20120617-214125.jpgGood morning

The headlines:

  1. Greece finally has a government.

    Link: Samaras sworn in.

    The coalition is as expected: New Democracy, Pasok and the Democratic Left.

    Now the Greek leaders plan to return to the negotiating table around the budget cut requirements of the bailout.

    Next hurdle. Stay tuned for more market reaction.

  2. The trouble with the Eurozone.

    Link: Caroline Baum has an opinion.

    I really enjoyed this article – particularly the point that randomly selected groupings of countries had a better chance of forming a monetary union than did the 17 countries that make up the Eurozone. And that assessment is based on the criteria established by the so-called “Father of the Euro” Robert Mundell – who won a Nobel Prize for his work on “optimum currency areas”.

    Basically, Baum points to the root of the Eurozone issue: that the underlying reasons for European union had more to do with avoiding German imperialist tendencies and preventing World War III than it did with things that make good economic sense.

    Monetary union without fiscal union, but instead with deeply nationalistic roots for each member country. Not pointing to an end in sight.

  3. The Fed continues stimulus.

    Link: extending Operation Twist.

    The Fed will continue with its stimulus measures through to the end of the year. And by “stimulus measures”, what I mean is the sale of short-term securities and the purchase of longer term securities*. This should “depress” longer term interest rates**.

    Bernanke stands ready to do more if the labour market doesn’t improve.

    And the Fed’s not worried about inflation. Quote unquote.

  4. Oracle’s CEO is buying Hawaii.

    Link: Ellison buys Lanai.

    According to the Hawaiian state governor, Ellison has applied to buy 98% of Lanai. Lanai is Hawaii’s sixth largest island.

    It’s interesting because this is one potential solution to awkward situations like fiscal crisis. Just sell off the good stuff. I mean – I realise that Lanai isn’t actually state-owned (it’s currently owned by David Murdoch’s Castle and Cooke Inc.). But still, if the US has sold islands in the past, why not do so again?

    From what I can tell, with at least one secession attempt under its belt, Nantucket would love to own Nantucket…

  5. China’s manufacturing slump.

    Link: contraction for the 8th month in a row.

    The preliminary reading of the purchasing managers’ index from HSBC and Markit Economics shows contraction continuing for June.

    I guess we’re all still waiting for those interest rate cutting measures to have some effect.

That’s all for now.

Have a good day. 

*Hence the “twist” of it all. Reducing the supply of long-term securities and increasing the supply of short term securities. 

*Reducing the supply of longer term securities, with the demand unchanged, will increase their price. Higher prices relative to the redemption value of the security mean that the effective yield (or effective interest rate) on the bonds will fall.