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Wednesday, July 27

July 27th LATE


Summary: Debt ceiling show continues, Spain/Italy yields up and stocks down to pre-meet levels. U.S. macro disappoints again, big time.

View: When the U.S. situation is cleared, there is no excuse for the euro yield uptick. Then the markets will become really worried. Hire me. I’m still bearish on Brazil.

How come the IMF already warns that they will lower their participation the next time PIIGS come begging, as our beloved eurocrats are publicly fully convinced that everything is now ok? Tons of articles coming out on the euro situation and now everybody and their grandmothers know that euro is a goner.

I think we are reaching a tipping point – anyone long PIIGS risk cannot later explain that they had “sound positions and the unexpected just happened”. Participants will start dumping their holdings right now, since there is no excuse anymore to be caught holding them.

Joke of the day: “With the IMF and the ECB assuming that Greece will have a sustainable primary surplus from 2012, Greece is likely to “master” its debt after implementing economic policy changes”  – German Finance Minister Wolfgang Schaeuble


EURO CRISIS
Holiday season in Europe at least leaves contradictory statements from eurocrats away from the picture. But sometimes

“Bankers and many journalists convey the impression that we face a choice between a full sovereign bailout and a catastrophic banking crisis.”

¨
…but in the same comm he told the joke of the day above, so take his opinion with a lot of salt.


EFSF is massively vulnerable to sovereign default correlation, as we all know, and the stresses are starting to become apparent even in the senior tranches.”



Cumber’s chief economist is polite and thinks at least eurocrats are admitting something, and going in the right direction – but very vaguely doubts if that will be enough.

Ecuador went through a debt buyback in 2008. Well written, with good points: “Only the probability of a default – and the goal of avoiding even deeper haircuts – can induce investors to liquidate their positions at a discount. But the buyback can succeed only if the market perceives it as the last chance before a unilateral debt restructuring.”
 A Greek Catch-22 – Yeyati / Project Syndicate

Interesting – IMF announces that next time they will lower their participation.


FINANCIAL CRISIS
In 1979 Treasury missed bill payments because of the debt ceiling show. Dollar dropped only 0.6%.

End futile wars, stop bailouts, prosecute the guilty and repossess their loot, slash pensions, end Bush tax cuts.

ex-Assistant Secretary of Treasury is not saving words. Basically he lists the same points as Big Picture above.
An Economy Destroyed – Paul Roberts via CounterPunch

“Read the writeup, ignore the rating.”
Downgrade Jitters – The Aleph Blog

Before Dodd-Frank CRA’s were exempt from selective disclosure regulations. Now they are not exempted, but are still doing it.



EMERGING
Former member of the monetary policy committee of the Peoples' Bank of China talks about the inflation situation.
China’s Inflation Muddle – Yongding / Project Syndicate


Roach and Roubini: Chinese Have Lost Confidence in America’s ‘Dysfunctional Economic Stewardship’ – EconoMonitor

China’s SMEs: hurting – beyondbrics / FT

China’s plan is to rely on consumers in the future.
Read China’s Lips – Roach / Project Syndicate

Has links and discussion on the household debt situation.


OPERATORS
Hedge funds closing to escape Dodd-Frank, family office is the new hedge fund
SAC's Steve Cohen To Close Flagship Fund – Institutional Investor


OTHER
Ritholtz’s presentation on investing, market cycles and price drivers has few entertaining slides

When 10% of population holds an unshakeable belief, majority will adopt it.