5 Reasons Why 2012 Will Not Be A Replica Of 2011... At Least Not For Europe
With many expecting 2012 to be a replica of 2011, at least for US stocks which the non-permabull consensus sees closing the year largely unchanged for the second year in a row, one open question is whether this will also be applicable to Europe. As a reminder, the EURUSD opened this year near the 52 week lows, only to rise by several thousand pips as concerns about European contagion were brushed away on hopes Europe's politicians had it "under control." They didn't, and the EURUSD returned to its year's lows recently. But is the same pattern in store for early 2012, where as we already noted, the bulk of gross debt issuance is due to take place, especially in January? Below are UBS' 5 other key reasons why the European resurgence (however brief) that was experienced early this year will not be recreated in the new year that is now just around the corner.
From UBS:
So how do we expect the Eurozone crisis to evolve in early 2012 and how will it affect the euro? Last year, most observers expected Q1 2012 to bring an escalation of the crisis, particularly on peripheral bond markets. Instead, the periphery rallied and so did the euro, from about 1.30, just where we are today, to almost 1.50. Could the same happen early next year? We do not think so for the following reasons:
1) The ECB
In early 2011, the ECB sounded hawkish and then went on to hike rates in April and July, just as the Fed prepared to embark on QE2. 2012 will arguably be very different as the ECB is likely to cut rates to a new historic low of 0.50% and might well then embark on outright QE. At a time when the Fed looks largely done with its QE efforts, this could hit EURUSD hard and for us is the single most important reason to be structurally bearish the euro in 2012.
2) Greece
There is now a non-negotiable deadline for the Greek PSI, which is the bond redemption on 20 March. Negotiations for the new troika programme continue to assume a ‘voluntary’ PSI resulting in a 50% haircut and a debt-to-GDP reduction to 120% by 2020. However, revenue shortfalls due to the deeper-thanforecast recession look set to result in additional financing needs, which in the absence of new official money might mean a larger haircut and hence a coercive restructuring.
3) Contagion
If Greece is forced to impose an involuntary restructuring on investors, the market might quickly move on to Portugal or even beyond. Eurozone leaders have frantically worked at erecting a ‘firewall’ for countries beyond Greece in case of a default occurring. So far they have had limited success apart from raising more cash for the IMF and advancing the European Stability Mechanism (ESM) to mid-2012. Still, these instruments are arguably not yet powerful enough to deal with a country like Spain or Italy loosing market access.
4) CDS
The above Greek scenario would result in a credit event being declared and credit default swaps (CDS) being triggered. Many observers might welcome such an event as a proper default would mean that Greece was finally declared ‘insolvent’ and unable to pay its obligations, which most would argue might be better for the longer term health of the system than pretending otherwise. Still, nobody knows how the financial system would handle CDS payouts of more than €80bn (gross). At least as an initial reaction, the market would probably be highly stressed.
5) Politics
The EU has an impressive track record in pushing through projects even against resistance from individual countries and with minimal explicit or implicit support from electorates. However, there may come a point where populations start to rebel, possibly when they are simultaneously faced with ever deeper cuts in public services and ever higher taxes. A relatively benign problem might be resistance to ESM ratification in some countries, but more serious social unrest could occur both in debtor as well as creditor countries.
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B..b..but Italy just sold some bonds and their 10-yr is *all the way down* to 6.85%
CURRENCY SNIFFING DOGS! Foreign Exchange Controls in Argentina
http://djia.tv/reuters/currency-sniffer-dogs-help-tax-man/
do they got gold sniffing dogs, too?
Did Michele on CNBC write this for them?
Her tits did.
Eur......OUTTAhere! Strike three.
How long have you been waiting to use that one?
I calls 'em as I sees 'em. Laugh a minute here at ZH.
EFSF is not AAA,
France will be downgraded 1Q12
Germany will suffer in 2012 a d/g -3Q12 or 4Q12
GAME OVER
Sp back to 850 o 775 depending the selling pressure...prepare those short circuit brakers.....Bradley Turning Day 4days of full collapse:)
"It is hard to free fools from the chains they revere.”- Voltaire
http://www.youtube.com/watch?feature=player_embedded&v=UNftrsCMiQs#!
So the Euro continues it's slide. The USD continues to strengthen. Large cap dow stocks continue to see gains. Treasuries continue to be a safe haven. US banks continue to limp along. Talking heads keep touting ability of the US to be the cleanest dirty shirt. Vomit. I could go on....Sounds like more of the same to me.
Shhhh...strong dollar keeps PMs weak for accumulators (NOT hoarders, mind you). Of course it also winds the spring under the whole commodities complex. Witness crude oil, lapping over $100/bbl even with a strong USD.
When the currencies snap back it'll be burst time for commodities (pricing in USD of course). What if the Europeople drink too much kaffe and come up with a proper debt resolution plan? O...M....G. The rumors alone will be good for double digit percentages.
"When the currencies snap back it'll be burst time for commodities (pricing in USD of course"
you lost me there. please explain
Globally traded commodities constantly reprice to reflect relative currency values. Dollar up, commodities down and vice versa. It's an overlay, one factor among several but it is strong and helps with picking entry points.
EUR and USD as bad as each other.
2 winos staggerin down an alley arm in arm propping each other up.
Exactly my point below. And JPY.
hey, watch your mouth, they are world's reserve currencies. :)
Generally agree with the big picture themes here, but the 4) point about "CDS payouts of more than €80bn (gross)." seems to be a totally wrong figure. I generally don't trust UBS research at all, and it does not help that they throw around idiotic large figures. The worst analysis ever has been their Euro break up piece where they paddled those €10,000/person per year cost impact figures for anybody leaving Eurozone.
I have seen previously Zerohedge quoting something like €5 billion as the Greek CDS level exposure.
WSJ notes that the level is even less than that: http://blogs.wsj.com/brussels/2011/11/04/cds-risk-in-greece-350-million/
http://isda.mediacomment.org/2011/11/02/it%E2%80%99s-time-to-stop-the-nonsense/
UBS probably has some sort of desperate bet on Greece and Eurozone which makes it even want to contaminate its own research team findings with wrong data. At least this is the impression I get from their tainted research findings.
we need another Rogue Trader in UBS...(KwEku)
one more in SOciete Generale ( Jerome Kerviel)
...
UBS end is coming...
OK, so now UBS is laying their thoughts out there, and as they say themselves in point 1, it basically will boil down to QE, or money printing. This is their major reason for shorting the Euro.
Why exactly would this be a negative for the Euro? Flooding the system with money and thus kicking the can down the road might avoid default at the price of inflation. But even the U.S. and Japan are printing money to get out of debt.
So there is a tacit agreement among Europe, U.S., and Japan to monetize the debt. The investment thesis is not to short EURUSD, but rather to buy commodities.
The whole con depends on perception. People have lost confidence and trust in their governments and banks. Bank runs are definitely the ponzi's achilles' heel. Call your bank and ask about withdrawing cash. What they tell you will likely scare you. Something perhaps nebulous sounding, like: "The amount you can withdraw on a daily basis depends on your specific account profile." A lot of people think that 2012 will be great for equities and that TPTB have the con under control. The other lot are realists and already see the shit hitting the fan.
well at least the US is getting a no money printing policy.
http://www.ecomm-unity.com/photo/money-printing-policy
Short gold and silver; buy the industrial commodities as well as the Softs. Own high-quality U.S. and Canadian industrial companies for a move to record highs in 2012. The Gold and Silver Trade is very very close to moving into Crash Mode - so far it has simply "rolled over". The policy-makers are now moving to a crush the Euro-bank-run favouring the Swissie and Gold by CRUSHING the "bugs" and forcing them to repatriate their gold and silver "currency" back into their beloved banks.
"In early 2011, the ECB sounded hawkish and then went on to hike rates in April and July, just as the Fed prepared to embark on QE2."
The ECB hiked rates in 2011, but didn't QE2 kick-off in 2010 and end in June 2011?
ESM resistance : If the official project is what the project document indicates; its the duty of every euro zone country citizen to reject it until it gets legally amended and approved by Euro/local national parliaments.
There is now a non-negotiable deadline for the Greek PSI, which is the bond redemption on 20 March.
Wasn't there a non negotiable deadline on the 19th of December 2011. EUR 2.5b to be exact, that somehow mysteriously disapppeared from the radar screen? Another EUR 5.2b is supposed to be due tomorrow. I wonder it this also disappears:)
"2012 is The Great Denouement – I don’t believe the can gets kicked into 2013. Austerity leads to slower activity, which requires more austerity, which forces further slowdowns. We are in a death spiral. Every day that the cost of funding is above the GDP growth rate, and this is the case for every single Euro economy as of today, their debt dynamics get worse."
Fate would dictate that the PIIGS have a massive amount of debt rollover in 2012 – more than 300bn Euros from Italy and 100bn from Spain, much of it focused in Q1.
http://kelpie-capital.com/2011/12/22/2012-outlook-predictions/
I really like your way of expressing the opinions and sharing the information. It is good to move as chance bring new things in life, paves the way for advancement, etc.
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