Recap 10-17-11

Main Items:

  • US Empire Mfg improved to -8.48 in Oct vs -4 exp and -8.82 prev
  • The Occupy movement has broad support in the polls. A new survey out from Time Magazine found that 54 percent of Americans have a favorable impression of the protests, while just 23 percent have a negative impression. An NBC/Wall Street Journal survey, meanwhile, found that 37 percent of respondents "tend to support" the movement, while only 18 percent "tend to oppose" it.

Overseas:

Commentary:

Multiple technicians noted that the VIX formed an island bottom on Friday, defined as when the Vix high on day t is below the lows on days t-1 and t+1. I did a quick historical study of VIX island bottoms over the past few years, and note that they have been good indicators of short term extrema:

This suggests that expectations of a breakout high may be premature.

On a side note: the NY Fed blog has an excellent history lesson:
http://libertystreeteconomics.newyorkfed.org/2011/10/back-to-the-future-revisiting-the-european-crisis.html

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4 thoughts on “Recap 10-17-11

  1. Seems to me that the history lesson so well presented on the NY Fed blog , points to a scenario now quite widely advertised by many: a North Euro versus a Med Euro. And the way it could happen is simply by Germany,Finland,Netherlands and Austria (+ possbily France but this is a big unknown ) stepping out of the
    current Euro and form the North Euro.
    And de facto , the Med Euro has been established in the process.

    And Ireland could return to the UK pound system ………….. where they have been before anyway.

  2. So what the lesson basically tells us is that the solution lies with letting the currencies float. Which, unfortunately, is quite problematic in the context of current debt overhang.

  3. Merkel just came out and said she’s against levering the EFSF…which makes an Eurozone bailout impossible. Rates are at all time lows, the last time the market corrected even gold snapped. If one looks at OECD MEI leading indcators almost every developed/EM country is in a downward trajectory.

    The only things with rosy outlooks going forward seem to be the USD and out-right shorts on risk-assets…

    **I just got a recent newsfeed:
    RTRS-GERMAN COALITION SOURCES: MERKEL SAYS LEVERAGING EFSF VIA
    ECB IS RULED OUT

  4. Sid and PKK – My takeaway was that when policy makers are reticent, some sort of haircut, free float, or other one time adjustment to the value of debt is required. The post described it as a ‘capitulation,’ which is probably what we need to see this time as well.

    Paul – you are right. However, a bull could argue that much of the negative news outside Europe has already been priced in. For risk assets to move lower, the newsflow will need to be worse than expected – which is not necessarily a slam dunk.
    Finally – until Greece actually goes, the EU headlines may be more of a noise generator. The S&P and EUR has not moved much in response to the widening Euribor-EONIA basis over the past month, for example.
    It’s a treacherous trading environment – mostly short term punters and HFT firms, I think. A lot of longer term guys seem to be just sitting on the sidelines.

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