Trichet

Pivotfarm's picture

 

Harvard University Professor Martin Feldstein, who predicted in 1998 that the euro would prove an “economic liability,” said the single currency will survive for now, even as he bets Greece quits within a year.

“With the exception of Greece leaving, I don’t think the whole thing is going to fall apart anytime soon,” Feldstein said in a Nov. 14 telephone interview. “The Greek situation is impossible.”

 

Europe Gets It

The stock market seems to be the last group still buying into the Europe "gets it" argument. The credit markets now seem to be fully diverging from equities, and offer more opportunities here than stocks.  In credit, Europe is starting to look attractive versus the US.  Sovereign credit looks better than bank credit in Europe.  High Yield may not be bad here, but we think HYG/JNK definitely got ahead of themselves at these prices.

Jim Grant: "The ECB Is Now Implementing The MF Global Trade"

To print or not to print: the choice of whether to open the European Pandora's box, which as we suggested two months ago is an interesting but ultimately moot thought experiment, has suddenly become the only talking point for TV pundits desperate for eyeballs and suckers to buy their books, who are now experts not only on monetary policy but European monetary policy. And while 99% of these empty chatterboxes should be promptly muted, one person whose opinion we value in any regard is that of Jim Grant. Earlier today, with Bloomberg TV's Deirdre Bolton, he discussed not only the expected ECB response to the ever worsening contagion (while the ECB bought Italian bonds in the open market, and potentially primary against its charter, it is prohibited from buying French bonds which is why the OAT-Bund spread closed at record wides), but all the other developments in the insolvent continent. Here are some of the key sounbdbites, and, of course, the full clip.

Previewing The ECB's Interest Rate Decision

Today marks the beginning of a new era for the ECB, with Mario Draghi taking over the helm from Jean-Claude Trichet as the President of the central bank. Unfortunately for Draghi, the changeover is to take place at a very critical juncture and at a time when market participants are demanding that the central bank takes more pro-active measures to stimulate the stagnating economy which stands on the brink of a double dip recession. However, such action may prove difficult for Draghi to push through the governing council since doing so only few months after Trichet announced that the central bank is to resume covered bond buying and 12-month LTROs risks undermining the central banks’ credibility. Another reason why a rate cut may prove futile is that the meeting coincides with the G-20 summit where leaders of the Eurozone are expected to endorse use of the leveraged EFSF fund as an investment opportunity for countries with a large budget surplus such as China and other BRICS. In turn this indicates that comments stemming from the summit may have a more profound impact on investors’ appetite for the EU related financial instruments and therefore determine whether the EUR/USD pair consolidates above the 1.4000 level.

Guest Post: Mario Draghi, Hawk For Whom?

With ex-­?goldmanite ‘super mario’ at the helm of the ECB, expect more money printing, a two tier banking system, and a bigger role for the IMF. After 8 years of Jean-Claude Trichet, the ECB gets a new face: the Italian Mario Draghi. From his recent statements in the press and elsewhere, many assume he will rather be a ‘hawk’ than a ‘dove’, meaning that Draghi will only print little money and will not lower interest rates aggressively. But a look into the past of this man makes us wonder: hawk for whom?

What Is A 50% NPV Reduction

In the original, July 21st proposal, the IIF assumed a 3.8% discount rate on the 30 year zero, and a 9% discount rate on the Greek flows. According to my little spreadsheet, that created an NPV of 78.9% - pretty much what they said. So that is how they calculated a 21% haircut. So what would the absolute most egregious way to say they are taking a bigger discount? If they ran the NPV with a rate of 4.25% for the zero (French 30 year zeros were trading at 4.1% yield yesterday according to Bloomberg) and they ran the Greek flows at a "less normalized" 20%, then guess what, the same bonds as July 21 would have an NPV of 50%.

Copper Has Largest 5 Day Move Ever At Over 6 Standard Deviations

As if the ES futures were not enough to satisfy the thirst of those seeking incredulities today, Copper - the oft-watched indicator of all that is good in the world for every Keynesian economist - has just smashed all previous records for its largest rise in a week. At over six standard deviations this is the biggest move ever and whether efficient market followers or Trichet stability hypothesis worshipers, this week's rip-fest must surely 'help' all those industrials in the world with their resource planning for the coming year/month/week/hour.

Trichet Interrupts Speech Calling For Formation Of European Finance Ministry, Booed Off By German Students

Earlier today we transcribed the speech by outgoing ECB president Trichet in which he called for the formation of a European Ministry of Finance coupled with what is essentially a requirement for the abdication of national sovereignty of those less than worthy countries, together with some less than flattering commentary. It appears a few people at least were not too happy with the call for the formation of the United Empire of Europe, at Humboldt University where the speech was delivered. Bloomberg reports that the "ECB president interrupted during speech in Berlin. Banners held up by students in audience reading “no more money for banks,” and “say no to debt tyranny.” We hope to bring readers a video as soon as one is available.

Trichet Repeats Call For European Finance Ministry, Abdication Of National Sovereignty

The outgoing ECB president has just released an extremely long-winded speech titled "Tomorrow and the day after tomorrow: a vision for Europe" in which he once again makes the simple case that without someone paying for the European experiment (ahem Germany), and without a Finance Ministry being created (read fiscal union), there is not much future to the creature known as the EMU (and parodied earlier). To wit: "This European finance ministry would, first, oversee the surveillance of both fiscal policies and competitiveness policies, and when necessary, have responsibility for imposing the “second stage” I just described. Second, the ministry would perform the typical responsibilities of the executive branches regarding the supervision and regulation of the EU financial sector. And third, the ministry would represent the euro area in international financial institutions. Since my Karlspreis address, it seems to me that the case for such an approach has strengthened." He reiterates his call for the United Empire of Europe: "Increasingly, it seems that it is not too bold to consider a European finance ministry, but rather too bold not to consider creating such an institution." Naturally he concludes: "Exactly how these new institutions would eventually evolve one cannot say." So don't worry about the details (typical Europe) just promptly sign off your independence to those who know better than you what to do (and can afford to pay for what is best for you). Wonderful. Now have fun selling the proposal of abdicating sovereignty to those European countries which are not Germany, with a particular focus on France and Italy.

They Can't Even Coordinate Press Conferences

In typical European leadership fashion, the need to speak useless words to an audience waiting for some sense of real actionable solution outweighs any actual ability to add value or say something new. What is even more incredible is that we expect the 17 (or 27) nations to agree on anything when they can't even communicate effectively internally as we see the Sarkozy/Merkel press conference perfectly overlap with the Barroso/Van-Rompuy conference. Bloomberg is reporting the headlines - which are the same old same old - and awe-inspiring in their lack of specificity and potential for total opposition in view. Grant Williams (of Things That Make You Go Hhmm fame) perhaps sums it up best: "Europe is broken and the people charged with trying to fix it are clearly not up to the job."

Berlusconi Screws Over The Wrong Person: ECB Shake Up Imminent Following Big French-Italian Relations SNAFU?

Just when one thought the Italian PM could not possibly come up with yet another massive SNAFU, he does it once again. This time however he may have screwed over the wrong (non-underage) person. Last night, after the FT had previously leaked (incorrectly once again) that the Italian head would pick ECB executive Lorenzo Bini Smaghi to head the Bank of Italy following Mario Draghi's departure to head the ECB, Berlusconi instead chose a relatively unknown Ignazio Visco to head the Italian Central Bank. The move, while largely symbolic as it hardly matters who is in charge of the Italian bank but is of great import from a "national pride" perspective, managed to infuriate French leader Nicholas Sarkozy, who had previously made it clear he would advance his support of incoming ECB head, former Goldmanite and current Bank of Italy head, Mario Draghi, only if Bini Smaghi would be pulled and his seat would be vacated to allow a Frenchman to enter the ECB. That did not happen. So with the latest faux pas out of Berlusconi, he is now poised to destabilize not only Italian-French relations, but the percevied stability of the ECB if the Frenchman decides to make it an issue vis-a-vis his support of the incoming President. All in all, this is yet another reminder of the total and utter chaos that dominates Europe every single day. And somehow the broad public is supposed to believe that Europe can come up with a solution to an insolvable math problem...

Latest Barrage Of Headlines From Europe

Time for European headlines. Because we haven't had any in about 3 minutes or so. Courtesy of Bloomberg, here is Angela Merkel doing her best channeling of Hank Paulson.

  • MERKEL SPEAKS AT TRICHET FAREWELL IN FRANKFURT
  • MERKEL SAYS EURO IS STABLE, HAS PROVED ITSELF IN TURBULENT TIME
  • MERKEL SAYS IF THE EURO FAILS, EUROPE FAILS
  • MERKEL SAYS 'WE SHALL NOT ALLOW' EURO TO FAIL
  • MERKEL SAYS NEXT EU SUMMIT IS `NOT THE END POINT' FOR CRISIS

And most importantly...

  • MERKEL SAYS NO 'MAGIC WAND' TO SOLVE EURO DEBT CRISIS
  • MERKEL SAYS PAST ERRORS WILL NOT BE SOLVED IN ONE STROKE

True, many, many strokes will be needed. But what about the market which has already priced in not only the Magic Wand but the Quidditch match victory over Slitherin. What now?