Nov 28.

–Belgium was downgraded Friday but then agreed to a new budget over the weekend due to the seriousness of the situation. (BBG)  “Belgium’s budget deficit will narrow to about 3.6 percent of gross domestic product this year from 4.1 percent in 2010, S&P said. It also forecast government debt will increase to about 97 percent of GDP from 96.1 percent last year after the administration paid 4 billion euros to nationalize Dexia.” Just for the sake of comparison note that US deficit is 8.7% GDP in 2011 and total debt is 100% of GDP.  And Bloomberg reports this morning that “Dealers See Fed Buying $545B Mortgage Bonds”.
–One plan after another is being floated to save the euro.  All involve low interest loans to try to buy time for budget improvement.  The latest is $6-800 billion from the IMF to Italy and Spain with rates of 4-5%.  And there’s a story in Reuters about the AAA countries, Germany, France, Finland, Netherlands, Luxembourg and Austria issuing “elite” bonds for 2-2.5%.  Just who provides all these low interest loans isn’t exactly clear to me…I suppose they all go on the books of the ECB.  For now the markets are cheered as disaster appears averted.  But it seems that private capital is less and less generous in terms of providing funding.  And even low rates doesn’t necessarily do anything besides dragging out the problem, as is evident in US housing which has only now stabilized, but at such anemic levels that the Fed still feels compelled to do more.
–Stocks and gold are rebounding this morning as is the euro.  The curve is steeper, having flattened to new lows last week.  Probably reasonable to look at gold vs stocks as a trade…a “bazooka” that saves the euro likely causes gold to outperform stocks though both would rally, a failure to find a solution would cause stocks to underperform.

Posted on November 29, 2011 at 8:07 am by alexmanzara · Permalink
In: Eurodollar Options

Leave a Reply