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Keep Your Eyes Off The European Cash-Flow Ball

Tyler Durden's picture




 

The biggest headlines (and refutations) have been saved for the struggling nations of Europe's periphery. Top-down, this makes sense as PPP-weighted PMIs show Europe notably decoupling (badly) from the rest of the world - with periphery and eurozone-ex-periphery having resynced at these lower levels. This convergence (down) of the core with the periphery is not good news but what is more concerning is that while many investors have assumed the 'pricing' of risk assets in the periphery relative to the core is due mostly to 'contagion', there is in fact a massive fundamental divide between the core and periphery's corporate debt credit quality. With ECB's OMT apparently removing much of the systemic risk premium (though we are clear on our views of this short-term LTRO-esque reaction), the idiosyncratic risk differential between Core and Periphery credit quality is large and getting larger. It seems the need for simultaneous private and public deleveraging in the periphery - especially in Spain - is as critical as ever.

 

Top-Down

PMI Surveys continue to signal Europe's divergence from the rest of the world (though we suspect it is a timing issue - not a decoupling) - especially as core has now caught down to periphery...

 

Bottom-Up

Credit quality in Europe exhibits a pronounced difference (and increasing divergence) between the core and the periphery (the chart shows the media de-seasonalized debt-to-EBITDA ratio in the Euro area)

 

Charts: Goldman Sachs

 

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Mon, 10/08/2012 - 09:24 | 2867337 vinayjha
vinayjha's picture

Euro will keep muddling till Oct 18th and then it will make big move.

http://www.freefdawatchlist.com/2012/10/weekly-outlook-oct-15th-19th-s-d...

Mon, 10/08/2012 - 10:04 | 2867451 DeadFred
DeadFred's picture

The problem the bulls have with these ramp-fests they've been enjoying is the trend support lines move up fast with them. Half the charts I look at have nasty rising wedges with support not that far below. AAPL is sitting on support right now and a couple % down is emptiness. S&P a bit above support but similar. If the top doesn't break out real soon there will be issues. Of course look at the set up today. Half the market is closed, likely to be vapor volume and a dog-and-pony show is on the schedule. If they can't move things upward today when can they?

Mon, 10/08/2012 - 09:26 | 2867354 wolfnipplechips
wolfnipplechips's picture

With Spain's debt payments due at the end of the month, we're in for some real fun once the POTUS fiasco is over.

Mon, 10/08/2012 - 09:42 | 2867394 LawsofPhysics
LawsofPhysics's picture

Come on guys and gals.  Let's be oppimistic.  Let's say that the entire world becomes an efficient producer.  Once the earth has made this great evolution, who would the earth be trading with in order to balance it's books and resource deficit?

 

Mars?

Stupid fucking sheep.

Mon, 10/08/2012 - 09:54 | 2867422 GMadScientist
GMadScientist's picture

Future Earth.

Mon, 10/08/2012 - 09:59 | 2867437 LawsofPhysics
LawsofPhysics's picture

Riiiiiigggggghhhhhhht.  Hey GM, you go long I'll hit you in the endzone, promise.

Mon, 10/08/2012 - 10:02 | 2867445 WALLST8MY8BALL
WALLST8MY8BALL's picture

Keep your eyes upon the ball

write some thoughts up on the wall

eat the future today

don't save it up for a rainy day

Mon, 10/08/2012 - 10:40 | 2867554 bank guy in Brussels
bank guy in Brussels's picture

One of the strange and curious elements in the 'euro-crisis' game between northern 'core' euro-zone countries and periphery, is that a significant 'silent' sector of people from Spain Greece etc. -

Actually want to deepen the crisis and Brussels-Berlin supervision over their home countries, because they feel this is the only way to get Greece Spain etc to undertake significant structural reforms, regarding rigid labour markets, political favouritism, tax corruption and so on. They feel their own countries need an external kick in the arse.

They don't like to say so out loud, as their own countrymen will want to roast them, but they often say these things in private.

However, it seems to me still wrong for the northern countries or the EU, to come in with these 'troika' dictatorships ... even if some portion of the home-grown people want them. One doesn't accept an invitation to join into a domestic brawl in someone else's house.

The 'troika' scheme is a recipe for hatred, and is particularly immoral if 'cuts' to poor and working people are being imposed partly by authority of foreign elements. The EU is destroying the remnants of its moral status with these 'austerity' impositions of people in southern countries having tiny pensions get even tinier.

Even if one buys the un-proved claim that the euro needs to be 'saved' in order to prevent the European and global financial systems from blowing up ... this still should not be done on the back of the lowest-income workers and pensioners.

Mon, 10/08/2012 - 10:46 | 2867575 q99x2
q99x2's picture

Now I can see how dictators can come to power. There is one class of people that are pretty much guilty of serious crimes and somebody quickly gets the backing of everyone else and then kills the bankster m'fer crooks and their families and then everyone has to kill the dictator. Wonderful..

Mon, 10/08/2012 - 12:18 | 2868277 Vegetius
Vegetius's picture

"Actually want to deepen the crisis and Brussels-Berlin supervision over their home countries, because they feel this is the only way to get Greece Spain etc. to undertake significant structural reforms, regarding rigid labour markets, political favouritism, tax corruption and so on. They feel their own countries need an external kick in the arse". -bank guy in Brussels

Yeah the EU has work well here on the edge of Europe. We had a thriving Sugar business here and thanks to the EU it was destroyed,  it was a mistake as was admitted afterwards but that’s a business that had work well and profitably since the 1930s gone alone with 20-30,000 jobs.

This is one simple example I could go on but why bother the EU has gone way beyond its mandate and is corrupt at its core and is anti-democratic. So in short people are not yearning for more Europe

“What we should grasp, however, from the lessons of European history is that, first, there is nothing necessarily benevolent about programmes of European integration; second, the desire to achieve grand utopian plans often poses a grave threat to freedom; and third, European unity has been tried before, and the outcome was far from happy.”

— Margaret Thatcher,

People might not like Maggie but that does not stop her being right

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