obstacles to a successful debt buyback are crucial since the IMF has already stated its on-going participation in the Greek bailout hinges on this policy. The likes of Finland and the Netherlands have also previously stated that IMF involvement is requirement if they are expected to continue to aid Greece. With a plan on the buyback expected to be in place by 13 December, to allow for the release of the next tranche of bailout funds, this deal could hit a wall even sooner than many expected.
Ok. It’s not that the Greek deal is nothing. But then again, third strike. Eventually expected, or at least hoped for. Hence, lack of concrete follow-through. So, now it’s there. And now what? You Ain’t Seen Nothing Yet? What is there to see??? Pitch the markets some input, something concrete, something to feed off, something to see!
"You Ain't Seen Nothing Yet" (Bunds 1,43% +2; Spain 5,51% -9; Stoxx 2538 -0,2%; EUR 1,293 -30)