Posts Tagged ‘Eurozone’

Notes From Underground: Martin Wolf/Mr. Fantasy Lays Out The Road For Germany To Exit The EU

May 10, 2016

In tomorrow’s Financial Times, one of the major sycophants of ECB and Brussels policy has raised his “voice” in castigating the Germans for being the source of all the EU’s current problems. Martin Wolf’s op-ed piece, “Germany is the Eurozone’s Biggest Problem,” is a criticism of the German export engine. And it seems to be another source for what appears to be a concerted effort to challenge Berlin’s intransigence over the need for budget austerity before fiscal stimulus. Wolf’s opening salvo against the Germans: “The financial crisis has given it a dominant voice in eurozone affairs. This is a matter of might, not right. Creditor’s interests are important. But they are partial, not general interests.”

My response to this is that Mr. Wolf sets up a straw man with this argument. The Germans MIGHT have evolved because without them GUARANTEEING the promises of President Draghi’s “whatever it takes” campaign to maintain the existence of the EURO, the entire EU project would have collapsed under the weight of its highly questionable ability to honor the debt of what at the time was referred to as the PIIGS: Portugal, Italy, Ireland, Greece, Spain.


Notes From Underground: Why Bill Gross Is Right and Wrong

April 21, 2015

Bill Gross was the darling of “access media” for promoting his favorite trade (what he called the short of a lifetime), the German bund. It captured the headlines on financial blogs but it is the wrong trade. If an investor wished to trade the “short of a lifetime,” the more appropriate tool would be the FRENCH OAT (the name for the French 10-year bond). It seems that Gross’s logic is based on the fact that the German BUND can only drop to -20 basis points because the ECB has determined that it will not purchase sovereign debt yielding less than its official reserve rate so over the time the BUND  has a ceiling on its potential value. Gross is making the case that the ECB has so badly distorted the sovereign debt markets through its QE program that valuations are badly misaligned, BUT THE FRENCH OAT IS MUCH MORE OVERVALUED.


Notes From Underground: No Box Can Contain These Thoughts

April 30, 2012
First let’s dispense with the market data:
1. Tonight at 11:30 p.m. CST the RBA will announce its interest rate decision. The market consensus is for a rate CUT of 25 BASIS POINTS  from 4% from 4.25%. There are a few analysts looking for a 1/2% CUT and from looking at the near term curve inversion that is not a far-fetched concept. The overnight/2-year curve is inverted by 125 BASIS POINTS so a larger cut would help correct this inversion. (Not a bad idea for an economy that is slowing and the Aussie Treasurer has made known his desire for raising taxes to help repair the BUDGET DEFICIT that has arisen during the last four years. An anticipated 25 basis point cut be market neutral while a 50 basis point cut would lead to an immediate selloff of the Aussie dollar. More important will be the RBA‘s STATEMENT as our readers know that Governor Stevens is a very astute analyst of the GLOBAL ECONOMY, so listen for any mention of an AUSSIE FEAR OF A SLOWDOWN IN CHINA.

Notes From Underground: They Loaded 275 Billion Pounds and What Did They Get?

October 6, 2011

(Another day older and deeper in debt.)

No surprises from the ECB as they held rates at 1.5% as Trichet ended his reign at the helm of European banking by paying homage to the FONZ: Never admit that you were wrong. The ECB did announce that it was extending its policy of providing liquidity to EUROZONE banks at extremely low rates for a period of 12 and 13 months in an effort to prevent any immediate bank run. Also, the ECB announced that it would buy up to 40 billion euro of covered bonds, but that should not be a big deal for covered bonds are the best collateral so many banks will probably not be running for funding posting the highest rated debt.


Notes From Underground: The markets will labor with the unemployment report

January 6, 2011

Let me state out again as to why the FOREX markets are going to be a difficult investment in 2011. The emerging markets and commodity-based currencies have been the repositories of global capital seeking to take advantage of the Chinese and India growth phenomena without having to actually invest in the countries themselves. If you like China, buy the Australian equity or currency as it provides a proxy on Beijing’s growth policies: A classic case of providing picks and shovels rather than mining yourself.


Notes From Underground: British Currency Gets Pounded

December 16, 2010

Yes, the dollar rallied Wednesday as the U.S. Treasury curve continued to steepen but European and British news was very negative. The potential downgrade of Spain and German Parliamentary battles roiled the European currencies. In Germany, politics are being played out to see if the economic locomotive of Europe is going to be more European or more German. A Financial Times op-ed by Frank-Walter Steinmeier and Peer Steinbruck set the tone for the battle lines. These are political heavyweights as Steinmeierwas foreign minister and Peer Steinbruck was finance minister in the first Merkel administration so their voices are louder than others.


Notes From Underground: Lib/Dems and the Labors of a HUNG Parliament lasting more than 24 hours

May 10, 2010

First things as usual are European.The Eurozone financial package was greeted with enthusiasm but the effects of the Champagne wore off and all the market was left with was bubbles in the air. We are not certain how large the “bailout” is, but it seems to consist of €440 billion of loan guarantees for governments that run into severe difficulties. There’s a €60 billion balance of payments facility and the IMF has agreed to add an additional €250 billion.