In Between Days: EU Summit

by CC October 26, 2011 12:17 am • Commentary


Prospects for a comprehensive deal to resolve the euro zone debt crisis at a summit on Wednesday look dim, with deep disagreement remaining on critical aspects of the potential agreement, including how to give the region’s bailout fund greater firepower.

EU officials and European diplomats are lowering expectations of a breakthrough when the 17 euro zone leaders meet, despite Franco-German assurances only weeks ago that a “comprehensive solution” to more than two years of debt and economic turmoil would be found by the end of the month.

While there appears to be broad consensus on the need for around 110 billion euros ($150 billion) to be injected into the European banking system to help it withstand a potential Greek debt default and wider financial contagion, there is little clarity on either of the other two critical parts of the plan.

One element involves scaling up the region’s 440 billion euro bailout fund, known as the European Financial Stability Facility, and the other is focused on reducing Greece’s debt burden by deepening the losses private investors — major banks and insurance companies — must take on their Greek bonds.

EU leaders will consider two methods for scaling up the EFSF, one by using it to offer guarantees to purchasers of new euro zone debt, and the other using part of its capacity to set up a special purpose investment vehicle that would attract money from sovereign wealth funds and other investors to buy debt. They might also agree to combine both options.


According to the historical volatility measure, recent volatility is hitting the all-time high levels, even equaling or exceeding that surrounding the Black Monday of 1987. According to the intraday volatility measure, current volatility is nowhere near the levels observed during the Oct. 19 crash of 1987, when the S&P 500 registered a 25% move between its daily high and the low. Furthermore, present intraday volatility levels are comparable to those observed in the late 1990s, early 1970s and even 1962.

While the methodology used to compute volatility is the choice of the analyst, one thing is certain: high volatility takes time to die down. As Figure 1 shows, the clusters of high volatility are cyclical in nature and last around 4-6 years at a time. As a result, the high volatility levels the markets have experienced since 2008 may extend even through 2012.

Bloomberg Inc., the world’s largest Internet retailer, reported a plunge in third-quarter profit after it ramped up spending on new products such as the Kindle Fire tablet. The shares tumbled 19 percent in late trading.

Net income fell 73 percent to $63 million, or 14 cents a share, from $231 million, or 51 cents, a year earlier, the Seattle-based company said today in a statement. That missed the 24 cents predicted by analysts, according to Bloomberg data. Amazon also said it may post an operating loss this quarter.

The company is sacrificing profit margins in search of sales volume and market-share gains. Amazon will sell its Kindle Fire tablet for as low as $199, less than half the price of Apple Inc.’s cheapest iPad. Chief Executive Officer Jeff Bezos is counting on revenue from digital music, books and movies to make up for selling the product at a loss — estimated by IHS Inc. to be about $10 per device.


Apple Inc. (AAPL) is turning to the software engineer who built iTunes to help lead its development of a television set, according to three people with knowledge of the project.

Jeff Robbin, who helped create the iPod in addition to the iTunes media store, is now guiding Apple’s internal development of the new TV effort, said the people, who declined to be identified because his role isn’t public.

Robbin’s involvement is a sign of Apple’s commitment to extending its leadership in smartphones and tablets into the living room. Before his Oct. 5 death, Apple co-founder Steve Jobs told biographer Walter Isaacson that he had “finally cracked” how to build an integrated TV with a simple user interface that would wirelessly synchronize content with Apple’s other devices.

“It will have the simplest user interface you could imagine,” Jobs told Isaacson in the biography “Steve Jobs,” released yesterday by CBS Corp. (CBS)’s Simon & Schuster.

Tomorrow’s Tape (WSJ)


  • At 7:00 a.m. ET, the MBA releases its weekly Mortgage Applications Survey. Like the Marines, many apply, few are chosen.
  • At 8:30 a.m., the Commerce Department is out with its durable-goods report for September. Economists think demand for US goods meant to last three years or more fell 1% in September.
  • At 10:00 a.m., Commerce reports new home sales for September. Economists think sales rose to an annualized pace of 300,000 units from 295,000 in August — still near rock-bottom.

FedSpeak/Eurozone foolishness:

  • The EU Summit to End All Summits, Until the Next Summit
  • German parliament votes on Angela Merkel’s bailout fund mandate


Before the bell, we hear from:

  • WellPoint
  • Sprint Nextel
  • Ford Motor
  • Boeing
  • Southern
  • ConocoPhillips
  • General Dynamics
  • American Electric Power
  • Thermo Fisher Scientific
  • Praxair
  • Medco Health Solutions
  • Lockheed Martin
  • Corning
  • Automatic Data Processing

Later we get results from:

  • Hess
  • Allergan
  • Exelon
  • Northrop Grumman
  • Prologis

After the close we get results from:

  • CA
  • Visa
  • Symantec
  • Norfolk Southern
  • Equity Residential
  • Ameriprise