Recap 9-12-11

Main Items:

  • Greece only has enough cash to operate until next month. The “troika” will return to Greece on Wed to determine whether Athens should receive the next bailout payment (worth EU8B). The German MoF is on the tape saying the troika report is only going to be published in late Sept w/the next tranche of money (if it gets approved) not coming until Oct – Reuters
  • Late in the day, FT reported that Italy is asking China to buy its bonds and make investments in strategic companies.
  • Moody’s placed Italy on review for a possible downgrade almost three months ago. September 17th marks the date. JPMorgan said many are looking for an update this week, with a possible downgrade being likely.
  • Citi cuts US Banks’ quarterly profit estimates by 45%


  • Chinese M1 growth slowed to 11.2% YoY in Aug vs 12% exp and 11.6% prev. M2 Growth slowed to 13.5% vs 14.2% expand 14.7% prev


There is not much to add to the intermediate term outlook.
Regular readers know that I have been bearish for some time now, both US and EZ economies will continue to be hindered by weak data, concretionary fiscal policies, and political issues. Looking farther ahead, several things need to be resolved before we can get a sustainable risk rally. First, the data needs to get better. Secondly, Greece needs to default and EU authorities needs to pass political measures that are able to handle exits from the EU.
Like the situation 3 years ago, funding costs is a key metric to watch, and they continue to suggest further cyclical weakness. USD Libor settings continue to rise, funding costs for EZ sovereigns continue to hit new highs, and funding costs of CDX HY are at levels not seen since mid 2009: (CDX is in white, and inverted)

Over the short term, however, risk assets are likely to bounce, especially as we approach the FOMC meeting next Tuesday.