What Now For Europe?

With Greek 2yr yields skyrocketing north of 10%, it would appear likely that the Hellenic Republic has passed the point of no return.
While the euro has weakened sharply over the last couple of days, if this is in fact "the big one", then there could be a heckuva lot more downside to the single currency, especially if/when the market focuses it's laser on the remaining PIGS. And if Voldemort and co. ever pull the bid in EUR/USD?

Whoosh! We'll party like it's 1999.

Macro Man is curious what the market is expecting...not in terms of financial pricing, but with respect to actual economic and policy outcomes. So if you have a view, please vote in the poll below, which will hopefully be correctly formatted with 5 choices.


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April 22, 2010 at 10:31 PM ×

wow, the fact that all risk assets are not a lot more off today is mindblowing.


In other news, Nemo is in Vietnam and all appears well. Long Dong/Silver never looked so good.

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Unknown
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April 23, 2010 at 12:18 AM ×

3 voters for the first option? I guess George Papandreou and his mother are two, but who is the third?

On the plus side, if the public sector workers can remain on strike for the rest of the year, the budget situation may be significantly improved.

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April 23, 2010 at 1:09 AM ×

I did "Other" and that would be:
Greece rolles debt over (wtih IMF backing) to 100 year bonds at 1% rate and we all move on. Look for this to catch on.

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Charles
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April 23, 2010 at 9:14 AM ×

First, an "last minute" bail-out pushed by France and IMF. Germany grudgingly follows. Euro up

Second, contagion in the rest of the PIGS. When it reaches Spain, Germans freak out and get out of the Euro, together with Austria and Netherland. Existing German, Austrian and Dutch debt stays denominated in Euro. Euro down big time.

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Pascoe
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April 23, 2010 at 9:59 AM ×

As tempting as it was to be talking my book and harking back to old war stories about mark/paris, I went with slightly dull option 3 I think. Everyone gets a piece of the pie, euro just about hangs together with bits of string, blue-tak etc.

p.s. @ Nemo I can't believe you told the Long Dong Silver gag. I'd be fired on the spot for that I think ;-)

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Charles
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April 23, 2010 at 10:35 AM ×

Richard, that is Japan's way out of the crisis, not Greece...

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April 23, 2010 at 10:48 AM ×

Pascoe I'm not Mark Faber, I was just expressing my view on EM currencies vs commodities.... though I'm actually here more for equities (as per usual). It is really depressing that the new office buildings here are better designed than those in HK.

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Anonymous
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April 23, 2010 at 1:31 PM ×

the high for the bounce after the 1929 crash was made 4/16/30, so we're in the time frame for the 1930 or 1976 analog and a fall into the rarely if ever failing 4 year presidential cycle low for the SPX

the AUD and the XLF have had a real tight correlation lately

the euro has had a real tight inverse to the Greece-German 10-yr spread.

so, if labour wins, the GBP/USD will drop...

TGIF!!

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Anonymous
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April 23, 2010 at 2:16 PM ×

Pain Trade A Clear Talking Point Again

Those who changed market psychology last Friday, including myself, have a tactical trading decision to make due to being offside’s. The upside SPX range of 1185-1211 is at risk of being broken. Add in the fact that most investors who hedged or attempted to short weakness since last Friday did so below 1195 where the majority of volume was recorded. Point being, the return of the pain trade is today’s backdrop anchored by a view that Greece’s calling for activation of a financial lifeline is positive risk assets, ex the EUR. Discipline argues a new high stop in SPX but instinct argues patience until Europe’s close because there simply is not one negative call on the street today. I will wait for the follow through before moving to a the sidelines, lack of confirmation and I hold my negative bias into Monday.

Last Friday: The bias for a downside move was predicated on the weakness in Chinese local and property shares, the acceleration of Greece spread widening and the Financial asbestos claims. Those views were anchored by the notion that sentiment has turned negative and that forward looking job growth would be tempered according to the most recent confidence and small business macro data. Professionals were looking for a downside break in SPX below 1185.

This Friday: One week later, perception is that the main ingredients for a favorable macro backdrop remains: strong US/China retail sales, weakness in US/China core inflation, strong manufacturing & Services, affirmation by Bernanke of “extended period” for longer, and strong earnings. The Financial asbestos claims and the Presidents delivery of reform yesterday have been tempered due to outsized sector earnings and a less violent tone. China and Greece continue to fall on deaf ears in developed market assets, both equities and fixed income.

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Leftback
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April 23, 2010 at 2:53 PM ×

The only thing I am sure about for the time being is we have a little trading range going on in Treasuries, roughly (10y = 3.70 - 3.90). That being said, short govies from here into the usual Magic Monday event.

Rest assured that there will be a Monday that isn't Magic one day, but it seems unlikely to happen before the UK general election is behind us. The problem remains that when All Hell Does Break Loose it is now likely to do so in a global manner as almost every market on earth is now a giant game of chicken.

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Leftback
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April 23, 2010 at 7:46 PM ×

MM, your piece on the upcoming British General Erection was hilarious.

Are we seeing a turn-around in mainstream media news flow? Erstwhile economist turned nimble propagandist Krafty Krugman is openly sticking the boot in on the bankers now:

Krugman on Financial Reform

Not around today, I see. Thought you might have been called up to pitch relief for the Pirates....?

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Anonymous
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April 26, 2010 at 12:42 AM ×

good good good, good vibrations!
we're talkin' 'bout exitations!!

SPX exceeded last week's high, making eight consecutive weeks of higher highs..Of the 16 mondays in 2010, equities have closed higher 12 times, and the last 4 in a row...

good SPX resistance numbers: the .618 of 667-1576 at 1228 and the 200 week MA at 1224.6 and a 2006 low at 1219

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Unknown
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April 26, 2010 at 10:01 PM ×

problem in greece is that real money holders look at yield... and yield is high. but... distressed buyers look at price... and price is HIGH. not until we are inside 80... maybe flat at 60 in price... will this find a bottom.

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Unknown
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April 27, 2010 at 1:59 AM ×

If you're concerned about that America will look like Greece one day you should support Candidates like Ryan Brumberg -- http://www.brumberg2010.com -- who has some good ideas on his issues page and (unlike most politicians) appears to understand some economics.

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Unknown
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April 27, 2010 at 1:59 AM ×

If you're concerned about that America will look like Greece one day you should support Candidates like Ryan Brumberg -- http://www.brumberg2010.com -- who has some good ideas on his issues page and (unlike most politicians) appears to understand some economics

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