1100 Vs 1250 And The Sentiment Couldn't Be More Different

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors

When we were hitting 1100 the market was in deep fear mode.  Investors were on the verge of panic.  Default was on the tip of everyone's tongue.  Now at 1250, we are all waiting patiently for some positive announcements.  There is little (if any) fear out there.

I suspect LCH will retract some (if not all) of the margin hike on Italian debt.  That should give a brief spike to the market.  How much of this move is related to LCH's move is debatable, but if they go back to original margin requirements and bonds don't respond extremely well, then look out.  I actually don't think bonds will do that well, because the damage has been done, and if the LCH reverts on margin, look for articles questioning how safe the LCH is.  There is a reason they have these margin requirements - to protect the people who trade on the platform.  If they cave, expect short term bounce, but longer term issues.

Some group will make some big announcement.  The IMF or the EU will make some announcement of support and money.  The market will rally on that too.  I think though, that finally, the market will look for some substance.  It can't just be an announcement of potential money, it has to be an announcement of real money immediately.  Anything less is now likely to disappoint the market (since at 1250 we are not pricing in any real European problems).  Italy is so big, and hit so suddenly, that printing money or massive ECB purchases seem the only way out.

With banks being "clever" on how they calculate their risk, look for further problems in the inter-bank lending market.  More and more banks are going to have to go direct to the ECB for money, and I think US banks will continue to pull back lending to European banks (if they still have any lending left) as banking and politics have become too mingled in Europe to rely on traditional metrics or analysis of possible outcomes.

I got the individual investor report from someone - sentiment is decidedly bullish as the bull % continues to grow as the bear % continues to decrease.  Again, the market (away from sovereign debt itself) seems much more comfortable that a bounce is on the way.  It is almost scary how comfortable the market feels here, and I too fully expect a couple of catalysts for a bounce, but really think anything less than an onslaught of ECB purchases and money printing, will force the sell-off to resume.

While we focus on Europe, HSBC had bigger write-downs in the US.  Also, HY17, the latest iteration of the HY CDX index had 1 default - Dynergy.  Dynergy actually had a very high recovery rate as the reasons for the default are complex, so it isn't too bad.  I do not think PMI has had a Credit Event yet, but that is only a matter of time.

ResCap is suddenly in the spotlight again.Remember that "bailed out" company, well, ALLY (also in the index) just hired an advisor to figure out what to do with ResCap.  That seems to have caught the market a little bit by surprise.  Eastman Kodak has improved (a bit) but is another possibility.  So HY17, launched in September, has at least 2 defaults (out of 100 names) and may have 2 more fairly soon.  That would be a 4% default rate.  There is a lot of truth to the argument that companies have improved their balance sheets, but these are highly leveraged companies and the move to default can be quick.  With the big move in markets, it is time to focus on specific credits.  Ideas like selling 3 year protection on a name like McClatchy make sense - there could be some mark to market risk, but the company is in good shape, particularly to that maturity.  But trades like that require some real analysis. 

Just betting that the HY market as a whole is "cheap" here is dangerous.  HYG and JNK are great, but they increase the correlation of bonds during times like this.  As their shares outstanding increase, all the bonds in the index or that are possible eplacements rise with it.  As we went from 80 to 85 on HYG, that made sense.  Up here, I would want to be much more credit, and even bond specific.  Italian 5 year bonds at 7.5% yield more than HYG (7.1%) and certainly have a lot more people trying to help them.  I'm not sure I would put that trade on, but it may crowd out some investment in the high yield space, especially as we see some defaults rise.  It is a credit pickers market here, not a broad asset class decision (particularly from the long side).

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dbells32's picture

Peter Tchir's thoughts are always spot on...keep them coming!

jdelano's picture

Not to be rude, but Peter's been way off his game for a while now.

DormRoom's picture

HOw can the ECB print  to buy Italian debt.  Article 123 of the EU Treaty says it can't.  It's as clear as day.

GeneMarchbanks's picture

'Article 123'

What paper says is no longer relevant. Yeah, welcome to the other side.

DormRoom's picture

I'm sure there's a certain German constitutional court that would like to have a word.

scatterbrains's picture

I'm sure the Germans would welcome printing but need to save face by appearing not to be agreeable with printing and breaking the rules.

disabledvet's picture

Well "there's article 321" as well. As in 3...2...1....

SheepDog-One's picture

Yea, but that treaty doesnt specifically say 'Unless some slimebag bankers and scumbag politicians are underwater on their stupid bets and have their necks in a noose'...besides, this printing press is a miraculous new discovery that must be used to its fullest.

rosex229's picture

If you look at the Telegraphs debt crisis blog (its way better than the Guardians I've come to find) you'll see that Merkel already said that they may have to change the EU Treaty (she said that about an hour ago).

No word or even hint on what that means since the EU Treaty prevents both ECB printing as well as Eurozone exits.

DormRoom's picture

thanks for the update.


But Germany has been financially austere over the last 15 years to pay off the cost of German reunification--which has finally been paid off.  And now Merkel has to go back to the people, and say there must be more austerity, because they must cover the cost of European re0unification, and the profligacy of Southern governments?


Goldman Sachs having set up this byzantine crisis, owe Germans.


Snidley Whipsnae's picture

EU Treaty = Just another god damned piece of paper.

George the lesser told us so... er, wait! That was the US Constitution...

ghostfaceinvestah's picture

Maybe there is an "extenuating circumstances" clause somewhere?  Technically Bernanke shouldn't have been able to buy $1 worth of Fannie/Freddie MBS, but he bought $1.5T due to an out clause.

Look, bottom line is, if you hand these guys control of the printing press, they are going to print sooner or later.  That's why you need hard currencies.

Based on his background and everything I have seen to date, Draghi is going to put Bernanke to shame in the money printing hall of fame.

GeneMarchbanks's picture

'Just betting that the HY market as a whole is "cheap" here is dangerous.  HYG and JNK are great, but they increase the correlation of bonds during times like this.'

Danger is not my middle name.

SheepDog-One's picture

I dont get these guys and their 'Safety in bonds' BS, those are just as fake as anything else.

Snidley Whipsnae's picture

"Some group will make some big announcement."

Meanwhile, back in China...

Spotlight China: Shipping Downturn; Hong Kong Recession; Credit Squeeze Prompts Suicides; HK Home Sales Fall Over 50%; Factory Closure Wave Looms

I have been meaning to write about China for days, but news stories about Europe keep getting in the way. I will rectify that tonight with a "Spotlight" on China.

Global Shipping Downturn Worse Than 2008

Reuters reports Global Shipping Downturn Worse Than 2008"


Josh Randall's picture

Until the "People of Walmart" emails stop floating around, I won't believe China is in trouble -- too many freaks load up their parking lots all day, every day - and we al know who is mfg the crap they're buying

Snidley Whipsnae's picture

Josh... Perhaps many of those cars in Wal Mart's parking lot are 'homes'?

We might soon see street names assigned to the rows in the parking lots?

Maybe addresses assigned to the 'permanently parked vehicles'?

Otherwise, how do the 'homeless' have an address for food stamps, SS, Medi Everything, school enrollment for children, etc?

...random thoughts...


Schmuck Raker's picture

"Some group will make some big announcement."

RanSquawk 8:54 -"Market talk of of an emergency ECB meeting - unconfirmed..."

This should save us...what with all the faith everybody should now have in the effectiveness of ECB policy.

RiverRoad's picture

Write away, Snidley.  IMO China is the Fat Lady and she's gonna sing before this show is over.

SheepDog-One's picture

Aw come on lighten up Peter join the party! Get you some 1,800 P/E Linked-In stocks! All the cool kids are doin it, just ask RoboTrader.

homersimpson's picture

Long FAZ. Short BS.

transaccountin's picture

lol, this exuberant bullshit feeling is why you short.

the only thing holding this con together is christmas bonuses

jdelano's picture

and ethnocentricity.  Americans/wallstreeters think Timmay will force Europe to pull a preemptive Heli-Ben money dump and everything gonna be coming up Millhouse by Christmas.  But EUROPE IS NOT THE U.S. and our influence only goes so far.    

oogs66's picture

i hope you are right...someone has to put an end to this cr*p of print print print...i think they will print, and the next problem is bigger and uglier - will involve real people are real unrest

jdelano's picture

not saying they won't print, but I don't think they will do it preemptively (iow, before a mighty drop in the markets) and I don't think it's at all a foregone conclusion.  I give odds at 60%--print, 40%--Germany says screw it, we're outta here. 

HD's picture


"everything gonna be coming up Millhouse"


entropos's picture

"Article 123 of the EU Treaty says it can't. "
It does?  Where?  Or is my ignorance showing?  I don't see where this says they can't print.

1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as ‘national central banks’) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.

2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.


Hondo's picture

All that won't work...just more patch work....The failure to address the crux of the problem...debt levels and the continued unrelenting growth of such....indicates there is no hope...just trying to buy time by suckering either individual insane investors to part with their capital or steal it from savers and taxpayers....but in the end it's all going down.

rosex229's picture

And debt levels are too high because there's no growth. When Cheney said that "deficits don't matter" he meant that as long as debt levels increase at the same percentage rate as GDP there's no issue I.e. if your debt grows by 3% per annum while your GDP also grows by 3%, then your perceived ability to pay off that debt is stable.

There's no growth because you can't have infinite growth on a finite planet, and it just so happens that global oil production has been stagnant for 7 years now. Keep in mind that oil is not only responsible for 95% of land transport but 99% of sea and air transport, but also is the asphalt on roads, tar on shingles, lubricants in gears, paint, toothpaste, pharmaceuticals, cosmetics, petrochemicals (pesticide, herbicide, insecticide), there's even 7 gallons of oil in each tire on your vehicle. In other words, when the price oil of oil goes up the price of everything goes up.

Moreover, due to stagnant production every extra barrel China uses is a barrel that must be subtracted from use elsewhere.

Our monetary system requires growth in order to pay off interest, but growth is no longer possible on a sustained basis.

sabra1's picture

" anything less than an onslaught of ECB purchases and money printing, will force the sell-off to resume:"

see, adding debt to more debt will keep this market humming along, no problem there!

SheepDog-One's picture

Right on! The Grand Canyon edge is just ahead, so the answer is shift to 6th gear and mash the pedal to the metal!

BlueStreet's picture

We'll see 1100 again but probably not until after the new year.  The calendar, super committee and a mix of other false optimism will keep the sheep buying the dips.  

jdelano's picture

there's nobody buying this market but the fraternity of career preservation 

RiverRoad's picture

Right.  The sheep left long ago.  All tapped out.  Once those bonuses are pocketed though we could see 9,000 or less on the Dow:  Gotta take it down so you can bring it up all happy-like for Obummer's reelection.

SheepDog-One's picture

Surely the record bankrupt and unemployed are lining up to buy the dip....what else do they have to do? Watch reruns of 'The Heat of the Night' all day?

Get in there and BUY suckers!

sabra1's picture

i call bull on that emergency broadcast test being done today! what they're really testing is an internet, cell phone kill switch test!

disabledvet's picture

Again..."Europe is trading bloc" not an American "customs union." The purpose of "Europe" is to defend it's industries at all costs and thus annihilate yours. In order to do this it needs "mega banks"...all of which have failed at this point. Those banks must be reconstituted for the "trading bloc" to survive...otherwise liquidity dries up and ACTUAL TRADE ceases. That ends "the trading bloc" and "Europe" either becomes a "free trade zone" with competitive devaluations and currency controls (similar to say South Korea and Taiwan) or...simply put "a free fire zone" with an American General "running the joint." And that's all there is to it! Move along!

YesWeKahn's picture

Why these idiots are so fearful of a market decline? A declining market is a great opportunity for some people to get back to the market. It is actually more positive. I think that many people are all in and full on margin. Well, it will be an interesting ride for them.

jonan's picture

on a side note, i still can't short GRPN nor buy puts =(

ivars's picture

It seems that finally this October 30th DJIA prediction chart has sprung into action-and about the time it should have.


Happy ride down the slope...

RiverRoad's picture

Paragraph #1:  "There is little (if any) fear out there."   ???!!!  Thank goodness (and Tyler) there's plenty of healthy paranoia around these parts for everybody.