Greece dominated headlines this week, even as Spain was struck with downgrades from Moody’s and Egan Jones.As the country heads back to the polls this weekend, many have come to view the election’s results as a referendum on the euro.
And that has in turn fuelled greater talk of further QE.
Trying to make sense of it? Unfortunately everyone has a different opinion.
'...as the ongoing electoral campaign demonstrates, Greece is not prepared to keep quiet and simply accept the troika terms in return for further financial support. Europe is prepared to stand firm in the face of requests to renegotiate the second financing programme. It is unlikely that the election held next Sunday should bring the stability that the institutional creditors wish for. The Europeans are prepared to let Greece descend towards chaos until the Greek politicians and public get reasonable and accept the memorandum their government has signed.'
'However, we think a more likely scenario if a Syriza government fails to agree with the Troika, before Greece decides whether to exit the euro or not, is another election. Pasok is very likely to withdraw its support for the Syriza government following disagreement with the Troika, or after the government is unable to pay its obligations and the economy is threatened by instability. Such an election could lead to a government that will be more committed to reforms to keep Greece in the eurozone, but by that time the required adjustment is likely to be substantially more difficult and to require even more official funding. In our view, it is too early to determine how the rest of the eurozone will react at that point.'
'...the massive expansion of the SNB balance sheet and the commitment to the peg now combine to make the Swiss 10-yr bond the European benchmark. Switzerland is considered the highest-quality, most truly AAA-rated credit in Europe. Switzerland is supposed to be a neutral country, but it clearly has linked its monetary path with that of the eurozone.'
'I think the trading loss will ultimately be about $4 billion,' Bove said. 'I think it was proprietary trading. I think there is nothing positive to be said about it. Again, relative to the size of a $2.3 trillion size institution it's pretty hard to get upset over.' However, Bove said he thinks the trading loss does tarnish Dimon's image because 'it was not expected to happen at a bank like this.'
ZERVOS: The Spanish Bank Bailout Is A Game-Changer, And No One Should Be Surprised That Government Yields Are Soaring
To say FROB debt is the same as Bonos is to say that TVAs, SBAs, REFCOs and Ginnies are all US Treasuries. THEY ARE NOT! Ask anyone that traded them in 2008, or in other times of stress. In a stressed Spanish situation, where they are flirting with EMU departure and bank nationalization, I would surely assume FROB debts would be seen as much more vulnerable than Kingdom of Spain debts. To that end, I think this bailout is MUCH different than the last three. It is an attempt to separate the banking system from the state. And that is good news from a systemic risk perspective!!
'Peter's view was that although the banking sector was indeed damaging the economy via a credit crunch, the banks were not the problem but a symptom of the problem: the true problem was deflation and the lack of stimulative policies. ...And so it is in the eurozone. The Spanish banking sector is a victim of deflationary policies enacted at the behest of German economic orthodoxy. A bailout will solve nothing.'
'Then, he warns that the U.S. economy is also struggling with weaker growth and job creation, the risk of a drag from the fiscal cliff and political impasse in Washington over fiscal adjustment irrespective of the outcome of the election. '...New fights on the debt ceiling, risks of a government shutdown, and rating downgrades could further depress consumer and business confidence, reducing spending and accelerating a flight to safety that would exacerbate the fall in stock markets.' '
'We recently added Wal-Mart, which is now back at levels it hasn't seen since January 2006. If the boys at ECRI actually are right and we do see a recession in 2013-2014, Wal-Mart is where the American consumer tends to end up when things get tight. You can look at Target also; Target is doing well as well.'
'It's not clear who's going to blink at this point. My guess is that, in the end, there will be a bit of blinking on both sides. This is the financial equivalent of the Cuban Missile Crisis. And the missile is really a bank run, which ultimately even the Germans can't be completely immune to. Not that there will ever be a run on German banks, but the effects of a bank run right across Southern Europe are going to be felt by the economy. German policymakers know that; they're just having to say one thing to their own voters and another thing privately to other European leaders.'
'We don't think we'll see additional action next week, but we do think it's going to be a very dovish statement. So we think that the Fed will be setting the stage for another round of accommodation. We think that another big round of QE will come either in the August 1 meeting or on September 13th.'
'In the United States, we believe the current economic angst is misplaced, although uncertainty over the fiscal cliff issues will help ensure that markets remain turbulent. Our view is that some sort of compromise should materialise, which should help the US economy remain on stable footing.'