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May 2024

Europe debt contagion: we’re all connected

Some fantastic charts from NYT showing how interconnected our financial systems are. Hat tip to Blake LeBaron at Brandeis.

(click on the image for some really nice network charts)


For the interconnection between Europe and emerging markets, please read my earlier post here.


The financial linkage between Europe and emerging markets

The following graph will offer you some clue:

[singlepic id=25 w=400 h=300 float=]

Link to the article at the BIS.




A Documentary on European Crisis

WSJ crew came out a nice documentary on European crisis – something to put in your archive.

How Chinese view Europe

Interview of Jin Liqun, Chairman of China’s Investment Corp. (or CIC), China’s sovereign wealth fund, with $460 billion assets under management.

Jin offers his views toward Europe and her economic and political systems. He also explains why CIC is unlikely to inject large rescue investments as per European leaders’ request. I’d say Jin’s views toward Europe is quite typical in China.

Starting from 12″10′ in the video interview, Jin had some really strong (yet painfully true) comments toward European welfare system.

ECB’s liquidity injection: game changer, or not?

According to WSJ, the ECB last week rushed out emergency support for the euro-zone banking system, laying out an unprecedented €489 billion at its first-ever three-year lending operation.

The amount of money parked by euro-zone banks in the ECB’s 0.25% deposit facility surged to another new record of €452.03 billion Tuesday (Dec.27) , up from €411.81 billion over the Christmas break and well above the previous record high of €384 billion.  News that euro-zone banks are parking more and more cash at the ECB’s low-yielding, but safe, deposit facilities adds to evidence that banks are more concerned with seeing out the year in safety than with putting it to work in the real economy or the euro-zone debt markets.


Watch this interview of Bob Mundell –  he thinks this is the game changer, a blockbuster event.


Dennis Gartman seriously doubted it. In his recent investment newsletter, Gartman describes how Europe has arrived at its own “Lehman moment.”

The problem in Europe is that we’ve arrived at Europe’s own “Lehman-moment” when banks and institutions are wholly unwilling to lend money to anyone, anywhere. They are willing to draw down their lines of credit from the ECB, but they are re-depositing those borrowings back to the ECB itself. Initially we thought this reasonable. Initially we thought that the banks drew down their lines from the Central Bank and re-deposited them with the Bank awaiting investment elsewhere. We thought this normal. Now, however, we consider it disconcerting for it shows the utter sense of confusion and the even more utter sense of fear that has engulfed the banking system in Europe. Rather than viewing these new credit lines from the ECB as a source of funding for investment, the banks in Europe are viewing those ECB-created funds as a source of “fear capital” to be used should worst-come to-worse on the continent. Fear rather than optimism is driving the banking system.

We fear then that worse is about to happen, for the very core of things banking and economic depend upon trust and trust is now wholly lacking in Europe.



Why German bond yields are rising?

From WSJ, what it signals when the German bond yields are rising:

Yields on German 10-year government bonds have risen 0.25 percentage point in the past week to 2.15% even as the euro-zone crisis has deepened. Until now, whenever the crisis has intensified, German yields have fallen and the yield premium for southern European bonds has risen. This shift is a sign the end-game is approaching.

The difference is that buyers of U.S. and U.K. debt can be certain which country’s debt they are getting—and what currency it is denominated in. The euro-zone crisis is becoming binary. One possibility is greater integration, such as common bond issuance, which implies greater costs for Germany and fiscal dilution. The other is break-up, which implies costs for every country but which may favor short-dated German paper given the possibility of currency appreciation.

Euro = Failure

“You are all in denial. By any objective measure the euro is a failure. And who exactly is responsible, who is in charge out of all you lot? The answer is none of you because none of you have been elected; none of you have any democratic legitimacy for the roles you currently hold within this crisis.”



What’s Euro’s endgame?

Chris Wood shares his insights on what’s likely the endgame of European sovereign debt crisis.

He predicts it will be either a move from monetary union to fiscal union, or a complete breakdown of the Euro. He thinks the first scenario is more likely and Germany will eventually budge.


Then, Jim Rogers comes in with his thoughts: