PragmaticCapitalism

Let’snotsugarcoattonight’s“resolution”–thisismerelyatemporarymeasurethatwillbuythemmoretimetoresolvethetruecauseofthecurrencycrisis?

Let’stakeabrieflookatsomeofthekeypointsoftonight’sstatement(readitinfullhere):

“AllMemberStatesoftheeuroareaarefullydeterminedtocontinuetheirpolicyoffiscal?

consolidationandstructuralreforms。

AparticulareffortwillberequiredofthoseMember?

Stateswhoareexperiencingtensionsinsovereigndebtmarkets。



Translation:Austeritywillcontinue?

Thisismoreofthesame?

Tradedeficitnationsundergoingabalancesheetrecessionwillbeforcedintofurtherbudgetconsolidationwhichwillcontinuetoputdownwardpressureongrowthandultimatelyworsenthefiscalpicture?

CreditWritedowns

ArethesehaircutsonGreekdebtreallysuchagoodidea?

Oraretheyreallyjustastopgapthatwillmakethingsalltheworseinthelong-run?

Sure,Mr。

Marketseemstothinkthey’refantastic。

Butthen,Mr。

Markethasalwaysbeenaboutaseasytopleaseasaratherstupiddog:givehimacartochaseandhe’llbehappy–untilhisnoseinevitablymeetsthebumper,ofcourse。

Afterall,thesearethesamemarketsthatrallyeverytimetheFedortheBankofEnglandannouncesmoremonetaryvoodooalaQE。

Asmanyofushavebeensayingtimeandagain,thesituationissimplynotsustainableuntiltheECBtakesupitsproperroleandbackstopsallthewaywarddebt。

Untilthen,thewholethingwillcontinuetoresembleamantryingtoliftabucketbythehandlewhilehestandsonit。

Hemightmakealotofnoiseandattractalotofattention,buthe’snotgoingtogetanywhere。

Thereareanynumberofreasonsthatthesehaircutswillnotwork。

Firstup,thereisstilltheimplicitassumptionthatoncethehaircutistakentheGreekdeficitcanbebroughtundercontrol。

TherecentlyleakeddocumentfromwithintheEurostructurewasscepticalofthis,buteventhatdocumentwasoverlyoptimisticasfaraswecansee。

WiththelevelsofunemploymentthatGreececontinuestosuffer–levelsthatwillprobablyriseinthenearfuture–thosedeficitsareheretostay。

Thenthere’stheissuewhetherornothaircutsof50%willbeconsideredsufficientlyvoluntary。

Nottomentiontheassumptionthatprivatesectorfundswillrecapitalizethebanksthatlostcapitalonthewritedowns。

Buttherealelephantintheroom–nay,it’smorelikeamammoth–istheassumptionthatthesehaircutswillnotcauseotherEurozonecountriesbondyieldstorise,thusrequiringfurtherinterventionbytheEFSFand,mostlikely,theECB。

WSJ

Nowthenextgamebegins。

EvenbeforetheinkisdryonadealtocutGreece’sdebtandputupafirewallagainstfinancialcontagioninEurope,leadingeconomistsfeartherescuepackagemaybetoolittletoolatetokeepItalyoutofthecrosshairsoffinancialmarketsandopenthenextbattleinthestruggletosavetheeuro。

(Seemorereactionstothedealhereandhere)

“IfthemarketperceivesItalytobeabigproblem,I’mnotsurethattheEFSFwillbeabletosolvethatproblem,”saidRymAyadi,aseniorresearchfellowandheadofthefinancialinstitutionsandprudentialpolicyunitoftheCentreforEuropeanPolicyStudiesinBrussels。

Europeanleaders,meetingintotheearly-morninghoursinBrussels,thrashedoutaplantocutGreece’snotionaldebtby50%withprivatecreditorsacceptinga“voluntary”haircut。

Atthesametime,theEuropeanUnion’sleadersarerequiringEurope’sbiggestbankstoboosttheircapitalto9%toshieldthemagainstthedefaultofacountrylikeGreece。

Theleadersalsoagreedtobolsterthe440-billion-euroeuro-zonebailoutfund,theEuropeanFinancialStabilityFacility,toallowittoleverageitsassetsalmostthree-fold,makingitthefirstlineofdefenseagainstspreadingcontagion。

Economistswelcomedthestrengtheningofthebailoutfund,butnowworrythatthepackageofmeasuresagreedonbyEUleadersinBrusselsisn’tsufficienttostemfinancialcontagionandwarnthateuro-blocmemberssuchasItalycouldbenextinline。

“TheEFSF’svolumeisonlyoneaspectinacompletepackage,andifpoliticiansthinkthemereincreaseinsizeshouldbeenough,theyarenevergoingtowinthatrace,”saidCommerzbankChiefEconomistJoergKraemer。

“Sufficientfirepowercanonlybeeffectiveifacountryalsoreformsitselfinacrediblemanner。

That’sbecausemarketsdon’tbelievethatdonorcountrieswillpermanentlysticktothecommitmentsthattheygavetotherecipientcountrieswithoutstructuralreformsintherecipientcountries。



Italyhascomeunderfireforlackingstructuralreformsandnottacklingits1。

9trillioneurodebt。

Reuters

Hewlett-PackardCoditchedaplantospinoffitspersonalcomputersunit,amonthaftertheousterofCEOLeoApothekerwhoseideawouldhavecostbillionsofdollarsinexpensesandlostbusiness。

NewChiefExecutiveMegWhitman,whoreplacedApotheker,hadvowedaquickdecisiononanissuethatwasbeginningtoalienateitsPCpartners,investorsandcustomers。

WhitmanstillhasoneunresolveditembeforeherthefutureofWebOSsoftware。

ApothekerputtheWebOSdivisioninjeopardyafterhekilledtheWebOS-basedTouchPadtabletfollowingpoorsales。

HPisstillmullingthesoftwaresfuture,includingifitshouldbuildanewWebOS-basedtablet,Whitmansaidinaninterview。

ThequestionnowbeforeusiswhatdowedowithWebOSsoftwareanddowecomebacktomarketwithWebOSdevices,Whitmansaid。

Itobviouslywillnotbethesamedevicebutitwillbeversion2。

0。

NYT

TopChinesesearchengineBaiduIncforecaststrongsalesthattoppedWallStreetestimates,afterreportingrobustquarterlyearnings,shruggingoffconcernsthataweakeconomycouldhitadvertisers。

Baidusaidspendingbylargecustomerswassignificantlybetterthanitexpectedinthethirdquarterandits80percentriseinquarterlynetprofitwasdrivenbyspendingbyonlineretailers。

TomorrowsTape(WSJ)

Economics:

At8:30a。

m。

ET,theCommerceDepartmentreleasespersonalincomeandspendingdataforSeptember。

Economiststhinkincomerose0。

3%,bouncingbackfroma0。

1%declineinAugust。

Theythinkspending,thelife-bloodoftheeconomy,rose0。

6%afterrising0。

2%inAugust。

You’llnoticethespendingnumbersinbothcasesarebiggerthantheincomenumbers。

At9:55a。

m。

wefindouthowconsumersarefeeling(arguablylessimportantthanwhatthey’redoing),withtheUniversityofMichigan’sfinalconsumersentimentnumberforOctober。

Economiststhinkitfellto58。

5fromaninitialreadingof59。

4。

I’dguessthat’swrong,giventhereboundinstocksthismonth,butwe’llsee。

Earnings:

Beforethebellwegetreportsfrom:

ConstellationEnergy

CoventryHealthCare

InterpublicGroup

Weyerhaeuser

NewellRubbermaid

NiSource

NewmontMining

Merck

GoodyearTire

Chevron

BiogenIdec

Aon

ApartmentInvestmentManagement

Whirlpool

CIGNA

RockwellCollins

ITT

Laterwehearfrom: