DS9 Document EFTA00759232

From: To: "jeevacation®gmail.com" <jeevacation®gmail.com> Subject: Fw: Date: Sat, 15 May 2010 17:47:23 +0000 Seems a very clever and well informed man. Sent from my BlackBerry® wireless device From: Date: Sat, 15 May 2010 16:27:42 +0000 To: Peter Mandelson<a Subject: Re: Peter New York, but traveling frequently including London (part of next week) I was with the US Treasury Secretary yesterday and others in DC at the Peterson Institute and as you can imagine the subject was heavily reviewed. I can send you a more detailed set of thoughts if you wish or speak at your convenience. A brief summary, which I am sure you are already aware; Clearly the markets, after an ebullient response to the EU/ECB actions Monday AM which projected the Euro could hold at 1.28 to 1.31, are expressing increasing cynicism and the consensus view is further Euro deterioration against the Dollar. Euro short interest has increased and the broad dialogue of concern has been further fueled by commentary (ranging from Merkel and Ackermann to the Spanish report on the Sarkozy threat to leave the Euro.) Many participants are focused on a 1.20 level intermediate term, however some dollar forecasters are projecting parity by early 2011. As the critical note to watch, market participants see the Euro testing first a 1.21 level and then a 1.18 level (for those that follow technical analysis). Near term, rapid moves to these levels would reflect deeper concerns and go beyond growth issues, reserve currency status and relative currency issues. While there are a multitude of scenarios, two different scenarios that are being most consistently discussed: Base Case: Slow growth, reduced Euro level The austerity programs in Spain, Portugal and Greece, combined with greater leverage in the EU on the whole, will substantially reduce growth prospects in the EU which were an already low .8 percent in ql. In this scenario, as growth in China, the EM generally and the US will keep the global economy in recovery, Europe will be a stable but slow growth economy. EFTA00759232 As a result, the Euro will be volatile and focused on ECB actions but trends downward to a new level, and the US treasures and gold are flights to quality. The European Banks trade out of their more challenged sovereign debt exposures. This scenario could have a derivative that encompasses a future Greek delayed debt restructuring after the Greek debt (90 percent in Bond form already) is not held by European Banks that have capital issues but has been traded in the market or through the ECB. Euro Fails Scenario: The market forces continue to drive down the Euro and up the cost of European government and European banks to unsustainable levels. The unsustainable levels are not clearly defined but will consist of continued substantive increases in LIBOR and dramatic tightening of the interbank funding market, a further widening if European CDS spreads, and/or internal political activities in any EU state. In this scenario, which is receiving more speculative attention and press, but not much clear analysis of the actual mechanics, the euro does not hold. Clearly this scenario is focused on near term contagion. Time is a benefit. At this stage, with continued positive economic data, the US market remaining up on the week, and volatility indices at managable levels (the VIX settled at 23/25) and Greek debt holding firm on its dramatic recovery off the back of Monday's announcement, there is reason to focus on these new reduced downside levels. However, the bigger fear of major developed market sovereign debt issues remains. The Euro fail case is openly discussed, is very noisy and will continue to weigh on the market. From: PETER MANDELSON < Date: Sat, 15 May 2010 09:47:09 +0000 (GMT) To: <I Subject: Re: Where are you based now, Michael ? How far down can the euro go ? - - On Tue, 11/5/10, From: Subject: Re: To: "Peter Mandelson" Date: Tuesday, 11 May, 2010, 20:08 Peter Extraordinary effort in all respects Available to assist or catch up at your convenience Original Message wrote: EFTA00759233 From: Date: Mon, 10 May 2010 17:07:11 To: Subject: Re: Thanks Michael. Sent from my BlacicBerry® wireless device Original Message From: Date: Mon, 10 May 2010 16:48:34 To: Peter Mandelson<1 Subject: Re: Peter I have just read the announcement regarding Labour leadership. It appears to have been well handled. In particular as the other talks have stalled, Good luck l am available to assist in any way you need All the best Original Message From: Date: Sun, 9 May 2010 20:03:31 To: Peter Mandelson<1 Subject: Re: Peter A final update for your consideration. ECB still expected to make an announcement tonight. UK MPC meets in the am which may limit comments. Also, due to MPC meeting, UK/ B of E leadership are essentially the only ones not in Basel. I have full confidence in you All the best Original Message From: Date: Sun, 9 May 2010 19:34:36 To: Peter Mandelson<1 Subject: Re: Peter Excellent I am up to speed on Bank views and Markets EFTA00759234 Happy to assist as needed Original Message From: Date: Sun, 9 May 2010 19:29:06 To: Subject: Re: The PM galvanised. Ori inal Messa e From: To: Peter Mandelson ReplyTo: Subject: Re: Sent: 9 May 2010 20:17 Peter Thanks for the quick response. UK liquidity will be a real issue in the am. There is virtually no confidence in the EU actions (70 B is not relevant if Greece requires 130 B)Even if the ECB embarks on QE in the am the market tension is extreme. The financial system needs a voice. Unquestionably, Finance and Markets are a core strength. You understand the politics, I do not. From a market perspective, carefully handled it would be immensely powerful and seen as a set of "grown ups" focusing on the real and critical issue. All the best Original Message From: Peter Mandelson To: ReplyTo: Peter Mandelson Subject: Re: Sent: May 9, 2010 3:01 PM I am with the PM now discussing all this. I will tell him your view. Thanks a lot. Original Messa e From: To: Peter Mandelson ReplyTo: Subject: Sent: 9 May 2010 19:55 Peter I hope this note finds you well in these very challenging times Recognizing the current situation in the UK, it would be of extraordinary benefit (on the whole, and for the EFTA00759235 govemment/party) for a statement to be made by the Government on UK markets for tomorrow and a view on the EU markets and any plan that will be announced. The volatility and lack of information amongst the financial and investor world is at a truly unique point in this crisis Happy to discuss at anytime although I am sure you are completely swamped Good luck All the best Michael Sent from my BlackBerry® wireless device Sent from my BlackBerry® wireless device EFTA00759236