Europe's Cognitive Dissonance

Tyler Durden's picture

With Spanish and Italian sovereign bond spreads back at 19-month lows (admittedly driven by OMT 'promises' and self-referential buying from any and every domestic fund possible), many are arguing that all is well, crisis averted and the world can go on its merry way to Dow 30,000. However, the reality is extremely different in the real economy - and the optics of the spread compression have done nothing but armor the politicians to stall any needed reforms for now. The ultimate cognitive dissonance is highlighted nowhere better than in Italian GDP (whose 2013 forecast was just slashed further to -1% - and remember in Jan 2012, the 2012 GDP forecast was -0.4% and it is currently running at a 6x miss around -2.4%); and Spanish bad loans, which are now running at ever-new record highs of 11.6% and accelerating year-over-year. The chasm between the facts on the ground (reality) and the market's optics have never been wider as data point after data point indicates stagnation at best (core and periphery) and depression at worst.


Everything is fixed in Europe - as Italy and Spain bond spreads compress to post-crisis lows...


In Jan 2012, Italy's government 'believed 2012 GDP would come in at -0.4% (via Reuters), only a 6x miss...


and the forecast for Italy's GDP in 2013 is being pegged lower every month (will they be as accurate this time?)...


and in Spain, things are going from worst to worsterer, as bad loans continue to accelerate to massive new record highs...


Charts: Bloomberg

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nobusiness's picture

Need more central bank stimulus - Bullish

Stock Tips Investment's picture

There seems to be a media strategy that is to talk as little as possible of the crisis in Europe. But the monster is present at any time will return to attack again. However, I believe that the effects on the world economy will not be as severe. Only they will suffer.

Ghordius's picture

and what should they report on? the spreads going down? boring

the US media could of course report on the progress of the European Fiscal Treaty, but I fear this would be even more boring for most viewers and readers, even though it's the real main event

have a look how far we are if you aren't afraid -> European Fiscal Compact

only the BeNeLux aren't yet there, and out of the eurozone "possible future joiners" a few are also "in"

The_Dude's picture

Feels a little like '08.  Bear goes down in the spring...they blow the all clear whistle so the big boys can try to rotate out....and then blow the thing apart with Lehman in the fall.


This one will take a little longer than 6 months but the playbook doesn't seemed to have changed.  Get in the water, suckers....nothing to fear! 

LongSoupLine's picture

No propaganda by crooked eurocrats and GS puppets will stop the fucking disaster that's coming.


Fuck you EU shitcrats.

El Oregonian's picture

Those charts remind me that everything is circling the toilet bowl...

NoDebt's picture

And they always circle the fastest just before they go down!

It's funny but it's also true- the "rate of change" line is the one to look at.  It's accelerating (spinning faster at an accelerating rate).

Remember way back in 09 when everyone was talking about the "second derivative trade"?  Things were getting worse, but at a decelerating rate, so it was time to "buy buy BUY!"  And anyone who did profited handsomely.

This is not that.  This is the opposite of that.  Things getting worse at an ACCELERATING rate.  I give it maybe 3 months before it's "crisis on" again in Europe (starting in Spain, probably).  They're in a flat spin.  Still plenty of altitude left but dropping like a stone with no control and no engines.

Stuck on Zero's picture

Is that what they mean by "flush with cash?"


Martdin's picture

Where's the EURUSD swap spread at?

Jason T's picture

Italy's got a productivity problem..

No Euros please we're British's picture

I guess so, although counterfeit euro notes up 7.8% YOY the mafia are struggling to maintain positive ground against the ECB. 

Snakeeyes's picture

The EU has serious problems like poverty, particularly in the old Soviet countries. So, what does Obama and the Dems want? Return us to the Soviet Communist era.

Ghordius's picture

I presume you are talking about the ex-communist countries of Bulgaria, Romania, Hungary and perhaps Poland

please note that they are indeed EU members (though not eurozone members) but their poverty is their national affair

the EU hasn't a proper social spending program to speak of - we aren't federal enough for that and we still prefer a confederate approach

so whatever your prez and the Dems want, it can't be what we europeans do or plan at the moment

meanwhile I doubt anybody wants to return to communism, here, particularly not the majorities in the mentioned countries

Aurora Ex Machina's picture

A lot of the data is badly reported anyhow; Polish workers (and Czech, and Latvian and Estonian etc) built a lot of the mini-housing boom in Western Europe (esp. the UK) during the 2000-10's, and dutifully sent it home, no doubt un-taxed / unrepoted in their home countries. It's not as if this is any big secret, either:

Jason Kenney, the Canadian minister for Citizenship, Immigration and Multiculturalism, visited the UK and Ireland at the end of October 2012. He was trying to persuade skilled workers to consider a new life in Canada. While he was in the UK and in Ireland, he took the time to address audiences of Poles who are resident in the two countries.

He told UK-based Poles ‘Many of you would find a better job in Canada.’ He also told them that the cost of living is lower in Canada.

A spokesman for Mr Kenney’s department, Citizenship and Immigration Canada (CIC) said that there are skills shortages in Canada in four sectors of the economy; construction, manufacturing, transportation and service industries. He added that 40-50% of job vacancies are to be found in the construction sector. [6th Nov 2012]


Now that's real Globalism. Or an attempt to off-set Chinese pressures, perchance?

bank guy in Brussels's picture

Actually, in the former Communist Eastern Europe, a majority of the older folks who remember communism would vote to have it back.

They quite prefer it to the capitalist privation 'shock therapy', and they feel the corruption hasn't changed, the inequality has gotten worse, and some of the old safety nets are gone

Ghordius's picture

yes, you are right, but those are minorities in the general electorate

and of course many listened to Vaclac Havel, the former Chzech president who was particularly suspicious of new alliances of any kind, be them NATO or EU or eurozone, and would have liked a new Concert of Europe with a special tune for each newly indipendent nation

alas, you can remember how much Bush II was pushing for the military part, and he did not care much about other consequences, particularly economic ones here

corruption is, at the end, a national affair, and it stands to reason that you can't get away from communism and achieve greater equality

zilverreiger's picture

Huh? The Crisis is over said Barosso and Geithner

Dr. Engali's picture

It's funny how they condem the past bubbles, but they are willing to throw away everything, including their currency to prevent the bond bubble from popping. They thought the last bubbles were a mess to clean up, just wait until this one goes.

Cognitive Dissonance's picture

Growth cures all ills. That's their story and they're sticking to it.

Ghordius's picture

I disagree. It's not growth we are looking for. It's a future of balanced budgets. It's a subtly different approach...

Cognitive Dissonance's picture

That's their story, not mine.

<I'm just looking for my damn glasses.>

Ghordius's picture

what I mean is: it's not our (european) real and official story

AssFire's picture

I inquired with an Italian valve supplier that has been purchased by Brevini.

Expected delivery for the the most common of hydraulic valves:

"week 43", yep over 10 months.

They are not maintaining ANY inventories.


El Oregonian's picture

I believe its the same wait with heart valves there.

LawsofPhysics's picture

Yes, meanwhile the U.S.S.A and China are stuffing the hell out of inventories.

Inthemix96's picture

The only serious problem Europe faces as far as I can see is that it is being run by a bunch of no-neck, never had a real job in their lives, career criminal class, marxist, trotsky, fuck-wits, who believe they know better than some 500 million other quite normal folk, who some like me forcast over ten years ago this over zealous, and down right wrong proposition wouldnt work.

Other than that, FORWARD.......

tango's picture

No, Europe's problem is their social welfare system and demographics.   You can't stop producing babies and workers while millions retire with generous benefits.  You can't work 35 hour weeks, vacation for a month, retire at 50 and compete with those who work 50 hrs/week, save 1/3 of their income, never take off  and retire when they are forced to.  These trends along with the disappearance of the idea of savings has come to fruition.  They literally know no other way to do things.  

pods's picture

Europe is like the gazelle who has been caught by a cheetah.  They ran like hell, then kicked while jaws clamped around their neck.

Now they are relaxing, realizing that they might as well enjoy their last few moments.


Cognitive Dissonance's picture

Nothing clears the mind of useless clutter as well as the knowledge of certain death.

LawsofPhysics's picture

Hhmmm.  You'd think we would all be a bit more clarvoyant then.

Thisson's picture

Is there a way to figure out what the sovereign yields would be if you were to back out things like central bank and state-entity (e.g. spanish social security agency) purchases?

LawsofPhysics's picture

No, all by design.  Common sense tells you that there is always a real cost for capital creation, especially if it results in the creation of items of real value.  Bankers "create" capital with little to no effort, yet they enjoy massive compensation.

See the problem here.

news printer's picture

I certainly don’t think why it’s that big of a deal to give Germany their gold when it’s not backed against anything. - CNBC

Aurora Ex Machina's picture

The Existential ThreatTM to the Euro has been averted; it's been agreed - poverty, austerity and general malaise, but the spirit of "Keep Calm and Carry On" is rock solid.


For the record, the White papers on non-lethal riot containment and demographic studies were all done before the crash [Gold-Silver-Bronze command is go!].

Do you want to know more?


Ball is over to the US!

Salah's picture



etresoi's picture

It is interexting to read all of the înformed comments`below, from people, who have never lived in Europe, nor have any view beyond their myopia.

Aurora Ex Machina's picture

Helps if you add some definition to your blanket condemnation, otherwise you're merely snarking and probably not understanding the long term cynicism or even (*gasp*) use of tropes such as bathos by other posters. Given the OP's piece talked about "the real economy", let's take a single segment of that real economy, the Retail Highstreet.


Retail from the UK, in the last couple of weeks:


HMV goes under.

Blockbuster goes under.


Now, there's a very decent case to be made that both of these chains have been on the Dodo list for a very long time and certainly aren't strangers to meetings about re-financing / bridging loans etc. (There's also a very good case that both killed themselves, through both price gouging and inability to adapt to the new online realities of retail). However, lest we think this is merely one part of the retail market (music / entertainment physical format), knock yourself out:


Failures in 2013

  • Blockbuster, the national chain of video (rental) stores, went into administration in mid January. There are 528 stores with 4,190 employees. Like HMV the chain was a former market leader, adversely affected by the importance of video downloads and online rentals and DVD sales.
  • HMV, the last UK chain of music and entertainment stores, went into administration after a weak Christmas and years of fighting a losing battle against downloads and online retailers. There are 238 stores and 4,350 employees. HMV is still trading though it is unlikely to attract a buyer for the whole business. The failure of HMV is likely to be a 'Woolworths' moment' where shoppers (and no-longer shoppers) realise that a changing world is exactly that.
  • Ethel Austin, the 32 remaining stores of the once-flourishing budget chain (which had 300 stores at one time), were closed immediately in January as the company went into administration for the fourth time. In July 2012, Liric bought 32 stores from the restructuring specialist GA Europe, but the company has been unable to continue. See below for previous administrations.
  • Jessops, the only national UK camera retailer, was the first major retailer to go into administration in 2013. It had grown from around 50 stores in 1994, acquired Camera Crew and City Camera Exchange, and had more than 200 stores by 2002. It sold its central premises in 2008, avoided administration in 2009 by carrying out a debt for equity swap (involving HSBC taking 47% of its equity and a £34mn debt write-off). The administrators closed down Jessops' 193 stores and fired its 2,000 staff, two days after taking control, partly at the instigation of Jessop's suppliers. Goods were returned to suppliers, who had become concerned that a 'fire sale' of under-price merchandise by Jessops' would undermine everyone's businesses for the following few months.
  • In France, Virgin Megastores (1000 staff and 25 stores) is to close under pressure from online competition. Our legal advisors point out that it is owned by an investment company not Sir Richard Branson.
  • Italy: FNAC and Blockbuster have announced they will close their Italian operations.
  • Ethel Austin/Life&Style: the administrators have stated that they may take action against 'certain parties' as a result of the failure of Life&Style in 2011.
  • K Village, a shopping outlet opened in Kendall in June 2010, went into administration in January. It failed to attract sufficient tenants. [source]


BBC source with a nice table - over 30k retail jobs lost in the past 12 months. Here.

December 2012 retail was down:

High street spending was particularly challenged, with consumers increasingly turning to the internet as Christmas approached, Visa Europe's UK expenditure index said.

The report, which is compiled by Markit, found that overall consumer spending was 1.7% lower in December 2012 compared with the same month in 2011. Spending was down by 0.9% month-on-month, following a 0.1% monthly increase recorded in November.

Food and drink spending fell by 2.2% year-on-year in December, while spending on household goods plummeted by 9.2% and clothing spending was down by 0.9%.

However, the hotel and restaurant industry bucked the general downward trend by showing a strong 6.7% annual increase.

Spending on the high street was down by 2% year-on-year compared with December 2011, while the internet held up better, with a more gentle 0.4% annual decline. Mail and telephone order spending showed the steepest year-on-year fall, tumbling by 3.8%. [source]


Note that is is still January 2013. The 2012 list is too long to fit into a comment. Any pretense that the retail market of 2010 > 2020 will look anything like 2000 > 2010 is a total fantasy.


Next time, as only a few of us are psychic, try adding either some data or a viewpoint that's not pixie dust, for the unwashed masses, eh? Better yet, post me a positive UK retail growth story from June 2012 > Jan 2013 that isn't already a large / giant fish. And the UK has done QE to the tune of ~ £350 billion.


Looking at Spain or Greece would just be cruel.

Notarocketscientist's picture

But Goldman paid out higher bonuses in 2012! :)  3 Cheers for Goldman Sachs and the Rat Bastards who work there