Weekend Reading – Stuff we found interesting this week

November 5, 2011

Global Macro, Interesting Links

November 5th 2011.

Welcome to our weekly roundup of the stuff we read that was interesting to us and hopefully to you. The links are below but first a quick thought on this week’s action in markets.

But what a week it was with the uncertainty surrounding the Greek Prime  Minister’s go-no go on the referendum and the threat to the bailout package let alone keeping the EU intact. As a behavioural finance/economics guy I think the cat is now out of the bag and whatever happens in the near term the seed has been planted and Greece – and or others – will default and or leave the EMU.

Markets had a tumultuous week as well opening up on Monday wondering if the deal could be held together only to be blindsided by Papendreou’s referendum call and then assuaged by Sarkozy and Merkel’s aggressive attack that had Papendreou retreating. It is this “military” languages that has me most intrigued about what’s going on at the moment. Papendreou called for G20 to safeguard democracy not the financial system on the same day that he sacked the top 4 Military chieftains in Greece. Equally language from French President Sarkozy, the same day, that the Euro was the heart of Europe and an insurance against the brutally of the wars of the last century (my paraphrasing)  spoke volumes as well.

What does it all tell me? France and Germany are still troubled by the ghosts of their pasts and will do almost anything to try to keep the EU and EMU together. So I believe the political will and resolve remains. But I also think that Papendreou has overplayed his hand a little. If Greece needs to be ultimately sacrificed for thee greater European good then I wouldn’t be surprised if they are forced out.

Ultimately the uncertainty continues and with that my predisposition to small aggressive trades but overall capital preservation.

To the links –

Lets kick off with a visual of the spreads in European bond land from Mish which highlight the dichotomy between what bonds and equities are doing. Here

Here is a piece from the Wall Street Journal (you may need a subscription) that fits with my hypothesis that the cat may be out of the bag.

We all applaud new ECB President Draghi’s move to lower rates this week but he needs to do more. Be more like the Fed and the BOE – here

Was it Mark Twain that said history doesn’t repeat it rhymes? Here is a scary rhyme from 1939. Any real reason it should be right? Not really but the parallels are scary and I’m watching it.

A couple of articles in the theme of Greece as “the little engine that could” and with regard to the Greek Prime Ministers moves this week. Revenge of the Sovereign nation here and the debtor nation that roared here. And from Martin Wolf of the FT,

Blessed are the creditors, for they shall inherit the earth. This is not in the Sermon on the Mount. Yet creditors believe it: if everybody were a creditor, we would have no unpaid debts and financial crises. That, creditors believe, is the way to behave. They are mistaken. Since the world cannot trade with Mars, creditors are joined at the hip to the debtors. The former must accumulate claims on the latter. This puts them in a trap of their own making.

Link here – may need subscription

Interestingly ISDA (International Swap Dealers Association) doesn’t reckon that a Greek default would be that disruptive to markets. Here

For those who like the irreverent style of Eclectica hedge fund founder Hugh Hendry here is a piece on his latest briefing via Zerohedge

We havent come as far as we thought since the demise of Lehman Bros. as the collapse of MF Global and the disappearance of the client funds has shown this week. The model still seems to be broken, here. I wouldn’t want to be a second tier broker for a while as Jeffries is finding out this week. UNINTENDED CONSEQUENCE? – big get bigger because investors and traders are too scared to trade with anyone else. This is counter to everything about TBTF and simply means we have to further strengthen the Basel III safeguards around SIFI’s. If this is the way the market is evolving then regulators need to evolve with it.

And from the father of behavioural finance and economics “Why do Wall Street traders have such faith in their powers of prediction, when their success is largely down to chance? “.Here is a wrap up of his new book from the Guardian, my copy of which is winging its way across the Pacific from Amazon USA – I can’t wait. We should all be humble before the market in the belief of our skills at picking it right. We’re going OK again this year but as Kahneman says and I sure Taleb would agree, we just might be really lucky – again 🙂

But there are many in the world who are down on their luck – here is a graphic depiction of the number of Americans who are now reliant on Food Stamps. 45.8 million Americans and all because global finance and economics and bankers believed their own publicity and hype – they should have listened to Kahneman and Taleb who have been telling them not to for years.

And of course the FT’s week in review

Have a great weekend

Greg McKenna

greg@lighthousesecurities.com.au

www.twitter.com/gregorymckenna

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One Comment on “Weekend Reading – Stuff we found interesting this week”

  1. Mr Editor Says:

    Thanks for the mention!

    Reply

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