Risk Appetite Is Back, Sovereign Bailout Is The New Black
Submitted by Nic Lenoir of ICAP
Not that there is too much to get excited about. The only possible positive outcome of a bailout other than immediate rescue for the shareholders of a bankrupt entity is a possible restructuration, change in management, etc.. If the bailee goes right back to his original business model (selling bad cars or making bad loans) then surely nobody gains in the long run. In the case of a sovereign entity like Greece the real question is: what will the bailout change other than temporary relief to capital markets? I am tempted to say nothing but that would not be constructive. Still though everyone knows it will be very difficult for Greece to deliver fiscal austerity, and unless the world economy picks up dramatically (China is peaking and due for a rough landing, demand still not back anywhere close to highs) Greece will have to find sources of growth internally while the government cuts its budget. This is also because as long as Greece is in the Eurozone, they are not competitive to export anything unless the EURUSD gets much weaker. A weak Euro down the road with a possible desintegration of the eurozone will be the end result no matter what further developments take place in the meantime.
For now however, EURUSD bypassed the resistance we were watching short-term at 1.3710, and we went straight to test the resistance at 1.3840. If 1.3710/1.3720 is not broken to the downside we expect to breakout higher and go test at least the channel resistance around 1.42 or the 50/200dma bearish cross we posted at 1.4347. We note that the pattern since the lows could easily be an ABC consolidation so we would not be stubborn if our support is violated. We recommend in general to play EURUSD from the short side ever since 1.51/1.4870, and further strength should be viewed as a selling opportunity more than anything.
10Y Treasury futures broke tested their support at 118-06/118-10 today, and we see on the 180-minute chart that a break of 117-28 will confirm further weakness with the exit of the bullish channel. 114 remains the key long term support which if violated would lead to a massive clean out of positions. Bund futures show a possible top as well with the recent test of the resistance of the bullish channel. We need to break 122.81/123 to confirm further downside. Weakness in Fixed Income, especially if the bailout discussions out of Europe are confirmed, is our preference at the moment.
The Dax has been as behaved as a market can be technically and big picture ever since we reached our target at 5,389 we think the market will retest the 50% retracement, wave 4 of lower order, and 100-dma just above 5,700 before embarking on a sharp sell-off again to new lows for the year. S&P futures are very close to challenge their downtrend challenge here (currently just around 1,080) and a break there wll confirm further strength towards 1,100/1,107 which is our target sell-zone for this rebound.
Good luck trading,
Nic
(2 votes)
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on Tue, 02/09/2010 - 17:38
#224141
The outcome of this game was decided last year, we are moving to a global single point of failure, that of the currency system.
on Wed, 02/10/2010 - 00:17
#224564
"Final and total catastrophe of the currency system involved" it is.
on Tue, 02/09/2010 - 18:07
#224175
a bailout here, a bailout there, and pretty soon you're talking about a shitload of paper money.
on Tue, 02/09/2010 - 18:13
#224184
in other news wholesale inventories took a big plunge...
-ve 0.8
on Tue, 02/09/2010 - 18:17
#224189
the market is like a drug addict, its needs bailouts to sustain its highs. action on the bund and other european sov debt foretells the story to come after the euro short covering, which Stiglitz master-minded (first he said since banks got a bailout why not a country like Greece? Then he said Greece doesn't need a bailout, he is like Krugman and Buiter - where he sits depends on where he stands, these intellectual economists are spineless like the bankstas). When the massive exodus of german bunds start in mArch or April when over 60b euros of german sov debt are refinanced, there will be no more place to hide for the bailout junkies. Good time ahead.
on Tue, 02/09/2010 - 18:56
#224228
Greece needs to export much more Ouzo and Metaxa.
on Tue, 02/09/2010 - 19:32
#224267
I know what's needed to restructure Greece: put some germans in charge down there and problems will be solved.
disclosure: I'm not german.
on Wed, 02/10/2010 - 04:45
#224673
That is exactly what was done in Russia in 18th-19th centuries and worked perfectly well, for a while.
on Tue, 02/09/2010 - 19:35
#224272
Clear as good pilsner why Germany will help out Greece and the rest. The old D-Mark was always an expensive, ever appreciating currency, detrimental to Germany's export machine. Germany wants to keep the Euro alive as it's depreciated by the EU's weakest links, the PIIGS, whatevers. Germany's gain at very little cost....some loan guarantees. Albeit temporary and of a repetitive nature.
Inconvenience of emptying the bedpans periodically is a small cost of running the asylum. Slide the little cups and balls around, rearrange the risk, smear the lenses, optics to maximum blur, declare victory, full speed ahead. What a world in which to run money these days. Whiplash, slam, bang, boom. Like a WWE Cage Championship.
on Tue, 02/09/2010 - 20:31
#224336
+1 insightful
on Tue, 02/09/2010 - 20:05
#224303
world currency debasement on the way - as when the Ottoman Akçe was replaced by the Kuru? (1 kurus = 120 akçe), with the para (1/40 kurus) as a subunit. The Kurus in turn later became a subdivision of the Lira.
We'll all be millionaires YIPEEEEEEEEEEEEEEEEEEEEEEEEEEEE!
on Tue, 02/09/2010 - 20:08
#224306
How much punishment can a short endure. They follow these charts that look like something my 5 year nephew made on MS paint, Then BAM, There is the catalyst that fucking destroys the charts right out of the water. Then shorts have to cover. As long as there are Bailouts and Central banks, Charts dont mean shit.
on Tue, 02/09/2010 - 20:15
#224314
HEAR-HEAR Plocequ1 AND Knukles!
on Tue, 02/09/2010 - 20:54
#224361
Just go re-read "Atlas Shrugged" until you go blind and you will all finally "get it"...
on Tue, 02/09/2010 - 20:56
#224362
Just go read "Atlas Shrugged" another ten times and you will all "get it"...
on Tue, 02/09/2010 - 21:49
#224396
My questions:
1. Are member nations willing to give up billions from this point forward in order to sustain Greece?
2. Who comes begging once Greece proves bailouts can happen? Is Spain next?
3. Will Germany tolerate a relatively small bailout (Greece) and avoid the more expensive distressed members of the EU?
-The bailout of Greece is not nearly as important as the events that will transpire afterwards.
-It makes me wonder how the US will handle its own distressed states.
on Tue, 02/09/2010 - 22:17
#224427
1. Yes
2. Yes
3. and Yes
on Wed, 02/10/2010 - 12:52
#225125
GH. From our U.S department of Glass Houses and
Stone Throwers and Hypocrites. Answers to questions:
1. That all depends on ...
2. Spain (13% of Eu GDP) and Portugal (3% of EU GDP).
No actually Portugal would be next watch bond auction
today.
3. Yes, will bailout Greece to keep Euro intact. But
even Atlas' (Germany's) shoulders will sag if Portugal,
Spain and Italy start further blowups of CDS's and
require "guarantees" of solvency instead of default.
German citizens will start to gag on elimination of
moral hazard for countries and Merkel's fragile 3
party coalition will fray quickly and things could
get very ugly, very fast.
4. To your question: "It makes me wonder how the US will handle its own distressed states. "
Indeed a good question since California (13% of U.S.
GDP) has a budget deficit of 22% and $22.2 Billion
budget gap. Please see these articles for further
glass houses in the U.S. waiting for their bailouts.
Ritholtz- Insolvent European vs American States
Yahoo Finance - 7 U.S. States That Are Worse Off Than Greece, Portgal, Ireland, and Spain.
on Tue, 02/09/2010 - 22:06
#224412
I thought this pretty interesting from Barrons Online:
The Fed's M2 data corroborates Shadow Stats' data. In the year through January, M2 is growing at a meager 1.9% pace. After deducting inflation, real M2 is also negative.
What's the significance? As John Williams, the proprietor of Shadow Stats, explains, the drop in real M3 is a sign of the double-dip ahead. "In modern economic history, every time there has been such a year-to-year liquidity contraction, the economy subsequently has turned down, or if already in recession, the economic downturn has intensified," he writes in a report to clients.
"A signal for such an intensification of economic contraction was generated in November and December, and the signal got significantly stronger in December," Williams adds.
Based on this contraction in broad money, the question for a double-dip isn't if, but when.
"The timing on this is open, but I would be surprised if the recognition of the onset of a largely unexpected new major dip in a double- or multiple-dip economic downturn does not roil the markets significantly in the year ahead. The renewed economic weakness should be increasingly evident in the next couple of months," he concludes.
on Wed, 02/10/2010 - 03:57
#224661
Greece <=>if no bailout
http://img641.imageshack.us/img641/8123/2645895729.jpg
on Wed, 02/10/2010 - 06:00
#224695
woops
on Wed, 02/10/2010 - 07:39
#224720
The bottom seems to be holding so far. All eyes on the EURUSD 50% retrace line.