Opening Quotes: Disconnected Stimulus

US & Europe believers are eagerly awaiting another fix …..

But the disconnects – in performance & cure all optimism in the power of the modern central bank- with China are opening very wide.

FT: ‘Hopes of stimulus steps supports stocks’

” …… investors are being presented, perhaps, with evidence from China of the limits to monetary policy’s sentiment-reviving qualities.

Speculation abounds that Beijing is preparing to again cut the reserve requirement ratios for the country’s banks in an effort to encourage lending as economic growth slows.

Any such move would follow last month’s first cut in borrowing rates since 2008, an easing of policy that many would have expected to encourage a stock market revival.

Yet on Thursday, the Shanghai Composite is down 1 per cent and sitting only about 0.5 per cent above its lowest closing level since the start of January.

Steelmakers and coal miners led declines in Shanghai amid weakening demand and falling prices. Indicative of the concerns about slowing growth in the world’s second-largest economy, shares in Sany Heavy Industry extended losses for a fourth day, as the company, China’s biggest machinery maker by sales, cut jobs.”

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Opening Quotes: Throwing Dummies

You had a sense their was a rabbit lurking in the hat, but the timing and extent on Friday’s ‘relief rally’ surprised me. And, superficially, it seemed justified.

Then there’s the  reality.

FT’s Wolfgang Munchau  - consistently ahead of the curve – claims: ‘The Real Victor in Brussels was Merkel.’

Unfortunately I believe he makes he makes a compelling argument. Strip away the political victory laps and what really happen?

Germany’s liabilities are unchanged.

The ESM has no banking license.

Italy hasn’t really gained anything.

The move towards euro-wide banking supervision (& Spainish recaps) will be torturous.

Conclusion: Merkel stands over her ‘not in my lifetime’ Eurobonds pledge, the ESM is seriously overloaded and by the way – where on earth does the growth come from?

Germany – and remember Merkel is <rightly> contemptuous – has bought the market some time but this could be THE rally to sell.

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Opening Quotes: Mario’s Moment

From this morning’s FT <’Monti lashes out at Germany ahead of summit’>:

“Speculation over the fate of his government has become so feverish in Rome that officials were forced to deny that the prime minister had threatened to resign if he were to leave Brussels without success.”

Mario is THE archetypal European.

Remember he was dropped in to replace the ever more populist Berlusconi.

IF Monti’s ‘technocratic government’ falls elections will follow and the muppets will be in charge of a country that really matters.

In Monday’s FT Wolfgang Munchau dares Monti to ‘speak truth to power’ and  threaten resignation if his eminently sensible desire to find a compromise was blatantly fudged – into yet another ill-fated fudge – by the all too complacent fudgers.

Well, in a rather Romanesque manner, it appears Mario has decided to depart with honor rather than defend the increasingly indefensibly.

In the ongoing ‘horror without end’ this represents a genuinely serious moment- even Berlusconi recognizes <opportunistically?> the fall of Monti would be seen as ‘catastrophic’ in Brussels.

Mario needs a result off the Germans OFF the soccer pitch.

We <Irish et al> all do.

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Opening Quotes: Resisting Europeanisation

The pressure is on.

Geithner expects lots more.

But lest we doubt it – huge – justifiable? – German resistance remains.

Joseph Joffe (Editor of Die Weit) – FT Editorial:

“When Helmut Kohl went to Maastricht in 1992, he thought he could “Germanise” Europe by imposing fiscal and monetary restraint on the rest. Now, the crisis countries want to “Europeanise” Germany: spend, inflate and pay. Germany must cheapen credit for all and shoulder the risk alone. It all adds up to a moral hazard that will perpetuate the maladies of the eurozone.”

“Berlin has already failed once in “Germanising” the eurozone via fiscal probity and reform. Why would Club Med mend its ways as long as Germany is such a good “europayer”? If it doesn’t, the eurozone can look forward to bankruptcy and decay.”

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Opening Quotes: Breaking The Loop?

The ‘horror’ continues and market feel like they’re stuck in some interminable loop ……

But this feels different. Its feels like we’re in the final spiral.

I was surprised but encouraged by the markets impatience with the Spainish ‘recapitalization’ deal.

Have the fudgers have finally run out of time?

Its horrendously difficult to ‘trust’ these guys ….. but risk-reward tempts.

FT: ‘Backing grows for one EU bank supervisor’

“François Hollande, the French president, is leading calls for the ECB to take oversight of banks and, when necessary, use the new €500bn eurozone rescue fund, the European Stability Mechanism, to buy direct stakes in struggling banks.

Several ECB top officials have publicly backed the thrust of the proposal. Benoît Coeuré, an ECB executive board member, said this weekend “if the ESM could inject capital directly into banks, with strong conditionality and control, this would also help to break the bank-sovereign loop.”

FT: G20 targets growth to restore confidence’
“According to leaked drafts of the communiqué, the G20 will state: “The euro area member states at the G20 will take all necessary policy measures to safeguard the integrity and stability of the euro area, including the functioning of financial markets and breaking the feedback loop between sovereigns and banks.”
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Opening Quotes: Give Them What They Want

Pavlovian.

But sometimes it really is laughable simplistic.
Cynics will continue to ask – legitimately – what happens when the drugs no longer work?
But its no consolation.
Markets will become ever more un-tradable in the process.

Bloomberg: ‘European Socks Gain On Stimulus Optimism’

“U.S. stocks gained yesterday after Reuters reported that central banks are prepared to coordinate action, if needed, to boost liquidity in financial markets. Reuters cited officials linked to the G-20 nations.

Spokesmen at the European Central BankBank of England, Bundesbank, Swiss National Bank and Bank of France declined to comment when contacted by Bloomberg News on the prospect of emergency coordinated action.”

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Opening Quotes: European Price Tags

We continue to close in on something approaching an endgame.

The ‘solutions’ are now known.

But who pays? Who is the back-stop?

Germany – and lets be fair – has done the math & it made its position clear – it can’t do it alone.

But asking the non-Europena world to make the difference?

Might be right. But seriously tough call.

http://www.bloomberg.com/news/2012-06-14/merkel-says-germany-will-lead-crisis-fight-g-20-must-help.html

Budget austerity and measures to promote growth in Europe remain the twin pillars of stemming the crisis right now, Merkel said.

Her message that Germany can’t shoulder the burden alone is aimed at “all those in Los Cabos will be looking to Germany, who are expecting the ‘big bang’ and the solution from Germany – - such as euro bonds, stability funds, European deposit- insurance funds, additional billions and much more,” she said.

“All resources, all measures, all packages will end up being smoke and mirrors if it becomes clear in the end that they extend beyond Germany’s capacity,” she said.

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Opening Quotes: Two Tail Days

From the FT:

“The crisis is deteriorating at an ever-increasing pace,” said Mark Schofield, a senior strategist at Citigroup. “Investors are increasingly pricing in either of the two tail risks – full eurozone break-up or fiscal union.”

Agreed.

Its as simple and horrendously complicated  as that.

I find myself torn between wanting to believe Barroso’s ‘very big step <forward>’ is close …….

Whilst sensing we need another – genuinely traumatic – event to breakdown the final barricades of resistance.

Crisis fatigue is creeping across the screens.

Can the eternal ‘fudging’ last much longer?

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Opening Quotes: ‘Repeating Irish Mistakes’

The football was bad enough, but this is NOT a good result for Ireland.

Strip away Rajoy’s posturing – I don’t see how this changes anything.
The EU/IMF – the Germanic core – as still loading the banking clean-up costs directly upon the periphery. It hasn’t worked. It won’ work.

Its another FUDGE and – unless the markets call them out – it seriously deflates momentum towards a euro-wide deposit guarantees &/or ESM bank recapitalizations.

Not good.

FT.com: ‘Europe buys itself some time’

The key dysfunction of the euro, however, is not addressed. Rather than sever the lethal embrace between stressed sovereign debt and weak banking systems, a cash advance to bail out banks with taxpayer funds adds to the burden of Madrid’s public finances. If the state of Spanish banks is much worse than expected, this action could amount to lending the country rope with which to hang itself – repeating the Irish mistake.

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Opening Quotes: ‘Here Come The Historians’

Thoughtful article comparing the events that precipitated the collapse of the ‘Rouble-zone’ with the EU.

Ending the week disappointed with rhetoric surrounding the Spainish banking recapitalizations & prospective deposit guarantee scheme – I think the core is the problem.

It was never going to be easy, but I sense – once more!? – the markets <relief> rally has inadvertently endorsed ‘the fudgers’ self-confidence.

Back on the defensive until the crisis takes another – deeper – twist.

http://www.bloomberg.com/news/2012-06-07/euro-breakup-precedent-seen-when-15-state-ruble-zone-fell-apart.html

The lesson for the EU is that it should be watching closely what Germany is doing, and be wary of calls for a smaller euro zone, or a “two-speed Europe,” Krastev said. Unions don’t break up because of troubles in peripheral countries, they break up from the core, he said.

“Disintegration doesn’t occur because everyone wants to go their own way,” said Krastev at the think-tank in Bulgaria. “It happens because politicians envisage a closer, optimal union. This crisis is already reducing the borders of solidarity. The EU space is going to be renegotiated.”

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