Oct 17. Re-capital (as opposed to Das Kapital)

–G20 is pushing for decisive action on the european crisis by Oct 23.  Germany’s Schaeuble is pushing for a larger, more realistic write-down of Greek debt.  Bigger haircuts mean banks’ capital raising requirements increase.  Private investors are probably not encouraged to double down on their bets, realizing that further deterioration lies in store.  Which leaves the sovereigns to recapitalize the banks, and as the trend of private debts being shifted into the public sector increases, the end result is that countries are exposed to credit downgrades. In the beginning, this process was more or less opaque, but now everyone knows it.  We are likely not at a tipping point yet, but the risks have become stark, and in a way the protests going on in US cities are an extension of this dynamic, a grawing feeling that government is a lot more mindful of treating capital better than labor when asking to plug fiscal holes, even though many of these holes were created by gov’t actions.  And now, no less than President Obama is jumping on the protestors’ bandwagon. Which should finally make the movement sputter and die, Like Solyndra. 
–Today’s news includes Empire State Mfg -3.25 from -8.82.  Industrial Production expected +0.2.
–Tens ended near 2.25% Friday and 2/10 rose 8 bps to 197.  I think 2.28-2.30 should be a strong support level in tens after the recent yield back up.  Almost seems crazy to write this, but 2% tens are likely an appropriate level in this environment.

Posted on October 17, 2011 at 6:55 am by alexmanzara · Permalink
In: Eurodollar Options

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