by Zero Hedge - October 23rd, 2011 11:32 pm
Submitted by Tyler Durden.
You mean, aside from the relentless headline barrage? Why yes, in a vivid reminder of what used to happen when actual fact-based events mattered, here is a complete summary of the key events in the coming week.
From Goldman Sachs:
Last week was a week of consolidation after the short-covering rally in the two previous weeks. Range-bound price action dominated across asset classes as investors were being kept busy following the European news, while macro data continued to stabilise at low levels.
In the week ahead, this pattern of stabilising macro data and Eurozone policy meetings will continue. Of course, the focus is on the EU summit on Wednesday, though expectations are not particularly high after weeks of continued negotiations and repeat summits. After the latest meetings this weekend, the details on bank recapitalisation, PSI involvement in the Greek bailout and a leverage scheme for the EFSF remain vague. While Eurozone leaders continue their debate, the week will also deliver a batch of interesting macro data in the Eurozone. Starting with the preliminary Eurozone PMI, we also get German consumer confidence and CPI data. Italy publishes consumer confidence as well and retail sales. Finally, Italy will try to issue EUR5-6bn in bonds on Thursday and Friday, possibly the first serious test of market confidence after the Summit on Wednesday.
The potential for a substantial Dollar sell-off and notable Euro rally is clearly there. Positioning data suggests continued stretched Dollar shorts against pretty much any currency, including the Euro. A quick and convincing solution to the Eurozone crisis could therefore lead to a sharp reduction in the Eurozone risk premium. Having said this, uncertainty remains high and our base case is for “muddling through” rather than a quick and convincing Eurozone solution. Last week’s modest strengthening of the CHF and the JPY may have been a warning sign that currency markets also remain skeptical. It may therefore take a bit longer before the September risk aversion moves can be unwound further.
Beyond the focus on the Eurozone, there are a number of central bank meetings this week (HUF, CAD, NZD, SEK, JPY, INR, ILS, RUB), with only the RBI expected to tighten monetary policy in India, as inflation pressures remain high.
by Zero Hedge - October 23rd, 2011 9:42 pm
Submitted by Tyler Durden.
Unaccustomed as we are to discussing the American Psychological Association’s 12-Steps to recovery, Credit Suisse have produced a clarifying reduced set that enables us to better judge the road being taken by the heterogeneous set of deaf-dumb-and-blind monkeys currently ‘solving’ the European addiction issues. The critical underpinning, that we have tirelessly brought to the public’s attention, is a fear that the illustrious leadership of our world are not even grappling with the real issues. CS tries to answer the following deeper questions: Are we recognizing the cost that is coming to the core, multiplying as we wait? Are we building credibility and starting to stem this overwhelming tide, or are we pretending, taking the target of our addiction from whatever source we can find it (latest target: the IMF) in the interests of a brief respite?
Policymakers, led by Chancellor Merkel, have started to recognize the existence and nature of the problem. We are irresistibly reminded of the steps towards recovery from addiction; the addiction in question being the par pretense and curing debt with debt.
Chancellor Merkel said last week, “The summit won’t be the final point where we regain the confidence of others, but it will be a stepping stone, a marker on the road. All of the sins of omission and commission of the past cannot be undone by waving a magic wand.”
This reduced set of ‘steps’ is required for investors to be confident that leadership are moving forward positively as opposed to hiding their stash in a top cupboard for later – or addressing the wrong issues.
Steps 0 to 2 seem most critical for now with Credit Suisse pointing to the following for Step 1:
…an acid test for any discussions, and the reason we expect disappointment, is whether the proposals:
1) Seek to cure debt with debt / confuse the markets into seeing solvency created for free / maintain the bezzle / damage credibility; or
2) The opposite and provide a visible mechanism for bringing costs of the order of a large fraction of a trillion euro or more to the core.
by Chart School - October 23rd, 2011 9:35 pm
Courtesy of Doug Short.
One of the big economic announcements in the week ahead will be the Advance Estimate for Q3 GDP, published on Thursday, the 27th, at 8:30 AM EST by the Bureau of Economic Analysis. The final number for Q2 GDP was 1.3%. Economists in general are optimistic that Q3 will show an improvement in this broad measure of the economy. According to Briefing.com, the consensus for Q3 is 2.2%, which is a bit more optimistic than Briefing.com’s own estimate of 2.0%.
But what sort of distribution of opinions do we find among the economists? Is the range of opinions wide or narrow? Let’s review the data in the Wall Street Journal’s October survey of economists, which is available in Excel format here. Fifty of the 56 economists solicited for survey responded. The chart below arranges the Q3 GDP forecasts horizontally from low-to-high to give us a clear idea of the distribution of responses and any outliers.
As the chart suggests, the majority of professionals fall into a fairly narrow range around the 2.1 mean (standard deviation of 0.56).
What do the economists see for Q4? The median and the mean are fractionally lower, but the range is considerably wider with a definite outlier at the bottom and a pair of outliers at the top.
We’ll find out later in the week how close the WSJ survey Q3 GDP consensus is to the Advance Estimate.
by Zero Hedge - October 23rd, 2011 7:52 pm
Submitted by Tyler Durden.
Even our non-polyglot readers will have zero problems understanding the response (in French) by Merkozy, when asked during the press conference, whether Italy, which has the second largest debt load in Europe at $2.2 trillion and inches behind German, will succeed in implementing promised ‘reforms.’ The wholesale laughter 19 seconds in the the clip, by not only the entire audience, but by Merkel and Sarkozy pretty much explains what the “next steps” in Europe are as the continent has now given up any pretense it is even trying to keep a serious facade on the upcoming serial defaults… and why 10 Year BTPs will need much more than just the SMP, EFSF and the hand of god to stay above 90 in the coming week.
Source: La Repubblica
As for the question of why Italy provokes laughter, we are not too sure. After all, as Italy goes, so does the world.
As a reminder…
- Morgan Stanley estimates net issuance should total 35 billion euros per year in 2012-2013, less than expect annual coupon payments of around €45 billion per year
- A total of €157 billion in Italian government paper will fall due by the end of the year. Redemptions will peak in September, when €46 billion of BTP CTX bonds mature
- Italy has raised €277.4 billion euros in debt so far in 2011, or 65.3% of its full-year target, the Treasury said – suggesting further issuance of €147.4 billion, according to Reuters calculations
- Italy’s public debt stood at €1,890 billion at the end of April, according to Bank of Italy figures. The public debt figure includes postal savings
- Italian government bonds and short-term bills totaled €1,583 billion at the end of June according to Italian Treasury data. Their average term was 7.09 years
- A one percentage point increase in Italy’s debt yields adds about €3 billion euros to interest payments in the first year, and twice that in the second, the Bank of Italy has said
- Italy forecast in April that 2011 debt servicing costs would total 4.8% of GDP, or about €77 billion
- The International Monetary Fund estimated in April that 47% of Italian 2010 government debt was held abroad. Morgan Stanley last week estimated foreign holdings at 44%
- Banks domiciled in Italy held €192
by Chart School - October 23rd, 2011 5:55 pm
Courtesy of Declan Fallon
The Russell 2000 continued its advance towards 760 resistance with technicals improving and a long way from overbought territory. Plenty of room for upside.
The Dow enjoyed a stronger accumulation as technicals finished the week net bullish. However, it was an index which finished on ‘bear flag’ resistance, so despite the bullish technical setup the preference is for a move down Monday.
The S&P was able to go a step better and edged over ‘bear flag’ resistance and put some distance on what had been a resistance around 1,209. Technicals also turned net bullish for the week.
The Nasdaq closed the week slightly lower, but technicals did enough to turn net bullish.
But helping the Nasdaq is the continued improvement in market breadth. The Percentage of Nasdaq Stocks on Point-n-Figure ‘Buys’ improved to turn technically net bullish.
So while the technical picture is net bullish across indices on the weekly timeframe, the presence of indices at ‘bear flag’ resistance suggests next week will be a downward one – starting Monday.
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by Chart School - October 23rd, 2011 5:09 pm
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by Zero Hedge - October 23rd, 2011 5:03 pm
Submitted by Tyler Durden.
Europe has officially entered the Tropic Thunder zone, where one, forget one thousand , monkeys armed with one simple solar-powered calculator, can come up with a better plan than (JP Morgan-advised) Europe. Because as we pointed out on Thursday, “nothing changes the fact that with €100 billion set aside for bank recaps, a woefully low number and one which will do nothing to assure investors that banks have sufficient capital, there is still not enough cash to “guarantee” all future issuance” – well it appears that Europe finally did the math which led us to conclude that the EFSF is DOA. So what is Europe’s solution? Why double counting aid already pledged of course: “EU bank plan may include aid already pledged to bailout states-sources.” Uh, what? “A drive to lift bank capital across Europe by up to 110 billion euros ($153 billion) is expected to include the roughly 46 billion euros already pledged to Ireland, Greece and Portugal to help their lenders, EU sources told Reuters….Another official confirmed the intention to count money already earmarked for banks in Ireland, Greece and Portugal in any recapitalisation plan. “The problem with shock and awe numbers is that it implies that the money is there,” said one official, reflecting on ministers’ reluctance to set public goals for recapitalisation. “But governments don’t have the money.“… Just as was repeated here over and over and over and over… And yes, that red stuff shooting out of the place where your head was a few second ago, is blood. It is now Europe’s official “plan” (for at least the next 2-3 hours) to use mystical, magical money, which is somehow double-counted to bail out both a bank and a country at the same time…
If over a third of the EU’s bank recapitalisation drive, which investors hoped would inject more than 100 billion euros of fresh money, is accounted for under old bailout programmes markets are likely to react with disappointment.
It would effectively shrink the overall package, designed to protect EU banks from the fallout of a Greek default and ease their borrowing difficulties amid a creeping credit freeze, from more than 100 billion euros to something around 60 billion.
It would also rest the burden for EU bank recapitalisation in large part on Spain,
by Zero Hedge - October 23rd, 2011 3:53 pm
Submitted by ilene.
Elliott and I interview Russ Winter of Winter Watch at Wall Street Examiner. ~ Ilene
In part 1 of Chaos in the Land of Oz, we established that the Fed is the Wizard and we are living in an economic Land of Oz. In part 2 we discuss whether there is a pathway back to Kansas.
“My people have been wearing green glasses on their eyes for so long that most of them think this really is an Emerald City.”
Elliott: In Part 1 of our interview, we agreed that by not allowing the too-big-to-fail (TBTF) banks to fail, the federal government is continuing its environment of corruption and moral hazard. Case in point – the scheme to force taxpayers to insure Bank of America’s worthless debt via the FDIC.
So, Russ, it will get worse, until TBTF banks get decapitalized?
(Note: “Recapitalize” banks is code for pulling it out of the hide of German (and other) taxpayers and future generations. “Decapitalize” means: do the crime, do the time – take the losses.)
Russ: Right. Take the investors out, the bondholders, and shrink the sector. Banking globally should be cut in half. That means the capital backing these institutions needs to go to money heaven. The word for it is “losses.” Right now we have “too big to let lose” because of fear of a bad hair day.
I was very disappointed last week when they started shilling for more bailouts. The bankers resist the restructuring, and the market rallies on that news. The market is hooked on bailouts and socializing losses. That was the basis of the 2009-2011 bull market. That can’t go on forever. All these money managers are chasing stocks because they expect another bailout. It’s nonsense!
Elliott: As an investor, I like to look for value. But it’s so hard to find real value when so much has been gimmicked by the Fed.
Russ: That’s my view entirely.
Ilene: What do you expect the outcome will be?
by Zero Hedge - October 23rd, 2011 2:44 pm
Submitted by Tyler Durden.
For over a year, our premise #1 in interpreting the newsflow out of Europe has been that in the absence of actual practical ideas, and the continent’s glaring inability to do simple math, the only option left to bEURaucrats has been to literally baffle people with so much endless bullshit that the general audience would be simply stunned by the possibility of an alternative that the union’s leaders were all talk and absolutely no action, let alone analysis. As of today, we now know that that is precisely the case: for over a year Europe has been mouthing off hollow rhetoric in hopes that the market would just leave it alone, and that promises of promises and plans of plans would be sufficient. That plan (pardon the pun) has now failed. And so behind the scenes chaos turns into fully public panic. As the FT’s Brussels blog summarizes, the only game left in town for Europe now is to push off D-Day, but not to some indefinite point in the future, like the US, but to tomorrow, and tomorrow and tomorrow, to channel the bard here. And nothing confirms better that it is all over for Europe, than the following summation of the terror and utter cluelessness gripping Europe, than the following sentence from the FT: “Just to recap, by Wednesday night there will have been nine meetings of ministers or national leaders in five days.”
- Friday afternoon: Eurozone finance ministers
- Saturday: EU finance ministers
- Saturday: EU foreign ministers (general affairs council)
- Sunday morning: EU national leaders
- Sunday afternoon: Eurozone national leaders
- Wednesday: EU finance ministers
- Wednesday (tbc): Eurozone finance ministers
- Wednesday: EU national leaders
- Wednesday: Eurozone leaders
This excludes some pretty major conferences, such as the impromptu pow-wow for Jean-Claude Trichet’s retirement in Frankfurt last Wednesday, and a bilateral summit between Angela Merkel and Nicolas Sarkozy on Saturday.
Simply said, Europe has telegraphed that it has failed to even plan for a plan.
But for those curious about the largely irrelevant details, here they are again from the FT:
After a two hour overrun, the meeting of the EU 27 has broken up here in Brussels, to be followed by a pow-wow of
by Zero Hedge - October 23rd, 2011 1:58 pm
Submitted by Tyler Durden.
Hardly the apocalypse scenario that the G20 and Nicholas Sarkozy predicted, but certainly not a ringing endorsement of European cohesion and stability. If this melts up in the Sunday futures session, we fully expect it to be due to ongoing FX repatriation by French banks.