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How To Play The Sovereign Lehman In Credit
There is no question now that the complacency about Greece and the peripheral European implosion is identical to the Bear->Lehman->Financial collapse pathway that the US experienced between March and September 2008. And just like back then Bear was small enough to bail out, soon we will hit a country that not even the IMF's half a trillion rescue facility will be sufficiently large to prevent from teetering over. At this point it is nothing but a waiting game. However, unlike the US, when after Lehman the Fed scrambled to throw $24 trillion of Fed signed paper at the fire, expecting a comparable coordinated and rapid response from the Eurozone is ludicrous, especially with Goldman shorting it. So those who believe they can time the market melt up until the next unsustainable sovereign blow up - good luck (of course here we refer to the daytraders who take their guidance from the Momo Money brigade, whose refrain for 60 minutes each day is "it will go up because it is going up." Brilliant). For everyone else, we present a short primer from UBS on how to play the sovereign crisis, at least until the point when playing anything is futile and the global scramble for cash crashes the Keynesian dream.
From UBS:
The heighted spread volatility, low trading volumes and seemingly endless negative sovereign headlines have reminded us of 2H08. How will the problems in the sovereign market affect credit? On Chart 1 on the next page, we identify six possible implications for credit.
Short-term implications:
(1) Flight to quality to continue – Price action this week suggests that negative news have yet to be fully priced in. We expect further rotation out of senior financials and peripheral sovereigns into AA/A corporates. Other “safe assets” such as US Treasury, bunds and gold will probably also benefit form the “safe haven” rotation.
Long-term implications:
(1) Bifurcating market to persist – While correlation across asset classes (credit, equities, commodities, FX) will rise in the short-term, the widening may represent an attractive opportunity to buy IG non-financials and HY credits, which should continue to benefit from favourable earnings, ongoing inflows and a light new issue calendar
(2) Low rates for longer – Rising government bond yields will make deficit reductions even more challenging. ECB may keep policy rates at depressed level to offset the negative impact of lower fiscal spending. Ironically, lower short-term rates will likely be positive for credit.
(3) Strategic M&A to rise – More IG companies may look for bolt-on acquisition opportunities in the absence of organic growth. Cross-border M&A may rise given a weak Euro. We expect BB/B companies to be the primary beneficiaries.
(4) Cyclicals to lose steam – BBB cyclical companies have benefited from the ongoing search for yields. These credits may become more vulnerable if fear of slower growth emerges. We think the HVOL index represents a cheap short.
(5) Fade the news and sell volatility - Implied volatility in the credit market will rise on the back of negative sovereign headlines. We generally prefer to fade the news and look for opportunity to sell vol.
Of course, with UBS desperately seeking to regain some of its long-lost bond trading lustre, it is no surprise that just like Europe suggests to fix a debt problem by piling on more debt, so UBS recommends resolving a long-risk danger by going even longer risk. Oh well.
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http://news.yahoo.com/s/ap/20100428/ap_on_bi_ge/us_corporate_comeback
Lol
Sure sign of the apocolypse:
"We're out of the woods for good," says Joseph LaVorgna, chief U.S. economist at Deutsche Bank.
Makes perfect sense to me. As I keep saying, just read some of these reports. There were some pretty strong earnings and revisions going forward for higher revenues. This makes the SPX very cheap by historical standards. That's why any of these pull backs are met with buyers.
Articles like this are excellent for putting the focus back on US economy and earnings growth and away from the EU. They're containing their problems now, as we've seen by today's announcement and the Fed continues to accomodate US investment. Where else is money going to flow? To the US, obviously.
Before responding to "Harry Wanger", please be aware of just whom and what you are dealing with in this person:
http://www.minyanville.com/businessmarkets/articles/AAPL-apple-gm-psycho...
His real name is James Kostorhyz, and he is here posing as a troll in dishonesty and in disregard for the fundamental purposes of this forum. He is NOT posting here in good faith, but is purposely antagonizing those with independent, anti-establishment views and opinions for his own selfish and cynical purposes, as part of a study on "the psychology of permabears".
He believes that anyone who opposes the current widespread fraud, corruption and rampant lies within our societies and governments are "utopian" and unrealistic, pollyannish dreamers.
And for those ZeroHedgers who are advocates of sound money backed by gold, this bankster shill is already out there with one of the most disingenuous, dishonest pieces of pro-establishment propaganda on the topic, expounding on how such financial integrity is "impossible", and merely "the rants of an ideological fringe":
http://finance.yahoo.com/news/The-Gold-Standard-Solid-as-minyanville-285...
Please do NOT respond to this reprehensible troll, here or anywhere else on ZeroHedge. He is NOT here in good faith, and should be shunned!
yes, i agree. buying equity in profitless companies in an economy deteriorating quietly beyond the radar of the media makes perfect sense.
Your deadpan is killing me dude. I'm sure there are still lots of readers who think you're serious.
Thanks for reminding me humour can exist in all forms, the laughs are nice in times like this. You should change the g to k in the profile name, but even as is it's still pretty funny.
I can't figure this guy out. Why is The Wanger here? Has he been sent by someone? I mean, why hang out here? It's like having this monotonous voice repeating the MSM-CNBC-Kudrow-[FillInIdiotNameHere] claptrap over and over again. It's a free country and a free blog, I know, but geez. Maybe we need a sort of "Infinity Hedge" blog formed where he could go.
When on MW, Harry claimed to be part of a 5 person investment firm, on MW to conduct a "psychological" study of bears. Ignore the troll, and he leaves.
I can see where you head with your analysis Harry- the containment of the euro situation ( I wouldn't call it contained) and the switch of assets to the dollar.
Unfortunately you just don't get the bigger picture.
1) The S&P is massively overbought- look at the daily chart. Don't give me 'relatively cheap'- the pundits peddled this in dotcom and sub-prime but they have proven to be wrong so often.
2) The trillions of exposure, which euro banks have between each other is teetering on the brink. It's a bit of a cliche to say domino effect but this is really where we stand.
You can keep extracing a few percent here and there but you are standing on train tracks, walking into a very dark tunnel.
This bubble is now worse than the last because of the desperate race to risky assets and apparent solvency.
The fundamentals do catch up with you. Benjamin Graham still hasn't been proved wrong yet. You are wrong Harry, it's just a matter of time.
Where else is money going to flow? Imagine for a moment, a box that is full of money. Then in the bottom of it a balloon is inserted and inflated (with credit). Money spills out of the box and is spent, and the box appears to still be full of money. Finally the balloon is stretched past its elastic point and POP! All the credit air is let out and the money that is still in the box now takes up a great deal less space. Where did the money go? Confusing money and credit is easy to do, they both spend like money, but they are very very different things. The money went into stuff, and it has now taken the form of some illiquid (non-money equivalent) asset. There is actually a great deal LESS money than people think. Take a look at this St. Louis Fed graph: http://research.stlouisfed.org/fred2/graph/?chart_type=line&width=1000&h...[1][id]=MULT , that is a picture of an evolving collapse.
People haven't learned anything? Shocker.
Meanwhile "Gasoline pump prices rose 1.1 cents per gallon overnight to a national average of $2.869, the highest since October 2008, according to AAA..."
Now I'm really worried.
i had a dip for youse to buy....
but he got away!
Thats great! Thx for posting!
This is the opening scene of Europe's final act.
The barbarians are at the gate, run for your lives!
If anything was learned from the last crisis, it is that quick decisive moves have to be made to avert a larger crisis. We've seen that successfully implemented here and in other emerging markets. Today's meeting used that experience in expediting a solution to avert a bigger crisis. This is what gives me hope for the future - the ability to recognize and deal with a potential crisis or problem before it explodes.
Bloomberg News: Action “has to be done now, has to be done very fast,” Organization for Economic Cooperation and Development Secretary General Angel Gurria said in an interview today with Bloomberg television in Berlin before he was due to meet Merkel. “It’s not a question of the danger of contagion. Contagion has already happened. This is like Ebola. When you realize you have it you have to cut your leg off in order to survive.”
Yes, very reassuring. No problem. It's only a flesh wound.
Yes, and it was done fast, very fast.
Nothing was actually done -- that's why it was fast.
Harry, look in the mirror, this is what you will be seeing...
http://www.youtube.com/watch?v=ejkguJ3wv9Y
Tears in my eyes laughing, sorry no acronym for that. Great post.
Is Greece the leg?
Hey, isn't this is a reprint of someone's quote from a February meeting?
This is about the 10th time the Greek problem has been solved this year.
Dude, your posts are satire right? You cant really believe this stuff...
did i miss the part where Germany actually wrote a check (to greece, portugal, spain ect.)
cuz until then, there is no solution. merely another agreement to agree to something.
remember how the financial crisis was over when BSC was given to JPM? How did that work out?
+100, yet amazing that some never learn...
Germany is going to make sure the U.S. taxpayer gets stuck with 25% of this mess through the IMF before they write any checks.
Lizzy, don't know if you've heard or read but I am doing a fundraiser for ZH and it will be an ongoing event. New products every day. Miles wants a Girls of ZH calendar and I think we can make that happen.
Anyway, this is a 100% backed by Tyler effort to keep them funded and moreso, to be able to handle the traffic when shit really hits the fan.
So go to: www.zazzle.com/Howard_Beale and check it out.
All input appreciated. Several items are being worked on . Today we have the new Timmy Behind Bars mug and refrigerator magnet. Everyone, lets support ZH!
To the entire community: You can contact me and send graphics, ideas, slogans, etc through the Zazzle store and I will do my best to get them going in a timely manor.
the Timmy mugs are superb. Thanks.
There is no Federal government in Europe to take swift decisive action. Political union and fiscal policy union do not exist. Even Germany, the lead player here, does not have the political unanimity required to take the necessary steps.
Also, the roles are reversed compared to the US crisis. In the US, it is the "developed" economic partner that is the deficit economy. It has the balance sheet to bring to bear on the crisis. Furthermore, the surplus economic partners such as China is an emerging economy had little choice but to go along. Germany is the surplus nation here and the PIGS are the deficit/emerging economies. The political dynamic is all wrong and works against the bailout, not for it.
Maybe the ECB could step up to play the lead role (such as purchasing gov debt), but for the same political reasons I don't see that happening.
The US gov and FED are the only entities that can stem the European crisis. I doubt that will play politically in the US, nor am I sure it is in the US' geopolitical interests to bailout the EMU.
Yeah, we need those behind closed doors "decisive" actions where panic results in blank cheques going to mafiosi before anybody can double check if it's just a scam. That's what we need.
We should make a law banning all public information about anything. Then those trusty fellows at the top can take care of us decisively without being hindered by us little dimwits.
Not saying it is right or advisable, just saying what it is
Nothing was learned from the last crisis, except that those in power are doing everything possible to ensure that we have a whole chain of subsequent, similar crises.
Please come and wake me up when you see anyone in power make any such move, instead of moves designed to aggravate the ongoing crises OF THEIR OWN CREATION!
No, we have just seen the can kicked a little further down the road.
Today's meeting only evaded dealing with fundamental problems, and ENSURES a bigger crises down the road.
Which has everywhere been completely lacking among the corrupted and self-serving sociopaths in every major world government today.
The only decisive move seems to be hosing more debt onto a fire of bad bets and failed deals.
The markets are only alive due to unprecedented levels of printing and low rates. This has never worked in history.
The day of reckoning is being delayed and will be an almighty explosion.
We were given a slap to get the house in order and maybe deleverage but it's been used to manipulate markets again via the carry trade.
"Quick decisive moves?"
Free markets should be free of government intervention and manipulation. Hence, the markets should have been allowed to purge and crash back in 08. This would have prevented a larger crisis and expedited the recovery. Anyone gleefully embracing this market should ask if they are communist?
100 to 120 billion in loans for Greece for a 3 year period. That comes down to just above 10k per every person (including kids and babies) in the next 3 years. Or about 40k per family. A Greek family will need to pay 3/2 of their average anuual salary back in 3 years.
That might happen.
read LEAP 2020 for some insights
I've been a fan of theirs for years. Very thoughtful analysis.
The Global Europe Anticipation Bulletin/Leap 2020 is available at:
http://www.leap2020.eu/GEAB-N-44-is-available-Global-systemic-crisis-USA...
My aren't we a Negative Nate today!
I don't see how you get out of these messes by bailing out the stupidity. Unless Greece, etc really clamp down fiscally and/or restructure debt this is doing nothing but kick the can down the road to a bigger problem later. Of course it makes a great casino/betting event for goof balls in the market but ends up killing the populations of these countries who continue not to take the only actions that will ever correct the problems.
okay. At least ZH is talking the talk. Still walking like a friggin' cripple, tho when they should be dancing like Fred Astaire. You know, "twinkle toes" which was not meant as a term of derision because not even Ginger Rogers could dance like that dude. In any case Gold, yes but Bund--obviously no and treasury's? don't ask me because God appears to be the market maker on that one. Obviously "Large Multi-national US corporations." There's simply "no alternative." They have HUGE amounts of capital courtesy of the tech bubble, 300 million QUALITY serfs (of which I am one and DAMN angry about it, too) and zero percent financing. and that's just for starters! So OF COURSE stock market is rallying. EXXON MOBIL IS NOW AN ACTUAL COUNTRY. At some point "Europe" will "figure it out" and "stop paying 20% interest." Of course the morons in Washington don't get it "because we want to pay 20% too!! Just like Europe!!!!" Stop reading into this stuff. If she's got huge gozongas your gonna like it and she's gonna like it, too.