The consensus with which I agree is that the Euro zone is heading into a recession. While the economic activity has somewhat improved over the last months in the U.S. I remain doubtful whether the U.S. can escape the recession when Europe enters one. The data coming from China doesn’t (jet) point to a hard landing. For the time being it looks like that the Chinese government is in control. The measures to contain inflation and raising real-estate prices are successful, while in the same time China is has taken early steps to increase domestic consumption and re-balance the economy. One should not disregard and keep close watch on soft data coming from China especially in real estate and commodity related industries which are not reflected in the official data and could be pointing to serious issues.

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So, the basis of the agreement is a 50% cut in the face value of Greek bonds held by private creditors. The agreement will reduce Greek debt level to 120% of GDP by 2020.

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Leading economic indicators are pointing to a recession. At the time being it looks like it could be a mild one, but taken into account all the unknowns (EMU future, China slowdown, bank balance-sheet question) it could easily develop into something more ominous.

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Global economic growth is clearly slowing down.

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Mostly unchanged from April…

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I have lost flair in making predictions. I even started to think that correct forecasting is impossible. Maybe it is better to look at forecasting only as to the extent “what if” exercise. That’s why this is the first strategy post this year.

I have to come to conclusion that the only relevant judgement on is made by market and this is the key in being a successful in this line of business. What is fair, what is right or what is logical are completely irrelevant questions in speculating. Fundamentals are most of the time only a peripheral factors affecting the prices; in fact fundamentals are major factor only in times of great excesses.

Now, lets get back to writing down my current mind setup.

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In the last months global economic outlook has improved a bit. In U.S. we can see signs of personal consumption and manufacturing activity growing at soft rates, but growing; at the same time employment, housing, construction spending, durable goods orders are stagnating. Fall in initial jobless claims is clearly being offset by inflow of people into the workforce; job creation still weak.

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And we have a second EU bailout.

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It appears that Ireland is moving closer toward some kind of bailout. It is clear that Irish government want to keep some kind of fiscal independence and shift the focus toward bank problems, not country problems…

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This is the absolute truth. Indecisive politicians and lack of leadership are two most significant EU problems…

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The ECB biggest ever liquidity facility – EUR 442 billion one year maturity is coming due tomorrow. To reduce the strain on the banks, ECB introduced 3 month LRTO (Long-Term Refinancing Operation) which banks could use to refinance the maturing facility. The market estimate for the LTRO size was EUR 220 billion – EUR 250 billion. The […]

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I already posted links on stories covering same themes, but since I believe they are important, I will do it again. FT Alphaville: The other liquidity strain — in China. FT.com Blogs / Money Supply: ECB and the €442bn question.

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Just an observation on the market reaction on EU rescue package. When elsewhere in the world central banks buy worthless paper it’s apparently good for the markets, but when ECB (the most prudent among them) is pressured to buy, it’s apperently not good enough to reassure the markets. Although, I believe that it would be […]

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After frustrating American and Asian sessions, looks like the markets have calmed down. After opening sharply lower European equities are trading at -0.6%. What to say on the U.S. action yesterday? Maybe only that the technology has evolved since Black Monday in 1987 and the trading programs were shut down (changed) very fast enabling the […]

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Well, the time has come to put the money on the table. The problem is that the amount promised has to probably be multiplied by a factor of 3 to be enough to finance Greek budget deficit and refinance Greek public debt, to only subsequently result in an wasted time and money. Again, only principal […]

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