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"Greece Is Bear Stearns. Italy Is Lehman" - 7 Quick Points On Europe
From Ben Hunt of Salient Partners
7 Quick Points on Europe
#1) Here are the most relevant recent notes for an Epsilon Theory perspective on the underlying political and market risks in Europe: “The Red King” (July 14, 2014) and “Now There’s Something You Don’t See Every Day, Chauncey” (Dec. 16, 2014).
#2) Markets reacted positively to last Thursday’s announcement because Draghi doubled the amount of QE that he leaked to the press on Wednesday. Financial media pegged QE at 600 billion euros on Wednesday and 1.2 trillion euros on Thursday. Once again, Draghi played the Narrative game like a maestro.
#3) This is NOT open-ended QE. Sorry, but the Narrative game doesn’t work like this. If you mention a target date (September 2016), then that becomes the Schelling focal point, no matter how much you try to walk that back by saying it’s open-ended.
#4) Risk-sharing, or the lack thereof, matters. Draghi won approval of a doubled QE target by minimizing the mutualization of QE risk among EU countries. 80% of the bond-buying will be done by national central banks, and Germany will only buy German government bonds, France will only buy French bonds, etc. That’s important for two reasons. First, if Italy or Spain goes off the rails, then the Bundesbank’s balance sheet isn’t immediately crippled. Second, this is why German bonds are rallying just as hard (harder, really) than periphery bonds. It’s also why US bonds are rallying so hard, because you can’t maintain a huge spread between the only risk-free rates left in the world.
#5) Market complacency on Greece is a mistake. Not because Greece itself is a huge systemic threat, but because the same political dynamics in Greece are coming soon to Italy. Greece is Bear Stearns. Italy is Lehman.
#6) In tail-risk trades as in comedy, timing is everything. Even if you think that it’s an attractively asymmetric risk/reward profile to bet on a Euro crisis (and I do), this is a heavily negative carry trade. If you don’t know what the phrase “negative carry trade” means, then please don’t make this bet. If you do know what it means, then you know that you either have to play a lot of hands to make the odds work out for you (and the nature of systemic crises makes that impossible) or you have to be spot-on with your timing.
#7) In a fundamentals-driven market you need to look at fund flows; in a Narrative-driven market you need to look at Narrative flows. With Draghi’s announcement last Thursday, there is no longer a marginal provider of market-supportive monetary policy Narrative. Or to put this in game theoretic terms, the 2nd derivative of the Narrative of Central Bank Omnipotence just flipped negative. We’ve shifted from an accelerating Narrative flow to a decelerating Narrative flow, and that inflection point in profoundly important in game-playing. The long grey slide of the Entropic Ending begins.
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"In a fundamentals-driven market you need to look at fund flows; in a Narrative-driven market you need to look at Narrative flows."
Fundamentals are just another version of a specific narrative widely believed and accepted as........well.......fundamental. The best narratives are fact filled and thereby widely supported as 'fact'.
"Zero bounded", then?
...and SNB was Kreditanstalt
Great piece. This guy understands markets and spreads.
This is not the end, but it is the beginning of the end. Kicking the can is less fun all the time.
Sorry beg to differ with you, about the analysis. Why is the DAX going nuts? very simply put german banks when they are off loaded of the Bunds at a huge profit will pour money into the DAX. Investors are front running this. Its further risk transfer to the central banks. Hard to sell a bond higher than when it has a negative yield. This is in effect a huge prop up of Deutsche Bank and likely what the Germans got out of it.
Most Greek risk is with Italian banks, See item 1, except the Italian banks made out HUGE by buying Italian Bonds at 8 percent. Perhaps they have to take one for the team... Dont work the Italian treasury will by the paper at a huge profit.
I think what the bigger number was was to transfer profit to the banks, in the at risk countries and then a write down or restructuring of greek debt is much more palatable.
Not sure we disagree. Europe is dead in the water until the Euro finally croaks.
I thought his larger point is the QE, as an economic policy, is finished, and so is the bond rally. All boats are tied toether, and more than a few are burning. The end game approacheth.
His point #7 is the one which bears understanding, but I disagree slightly with his conclusion here. The Fed has positioned itself as the new "marginal narrative provider", as it is claiming to want to raise rates, so it now can jump back in as a provider of narrative. Since the Fed got out and allegedly ended QE, since Japan is hopelessly printing themselves into oblivion, since no one gives a fuck about BoE, and since SNB checked instead of betting.
This move by ECB was done to let the Fed get out for a bit and let ECB take the lead, to show the world that hyperinflation-scared Germany was OK with printing.
This fact reveals the game as one of mere narrative without strategy or endgame. There IS a marginal provider of narrative, and it is the Fed.
The narrative is all they have left.
Greece = Bear Stearns
Italy = Lehman
Japan = ?
probably that whole "tanks in the street" think paulson and the fed/banks threatened congress with if they didnt agree to the bailouts...
The author seems to think Draghi can day trade Europe out of this mess. Just because banking allows for many accounting gimics does not mean all is fine at the end of the day.
Virtual economy implies Narrative Flows and Matrix entities, and massive real and virtual damage control.
The Narrative Must Flow... (Dune reference)
Spain = ?
Portugal = ?
Ukraine = ?
Argentina = ?
Italy does not = Lehman, as the MSM spins it. Lehman was put down properly, with no contagion (read Stockman's book).
Greece does not = Bear Stearns because Jamie Dimon isn't getting a sweatheart deal to take over Greece's profitable operations.
Japan = Hubble Telescope, where you can look back 20 lightyears and see the future.
Japan = Weimar Germany, or maybe Zimbabwe
This overlooks the cultural factor, which in Japans case is considerable. The factors in play in Weimar simply do not exist in Japan.
Japan is AIG and merkel is Larry Summers
I find it hard to believe that any CB would pay good money for a negative-yield bond. What do the yield-to-maturites look like in Germany? I mean, mebbe its only current yield that's negative, mebbe you can buy them below par?
I don't understand all this bond buying hoopla that has a guaranteed loss disclaimer stamped all over it. Even central banks aren't that dumb (or are they? /sarc).
This is not the end, but it is the beginning of the end.
This is the middle of the end, friend. The end was clearly in sight when Greenspan retired. The pace is accelerating enough that this sucker is coming to a head and we will see it pop.
I hope we live that long.
I'm an optimist in one respect. I think even criminal stupidity is subject to the law of diminishing returns.
Time will tell.
criminal stupidity is subject to the law of diminishing returns
I agree, and we can see the returns are now "reverting to the mean."
Ive been noticing that with the gold hammering as well. They have been dumping more and more money into the shorting during thin trading attacks and getting a lot smaller drops. Despite using more money todo so, they haven't triggered the 'circuit breakers' and halted trading in a while
We believe what we want to believe and then search for reasons (aka fundamentals) to support and justify our belief.
Greece is Bear Stearns.
Italy is Lehman.
Yemen is South Chicago:
Obama’s Yemen Success: US Citizens Should Depart Yemen Immediately, You are on Your OwnWe believe what we want to believe and then search for reasons (aka fundamentals) to support and justify our belief.
that's precisely how the Iraq Woar was started, it seems it's a pretty common plot choice
No the narrative is repeated until it is parrotted as belief and when enough people belive it, it is basically unchallenged and "known fact." The narrative comes first. More or commencement of QE will save the PIIGS is a narrative.... when it goes around the new cycle once or twice it is believed as fact.
As the giants totter, China and Russia clearly intend to lean against each other and avoid falling over. Too late, Obama (this man has surrounded himself with retards) courts the remaining giant, India. If the currency explosion is great, India holds massive amounts of gold, mostly privately held. A new, sudden middle class? We should have been actively courting India for the past 25 years. India knows where it lives, and it ain't North America.
Trade- and industry-strong Germany will ultimately throw off the forced collar of WWII guilt, will make her own deals and go her own way. Germany, too, knows where she lives. EU fragmentation accelerates. Graffiti artists have their way with the EU palaces in Brussels.
US was once trade and industry strong. And lost the narrative and the plot. Many in Germany understand this can happen to them as well (Mercedes may not be hot forever). Germany has progressed far toward welfare statehood and suffers the demographic ills of the developed world.
India owes much to current western policies, and can't maintain momentum without. Your perception of Russia-China is dead on
Cog: "We believe what we want to believe and then search for reasons (aka fundamentals) to support and justify our belief. "
also called the process of rationalization. one quick point back to this meme in the article: countries ain't corporations nor banks
it is a sign of the times that countries are compared to corporations at all
the whole comparison just shows that a certain sub-culture increasingly sees megacorps at the level of sovereign countries
from a historical view what sinks whole nations are different processes from what sinks corps
"Fundamentals are just another version of a specific narrative widely believed and accepted . . ."
Widely believed and accepted by who?
Sheeple?
Wall Street?
DC?
Brussels?
Putin's inner circle?
Rothschild Oligarchs?
Davos private jet pilots/attendants?
Funda-whats?
By whomever wishes to believe whatever they consider are fundamentals as applied to their specific issue.
With stocks it is fundamentals with regard to profits, earnings, sales etc. With religion it might be a strict interpretation of doctrine. With bridge or skyscraper construction it might be basic engineering principles. You get the idea.
A good example of this for me is listening to someone
say that they bought their house for 100,000 and sold it for
150,000 and that they made a profit of 50,000 . The
sheeple really must believe that money is free.
Agreed, but that causes cognitive dissonance....
We will do anything to dispel the pain of cognitive dissonance. Fundamentally this is why we are so easy to control.
The Hegelian Dialectic of problem, reaction, solution is driven by an implanted (often artificial) problem creating severe cognitive dissonance (the reaction) which we are desperate to avoid or dispel with the proffered solution.
Like taking candy from a baby.
Who is "we"?
If the human primate is subjected to this phenomenon, can the same be said of simian primates?
Is this a learned experience peculiar to homo sapiens? If so, approximately when did this proclivity develop?
Would zoolgists/anthropoligists pinpoint the time when our ancestors dropped out of the trees as the crucial nexus for the onset of cognitive dissonance?
Or would they imply that this was a genetic mutation that manifested itself at some identifiable point in theoretical time?
'We" is you and I and they and them and those.
If you (or I or they or them or those) believe 'we' have no cognitive dissonance then 'we' are suffering from cognitive dissonance.
I love your other questions. My answer is an honest "I don't know'. Interestingly we don't need to know who, what, when, where and why in order to understand cognitive dissonance exists in all of us. Often we bury it deep beneath all other sorts of neurosis, dysfunction and insanity, the most obvious being denial.
If someone informs me they are well adjusted and have no issues I applaud their successful assimilation into total fucking insanity. :-)
"We" want certainty, not endless choices and threats. We're born with certainty of parental care. We crave that comfort. There is no certainty, nor omniscient knowledge of the future. To fully think, we must doubt everything. Cognition is our assumption that we can perceive, when we know that we cannot perceive enough. We must make choices based upon very limited perceptions. We must decide when we know little, so we escape personal blame by trusting others, or religion, or political dogma, or just hope.
The essence of cognition is that it's always incomplete, inaccurate and,likely,faulty. "Our" lives exist in a jungle of horrors. Doubt is sanity. Certainty is insanity.
Time to pull the pacifier out of our mouth and grow up a bit. We are a world of conditioned infants endlessly screaming for our comforting binkie to be re-inserted.
Beer
Beer is good food, everything in it is grown on a farm.
Good point on beer, the focus on Europe is stupid. Let them play their silly reindeer games and strangle themselves to death.
"If you (or I or they or them or those) believe 'we' have no cognitive dissonance then 'we' are suffering from cognitive dissonance." Wow, what a tautology, or maybe Catch 22.
So it follows that we all suffer from cognitive dissonance, therefore we must all be in pain, since we will do anything to relieve the suffering of cognitive dissonance. There fore, we will all do anything. Obviously we have no conscience or will.
This cognitive dissonance is bad shit.
you have a nice box.
And it appears unopened at that. Thankfully what's inside doesn't spoil like the fiat candy the Fed's been pushing.
Sorry. It appears my Cognitive Dissonance just duped.
never seen an unopened box.
I enjoy reading this thread discussing cognitive dissionance, which I also duped cubed in my reply to the first comment posted above!
We will do anything to dispel the pain of cognitive dissonance.
This causes me a cognitive dissonance.
I know people who can't perceive any cognitive dissonance. When you listen them you gape at their contradictory convictions. And they never doubt.
Yes, financial gurus are always like weather forecasters, very persuasive and confident with their expertise and knowledge. But they often fail to know what exactly happens tomorrow or in a week. Until something happens, of course.
Indeed, quite correct,
Cognitive Dissonance!
At the end of the paragraph you quoted from the article above is a link to Entropic Ending which presents some glowing recommendations for understanding The Strategy of Conflict:
"Tom Schelling, who won the 2005 Nobel Prize in Economics for his work in game theory, was less interested in macroeconomic policy than he was in defense policy. In particular, his specialty was understanding the logical underpinnings of nuclear deterrence, and in books like The Strategy of Conflict he laid out the foundations for a US nuclear policy that both avoided Armageddon and won the Cold War."
The ONLY thing that has actually happened is that Neolithic Civilization has automatically become MORE CRIMINALLY INSANE, at an exponentially accelerating rate! The basic globalized systems of electronic monkey money frauds, backed up by the threats of force by apes with atomic bombs, is the MADNESS of building MAD Money As Debt systems on top of MAD Mutual Assured Destruction systems. The view that somehow those have become saner, rather than much more insane, is an insane view itself!
Epsilon Theory is being SOLD as something useful, to help to understand how the world continues to behave in some sort of "rational" way, by "viewing capital markets through the lenses of game theory and history." However, IN FACT, the real world is controlled by backing up lies with violence, which have become runaway criminal insanities. Our society operates through fractal patterns of organized crime & controlled opposition. Of course, in that context, it makes sense that most people do not want to comprehend the astronomically amplified magnitudes of cognitive dissonance in their favourite narratives.
However, the BASICS are that social pyramid systems built on being able to successfully enforce frauds have been pumped up and UP by technologies becoming millions, then billions, and now trillions of times greater than ever before in human history, while those are headed towards becoming quadrillions, IF that technological civilization survives the MAD contradictions inherent in social systems based on being successfully able to back up lies with violence, which, in the case of its political economy, are based on being able to continue to enforce frauds.
Human beings are dreaming with data. We have been able to develop astonishing mathematical languages, that have enabled us to intellectually understand things which demolish the previously taken for granted "common sense" understanding of the world. Despite that being PROVEN by things like quantum mechanics and the special theory of relatively, making electronics and atomic bombs EXIST, the human political world continues to be almost totally dominated by old-fashioned ideologies and religions, which are hundreds or thousands of years old, that continue to be based on "common sense" presumptions, that adamantly refuse to cope with the astronomically amplified magnitudes of their degrees of cognitive dissonances.
Instead of facing the basic facts that Neolithic Civilizations' social pyramid systems, based on being able to successfully back up lies with violence, have become MAD criminally insanities, the vast majority of people want to continue to believe that there are still some sort of "rational" games being played through, which requires pretending that runaway MAD games are somehow not as MAD as they used to be, rather than MADDER than ever!
The ACTUAL "fundamentals" are that human beings and human civilizations operate as entropic pumps of energy flows, which have been deliberately understood in the maximum possible backward ways, which is demonstrated by considering that the established political economy operates through fundamentally fraudulent financial accounting systems, wherein the public "money" supply can be created out of nothing, and disappear back to nothing, when privately controlled banks create debts, and when those debt disappear.
Those systems of ENFORCED FRAUDS appear to violate the basic laws of nature, EXCEPT when perceived as systems of organized crime & controlled opposition, which is what one perceives, IF one is able and willing to look at the central social facts, rather than continue to deliberately ignore and deny them. However, changing one's favourite narratives in order to do that sends the dilemmas of cognitive dissonance into orbit around the dark side of the moon!
Human civilization has not only become MADDER than we imagine, but MADDER than we can imagine! While it is theoretically possible that genuinely more scientific politics could be developed, that is practically impossible due to the degree that the vast majority of people are adamantly unwilling to go through the degree of suffering from cognitive dissonance that would be necessary to comprehend how MAD civilization has really become!
In that context, I expect most people to continue to try to behave as if the established systems were still somehow sane, even while they actually become increasingly psychotic ... At the present time, the only realistic ways to resolve the degree of cognitive dissonances accumulating from social systems based on successfully enforcing frauds (which, of course, do their best to continue to deliberately ignore and deny those basic facts), is for that civilization as a whole to drive itself through some series of psychotic breakdowns.
While I would like to recommend some social psychiatry, to catalyze the growing and growing degrees of cognitive dissonance inside of runaway MADNESS, so far, even amongst the relatively better informed who publish on Zero Hedge, there continues to be a standard pattern of grossly understating the problems, and therefore, grossly underestimating what it would take to resolve those problems better. An article like the one above, as underscored by the links it backed itself up with, continues to indulge in the general delusions that pumping up social systems based on being able to successfully back up lies with violence, or to continue to maintain political economies based on fundamentally fraudulent financial accounting systems, is somehow still somewhat "rational," rather than runaway stark raving MADNESS!
Cramer said "Bear Stearns is fine!!!"
IIRC when Bear went down it owned a chunk of a credit insurer, ACA Capital, which was leveraged 180:1.
Not fine.
What is the leverage at the Fed now?
Italy closer to the ECB trap
The World continues to believe that the newly elected Greek PM will come to his senses and keep servicing their debt. Well....he won't. He's a loose cannon on deck and has vowed to cut the strings to the EU debt. It will happen. He doesn't care about the consequences. Alexis Tsipras believes that cancelling the debt can't be worse than the current austerity and resulting depression. It will happen. Be ready!
Maybe he will. What a politician says doesn't necessarily have any relation to what he actually does.
And if he does, it won't have a huge impact. Greece isn't that big and the ECB is printing freely.
But if Greeces defaults and after a couple of years is doing OK, it could encourage others.
Fingers crossed.
These yahoos aren't going down without a fight.
Because I think he is right ... things won't be significantly worse for Greece. For others ... welll ... I gues we will see.
the ecb can buy up those assets and put them on their balance shiit. follow the leader, ie mbs 08.
no biggie, paper it bitchezz
“When did the future switch from being a promise to being a threat?”
– Chuck Palahniuk, “Invisible Monsters”
When they needed to scare us into submission.
Hunger Games (in Europe and MENA), vs. Ratings Games (in NY and DC) and Patriot Games (in Langley).
The next narrative provider is the fed. They just don't know it yet.
Greece is Bear Stearns , SPAIN is Lehman.
Fukuyama will have to rewrite his book again !
"the 2nd derivative of the Narrative of Central Bank Omnipotence just flipped negative. We’ve shifted from an accelerating Narrative flow to a decelerating Narrative flow, and that inflection point in profoundly important in game-playing. The long grey slide of the Entropic Ending begins"
Ahh, well that explains a lot. Hmmm....
it's all bullshit look at the markets Euro up dollar down oil down gold and silver smashed its so convenient and nothing has changed including STWKS up so what is different from 2 weeks ago.
Greece is fine
It wasn't until i stopped believing that i found myself.
Soon the term "risk free rate(s)" will be retired.
So Draghi did a brilliant job manipulating the markets but not enough to contain a pandemic? That makes no sense.
Draghi's policy won't work. It doesn't matter how much they print, they're not printing their way out of this one.
They are not printing 80% of what they announced, so you are basically correct. They have planted the ILLUSION of printing.....
Agents of Fortune.
Is there ANY doubt in anyone's mind that somewhere in some private Zionist shithole thinktank 30 years or more back, sits a few key documents on how the Central Bank's will ultimately savee the day by printing money and "buying up the world" (which they then legally own) all on the path to ONE WORLD CURRECNY AND GOBBERMINT? I mean is that such a stretch that this is all a careful plan?? Come on. Don't act like they ain't some crafty mofo's.
Goldman Sachs + Finance = G*d's Work (so they say)
Yes the growth in the prosperity and population has been without compare for 100 years.
Billions and billions have been financed (for good or ill).
But what is the end game ?
It will end badly.
What is Spain?
Spain is irrelevant.
It's not the Spain . . . it's the Rain (or lack thereof)
that falls in Spain.
The rain is what matters.
The Spain matters not.
Metallica
Trust I seek and I find in you
Every day for us something new
Open mind for a different view
And nothing else matters
Never cared for what they say
Never cared for games they play
Never cared for what they do
Never cared for what they know
And I know
So close no matter how far
Couldn't be much more from the heart
Forever trusting who we are
No nothing else matters
https://www.youtube.com/watch?v=Tj75Arhq5ho
Here is a new word..."MeltIn"...similar to bailin. No more meltdown It may become the new new narrative.
Venezuela = meltin.
Iceland = meltin.
Ireland = meltin.
Greece = meltin.
Ukraine = meltin...with a kicker.
Argentina = meltin.
Detroit = meltin.
Portugal = meltin.
Meltin is contained and survives as long as we all go to zero. Similar to Fukushima is a meltin.
Meltin' it ! TM
You forgot to include all of the planet north of 20 degrees latitude...
Merca = Melted
Who's on first?
"Draghi won approval of a doubled QE target by minimizing the mutualization of QE risk among EU countries. 80% of the bond-buying will be done by national central banks, and Germany will only buy German government bonds, France will only buy French bonds, etc."
I beg to disagree. there's NO reference in the documents about local central banks being obliged to buy each his own government's paper. That opens a very interesting can of worms: if you are Ignazio Visco, head of Bank of Italy, YOU decide how much ITALIAN risk you want to take on. On a theoratical level, you'd buy some bunds as well. "diversification of risk" etc. In a lesser way, you'd go "band of brothers" and agree with Spain and Portugal to share the pain somewhat, reducing the singl country risk. In practice, what I just said will be denied by the parties involved, but the communiquè was not saying anything about which countries' bonds any local central bankshould buy, see : https://www.ecb.europa.eu/press/pr/date/2015/html/pr150122_1.en.html
another thing: active risk pooling is overstated. the ECB will buy only sovranationals, which pool risk by statute, so there's no additional risk pooling. that would only happen if the ECB bought local countries' debt. smokes and mirrors, anyone?