Euro Swan Dive Splashes Santa

This morning’s swan dive in the euro stopped the Santa rally right in its tracks. We have two questions: 1) Has the ECB shot its wad as the lender of last resort providing massive liquidity to the banking system and leaving little ammunition for the distressed sovereigns; 2) Will money demand remain stable in the eurozone as the monetary base explodes? That is, will the Germans keep their money in Europe

Volatility Lurks

The S&P 500 volatility index – the VIX – is a measurement of volatility expectations. It has fallen 50% since the (latest) agreement to save the euro was announced. If the VIX falls to 18, call options are worth considering

Footnote 2011: Being cautiously optimistic was right

In January, I wrote my prognosis for 2011. The title was “Cautiously Optimistic Into 2011″. I intend to write another post like this early in 2012 with asset allocation and market calls for the new newsletter. But right now I just want to review the basic outlook I presented.

I had seven major conclusions. Here’s what I said and how well it has stacked up

What about a country that adopts a foreign currency? Part Two

Yet another rescue plan for the EMU is making its way through central Europe—with the ECB acting as lender of last resort to Euro-banks. It is trying the tried-and-failed Fed method of rescue. As we now know the Fed lent and spent over $29 TRILLION trying to rescue (mostly) US banks. It did not work. The biggest banks are still insolvent, and have continued their massive frauds trying to cover up their insolvencies. You cannot paper-over insolvency through massive lending by the central bank. And the Euroland problems are compounded by the insolvencies of virtually all their member states

Italy Braces Itself For The Full Monti

The bottom line is that Italy is both too big to fail and too big to be bailed out, which is why it is still hanging dangerously in limbo-land. Since, as I argue in this article, some sort of restructuring or other is well nigh inevitable in the Italian case, the sooner Europe’s leaders work up a credible plan on how to achieve this, the better. Otherwise it will not only be Italy’s citizens who are subjected to the Full Monti, Europe’s leaders may also find themselves with their credibility stripped naked

News Links: The ECB’s back-door bail-out for Italy, Spain, Belgium, and… France?

News links for 22 December 2011 including stories on the tech world, Europe, and the

Chart of the Day: The ECB Balance Sheet

Who says the ECB can’t keep up with the Fed. As the euro crisis has caused liquidity for euro zone banks to dry up, the ECB has taken on the intermediation role. In essence, they have taken on the dollar liquidity function that the US money markets used to provide via its bank liquidity operations and currency swaps with the Fed

Is a eurozone bailout already in play?

Listen: they can go kicking and screaming all they want to but, unless they’re on board to with ending the euro, it seems likely that the rich nations in Northern Europe will end up bailing out their poorer brethren. Whether they call it a bailout or not is another issue. But check out what’s already happening

On the ECB’s Long-Term Refinancing Operation and 2012 macro ideas for investors

The end of year is usually a good time for markets. There was a lot of angst about the European situation a few weeks ago, but there is less of that now because we’re hitting year-end (tape painting). Does that mean the credit crisis situation is stable? No, but it has stabilised somewhat. 2012 will be a different story though. I talked about the European sovereign debt crisis and my themes for 2012 with Howard Green of BNN and Ryan Avent of the Economist yesterday. The link to the video is below but let me say a bit more, particularly about today’s LTRO by the ECB. I’ll try to be brief

Auerback: Solvency Starts with the ECB

I thought I should highlight that Marshall Auerback was on Fox Business yesterday since he writes here occasionally. I wish it were more often! Marshall was on message regarding the euro zone debt crisis. His point: Additional liquidity is not a long-term solution to what ails Europe. It is about national solvency and economic growth

News Links: The ugly side of ultra-cheap money

News links for 21 December 2011 including notes on technology, the sovereign debt crisis, elections, and Europe

Bond vigilantes and the currency relief valve

The last post by Randall Wray below is an interesting one because it points out how the world has changed since the end of the gold standard and why the sovereign debt crisis is centered in the euro zone.

While I have an Austrian bias overall, for me, MMT is the best way to think about nonconvertible floating exchange rate systems as distinct from fixed exchange rate, currency board, pegged and convertible systems. The difference is policy space and what I would call the bond vigilante relief valve