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European Banks Now Feverishly Betting Against Euro, As Bailout Fails, Gold Surges

Tyler Durden's picture




 

Thought experiment: You are the head FX trader at French megabank Croc Monsieur & Cie. (HFT: CMC) For the past 5 years, your bonus has been getting paid primarily in company stock. In the last two weeks you have seen the stock of your firm plunge as the markets have finally realized that those idiots in the Fixed Income desk have loaded up to the gills with PIIGS debt which is now worth 60 cents on the dollar at best. And to top things off, the euro has plunged to multi year lows killing any chance of buying that New York Pied A Terre which seemed so cheap when the EURUSD was 1.50 a few months ago. So what do you do? Well, you short the living daylights out of the EUR, knowing full well that the EU, the IMF and the ECB will not let Europe crash. You sell, you sell on margin and then you sell some more, trying to get EURUSD all they way down to 1.20, to 1.10,  even to parity if possible, to make it all that more believable that the end of Europe is coming. And, lo and behold, on May 9 your plan succeeds: Europe agrees to bail your bonus out, by flushing $1 trillion under the pretext the money will be used to stabilize the periphery and the euro. Immediately the stock of CMC, and thus the value of your accrued bonus (several million worth), surges by a record 20% in one day. So you think: "How can I get an even greater bonus appreciation? Why - I will short the euro again. At this point I know that between myself and the other FX desks at all the other French and German banks we can easily take the euro down to 1.20 if not much lower. After all we are only trading against the very central banks that are keeping us alive. And when that happens Europe will have to print another trillion, then ten trillion, then one hundred trillion, all the while the stock portion of my accrued bonus surges. Brilliant." Brilliant indeed - Zero Hedge has received confirmation that several of the largest French banks are now actively shorting the euro to take advantage of globalized moral hazard, which with every ensuing bailout does nothing but make the bonuses of French FX traders surge. In other words, the very banks that Europe is bailing out are betting more and more aggressively with each passing day against Europe's own survival! Even George Soros has shed a tear of pride in how beautifully his initial plan to take on the BOE has mutated for the Bailout Generation.

And overnight, the traders from the imaginary CMC, and other all too real French banks (and now US hedge funds), are succeeding, as the last traces of this weekend's $1 trillion bailout are long forgotten: futures are plunging, Asia is collapsing, the EURUSD is probing a 1.26 handle and we see it easily going back down to 1.25, even as gold surges.

We anticipate another record bailout to be announced by Europe within the month as Europe now has no other choice. And each subsequent bailout will only lead European banks to bet even more aggressively against the survival of Europe, which destroys more and more European taxpayer capital. Welcome to Global Moral Hazard.

 

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Tue, 05/11/2010 - 05:31 | 342979 George the baby...
George the baby crusher's picture

Singing: "It's the end of the world as we know it and I feel fine".

Tue, 05/11/2010 - 08:13 | 343126 Translational Lift
Translational Lift's picture

Nothing new about the French betting against it's self.....Business as usual.....

Tue, 05/11/2010 - 08:31 | 343144 Translational Lift
Translational Lift's picture
RTTNews Articles

"Greece To Place Request For First Tranche Of EU/IMF 110 Bln Euros Aid Today."  The race to the bottom begins.  Hell....I think I'll stop by and ask for 10BB (I hope my fat finger didn't get in the way)...that should keep me for a couple of months...

Tue, 05/11/2010 - 10:09 | 343282 Fish Gone Bad
Fish Gone Bad's picture

Ah, now I get to quote Pogo, "We have met the enemy and he is us."  So the very banks that the EU is trying to save, are biting the hand that feeds it.  Here's a new twist:  Perhaps the banks can also load up on FAZ and SKF to the point that the banks tip over as well.

Tue, 05/17/2011 - 02:00 | 1282112 Karston1234
Karston1234's picture

Thanks a lot for sharing such an valuable stuff.
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Tue, 05/11/2010 - 08:16 | 343130 john_connor
john_connor's picture

It's like betting the nuts against a drunk calling station.

Tue, 05/11/2010 - 08:19 | 343131 homersimpson
homersimpson's picture

More like raising your bet on 21 when the dealer has shown both cards already..

Tue, 05/11/2010 - 08:40 | 343162 Gully Foyle
Gully Foyle's picture

So no Mad Max but Delicatessen. I can see Dominique Pinon in finance.

Tue, 05/11/2010 - 10:34 | 343350 WaterWings
WaterWings's picture

LOL - awesome.

(french accent): "So what do you think? That I would not take top cream off for myself! That is what bankers do! Merde!"

Tue, 05/11/2010 - 09:36 | 343241 Turd Ferguson
Turd Ferguson's picture

Euro rollover and $ rally all just in time for the treasury auctions this week...

Tue, 05/11/2010 - 10:11 | 343294 Bringin It
Bringin It's picture

Good point Turd.  Does that mean we get a new drastic maneuver ever month from here on out?

Tue, 05/11/2010 - 10:10 | 343291 ambrosiac
ambrosiac's picture

 

Followed by

 

"Sometimes

I can't help the feeling that I'm

living a life of illusion..."

 

http://www.youtube.com/watch?v=_tiOMu_Bf8Q

 

 

Sometimes I can't help the feeling that I'm
Living a life of illusion
And oh, why can't we let it be
And see through the hole in this wall of confusion
I just can't help the feeling I'm
Living a life of illusion

Pow! Right between the eyes
Oh, how nature loves her little surprises
Wow! It all seems so logical now
It's just one of her better disguises
And it comes with no warning
Nature loves her little surprises
Continual crisis

Hey, don't you know it's a waste of your day
Caught up in endless solutions
That have no meaning, just another hunch
Based upon jumping conclusions
Caught up in endless solutions
Backed up against a wall of confusion
Living a life of illusion

 

Joe Walsh -- "A life of illusion"

 

Tue, 05/11/2010 - 10:32 | 343348 chumbawamba
chumbawamba's picture

How ya doin!?

Joe Walsh - a longtime favorite (and a good guy).

I am Chumbawamba.

Tue, 05/11/2010 - 10:36 | 343357 RichardENixon
RichardENixon's picture

One of the most underrated guitarists ever.

Tue, 05/11/2010 - 10:36 | 343359 You Cant Handle...
You Cant Handle the Truth's picture

Singing:  Greece is the word / have you heard / it's the terd / that's been sinking / Greece is the way / we've been feeling ...

(With no apologies to Travolta or Newton-John)

Tue, 05/11/2010 - 05:33 | 342980 MaxPower
MaxPower's picture

I'm a pretty fast reader, but this frenetic pace is killing me. I also suspect that the few interpersonal relationships I have remaining are suffering as I futilely try to keep up with all this nonsense.

You people have held me back long enough. I'm off to clown college.

Tue, 05/11/2010 - 06:37 | 343017 Cognitive Dissonance
Cognitive Dissonance's picture

You STILL have a few interpersonal relationships remaining? Obviously you're not trying hard enough. Ditch the rest and surrender to Zero Hedge. Become even more obsessed than the other side is because while we might have righteous justice on our side, they have the central banks, the law, politicians and millions of MBAs on theirs.

Actually I just described their Achilles Heel. They are this huge 200,000 ton dual nuclear reactor powered aircraft carrier that requires 2 miles of open sea to pull a 180 degree turn. And we are in these fast Zodiacs zipping around like thousands of angry hornets. All we need are a few old school Exocet missiles and that carrier is history. 

Just stay away from the screws dude or you're about to have a very bad day.

Tue, 05/11/2010 - 07:16 | 343060 nuinut
nuinut's picture

Sure is becoming a very absorbing few days (and nights) alright!!

I'm looking for BIS to step in sometime in the not too distant future with an announcement regarding gold that will fundamentally change the picture. Can't have the CB's bank staying quiet forever, can we? Can't have those thousands of tons of gold sitting around with no purpose forever, either. 

Christian Noyer is the 'gold man' at the BIS. Oh, and he's the boss these days, too.

Link - "The Gold Man" (not Goldman) at the BIS   

Careful not to lose your bullion over the side of your Zodiak; it'll sink pretty fast.

Tue, 05/11/2010 - 09:45 | 343250 chumbawamba
chumbawamba's picture

I shot my wad during the Fall of 08.  I'm watching all this happening at a sort of semi-disinterested distance.  It has more to do with the fact that I'm excrutiatingly busy of late.

But yes, we may well be on the cusp of something major...another point of no return.

If the credit markets seize up and a run on the banks results, what next?  What is the next phase of this nightmare?  Do we truly plunge into martial law?

As a general rule, always be prepared to get the hell out of Dodge.

I am Chumbawamba.

Wed, 05/11/2011 - 02:55 | 1261981 Howard_Beale
Howard_Beale's picture

Wow--you shot your wad in 2008? Any babies?

Tue, 05/11/2010 - 08:41 | 343165 duo
duo's picture

ZH...the cure for internet porn addiction.

Tue, 05/11/2010 - 09:02 | 343193 Postal
Postal's picture

Now why would anybody want to cure that?

Tue, 05/11/2010 - 09:15 | 343210 Cognitive Dissonance
Cognitive Dissonance's picture

I read in Wired over a year ago that something like 60% of Internet traffic was directly related to porn. That's a lot of sticky mice.

Tue, 05/11/2010 - 09:55 | 343261 chumbawamba
Tue, 05/11/2010 - 09:15 | 343207 MyFriendMises
MyFriendMises's picture

Truer words have never been spoken.  Too funny. 

Tue, 05/11/2010 - 08:41 | 343169 Gully Foyle
Gully Foyle's picture

The freaks won in MicMacs.

Tue, 05/11/2010 - 08:48 | 343176 kwvrad
kwvrad's picture

In the end it wont matter the banksters will have all the paper money they printed(so all they got is what they made, no loss for us really) , but it'll be worthless, because us commoner/peasants will refuse to accept it, and we will be the ones growing and making "stuff" , they in the end will starve n die off , they just havent figured it out yet. The people of the world are not as dumb as "they" think, thats their achilles heel.. CD... I like your analogy about the carrier and zodiacs .

 All I know is theres a world of hurt coming our way and it cannot be stopped we missed that chance not long ago.. just buy alot of "STUFF"  cause you'll need it, dont 4get the reloader , keep your powder dry13

Tue, 05/11/2010 - 08:58 | 343189 primefool
primefool's picture

Markets have survived world wars, earthquakes, and a lot worse. Things may look bad now compared to the golden 1990s but by historical standards - things are not that bad - at all. People who kept their heads, had some faith that the human race will progress and had some dry-powder  became the tycoons for the next era. people who hid in caves - well - they did leave us some nice cave paintings.

Tue, 05/11/2010 - 09:20 | 343219 JacksCompleteLa...
JacksCompleteLackOfSuprise's picture

meh, caves were the McMansions of their day, in fact, they were just fucking mansions :)

I think you have mixed you temporal metaphors there.

I agree that people who keep their heads (no French aristos for instance) can become tycoons.

Tue, 05/11/2010 - 09:20 | 343218 Caviar Emptor
Caviar Emptor's picture

The achilles heal was also in evidence on May 6th at 14:45 : When Goldman sells, there's nobody to sell to. (!) And the other big holders of worthless paper go into panic mode (!)

Tue, 05/11/2010 - 09:31 | 343231 Cognitive Dissonance
Cognitive Dissonance's picture

Nice!

That was pretty evident, wasn't it. In a market of fools, it becomes tougher and tougher to find the greater fool. After a while, everyone becomes a bit gun shy. Like a hyper alert deer, the greater fool bolts at any unnatural sound, even if it's simply a misperception on the part of the greater fool.

Tue, 05/11/2010 - 09:28 | 343227 Double down
Double down's picture

I have given up all hope of human touch.  Thanks ZH.

Tue, 05/11/2010 - 09:33 | 343237 Cognitive Dissonance
Cognitive Dissonance's picture

You can purchase that over the Internet now. A few clicks, a credit card and 1 hour later, lots of human touch. Just thought you should know that just in case you're perched on the ledge. :>)

Tue, 05/11/2010 - 10:30 | 343346 chumbawamba
chumbawamba's picture

Or the tried and true old-fashioned low-tech way: a street corner in a seedy downtown district.

I am Chumbawamba.

Wed, 05/12/2010 - 00:42 | 345437 FreeStateYank
FreeStateYank's picture

Geez, thought I was the only one dropping the ball on interpersonal relationships! Excepting the ones I've maintained, the others are so clueless, it's depressing trying to get them to take their head out of the sand, so I stopped.

 

 

Tue, 05/11/2010 - 07:21 | 343073 bullwinkle
bullwinkle's picture

Not a bad career move Max, because when this is all said and done we're going to need someone to laugh at.  Ditch the floppy shoes though, you'll find that they impede your ability to run.....you know, just in case the crowd turns on you.

Tue, 05/11/2010 - 08:08 | 343120 moneymutt
moneymutt's picture

do clowns do well in bear markets?...I suppose so, 'cause to me they are just scary....send in the clowns...I hate clowns..

Tue, 05/11/2010 - 10:07 | 343285 Hulk
Hulk's picture

Whatever you do MaxPower, don't let this happen to you:

 

http://www.youtube.com/watch?v=hsvAj6qfmFQ

Tue, 05/11/2010 - 11:57 | 343632 MaxPower
MaxPower's picture

I don't care WHO you are; that's funny.

I can't help but get the subliminal, perhaps entirely unintentional, message that we're all being stuck in the foot by Wal-Mart, and by extension large MNC's, China, and our own failed macroeconomic and geopolitical policies.

Am I overthinking this? I'm sure they'll drill this right out of me first day of Clown school. And yes, I capitalized Clown. It's a calling. It deserves some respect.

 

Tue, 05/11/2010 - 05:35 | 342982 primefool
primefool's picture

Yep the governments are definitely the patsies at the poker table. But need to keep in mind that they still have a monopoly on violence and the power to tax - so they can be a stupid as doorknobs and still "win" in the end.

Tue, 05/11/2010 - 06:20 | 343009 tim73
tim73's picture

As always speculators cannot stop themselves and some of you here even think they are some kind of unstoppable force of nature. And then cry "this is unfair", when the government boys suddenly show up, take away the tools or even worse, the angry mob shows up and takes aways something else.

Three innocent bank workers dead in Greece earlier this month. It won't be long before somebody might decide to take out one of the hedge fund offices. But look at the bright side, you will have "fight clubs" in your office! Beware what you wish for, you might actually get it.

Tue, 05/11/2010 - 06:48 | 343030 nmewn
nmewn's picture

I believe something was said about wolves circling...LOL.

The cold comfort of the sheeple must not be interrupted by the knowledge that they are so well guarded by them...move along...move along.

 

Tue, 05/11/2010 - 06:48 | 343028 Cognitive Dissonance
Cognitive Dissonance's picture

"Yep the governments are definitely the patsies at the poker table."

May I suggest that they are not the patsy but in fact a part of the crime family. We have simply reached the stage of the game where it is governments turn to play patsy in order to fleece the taxpayer sheep.

The destruction of the economic system is not one thermonuclear bomb going off but hundreds of smaller tactical neutron nucs strategically placed to kill the people but leave their wealth standing to be absorbed by the core corruption.

Tue, 05/11/2010 - 06:59 | 343040 LeBalance
LeBalance's picture

CD, if I may take slight poetic liscence with your comment and change "fleece" to "kill," I think that is more accurate.  While "kill" is "fleecing" of life, precision in this case would then mean defining "fleecing" as: [all forms of theft].  Precision and absolute clarity are a good thing for some who may read still do not understand that they stand between Scylla and Charybdis [rock and a hard place is just not enough].

Tue, 05/11/2010 - 15:25 | 344274 The Deacon
The Deacon's picture

"between Scylla and Charybdis"

Dude, you ripped that off from a Police song, 'Wrapper Around Your Finger'.  ; D

And there are some worried at the level of intellect on this site, BAH! 

Tue, 05/11/2010 - 08:33 | 343155 moneymutt
moneymutt's picture

we tend to think of the TPTB as monolithic power, but I think there is lots of infighting...in fact its only when they are infighting that we ever find anything out because they expose a bit on eachother...I suspect there will be lots of infighting in next few years...either arguing over how to dived up the loot are arguing about who screwed up the perpetual cash machine..

Tue, 05/11/2010 - 08:34 | 343156 lesterbegood
lesterbegood's picture

Welcome to the World Economic War.

Tue, 05/11/2010 - 08:45 | 343174 Gully Foyle
Gully Foyle's picture

http://www.youtube.com/watch?v=8QxqEALeoVU

STICK UP YOUR HANDS, YOU MUST STAND AND DELIVER,
MY STOMACH'S EMPTY, MY CLOTHES ARE ALL THORN.
OPEN YOUR HEARTS TO THE JOYS OF THE GIVER,
ALL OF YOUR POCKETS ARE TERRIBLY WORN.

THIS IS A HOLDUP, NO WAY TO MISTAKE IT,
WE'RE MEN OF VIOLENCE SO DON'T FOOL AROUND.
IF YOU HAVE MONEY, WE'RE GOING TO TAKE IT,
YOU'LL TRY AND STOP US, YOU'LL END UNDERGROUND.

WHEN WE HAVE YOUR MONEY, WE'LL RIDE TOWARDS THE SUNSET.
AT ROSA'S CANTEEN WE'LL STOP AT THE DOOR.
WE'LL SPEND ALL YOUR MONEY JUST GETTING THE NOSE WET,
TOMORROW EVENING WE'LL BE BACK FOR MORE.

SO HAND US THE MONEY, DON'T STAND THERE AND SHIVER,
TAX TIME IS COMING, GIVE ALMS TO THE POOR.
OR I´LL PUT A BULLET RIGHT THROUGH YOUR BEST LIVER,
WEALTH IS DISEASE AND I AM THE CURE.

WHEN WE HAVE YOUR MONEY, WE'LL RIDE TOWARDS THE SUNSET.
AT ROSA'S CANTEEN WE'LL STOP AT THE DOOR.
WE'LL SPEND ALL YOUR MONEY JUST GETTING THE NOSE WET,
TOMORROW EVENING WE'LL BE BACK FOR MORE.

SO HAND US THE MONEY, DON'T STAND THERE AND SHIVER,
TAX TIME IS COMING, GIVE ALMS TO THE POOR.
OR I´LL PUT A BULLET RIGHT THROUGH YOUR BEST LIVER,
WEALTH IS DISEASE AND I AM THE CURE,
I AM THE CURE,
I AM THE CURE,
I AM THE....

Tue, 05/11/2010 - 07:06 | 343046 Alexandra Hamilton
Alexandra Hamilton's picture

Who controls the governments? Is it the people who elected them or is it the corporations? If it is the latter, who will win if the governments win?

Tue, 05/11/2010 - 05:35 | 342983 doggings
doggings's picture

1.2679 bitches

yep, they really taught those nasty speculators a lesson

Tue, 05/11/2010 - 06:39 | 343019 Cognitive Dissonance
Cognitive Dissonance's picture

It was always inevitable that they would eventually begin to feed upon their own. After all, they are cannibals. 

Tue, 05/11/2010 - 06:47 | 343027 Duuude
Duuude's picture

Squidlets.

Tue, 05/11/2010 - 08:06 | 343115 G-R-U-N-T
G-R-U-N-T's picture

Indeed, the very best they could do is annihilate themselves.

Tue, 05/11/2010 - 05:37 | 342984 Serpico
Serpico's picture

Tyler, when did you give up sleeping?

Tue, 05/11/2010 - 06:58 | 343039 Cognitive Dissonance
Cognitive Dissonance's picture

"Tyler, when did you give up sleeping?"

I would say the day after Zero Hedge was rolled out, based upon the fact that this was when I gave up sleeping so that I may follow Zero Hedge. The bags under my eyes are now sagging further than my (several) chins. :>)

Tue, 05/11/2010 - 07:17 | 343064 Temporalist
Temporalist's picture

I only sleep on slow news days...

Tue, 05/11/2010 - 10:38 | 343362 chumbawamba
chumbawamba's picture

Please explan this "sleep".

I am Chumbawamba.

Tue, 05/11/2010 - 07:29 | 343079 asdf
asdf's picture

there are several Tylers, a new one seems to be in europe.

Tue, 05/11/2010 - 07:37 | 343087 Temporalist
Temporalist's picture

Isn't the point - we are all Tyler Durdens.

Tue, 05/11/2010 - 10:53 | 343375 WaterWings
WaterWings's picture

WE are Project Mayhem. Carrying out homework assignments. In death we are "Robert Paulson".

http://www.youtube.com/watch?v=p07Qdq2Jzv0

"We are building a religion."

Wed, 05/11/2011 - 02:57 | 1261983 Howard_Beale
Howard_Beale's picture

He didn't. There is more than one Tyler. Catch up!

Tue, 05/11/2010 - 05:43 | 342987 THE DORK OF CORK
THE DORK OF CORK's picture

The BIS / ECB needs to free gold or else Brussels needs to build capital walls.

 Feeding the commercial banks will just make these dogs hungrier for bigger and bigger sovereigns.

Tue, 05/11/2010 - 05:51 | 342989 Cookie
Cookie's picture

And the bankers raped on. Amen.

Tue, 05/11/2010 - 09:13 | 342995 bob resurrected
bob resurrected's picture

At what point will the Fed swap lines begin to be used in this scenario? And, is another trillion in USD supply enough to thwart "CMC" et al's efforts? Or, will the Fed simply increase the swap limit? At one point a couple of years ago, I recall Bernanke saying he would be comfortable increasing his balance sheet to $12 trillion! Is "CMC" ready to see his 12 and raise another 2?

Drawings on the new facilities will be used to fund U.S. dollar tender operations conducted by foreign central banks. The ECB, BOE and SNB expect to conduct initial operations this week. At present, the Bank of Canada and the Bank of Japan have not yet scheduled operations in US dollars. http://www.federalreserve.gov/newsevents/press/monetary/monetary20100510...

Tue, 05/11/2010 - 06:04 | 343000 primefool
primefool's picture

It is dangerous to assume the ECB wants to strengthen the Euro. In fact I bet they would prefer to have the Euro get to 100-120 range. Their main concern was to bring down the cost of borrowing and CDS spreads - which has happened and is continuing to tighten.

Tue, 05/11/2010 - 06:16 | 343007 Frederic Bastiat
Frederic Bastiat's picture

My thoughts exactly. The difficult thing to know, is whether U.S. equities will be positive because contagion risk is gone, or negative because of the strengthening dollar.

Tue, 05/11/2010 - 07:06 | 343048 aurum
aurum's picture

the (or a) contagion risk IS the rising dollar.

Tue, 05/11/2010 - 07:02 | 343042 asdf
asdf's picture

that's the point. The problem was that they couldn't say to the german public "We need to print euros to bail Club Med out" so they had to say that they want to preserve the value of the euro (which of course shouldn't raise in value when you print more of them)

 

Historic low of the euro was 0,8 and fair value is somewhere between 1,15 and 1,25

Wed, 05/11/2011 - 03:01 | 1261984 Howard_Beale
Howard_Beale's picture

Wow...you see what happens with these turds? 3 junks and you don't even get a pony.

Tue, 05/11/2010 - 06:13 | 343006 chindit13
chindit13's picture

If it takes five or six years to vest, and the bonus has been about 80% stock, then it makes sense---if one is a ruthless, self-centered, arrogant mercenary (aka Banker, or is that redundant?)---to call the ECB's bluff, even if it means your P&L gets blown out of the water and you get fired.  And if the bankers are a good judge of (lack of) character, then they can guesstimate Bernanke's next move, which will be the same as his previous moves.

Yes, anyone playing knows how to game the system.  It's a combination of encouraged moral hazard and the law of unintended consequences.

Tue, 05/11/2010 - 09:25 | 343223 kaiserhoff
kaiserhoff's picture

Exactly.  It's technically a small matter of goal congruence, but there's a good way to visualize the problem.  Think about a monkey trying to fuck a football.

Tue, 05/11/2010 - 06:24 | 343011 primefool
primefool's picture

IMHO - as far as personal investing - attempting to trade the equity markets is awaste of time and unlikely to be rewarding. Far better to create a shopping list of a handful of high quality companies, develop a feel for their valuations and wait patiently for opportunities to accumulate. In this strategy there is no need to tear your hair out trying to guess the overall market moves on a day to day basis.

As far as trading jollies - I feel the FX market is far better. Given the approximately $4 Trillion/day trading flows - much harder to brute-force manipulate than the equity markets .

Tue, 05/11/2010 - 08:45 | 343172 anony
anony's picture

TRADING, or really, spending hours a day buying and selling securities of any type, (anything actually, steel, widgets, ICs) is for some an occupation of their time, an absorbing, fascinating activity akin to experimenting in a chemical lab with lots of interesting subtances and thru trial and error, watch what happens.

INVESTING is the antithesis of trading. You make a move or two a few times a year on the types of high quality companies you suggest and go do something else with your time. You have no interest in 2% loss here, 1% gain there, 560% gain in an option play and a 700% loss on an option on a future.  Derivatives scare the hell out of you.

Trading leaves lots of room for testing one's gambling chops dozens of times a day and investing is testing one's ability to divine the long view.  And the long view is posted in the upper right hand corner of this web site.

An investor is still taking risks he isn't even aware of i.e. The Thursday Panic if sustained for a long time, depressing that IBM at 50% discount from cost, for years.

The FX market I've been trading is as much influenced by stock, gold and bond markets as any other (or vice versa, they do seem linked). The other day I got burned being long the Swiss Franc and short the Euro. They have traded inversely to each other, but for some strange reason for a few early morning hours they traded in tandem, taking out my margin thru the Brute-force you refer to. 

A bet in March 2009 going all in Long the NASDAQ, or 3X ETF, is the only move anyone would have had to make for the last 14 months and made a killing. But what fun would that have been?

Tue, 05/11/2010 - 08:53 | 343180 mephisto
mephisto's picture

Good point in the long run. I have my shopping list in my pocket.

All that fundamental analysis gets blown out of the water when some major banks hit liquidity problems and have to sell. That's the time to shop, for selected items.

I dont think we are quite there yet. Valuations are still high, the discounts aren't there yet, but we could get some nice summer sales this year.

Tue, 05/11/2010 - 06:26 | 343012 Instant Karma
Instant Karma's picture

Did I miss something? The EU has long maintained a weaker Euro was good for exports (competitive currency debasement). However, 20% financing for the PIIGS was not sustainable, and default was on the table. Now, 20% on a short-term PIIGS bond doesn't look so bad, except, the Euro is falling. Maybe the trade is to go long PIIGS bonds and short Euros (to cover the currency risk).

Is it me or is world karma askew? Can't someone stop oil from gushing into the Gulf of Mexico? Stick a nuke in the hole and blow it up. Something.

The tricky thing is that the value of money changes so quickly. Yes, when governments print more money that money loses value relative to other currencies and relative to hard assets; but, if the government decides one day to stop printing money, poof, money becomes scarce, and its deflationary. However, as we saw in Greece, social unrest is the price for attempting fiscal austerity, so money printing continues, with the path of least resistance being currency debasement. Essentially, keep everyones checks coming, but denominated in currency that buys less and less.

Hard assets then. Maybe not economically sensitive hard assets like real estate or even copper, but precious metals, other commodities. That's what I'm thinking about. 

 

 

Tue, 05/11/2010 - 06:35 | 343016 primefool
primefool's picture

I dont think you will find PIGS yielding 20% any more. Not after yesterday. The strategy of Long PIGS/Short Core Europe is popular.

Ultimately - all the currencies are crap - not stores of value in the long run. Therefore one has to own productive assets to make real returns - ie. high quality companies. Gold is probably a pretty good way to retain value - but it worries me that it has become a favorite of hedge funds. Previous hedge fund favorites have not fared so well. They tend to projectile puke everything out en mass

Tue, 05/11/2010 - 06:50 | 343031 Instant Karma
Instant Karma's picture

Exactly. In the last go around of financial melt down in 2008-2009 all the precious metals crashed too, cut in half or just about. This time, nothing. Even ticking up as currencies go crazy and stocks viciously correct. No correlation at all. No inverse correlation to the USD per past experience. Maybe the IMF will put 500 tonnes out there for sale, and we can guage market reaction.

Tue, 05/11/2010 - 08:00 | 343108 jbc77
jbc77's picture

Gold is definitely on it's own path. Has been for a while now. You better believe that the common man is buying gold and silver. Some are doing it weekly some monthly. Not just the paperw stuff either. People are buying. How many commericals do you see in an hour for "Goldline" and other rip off gold companies.

 

The avergae guy is buying the real stuff and will continue to do so. Demand is high. The demand for a tangible, hold in your hand commodity or hard asset is here, it's arrived. Holding paper assets of any type in general has become too risky. It's en vogue to bu hard assets now and carry no / low debt.

Tue, 05/11/2010 - 06:56 | 343036 Duuude
Duuude's picture

There is a more subtle issue with the seniority of debt.  The EU packages to these countries are all senior to existing creditors.  These creditors know therefore that countries which need packages will get senior funds from the IMF and EU, and, therefore recovery values for bonds will be less. 

This is perfectly fair since packages come when no one else will lend, but it explains why packages do not reduce secondary market yields as low as people would expect.  The yield on Greek bonds needs to stay high given the risk that the bonds could have 70% writedowns if the likely default does happen.  The same is true, to a lesser extent, for Portugal, Ireland and Spain.  All of these might eventually need to access the 750bn euros and might eventually default.  Bond market yields need to stay high.

 

http://baselinescenario.com/

Tue, 05/11/2010 - 09:07 | 343200 john_connor
john_connor's picture

Good point.

Tue, 05/11/2010 - 09:22 | 343222 JacksCompleteLa...
JacksCompleteLackOfSuprise's picture

+1

Tue, 05/11/2010 - 09:32 | 343233 Cindy_Dies_In_T...
Cindy_Dies_In_The_End's picture

To digress, collapsing the sea floor with a nuclear weapon is a bad thing but it would probably fix some of the immigration problems.

 

People with friends off ZH?!? hahaha what are those.

Tue, 05/11/2010 - 20:18 | 344951 RockyRacoon
RockyRacoon's picture

Can't someone stop oil from gushing into the Gulf of Mexico? Stick a nuke in the hole and blow it up. Something.

I think that sort of solution was tried with a whale and dynamite.

It just made the situation worse.  Can you imagine the carnage?

Exploding whale
Tue, 05/11/2010 - 06:31 | 343014 LeBalance
LeBalance's picture

Keep a nice neat list, it will be good to have as detailed a list for later when they are "let's move forward, no use worrying over spilt milking."  Then they can be sized for neckties.

Tue, 05/11/2010 - 06:39 | 343018 THE VULCAN
THE VULCAN's picture

This is exactly why the currency will uterly collapse.

Tue, 05/11/2010 - 06:40 | 343020 Instant Karma
Instant Karma's picture

Is it me or has the price of gold and other precious metals "decoupled" from the currency and stock markets? I suspect people like us are backing up the truck regardless of where a particular currency pair is trading. It's obvious that social unrest or revolution will not be allowed to occur, and, hence, money printing will continue.

Tue, 05/11/2010 - 07:36 | 343074 nuinut
nuinut's picture

No, it's not just you, but I think you'll find only gold has decoupled, not the other PM's.

I can't get over the interchangeable charts of the last few days, USDX and Gold. 

With gold currently at 1217, I'm expecting to see some hard intervention soon.

Tue, 05/11/2010 - 06:47 | 343026 kaiten
kaiten's picture

Oh, so the global warming is real, after all. Now, it´s turning Europe into Zimbabwe. Cool,  we´ll be all millionaires soon.

Tue, 05/11/2010 - 06:51 | 343032 gridlock
gridlock's picture

Why the fuss here, of course EUR is going down, they just made more of it and the FX trading desks are trying to profit from this. Good for EU exporting themselves out of this, especially Germany. Europe has been ravaged with wars two times from one end to the other, so they are like older parents - more cautious, more empathic, more willing to redistribute wealth evenly, and it has paid better so far - better health care, nicer quality of life than the US, that's for sure.

And what did the Bush and Obama do when crisis strikes - they turned socialist as well, look at the debt/GDP ratios, the deficits running, the loss socialization - they are doing things the best they can after the fact that the western civilization won the Cold War and they spent like winners for 20 years!

Debt will be mopped up, hidden, restructured, or simply grown out of in a decade or few, much more important is to prevent social unrest and the calamities stemming from it - thus it is better to shift the crap to government(s) balance sheet.

Or what,  think Chinese bubble won't pop? Or that they will rule because they save and are some of the few with money? They are not  leaders, nor they had ever historically wanted to be...or you think middle class there gets richer they won't follow the footpath to financial destruction like the west? It's human nature, you just have to live through such crises and hope to reinvent things in a little better way this time...you can put all the safegurds in place you want, a few decades down the road a new generation will dismantle them with another "failproof" strategy to grow and profit...

Tue, 05/11/2010 - 07:01 | 343043 plocequ1
plocequ1's picture

Tyler, Take some Melatonon

Tue, 05/11/2010 - 07:04 | 343045 Cookie
Cookie's picture

Gold 1,217

Tue, 05/11/2010 - 09:02 | 343192 MsCreant
MsCreant's picture

$1222.60

Tue, 05/11/2010 - 09:34 | 343238 Hephasteus
Hephasteus's picture

They'll keep it under the 1225 record for the AM fix but what horrors might the afternoon bring.

Tue, 05/11/2010 - 07:08 | 343047 adeptus
adeptus's picture

It's 3:53AM and I can't sleep. I keep writing these very long emails in my mind to all my family and friends *trying* to put together for them in very simplistic ways what's happened since Q3 2008, and how the world is about to POP the big one... without sounding like I've completely walked off the deep end. But that's a very hard email to write because the facts are stranger than fiction. It's like alice in wonderland on more acid and a 12 pack of red bull at the same time. It's not only not imaginable, but nearly incomprehensible. How do you go about explaining that all the emperors have no clothes and they are all having an orgie in a swimming pool filled not with water, but trillions of soon to be worthless dollars, and that those papers represent the life savings of humanity, and that the emperors in their attempt to stay afloat in the pool to survive decide that they must race each other to the bottom of the pool? Or perhaps I can have my friends visualize that all the emperors decide to light up cigars in their orgie and the ashes end-up creating a large fire and they all burn to death? You see, the metaphors just break down. It's way too looney tunes. How do you explain the severity of the madness to your friends and family without also triggering panic in their blissful ignorant lives... and further, WTF do you give them for advice? For all I know, they might keep pumping the Trillions, and the stock markets will tripple or quintuple in the next year or two ...DOW 36,000 ?? or Dow 360 ???

Tue, 05/11/2010 - 07:29 | 343078 nuinut
nuinut's picture

Well post it here if you get it done, because I would love to send it to my nearest and dearest too. But I will edit the ending, where I advise them to get some gold, and cash out of the bank. That's about all I am confident in recommending.

 

Fuck the markets, leave them to the computers and the very brave (or stupid).

Tue, 05/11/2010 - 08:41 | 343164 SheepDog-One
SheepDog-One's picture

I agree, Ive said Sayonara to these markets. People who have a good track record of being correct are saying forget it, the last weeks plunge of 10% was nothing, when it happens again any day with no nitice it will be 30%. Or more. Really only a fool would believe he can out-guess a super computer at their fractional HFT churn robbery, the stock market is over. CNBC is now only for the 401K bathrobe brigades who watch all day for the obligatory upskirt shot and 8 panel clusterfuk of all the anchor babes.

Tue, 05/11/2010 - 07:34 | 343080 Temporalist
Temporalist's picture

Send videos of Jim Rickards, Jim Rogers, Marc Faber, the CFTC/GATA video and Andrew Maguire, Geral Celente, etc in your emails.  Let other people say for you what you can't.

Tue, 05/11/2010 - 10:17 | 343307 Hulk
Hulk's picture

Don't waste too much time doing that. Best to stay focused and up to date on the goings on. Thats a full time job in itself....

Tue, 05/11/2010 - 10:24 | 343330 Cognitive Dissonance
Cognitive Dissonance's picture

You're fighting a life time of indoctrination and conditioning. It's not going to happen with one e-mail. Their denial has been cemented in place not only by outside forces but by their desire to shield themselves from the consequences of not paying attention since they became adults.

For so many, the softer easier way is to expend just a little more energy to remain in denial then to expend what they see as a great deal of energy un-learning everything they think they know. It's not so much about learning what's going on as much as it's about releaseing all the myths, beliefs and safe places they've constructed along the way. 

Tue, 05/11/2010 - 11:51 | 343602 MaxPower
MaxPower's picture

Spot on. You recall those few interpersonal relationships I mentioned above? That's what I have left after trying to deprogram most of my friends and family over the past two years. The regular phone calls were the first to go, followed shortly thereafter by email replies. Now? I don't even get birthday wishes or Christmas cards.

Thanks a lot, world.

On the other hand, I'm clearly developing some superb virtual relationships with avatars and pseudonyms here at ZH.

Thanks a lot, world.

 

Tue, 05/11/2010 - 13:20 | 343859 Hulk
Hulk's picture

Folks simply can't deal with the reality of the situation. And perhaps we are fooling ourselves believing that we can, yet we press on...

Tue, 05/11/2010 - 14:02 | 344003 Cheeky Bastard
Cheeky Bastard's picture

Hell is other people and solitude is freedom. 

Welcome and enjoy your stay.

Tue, 05/11/2010 - 21:04 | 345051 MaxPower
MaxPower's picture

"For solitude is often best society, and short retirement urges sweet return." -John Milton

Thanks for the welcome. By the way, a directed thanks to you, CogDis, AM, and many others here (too many to name) for a very brutal, very short, but much-appreciated education over the past year.

I only wish I had stumbled across a math / finance mentor sooner in life! Damned aviation. What a lousy career field.

Tue, 05/11/2010 - 10:36 | 343356 ZakuKommander
ZakuKommander's picture

Dear Abby would advise that you NOT disclose to your best friend that her husband is cheating.  

The situation is indeed extremely difficult to articulate.  However, even if it could be put into simple terms, do you really want to tell your friends and family at this point what to do with THEIR money when there is so little transparency, so much obscurity, and so many variables beyond any one center of power's control.  After all, the Dow could be manipulated up to 36,000, gold could be confiscated, and then how would you feel about advice that came out wrong?

Your best bet is to give your friends and family addresses of websites like this one, where they can be educated and entertained, and they can make their own decisions.

Tue, 05/11/2010 - 20:28 | 344974 RockyRacoon
RockyRacoon's picture

True, true, true.  There is the Golden Rule, the "Do unto others..." thingie.

Then there is the Platinum Rule:  "Never do for others what they won't take the time to do for themselves."  I've had to adhere to that rule in finances.  Directing folks to sites like ZH is fair.  What they do with the info is none of my concern.  At least nobody can say I didn't try to help.  If asked pertinent questions I'll answer to the best of my ability, but I can't make them curious.

Tue, 05/11/2010 - 07:10 | 343053 Sudden Debt
Sudden Debt's picture

The the euro is great!

I mean it's really good!

Oké, some thing could improve but it's still good.

There are some minor sides to the story actually...

Maybe the are not all that good

I'm not so happy with it all all!

It's actually pretty bad

BAD?! It sucks!

It's just terrible you mean!!

I JUST HATE EVERY THING ABOUT IT!!

KILL THEM!!!

Tue, 05/11/2010 - 08:18 | 343128 tim73
tim73's picture

Here is one trillion euros and you get to watch German spanking on PIIGS. For free. Satisfied? :) "Wo ist meine kleine Schweine"?

 

Tue, 05/11/2010 - 07:12 | 343055 Temporalist
Temporalist's picture

Bob Janjuah from RBS said on Bloomberg just now $1500 gold easily he could see this year.  Said fiat paper money going down.  1-1 parity Dollar to Euro.  Treauries a waste because of impending inflation.  Equities short term interest maybe.

Tue, 05/11/2010 - 07:13 | 343058 TwoJacks
TwoJacks's picture

as for sleeping, no way this is one guy.  i'm one guy and i can't keep up with reading all the posts, forget about doing the research and such to write the posts. tyler is just like the movie, it's several people and no one, i mean, not one.

Tue, 05/11/2010 - 07:18 | 343067 FranSix
FranSix's picture

Dr. Faber made a passing comment that Asia-Pacific currencies have surged against the Euro, especially the Yuan.  The Yuan isn't pegged against the Euro, but against the dollar.  This would have the knock on effect of devaluing the Euro against the dollar.

Too bad bloomberg doesn't have Swiss yields on their website:

http://www.bloomberg.com/markets/rates/index.html

Rates are down, this is not a good sign for the markets.

Tue, 05/11/2010 - 07:21 | 343071 Tart
Tart's picture

Having been stopped out yesterday I'm not buying the whole bailout has failed thing. This idiotic run has more upside, sorry. My appetite for going short has waned. I think they're going to run it back up to the highs just because they can.

Tue, 05/11/2010 - 07:22 | 343075 QuantTrader
QuantTrader's picture

That's a bit of a stretch.  They can't short just because that is the direction of the trend and they want to make money?  

Its akin to me shorting AAPL and you saying my reasoning is to get cheaper iPods if they go bankrupt.

Tue, 05/11/2010 - 07:24 | 343076 THE DORK OF CORK
THE DORK OF CORK's picture

Bob Janjuah of RBS is appearing on Bloomberg at the moment and is expressing extremely bearish views on the Euro and is also expecting $1500 Gold Soon.

Tue, 05/11/2010 - 07:35 | 343083 primefool
primefool's picture

I guess its par for the course with analysts - but Bob was extremely positive on the Euro a month or so back. Arguing that since the ECB is being disciplined and taking the pain - they will come out the strongest - something like that. He writes well though - only reason I even bother to read analyst stuff is for entertainment.

Tue, 05/11/2010 - 08:08 | 343118 THE DORK OF CORK
THE DORK OF CORK's picture

Axcel Merk seems to be maintaining his belief in the Euro but I sense some doubts in this presentation

 

www.safehaven.com/article/16737/europes-bazooka 

Tue, 05/11/2010 - 07:35 | 343082 Hephasteus
Hephasteus's picture

And Gold starts the day with a POP.

Tue, 05/11/2010 - 07:52 | 343099 Lndmvr
Lndmvr's picture

And Chilton and Kanjoesky on the tube saying, " we don't know what the hell is going on but give us a couple of decades and some more money and we'll say something".  So much smoke blown up my ass I'm farting O rings.

Tue, 05/11/2010 - 08:43 | 343171 SheepDog-One
SheepDog-One's picture

LOL +1

Tue, 05/11/2010 - 07:53 | 343102 John McCloy
John McCloy's picture

  Wow it is official. SkyNet became self aware last week.

"Zombie Satellite Goes Rogue and Threatens Signals"

http://buzz.yahoo.com/buzzlog/93656?fp=1

I love it.

Tue, 05/11/2010 - 08:44 | 343173 Sudden Debt
Sudden Debt's picture

You mean that somewhere out there, there is a Ostrian dude who has trouble speaking English creating havoc as we speak?!

Tue, 05/11/2010 - 07:57 | 343104 sweet ebony diamond
sweet ebony diamond's picture

Forex traders are the stupidest capitalists ever.

Their activities should be ringfenced.

Tue, 05/11/2010 - 08:52 | 343179 JacksCompleteLa...
JacksCompleteLackOfSuprise's picture

forex traders arent capitalists, theyre gamblers, no productive output

Tue, 05/11/2010 - 09:32 | 343234 anony
anony's picture

If you're talking productive output, 'no productive output' covers more than just FX traders, and most of money made in the last 20 years has gone to people who have produced nothing but the biggest financial meltdown since Plague.

The folks on here for instance. And Teenagers.

Hell, more than 60% of the world's billions produce nothing but co2 and Methane.

Tue, 05/11/2010 - 07:59 | 343105 FranSix
FranSix's picture

Futures and coffee:

http://quotes.ino.com/analysis/extremes/futures

top:  gold

bottom:  £/¥

Tue, 05/11/2010 - 08:01 | 343109 ratava
ratava's picture

lets short the old people out

Tue, 05/11/2010 - 08:10 | 343122 moneymutt
moneymutt's picture

didn't shorting of foreigners, leveraged by banks do millions time more damage during Weimar than actual govt printing? is this a rhyme?

also, power leads to hypocrisy...so elite creating moral hazards for themselves should have been predictable...

Tue, 05/11/2010 - 08:40 | 343163 tmosley
tmosley's picture

That was just an excuse.  It was government printing that put their currency in a position of weakness, where it could be targeted.  Speculators don't cause price fluctuations beyond the short term, they merely help with price discovery.  When things are pushed too high or too low, they are smacked back by the wider market.  Back then, the market had no reason to smack them back, simply because the government was printing so much money.

Remember, it was the government that was printing 100,000 reichmark notes, not the speculators.

Tue, 05/11/2010 - 09:33 | 343236 Hephasteus
Hephasteus's picture

All power comes from hipocracy. It's just that simple.

 

Tue, 05/11/2010 - 08:11 | 343123 sunstreaker
sunstreaker's picture

The next step will be force. Regulation. How about fixed exchange rates? Might also be a way to deal with gold.

Tue, 05/11/2010 - 08:27 | 343142 JacksCompleteLa...
JacksCompleteLackOfSuprise's picture

Yeah, I realised today that the CB's are now anti-market. They decide that they dont like prices in a given market, call that market disfunctional, and proceed to set prices.

Its like they are trying to use price controls on the biggest most liquid markets in the world, I dont see that ending well, just massive missalocation of capital (and egg on their faces... oh wait thats not egg).

Tue, 05/11/2010 - 08:50 | 343177 Debtless
Debtless's picture

Yes, puhlease regulate the price of gold - so we can partake in our own black/shadow markets for the shiny.

Tue, 05/11/2010 - 08:24 | 343139 JacksCompleteLa...
JacksCompleteLackOfSuprise's picture

Some action on the EURUSD chart, spiked between 1.268 and 1.271 in the current 1m candle. Also AUDUSD is dropping, risk aversion signal?

Tue, 05/11/2010 - 08:28 | 343143 Zina
Zina's picture

Cool... 1 trillion dollars bailout fail to calm the markets...

Now what? Yellowstone supervolcano explodes?

Tue, 05/11/2010 - 08:28 | 343145 Miramanee
Miramanee's picture

But seriously folks....Tyler and ZH are quite possibly two of the most important forces for change on the planet. 1000 Thanks for all you do Mr. Durden.

Tue, 05/11/2010 - 08:29 | 343148 JacksCompleteLa...
JacksCompleteLackOfSuprise's picture

SO SAY WE ALL!

Tue, 05/11/2010 - 08:42 | 343170 lesterbegood
lesterbegood's picture

Zero Hedge ROCKS!!!

I'm proud to be a ZeroHead.

Tue, 05/11/2010 - 09:43 | 343245 silvertrain
silvertrain's picture

Im going to donate as soon as possible, thats a fact, as should everyone that uses this service..And IMO this is a service..

Tue, 05/11/2010 - 09:57 | 343266 Jim in MN
Jim in MN's picture

If only there was a little slot next to the monitor to insert gold coins....

Tue, 05/11/2010 - 13:47 | 343947 desgust
desgust's picture

+100000000000000000000000.......nth

Tue, 05/11/2010 - 08:56 | 343187 Mitchman
Mitchman's picture

+1!

Tue, 05/11/2010 - 08:29 | 343147 jkruffin
jkruffin's picture

Euro under 1.26 coming up today

Tue, 05/11/2010 - 08:30 | 343150 JacksCompleteLa...
JacksCompleteLackOfSuprise's picture

Could be

Tue, 05/11/2010 - 08:32 | 343152 fallst
fallst's picture

If I told everybody I knew, that the Euro would not work, in 1990, and I am not an "educated" economist, then why couldn't anybody else see this? Merkel is the only head of government that knows What To Do.

Tue, 05/11/2010 - 08:38 | 343160 primefool
primefool's picture

heh heh - been there. being early is no different to being wrong.

Tue, 05/11/2010 - 08:34 | 343154 JacksCompleteLa...
JacksCompleteLackOfSuprise's picture

I think we are seeing CB manipulation live on the EURUSD in the current 1m candle... its 26pips wide, and the top is pretty high compared to surrounds.

 

**EDIT** FFS my stupid trading platform was stuck on the same candle, nothing to see here.

Tue, 05/11/2010 - 08:36 | 343157 primefool
primefool's picture

Yeah - you would need a microscope to see that huge ECB defense of their beloved currency. An electron microscope.

Tue, 05/11/2010 - 08:38 | 343158 THE DORK OF CORK
THE DORK OF CORK's picture

Silver going vertical - has it the power to reach new highs ?

Tue, 05/11/2010 - 08:41 | 343166 43 Steelie
43 Steelie's picture

Silver is SOOO cheap it is ridiculous. Finally starting to decouple from oil and take down the 65 to 1 gold to silver ratio.

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