Global Macro Trading Journal

Quote from Daal:
Maybe after years but the immediate effect of countries dropping shouldn't be a rally in EURUSD in my view. Its going to be a bank run situation where capital is going to be running. Some of that will stay in the EUR zone and go to Germany but a good chunk will probably go to other currencies. This scenario seems particularly likely given that a sell-off will be self-reinforcing(Why stay in Germany when you are being hit by capital losses)

There is also the effects of whether the aggregate of the countries that leave produce a capital account surplus or deficit(I haven't thought about this deeply, Buiter probably has some kind of article on this) , along with the EUR cash selling by citizens
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I dunno about that... Take an extreme, where everyone drops out of the EUR, apart from Germany, which decides, by sheer coincidence, to call its new ccy EUR. What's the EURUSD exchange rate in this case? Then imagine a case that it's not just Germany, but rather Germany + Holland. I am not quite sure what you mean about a self-reinforcing selloff and capital losses.

As to the surpluses/deficits, I am pretty sure that Germany is the only one that really matters.
Quote from ralph00:
Um ok, yeah $2, but not before hitting $0.75 first.:)
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I dunno about that... The EMU's fiscal metrics, on aggregate, look healthier than many of its competitors' (as Tricky kept reminding us at every single meeting). Certainly healthier than the States'.
 
Quote from Debaser82:
The Belgian branch of Deutsche bank falls under the German deposit insurance...:p
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What are the exact legal arrangements? What is the ccy in which the insurance fund pays out? Is that explicitly specified in the legal docs? What are the assets held by the insurance fund against potential claims? All these things may matter, if we go to the bitter end. I don't know if you guys have seen this old post by John Hempton, but I do think it's appropriate (and sobering) reading: http://brontecapital.blogspot.com/2011/09/models-for-greek-sovereign-default.html
 
Quote from Martinghoul:

What are the exact legal arrangements? What is the ccy in which the insurance fund pays out? Is that explicitly specified in the legal docs? What are the assets held by the insurance fund against potential claims? All these things may matter, if we go to the bitter end.
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Yes ofcourse you are right and I'm pretty sure there are backstops implemented to stop it from being equal to a German bank itself. They don't really let the little people read the very little letters you know...

Or they will just say go fuck yourselfs when the moment comes who knows what the geopolitical situation would be at such a time.

All this hasnt stopped them from advertising with the German backstop though...:D
 
Quote from Debaser82:
Yes ofcourse you are right and I'm pretty sure there are backstops implemented to stop it from being equal to a German bank itself. They don't really let the little people read the very little letters you know...

Or they will just say go fuck yourselfs when the moment comes who knows what the geopolitical situation would be at such a time.

All this hasnt stopped them from advertising with the German backstop though...:D
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Interesting... Do they really advertise Deutsche Bank deposits in Belgium as "safer", due to the German backstop? That's food for thought right there.
 
Quote from Martinghoul:

Interesting... Do they really advertise Deutsche Bank deposits in Belgium as "safer", due to the German backstop? That's food for thought right there.
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I wouldnt read more into it besides the savings market here being very competitive and overcrowded.

Deutsche here is very low cost really... Very limited service and branches but high interests.

Not having received a bail out and the German backstop now gives them room to position themselves as safe.

Easy money for them really.

Like Dexia is now 100% safe because it's government owned...:D

Anyway, the interconnectedness in Europe's banking system is just so overwhelming it is probably cause nr 1 for no real solution being sought for and I believe things will stay like that for some time to come.
 
Quote from Martinghoul:

I dunno about that... The EMU's fiscal metrics, on aggregate, look healthier than many of its competitors' (as Tricky kept reminding us at every single meeting). Certainly healthier than the States'.
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I expect such arguments from politicians. Those metrics have zero to do with the exchange rate. Even if they did, I don't necessarily agree with them. Ireland had wonderful fiscal metrics and then went broke almost overnight when the debts of its banking system were brought onto its balance sheet. Spain has wonderful relative fiscal metrics, but the market is looking at their banks as well. I'm pretty sure the debts of Europe's banks as a % of GDP are far greater than the U.S. and likely most major economies.
 
Must admit that I have a hard time squaring the current risk-on rally with any fundamental developments. The market rallies on the mass Euro-downgrade, apparent collapse of the Greek debt negotiations, and the tepid (at best) earnings results that have been coming in. Arguably the first two were expected and priced in, but not the third. Economic data has been mixed to decent in the USA but pointing to a significant slowdown/recession in China and Europe - again, not to the detriment of our equities nor AUD. The market is behaving very similarly to the early QE2 reaction in the fall of '10, but the fundamental backdrop appears to be much worse this time around.

With the LTRO, has the ECB managed to pull off the same trick as the Fed with QE2 - implying six months or more of melt-up rally ahead and maybe much more depending how the February tender goes, irrespective of any fundamental developments short of a Lehman moment?
 
Quote from Specterx:


With the LTRO, has the ECB managed to pull off the same trick as the Fed with QE2 - implying six months or more of melt-up rally ahead and maybe much more depending how the February tender goes, irrespective of any fundamental developments short of a Lehman moment?
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Uh yeah. We went straight up after the Spanish auction.
 
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