Global Macro Trading Journal

[Daal]

Random brainstorms here. Is the EU really in a serious problem?Looks like the authorities have embraced the idea of haircuts. They have shown willingness to TARP their banks(Dexia even got saved). Greek haircuts will be increased down the line, banks will be recapitalized. If Portugal and Ireland join the barbershop as well, they will also be haircut and the banks supported. So all of this is no big deal

What about Italy and Spain?Well, the ECB is buying a shitload of their bonds. If the ECB donkocrats abandon their silly policy of protecting their capital at the expense of the world they would join the haircuts there as well. As far as I know both Italy and Spain don't need massive haircuts to be sustainable, only small ones(And that's assuming austerity won't work, which it might). With ECB haircuts and some private sector participation they could become solvent. Problem is, rolling of their debt. The would have to orchestrate the Soros scheme of inducing banks to buy bonds and ECB lending money to banks. There doesn't seem to exist any other solution(EFSF would be broke by then)

It doesn't look all that bad. Unless countries start to drop the EUR..

 

[ralph00]

The problems with Europe are a bit more existential. The elephant in the room is that most of these are not real economies, just a bunch of aging welfare states living off past wealth. The demographics are horrible, with birth rates below replacement level. In another few generations, there won't be any Italians left in Italy. If any of us had to choose a country to send our kid to, if that kid's desire was to be part of an exciting, growing, opportunity-filled economy ... is there even one country in the EU that would make the top 20 list (other than the eastern European nations). So yes, the ECB can become the Fed and start printing - that just moves the adjustment from government bond rates to the currency, but solves nothing.

The panic - and those nice 4% daily drops in Europe - may be over, but this issue cannot be printed away or centrally controlled away.

 

[Martinghoul]

Quote from ralph00:
The problems with Europe are a bit more existential. The elephant in the room is that most of these are not real economies, just a bunch of aging welfare states living off past wealth. The demographics are horrible, with birth rates below replacement level. In another few generations, there won't be any Italians left in Italy. If any of us had to choose a country to send our kid to, if that kid's desire was to be part of an exciting, growing, opportunity-filled economy ... is there even one country in the EU that would make the top 20 list (other than the eastern European nations). So yes, the ECB can become the Fed and start printing - that just moves the adjustment from government bond rates to the currency, but solves nothing.

The panic - and those nice 4% daily drops in Europe - may be over, but this issue cannot be printed away or centrally controlled away.

These are existential problems facing most Western societies, to a greater or lesser degree. Furthermore, an integrated Europe could offer a solution on that front also. I would agree with Daal and say that there's a chance that, just like with the US a while back, this crisis could become a beginning of a real union. However, I wouldn't bet the farm that this is what happens.

 

[Debaser82]

Quote from ralph00:

The problems with Europe are a bit more existential. The elephant in the room is that most of these are not real economies, just a bunch of aging welfare states living off past wealth. The demographics are horrible, with birth rates below replacement level. In another few generations, there won't be any Italians left in Italy. If any of us had to choose a country to send our kid to, if that kid's desire was to be part of an exciting, growing, opportunity-filled economy ... is there even one country in the EU that would make the top 20 list (other than the eastern European nations). So yes, the ECB can become the Fed and start printing - that just moves the adjustment from government bond rates to the currency, but solves nothing.

The panic - and those nice 4% daily drops in Europe - may be over, but this issue cannot be printed away or centrally controlled away.

There is no escaping this global event except perhaps in artificial mini states a la Switserland, Luxemburg or Singapore whose models are not implementable on a larger scale.

For each continent be it America, Europe, Africa or Asia you could give 10 problems considered almost impossible to solve today.

Time will tell which continent wins last place and which first but let's face it there will be no nirvana that will flourish while the rest goes up in flames.

Every continent has it's Detroit and it's Hamptons.

 

[Daal]

Quote from ralph00:

The problems with Europe are a bit more existential. The elephant in the room is that most of these are not real economies, just a bunch of aging welfare states living off past wealth. The demographics are horrible, with birth rates below replacement level. In another few generations, there won't be any Italians left in Italy. If any of us had to choose a country to send our kid to, if that kid's desire was to be part of an exciting, growing, opportunity-filled economy ... is there even one country in the EU that would make the top 20 list (other than the eastern European nations). So yes, the ECB can become the Fed and start printing - that just moves the adjustment from government bond rates to the currency, but solves nothing.

If would solve a great deal if the ECB boosted the EU NGDP and took haircuts. It would take a lot of pressure off politicians and the EFSF

 

[Daal]

I've been thinking about the sov CDS issue and I don't think there is a high chance that longs wont be paid there. So far the authorities have been doing everything they can to "avoid a lehman". And there seems to be a lot of banks who hedged using CDS(I believe MS is among them), they would suffer a lot if the hedge failed
So far I haven't read any evidence that on net banks will win if there is no CDS payout, I'd suspect they will be net losers which means banking capital will increase if there is a payout.

So the authorities have an incentive to pressure ISDA to create a payout, so they probably will. Why wouldn't they?

The short bonds short CDS bet was sound last week when you were getting PAID to put in on(As I understand a positive basis mean the CDS has more juice than the bonds) but lately it turned around

 

[Martinghoul]

There's been a lot of ink spilled on the subject. It can be discussed ad nauseam.

 

[ralph00]

Here's someone's 2 cents. The EUcrats are going to clever themselves and the financial system into oblivion if they try and get away with not paying on the CDS.

http://www.bondvigilantes.com/2011/...nger-an-effective-hedge-then-whos-in-trouble/

 

[Daal]

Quote from Martinghoul:

There's been a lot of ink spilled on the subject. It can be discussed ad nauseam.

If the article is right and DB is a large buyer of PIGS CDSs, they will be paid."This time is different", this ain't no Argentina

 

[Martinghoul]

Quote from Daal:
If the article is right and DB is a large buyer of PIGS CDSs, they will be paid."This time is different", this ain't no Argentina

Who knows? More importantly, who cares... Doesn't change the fundamental fact that sov CDS is a sh1t product and shouldn't be touched with a 10ft pole.