July 18.
July 18. No resolution to simmering problems that are now threatening to boil over, both in europe and the US. No US debt ceiling deal. Pressure intensifying in europe as Papandreou says Greece has done all it can. In the meantime, Dallas Fed’s Fisher last week said the central bank is out of ammo. Alabama’s Governor says Jefferson County may have to declare bankruptcy (“could make for the largest municipal bankruptcy in U.S. history”-Reuters). Chicago’s mayor and Obama’s previous Chief of Staff Rahm Emanuel released 625 city workers, to be replaced with private contractors because “organized labor failed to offer concessions or cost-cutting ideas…” (Chicago Tribune). I guess running a city with a real budget changes one’s priorities regarding gov’t largesse.
–Friday’s news included a plunge in Consumer Sentiment and news that S&P put on negative review entities attached to the US govt, (FNM, FRE).
–Curve flattened. Near euro$ contracts sold off, again reflecting funding concerns in the financial system. EDH2 was -5.0, EDH3 +1.0 and EDH4 +4.0. Several near one-yr calendar spreads made new lows, with EDZ11/12 closing at only 31 bps…soon to invert.
–Currently, there is a flight to US treasuries and German bunds. But does Germany expand the Greek bailout? Is anyone big enough to backstop Italy? Does the US bail out fiscally impaired states and municipalities? The risk is currently being priced into yields in Greece, Ireland, Italy, etc… but could it spill over into what are now considered the safe havens that act as saviors?
