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The Financial Squeeze in Spain to Intensify

November 30, 2012
The Greek finance minister says Greek banks should accept the second hair cut of the year out of a sense of patriotism.  They are understandably balking, but may concede if the officials grant them full recognition of deferred tax assets in capital calculations.   
The Greek bond buy back is the main talking point in Europe and upon it rest the h…
The Financial Squeeze in Spain to Intensify The Financial Squeeze in Spain to Intensify Reviewed by Marc Chandler on November 30, 2012 Rating: 5
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Yen Weakness Drives FX Market

November 30, 2012
The main driver in the foreign exchange market as the week winds down is a new sell-off in the Japanese yen, ostensibly recorded on the back of LDP leader and expected new prime minister in a little more than two weeks time.  Although Abe appears to have soften some of his aggressive rhetoric regarding the BOJ ostensible independence, he did reite…
Yen Weakness Drives FX Market Yen Weakness Drives FX Market Reviewed by Marc Chandler on November 30, 2012 Rating: 5
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Great Graphic: Trajectory of Greek Debt

November 29, 2012
This Great Graphic comes from Bruegel.   It shows the trajectory of the Greece's debt to GDP ration over until 2030 under different scenarios, drawing on some of the components from the agreement struck at the start of the week.  
The details have been sparse at best and the deal itself will not be finalized for a couple of weeks (Dec 13).  T…
Great Graphic: Trajectory of Greek Debt Great Graphic:  Trajectory of Greek Debt Reviewed by Marc Chandler on November 29, 2012 Rating: 5
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Yen Weakness and Shifting Capital Flows

November 29, 2012
LDP head Abe woke the yen market out of its slumber with aggressive campaign rhetoric.  The polls show that he is most likely to be the next prime minister of Japan and will be in a position to enact his plan to ease monetary and fiscal policy dramatically.

The yen has weakened since he began ramping up his comments.  It is the weakest of the maj…
Yen Weakness and Shifting Capital Flows Yen Weakness and Shifting Capital Flows Reviewed by Marc Chandler on November 29, 2012 Rating: 5
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Mr Market Feeling Better

November 29, 2012
Mr. Market is feeling a bit better today, and the dollar and yen's safe havens are not as needed.  Global equities and emerging markets generally doing better.   Peripheral bond yields are mostly lower, and core bond yields marginally higher.  
The news stream has been favorable for risk taking.  The recovery in US shares yesterday, perhaps on …
Mr Market Feeling Better Mr Market Feeling Better Reviewed by Marc Chandler on November 29, 2012 Rating: 5
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China is not Manipulating its Currency: US Treasury

November 28, 2012
When President Obama has a private lunch with Romney, his recent rival, tomorrow, one issue that is unlikely to be discussed is the Administration's decision not to charge China with manipulating the yuan.  Romney said he would cite them on his first day in office.                                               
The US used to cite China as a m…
China is not Manipulating its Currency: US Treasury China is not Manipulating its Currency:  US Treasury Reviewed by Marc Chandler on November 28, 2012 Rating: 5
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US Consumer Credit: Deleveraging Continues, but...

November 28, 2012
The Federal Reserve issued the quarterly consumer credit report late yesterday.  The four-year downtrend in aggregate consumer debt continued, falling another $74 bln in Q3 to $11.31 trillion.  This is a 0.7% decline over the quarter.  At the end of Q3, US consumer debt was $1.37 trillion below  the peak in Q3 2008. 
Mortgage debt is the largest …
US Consumer Credit: Deleveraging Continues, but... US Consumer Credit:  Deleveraging Continues, but... Reviewed by Marc Chandler on November 28, 2012 Rating: 5
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Fox Interview: Euro Rally Loses Steam Fox Interview: Euro Rally Loses Steam Reviewed by magonomics on November 28, 2012 Rating: 5
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Great Graphic: Irish Banks' Bond Holdings

November 28, 2012
This Great Graphic comes from Vic Duggan's blog.  The data comes from the Irish Central bank Monthly Statistics (October 2012). 
The first one depicts Irish Banks' holdings of sovereign debt.  It illustrates what we have called "financial disintegration".  This is the process of financial integration in reverse.  
It is characte…
Great Graphic: Irish Banks' Bond Holdings Great Graphic:  Irish Banks' Bond Holdings Reviewed by Marc Chandler on November 28, 2012 Rating: 5
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A Few Developments while FX Grinds

November 28, 2012
The US dollar managed to extend yesterday's recovery against most of the major currencies, but a consolidation tone has emerged.  Narrow ranges continue to dominate.   
We suggested here yesterday that the euro could pullback to the $1.2880-$1.2910.  The euro tested $1.29 in late in the London morning.  Similarly sterling tested the $1.60 lev…
A Few Developments while FX Grinds A Few Developments while FX Grinds Reviewed by Marc Chandler on November 28, 2012 Rating: 5
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Great Graphic: Residential Investment Not A Drag on GDP

November 28, 2012
This Great Graphic comes from the Center for Economic and Policy Research.   It shows residential investment in the US as a percentage of GDP. 
For our purposes here, what counts is the change in the change in residential investment.  The key take away is that the headwind from housing  is waning.  It may not be much of a tail wind, but the abse…
Great Graphic: Residential Investment Not A Drag on GDP Great Graphic:  Residential Investment Not A Drag on GDP Reviewed by Marc Chandler on November 28, 2012 Rating: 5
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Portugal and Ireland: Us Too, Please

November 27, 2012
Greece has had trouble implementing the structural reforms demanded in exchange for aid.  The large and rising debt/GDP ratio is also a function of the larger than officially (Troika) expected contraction in the Greek economy.  The resolution achieved after protracted debate includes an easing of the debt servicing vis lower interest rates, defer…
Portugal and Ireland: Us Too, Please Portugal and Ireland:  Us Too, Please Reviewed by Marc Chandler on November 27, 2012 Rating: 5
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Great Graphic: A Critical Imbalance

November 27, 2012
This must be a Great Graphic.  Both Zero Hedge and Walter Russell Mead posted it.  It is from the Food and Agriculture Organization (FAO) of the United Nations.  
It shows the significant deterioration of China's food self-sufficiency and the improved US agricultural surplus.  Europe is roughly in balance after previously being an importer.��…
Great Graphic: A Critical Imbalance Great Graphic:  A Critical Imbalance Reviewed by Marc Chandler on November 27, 2012 Rating: 5
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Buy Rumor+Sell Fact=Turnaround Tuesday

November 27, 2012
News that a deal was finally struck to ensure Greece can repay its largely official creditors saw the euro test the $1.3010 area twice in Asia before Europe took profits, knocking the euro below $1.2940.  The euro has now traded on both sides of Monday's range and a close below yesterday's low (~$1.2944) would undermine the technical tone…
Buy Rumor+Sell Fact=Turnaround Tuesday Buy Rumor+Sell Fact=Turnaround Tuesday Reviewed by Marc Chandler on November 27, 2012 Rating: 5
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Commitment of Traders Updated: Speculators Caught Wrong Footed

November 27, 2012
The CFTC reported released the Commitment of Traders report on Monday due to the US holiday last week.  It covers the week through November 20.  That means that it does not capture the rally from seen at the end of last week.  
Our hypothesis was that the dollar's sell-off against the major currencies, except the Japanese yen, was not a functi…
Commitment of Traders Updated: Speculators Caught Wrong Footed Commitment of Traders Updated:  Speculators Caught Wrong Footed Reviewed by Marc Chandler on November 27, 2012 Rating: 5
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Quick Thoughts on Carney's Move to the BOE

November 26, 2012
The UK surprised many by naming Bank of Canada Governor Mark Carney to replace Meryn King as the head of the Bank of England.
Immediately pundits weighed in.  Some saying this was somewhat hawkish for the UK and sterling initially ticked up.  Others said this was a loss for Canada and the Canadian dollar initially ticked down.  
Yet both sides mis…
Quick Thoughts on Carney's Move to the BOE Quick Thoughts on Carney's Move to the BOE Reviewed by Marc Chandler on November 26, 2012 Rating: 5
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Political Developments in Europe

November 26, 2012
There have been several political developments in Europe to note.  Although the immediate market impact seems modest, these developments will help shape the ongoing policy response to the financial crisis. 

First is the Catalonia election.  Many financial journalists look at the results and see the votes that went to nationalist parties was around …
Political Developments in Europe Political Developments in Europe Reviewed by Marc Chandler on November 26, 2012 Rating: 5
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FX Drivers in the Week Ahead

November 26, 2012
The last week of November has begun with a mildly consolidative tone in the foreign exchange market.    The US dollar is trading in relatively narrow ranges around its pre-weekend lows.  Its performance against the yen is the exception.  It has traded on both sides of last Friday's range. A close below Friday's low just above JPY82.00 woul…
FX Drivers in the Week Ahead FX Drivers in the Week Ahead Reviewed by Marc Chandler on November 26, 2012 Rating: 5
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Great Graphic: Preliminary Election Results in Catalonia

November 25, 2012
This Great Graphic was posted just now on Presseurop, which it took from a local television report.   It gives a quick and preliminary look at the election results in Catalonia.  Mas' CIU party appears to have lost a few seats, but the left nationalist party ETC picked them up and more. 
Recall that until September Mas was not a secessionist.…
Great Graphic: Preliminary Election Results in Catalonia Great Graphic: Preliminary Election Results in Catalonia Reviewed by Marc Chandler on November 25, 2012 Rating: 5
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Great Graphic: Shift in Structure of German Trade

November 25, 2012
This Great Graphic was posted on Economy View by Kostas Kalevras.  It illustrates the shifting structure of German trade. 
It is clear that the European periphery had to change and become more competitive.  This process, even if not smooth and with some foot dragging at times, internal devaluations and structural reforms are changing the competit…
Great Graphic: Shift in Structure of German Trade Great Graphic:  Shift in Structure of German Trade Reviewed by Marc Chandler on November 25, 2012 Rating: 5
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FX Technical Outlook: Yen and Dollar Weakness Set to Continue

November 24, 2012
Due to the Thanksgiving holiday in the US, the Commitment of Traders report of positioning in the currency futures market has been delayed.  We will review that separately when the data is available next week.  Here we present an overview of our near-term technical outlook.

Last week, we recognized that the US dollar was overstretched and anticipat…
FX Technical Outlook: Yen and Dollar Weakness Set to Continue FX Technical Outlook:   Yen and Dollar Weakness Set to Continue Reviewed by Marc Chandler on November 24, 2012 Rating: 5
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Overview of Liquidity Conditions in Euro Area

November 23, 2012
The euro has surpassed the 50% retracement of the slide since Oct 17 when it peaked near $1.3140.  The 61.8% retracement comes in near $1.2960 and is seen as the next immediate objective.  
The driving force is not the fundamental strength of the euro area economy.  The PMI trumps the IFO and points to a Q4 contraction, including for Germany.   No…
Overview of Liquidity Conditions in Euro Area Overview of Liquidity Conditions in Euro Area Reviewed by Marc Chandler on November 23, 2012 Rating: 5
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Euro Rises despite Official Failures, Yen Consolidates

November 23, 2012
One would not know it by looking at the euro sitting at its best level in three weeks that European officials have failed to reach not one, but two agreements this week--to secure Greek funding and to agree on a new 7-year budget for the EU.  
Of course some observers are playing up the stronger than expected German IFO and the better French busin…
Euro Rises despite Official Failures, Yen Consolidates Euro Rises despite Official Failures, Yen Consolidates Reviewed by Marc Chandler on November 23, 2012 Rating: 5
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Catalonia: Much to Do about Nothing and Everything

November 22, 2012
Catalonia, one of Spain's most important economic regions hold elections on Sunday, November 25. Artur Mas, the premier, called a snap election when the Rajoy government refused to reset the internal transfers that result in Catalonia paying Madrid more than it receives in benefits.  These transfers are one of the factors that lie behind Catal…
Catalonia: Much to Do about Nothing and Everything Catalonia:  Much to Do about Nothing and Everything Reviewed by Marc Chandler on November 22, 2012 Rating: 5
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Great Graphic: Deficit Reduction American Style

November 22, 2012
This Great Graphic that shows that deficit reduction in the US over the past three years is largest in more than 60 years.  I found it at the Investor's Business Daily, which of course, is  not known for its leftist leanings.  
The US budget deficit has fallen 3.1% in the 2009-2012 period.  Besides the demobilization after WWII, the other tim…
Great Graphic: Deficit Reduction American Style Great Graphic:  Deficit Reduction American Style Reviewed by Marc Chandler on November 22, 2012 Rating: 5
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No Greek Deal, but did Germany Blink?

November 21, 2012
Everyone is talking about European finance ministers failing to reach an agreement on Greek funding.  There is another meeting scheduled for Monday.  It is clear that a Greek exit, which many observers had thought was inevitable six months ago, is not in the cards. 

Instead, what is being debated is how to fund Greece, which we continue to note …
No Greek Deal, but did Germany Blink? No Greek Deal, but did Germany Blink? Reviewed by Marc Chandler on November 21, 2012 Rating: 5
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Europe Disappoints; Euro Resilient, Yen Weak

November 21, 2012
European officials disappointed investors by not reaching an agreement on Greek funding.  The euro quickly dropped about three quarters of a cent to just below $1.2740 in the Asia session.  Perhaps European dealers, more accustomed to such disappointment, or instead focused on the resumption of the discussion on Monday, helped bid the euro back to…
Europe Disappoints; Euro Resilient, Yen Weak Europe Disappoints; Euro Resilient, Yen Weak Reviewed by Marc Chandler on November 21, 2012 Rating: 5
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Great Graphic: How Israel's Iron Dome Works

November 20, 2012
I found this Great Graphicon Thomson Reuters. It illustrates how the Israel's "Iron Dome" works and how it is planned to evolve in the coming year.   Reports suggest that it has had a 90% hit rate on incoming missiles.

While futurists talk about the competition for a low-carbon economy or a post-automobile transportation system, ther…
Great Graphic: How Israel's Iron Dome Works Great Graphic: How Israel's Iron Dome Works Reviewed by Marc Chandler on November 20, 2012 Rating: 5
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Misunderstanding IMF COFER Adjustments

November 20, 2012
There is a buzz from the sidelines of the foreign exchange market that the IMF is considering classifying the Australian and Canadian dollars as reserve currencies. This is a misleading way to characterize what is happening.
It is already well documented that a number of central banks, including German, Swiss, and Russian central banks have added…
Misunderstanding IMF COFER Adjustments Misunderstanding IMF COFER Adjustments Reviewed by Marc Chandler on November 20, 2012 Rating: 5
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Another Brick in the Wall

November 20, 2012
There have been several developments to note, but price action has been minimal through the European morning.  
The biggest talking point today is Moody's decision to cut France's rating one notch to AA1 and maintaining a negative outlook.  This saw the euro jerk lower in thin pre-Asian activity to ~$1.2765, which should now offer initial …
Another Brick in the Wall Another Brick in the Wall Reviewed by Marc Chandler on November 20, 2012 Rating: 5
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Moody's Cuts French Rating, Matches S&P

November 19, 2012
In what is really a dog-bites-man story, Moody's cut the French sovereign rating to AA1 from AAA, matching what S&P did at the start of the year.  The market reaction--taking the euro down from around $1.2820 to about $1.2765--can be largely explained by the thinness of the markets--after New York closed, but before Asian markets opened a…
Moody's Cuts French Rating, Matches S&P Moody's Cuts French Rating, Matches S&P Reviewed by Marc Chandler on November 19, 2012 Rating: 5
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CNBC: High Speed Trading Losing it's Edge CNBC: High Speed Trading Losing it's Edge Reviewed by magonomics on November 19, 2012 Rating: 5
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Great Graphic: Components of the Fiscal Cliff

November 19, 2012
Here is a Great Graphic from Also Sprach Analyst blog, who picked it up from Deutsche Bank.  It shows the seven main components of the fiscal cliff.
The press is full of stories claiming that the framework of an agreement may be taking shape.  The reports suggest  a two-prong approach.  The first is some agreement to reduce next year's defici…
Great Graphic: Components of the Fiscal Cliff Great Graphic:  Components of the Fiscal Cliff Reviewed by Marc Chandler on November 19, 2012 Rating: 5
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Pain in Spain

November 19, 2012
The euro area finance ministers will focus on securing aid for Greece at tomorrow's meeting.  The aid that it will receive will enable it to service its debt, of which three quarters is in official hands (ECB, IMF and EU).  It will not be used for other government expenditures.  In this sense, the aid is not bailing out Greece but keeping its …
Pain in Spain Pain in Spain Reviewed by Marc Chandler on November 19, 2012 Rating: 5
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Forces Shaping the Investment Climate

November 19, 2012
The US dollar is beginning the new week under modest pressure after the soft close before the weekend.  All the major currencies are gaining against the greenback, as are most of the emerging market currencies, including the Israeli shekel, which had weakening in light of the increased hostilities.
The euro, however, has remained below the $1.2800…
Forces Shaping the Investment Climate Forces Shaping the Investment Climate Reviewed by Marc Chandler on November 19, 2012 Rating: 5
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Great Graphic: US Debt/GDP Long View

November 18, 2012
This Great Graphic comes from the Atlantic.  The US public debt that that chart tracks is federally publicly traded debt. It stood at $11.4 trillion last week and does not include the $5 trillion of debt that the US government owes itself via the trust funds, like Social Security.  
The large fiscal overshoot of the "Great Recession" wa…
Great Graphic: US Debt/GDP Long View Great Graphic:  US Debt/GDP Long View Reviewed by Marc Chandler on November 18, 2012 Rating: 5
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Currency Positioning and Technical Outlook: Dollar Bulls have Over-Reached Currency Positioning and Technical Outlook:  Dollar Bulls have Over-Reached Reviewed by Marc Chandler on November 17, 2012 Rating: 5
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Thoughts about the Euro and Yen Price Action

November 16, 2012
The euro has spent this week inside last week’s trading ranges.  It is consolidating the break of the $1.28 support, the lower end of the trading range from mid-September through last week.  This former support is now resistance as seen in Thursday’s price action.  That area now also corresponds with the 200-day moving average and the 38.2% retrac…
Thoughts about the Euro and Yen Price Action Thoughts about the Euro and Yen Price Action Reviewed by Marc Chandler on November 16, 2012 Rating: 5
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Great Graphic: IMF Forecasts of Greek Economy

November 15, 2012
This Great Graphic was posted on Zero Hedge.  It shows the IMF's forecast for the Greek economy and the actual performance.  Obviously the track record is dismal.  
The take-away for Zero Hedge is that the Troika's forecasts are a "joke".  It seems to me that this is not a very help way to frame the issue.  Moreover, the IMF has…
Great Graphic: IMF Forecasts of Greek Economy Great Graphic:  IMF Forecasts of Greek Economy Reviewed by Marc Chandler on November 15, 2012 Rating: 5
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Jousting in the FX Market

November 15, 2012
There are several important developments today.  In terms of price action, the yen is the most noteworthy.  It has sold off as the market anticipates next month’s election will produce an LDP-led government that is talking very aggressively about breaking deflation’s grip and arresting yen strength, through open-ended QE, interest rates at or belo…
Jousting in the FX Market Jousting in the FX Market Reviewed by Marc Chandler on November 15, 2012 Rating: 5
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Great Graphic: Data Surprises in the US and Europe

November 15, 2012
This Great Graphic was posted on the Sober Look  blog.   It took it from research from JP Morgan.  It compares the bank's data surprise models for the US and Europe.  It documents what we have experienced.  
US data has generally surprised economists on the upside is early summer.   European data was improving relative to expectations July an…
Great Graphic: Data Surprises in the US and Europe Great Graphic:  Data Surprises in the US and Europe Reviewed by Marc Chandler on November 15, 2012 Rating: 5
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The Misdirection of Currency Wars

November 14, 2012
(This is a summary of my views on "currency wars" that was the topic of the recent panel discussion at SIBOS in which I participated)
A standard ploy of magicians and politicians is called misdirection. The audience is distracted from the real movement by a feint. “Currency war,” which has become the title of books, articles and conferen…
The Misdirection of Currency Wars The Misdirection of Currency Wars Reviewed by Marc Chandler on November 14, 2012 Rating: 5
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Four Key Developments

November 14, 2012
The US dollar is broadly mixed here at midweek.  The euro is at its best levels of the week and is consolidating the break below $1.2800.  The Swiss is being dragged for the ride, but is trading near two month highs against the euro.  
The yen is the weakest of the majors and sterling fell out of favor following a more dovish BOE inflation report…
Four Key Developments Four Key Developments Reviewed by Marc Chandler on November 14, 2012 Rating: 5
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Great Graphic: Fiscal Cliff

November 13, 2012
This Great Graphic is from the Washington Post and Pew Research. It finds that by a margin of 51%-38%, Americans believe that President Obama and the Republican-led House of Representatives will not reach an agreement that avoids the fiscal cliff. 
Given the cast of characters and pledges not to raise taxes, we had suggested that the fiscal clif…
Great Graphic: Fiscal Cliff Great Graphic:  Fiscal Cliff Reviewed by Marc Chandler on November 13, 2012 Rating: 5
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Debate over Greece Rages On

November 13, 2012
The German paper Bild reported that Germany may be willing to make a lump aid payment to Greece of 44 bln euros.  This popped the euro up a little more than half a cent to the session high just below $1.2730.
Color me skeptical.  To give Greece such a large sum at once is counter to the underlying strategy of doling out the aid in tranches to pro…
Debate over Greece Rages On Debate over Greece Rages On Reviewed by Marc Chandler on November 13, 2012 Rating: 5
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Storm Clouds Continue to Gather

November 13, 2012
The euro was sold to new two-month lows against the dollar following the failure of the euro area finance ministers show any progress toward an agreement on Greece or bank supervision.
News of a worse than expected German ZEW survey (expectations -15.7 vs -9.8 expected and -11.5 in September) saw the low put in.  However, news that Greece was able…
Storm Clouds Continue to Gather Storm Clouds Continue to Gather Reviewed by Marc Chandler on November 13, 2012 Rating: 5
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Japan: Slip Sliding Away

November 13, 2012
There is a stark contrast between the deterioration of the political and economic environment in Japan and the relative strength of the yen.  The mystery is resolved by recognizing that the drivers of the yen's exchange rate has little to do with the macro-fundamentals in Japan and more to do with the general investment climate and interest ra…
Japan: Slip Sliding Away Japan:  Slip Sliding Away Reviewed by Marc Chandler on November 13, 2012 Rating: 5
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A Few Observations to Start the New Week

November 12, 2012
The US dollar is little changed against most of the major and emerging market currencies.   Asian equities were mostly lower, while European bourses are decidedly mixed.  Core bond yields are flat to lower, while peripheral bond yields are mostly higher.

The lack of fresh trading incentives and holidays in the US and Canada are contributing to the…
A Few Observations to Start the New Week A Few Observations to Start the New Week Reviewed by Marc Chandler on November 12, 2012 Rating: 5
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Great Graphic: France's Slide

November 11, 2012
Here is a Great Graphic posted on Zero Hedge, which in turn came from JP Morgan research.  It highlights several economic time series from France that shows the deterioration of the French economy since the start of last year.   
It dovetails nicely with our recent note on France.   Our thesis is that with structural reforms taking place  in much o…
Great Graphic: France's Slide Great Graphic:  France's Slide Reviewed by Marc Chandler on November 11, 2012 Rating: 5
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Currency Positioning and Technical Outlook: Respect the Price Action

November 10, 2012
The US dollar appears to have broken out of the ranges that  dominated since mid-September against the major currencies, except the Japanese yen and Australian dollar.  

We had not anticipated the break out, believing that the resolution of the US fiscal cliff and the Spain/Greek issues in Europe were not imminent.   Nevertheless, we did recommend…
Currency Positioning and Technical Outlook: Respect the Price Action Currency Positioning and Technical Outlook:  Respect the Price Action Reviewed by Marc Chandler on November 10, 2012 Rating: 5
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BOE Eases (slightly)

November 09, 2012
Sterling is being dragged down by the falling euro, but also the Bank of England just said it had eased monetary policy slightly today, which caught the market by surprise.  
The Bank of England announced that it would transfer the interest it collects on the gilts it has bought under QE back to Her Majesty's Treasury.  Treasury, in turn, pla…
BOE Eases (slightly) BOE Eases (slightly) Reviewed by Marc Chandler on November 09, 2012 Rating: 5
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