Bill Blain: "Something Is Happening In Europe And We Don’t Know What It Is…"

Tyler Durden's picture

We start with the overnight observations by Mint's Bill Blain who points out something contradictory: on one hand Europe is said to be "fixed" with inflation expectations rising and the ECB preparing to take its foot off the gas pedal. On the other hand, "European Sovereigns will start issuing long bonds again.... A French 30yr is in the works, Italy and Belgium are both looking, while other rumours say the EFSF might be in the frame. ... Long dated low yield bonds make great sense when inflationary expectations are low into infinity, and you expect the New Normal of Low Rates in perpetuity to hold for ever."

As he puts it, " If the global economy is so rosy, why is the Euro bond market going long? Whatever happened to expectations Europe was going to grow again?  Something is happening and we don’t know what it is…"

Perhaps what is going on is that the market is looking beyond the current "reflation" scare, and already preparing for the next deflationary downturn, now that China's credit impulse has fizzled and the impact is set to hit the world in the coming months...

In any case, read on from Blain’s Morning Porridge – May 11th 2017

America? Huh... and why European bond bond boom spells trouble


“So you can wipe off that grin, I know where you’ve been. It’s all been a pack of lies….” 


A number of readers took me to task y’day for not making Trump’s “Your Fired” FBI moment the core story of the day. Perhaps I should have – adding what to the sum of human confusion? 


While some commentators think it opens a whole new American Can of Worms, I reckon it’s just more of the same. Get over it. That a US president dispenses with an awkward agency head is not unique. Will the truth about Trump, Mike Flynn and Russia ever emerge? Some of it will – revealing, yes! they’d been talking, but… as long as those photos from Moscow never emerge (what photos?) it will all be fine… 


A resumption of Trump dramatics provides some unhealthy distraction from the main event – the bright global reflation trade looking increasingly tarnished. It’s opened the box for the Democrats to get “holier than thou” and the Republicans to accuse them of hypocrisy.. Oh, the irony, the irony. 


I did spot one interesting note in the news – apparently the Senate Intelligence Committee (how busy can that body ever be?) has requested information on Trump from FinCEN – the US agency monitoring money laundering. (Same crowd fined Trump Taj Mahal $10mm in 2015 for multiple violations – which was sometime after Trump himself ceased to be involved.) Have Putin’s cronies been investing in Trump real estate is apparently the question FinCEN is asking.  


Back to the main story – the same one I’ve been harking on about for months: risks to the global feel-good.


I’m worried – too many people think things look too good. One of my favourite stockpickers told me he’s “never seen such strong fundamentals”, while another bond manager says he can’t get allocations increased on his credit plays because they’re bullish stocks. My Japan watchers tell me the reason the Nikkei has rallied is a turnaround in Global investors getting positive on Japan again.

Yet, there is plenty of contradictory bluster out there: 


In an excellent comment from my chum Marcus Ashworth (a Bloomberg Gadfly), he notes the market in European Long Bonds is about to explode. 


There has been precious little demand for the long end duration risk in the Euro bond market in recent months.The Italy 50-yr 2.8% of 2067 traded down from 100 in October ’16 to 83.00 now! That’s a 75 bp widening in yield, confirming bond-buying folk were concerned about Euro stability, inflationary pick up, and the political risks pre Macron’s coronation last weekend. 


Ashworth says the landscape has changed – and even as bond issuance falls, European Sovereigns will start issuing long bonds again. Long dated low yield bonds make great sense when inflationary expectations are low into infinity, and you expect the New Normal of Low Rates in perpetuity to hold for ever. (And only buy Long Bonds when the yield curve is steep enough to justify conditions 1 and 2!) 


A French 30yr is in the works, Italy and Belgium are both looking, while other rumours say the EFSF might be in the frame. Fascinating stuff, but with the ECB already taking the metal off the QE pedal, what happens when the market distortion stops? Where do bond prices go when the ECB stops buying, and, heaven forbids, starts to “normalise” the balance sheet by selling its quintillion bond holdings


If the global economy is so rosy, why is the Euro bond market going long? Whatever happened to expectations Europe was going to grow again? 


Something is happening and we don’t know what it is…but if you fancy the long end of the Euro market.. you know my number..

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Ghordius's picture

a huge MEH in the direction of the author of this article

yes, there might be economic reasons for the ECB to take the foot off the pedal

but there are monetary reasons for the ECB to wait until the FED really shows where it wants to go

meanwhile, the 10y Greek sovereign bond is already seen as a better deal, soon, then a 10y Gilt

and really, 50y and 100y bonds? only one word: meh

tuetenueggel's picture

Portugal already has sold few 100 y bonds.

People must be stupid as hell.

Scrimpy's picture

Ask yourself what is in the best interests of the jew world order, and THAT is what is going to happen.

NAVIGATOR0832's picture

Very wise.  I guess the idea is to catch a ride on their boat.  

SolidAssets's picture

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NoDebt's picture

There's something happening here

What it is ain't exactly clear

There's a banker with a gun over there

Telling me I got to beware


GUS100CORRINA's picture

Sorry, but I AM ROFL!!!!

We do indeed have a KEYNESIAN mess engineered by DESPOTS with REPROBATE MINDS.

Go READ information from the MISES Institute and CB folly and corrupt thinking will become very clear. 

WTFUD's picture

That's 3 weeks in a row SA's purchased a new BMW. We'd better start taking him more seriously. sarc

New_Meat's picture

pretty soon it will need a bigger garage

Tsipras the Great's picture

Portugal already has sold few 100 y bonds.



BlindMonkey's picture

MPAI  Most People Are Idiots.


I would have never thought that applied to bond traders.

JRobby's picture

The land Portugal is sitting on may be there in 100 years?

But the real question is the form of the destroyer as QE is "relaxed".

"Epic Collapse - the 38 hour motion picture cycle that you just can't stop watching, no matter how hard you try!"

Arnold's picture

Following the definitive leadership of the Fed is certainly a strategy.
I can understand its' logic.
I file the statement in the brief Amicus Brief:

It's a trap.

Ghordius's picture

Arnold, the Global Reserve Currency is a fact. One that even Soviets had to acknowledge, hence the "eurodollar" of old

it there was a trap, it was one that was made in 1946 and sprung in 1971 -> "the USD is our currency and your problem"

Arnold's picture

Some one had to do it, Mr G.

We were just hanging around with a lot of excess capacity at the time.
And an attitude.

Ghordius's picture

Arnold, I disagree, strongly. wars. they cost a lot

evidence: nearly every time a country in europe engaged in war... it took off the gold-backing of it's currency. and, when peace returned, it pegged the same currency back to gold... usually at a different, higher rate

(WWI and) WWII were a full exception to this rule, for one single country on the planet

after WWII, American politicians knew that the debt had to be repaid to some sane levels and they did exactly that: they had a budget surplus and paid back US sovereign debt, in gold

enter the new wars... and eventually that gold backing was not possible anymore, not at that rate. so those French warships were sent home without gold

you are at war since 1971, "gold-wise". your political and intellectual establishment tells you that war is good, moar woar is better, and part of it even prays for Mars to Attack, and destroy every window pane factory "for growth"

Arnold's picture

You make a couple of touche, Mr G.

Let's look at today, and at a bit of tomorrow.

Physical assets are stinky to produce, create a certain amount of waste, difficult to handle, and are generally on full view for confiscation and taxation purposes.

Fiat creation and flooding markets is much cleaner work of wealth creation, better suited to modern man.

Sure there are warts all over my posited statements, but really, how many of us are there that have any interest in knowing the real time cause of our collapse.

Most, even here, are too busy trying to make a diminishing living.
Figuring out why things happen is a leisure time activity.

LawsofPhysics's picture

The smart and savy know that it really is "a club"...

laws are indeed for little people. Evolve or die, been this way since the dawn of time...

JRobby's picture

"after WWII, American politicians knew"

They knew what the banksters paid them to know. Speaking out of turn or contrary to the "company line" was and is hazardous to one's health.

peopledontwanttruth's picture

Following the definitive leadership of the Fed is certainly a strategy.

Matthew 15:14
14 Leave them; they are blind guides. If the blind lead the blind, both will fall into a pit.”

nmewn's picture

"yes, there might be economic reasons for the ECB to take the foot off the pedal"

Well thanks for that, I was trying to figure out what in the hell take the "metal off the QE pedal" was supposed to mean ;-)

peopledontwanttruth's picture

This whole ENTIRE situation in EVERY country has become like a mad dog running in a circle chasing his tail at a very fast pace because it has worms.
None of these "leaders" have a clue what's going on in their countries to companies because it's all based upon an illusion of wealth or money that doesn't and never did exist.
They're wondering in the desert looking for water and chasing a mirage. Soon to collapse from dehydration and death.

EddieLomax's picture

They're all doing the same, but the moment when the collapse comes is the point when someone finds they can put their wealth somewhere else and get something better in return for it.

At that point people start needing to defend their currencies and there is just way too much debt to do that.

As for the Trump-Russia stuff, really?  Colour me skeptical if Trump and Putin conspired to make a few million more, both men are apparently well beyond the need for more money, it is laughable that they are grubbing around taking risks to earn a bit more.

And Trump running for president is hardly the best way to sell a brand and make money, he's polarized quite a few lefties against him.

peopledontwanttruth's picture

All excellent points, the coming collapse I believe will be unique in several ways. No one in any other orchestrated depression has ever seen this level of debt and especially with the world's reserve currency.

Funny expression just typing that, the dollar is on a ventilator and the pulling it's plug won't even get a gasp out of it.

All or most of the world's players at this point are just making it up it goes. They're completely making it up because they've all lost control either under their own watch or the one who handed it to them.

Ghordius's picture

"defend the currency"... well, there are many ways to do that

one of them is to convince your people to refrain from visiting foreign countries. tourism is a kind of export... for the country that is visited, while it's a kind if import for the country from where the visitor comes from. see what the US State Department reccomends

another is to stop or choke a bit the flow of your national currency towards foreign countries. see Iceland, see China

another is to sell foreign currency and buy back your national currency. see China, did that in the tune of 300 billions, lately

another is to severely refrain your population from buying foreign goods. see...

VD's picture

ECB waits for the Fed to really show its policy? idiot, they all work in collusion.

Bank_sters's picture

Go shovel some money into Italian bonds then, gordo...

cossack55's picture

Why not 1000-year ReichBonds

tuetenueggel's picture

we have Gold, so we don´t need paper.

peopledontwanttruth's picture

There isn't enough gold in the world to cover these debts and even marked to where it's real value should or could be, what 294-350 times because of all the imaginary (paper) gold sold against the ounce that is real, then what?
How does everything then correct itself against that value or do we just start up with another Monopoly Board and new money and bankers?

Man has truly painted himself in a corner

indygo55's picture

"There isn't enough gold in the world to cover these debts and even marked to where it's real value should or could be"

You didn't point out why not? Why cannot gold be valued to $15000 an ounce? It is a store of value. Not everyday transacting which people need no matter WHAT happens. There can be paper gold as long as its transparent. And there is silver. Same thing. Your premis is flawed. 

peopledontwanttruth's picture

How is it flawed? Not everyone will have gold so you then do what print a new currency to that "true valued gold"? At that point you might as well keep the present currency which would make it worthless which in reality is where we are at or you have hyperinflation yo a degree that even Germany didn't see in the 20's

Oh and by the way people aren't God fearing as they were back then or willing to trade their potatoes for you corn, not only because hardly anyone has a garden but people now are primed to kill from all the trash they've been fed through a steady diet of killing on tv to video games.

We're just starting to scratch the surface in Venezuela to other cities of the social unrest that's coming. And this is while there's still a level of confidence in a monetary system. Let's see if the police and other agencies go to work for nothing.

We're in the end game

Herodotus's picture

Copper coinage will be used for day to day transactions.

P-51 Stiletto's picture

Aluminum (aluminium, as our British cousins say), is even more plentiful than copper...


gunzeon's picture

Bitcoin's boom this week says it all; might only be a paltry $29b capital today but the sky could be the limit !

ParkAveFlasher's picture

Why don't I never read comments pumping BTC when 40% gets wiped out in 48 hours?  Like, why is that?

nmewn's picture

Because all the boiler room pumpers are taking the day off counting their fiat? ;-)

Arnold's picture

Algos are very disciplined and aren't talking their book.

ONEwarrior's picture

"Like, why is that?"

I guess that's a Snowflake type question?

indygo55's picture

I've got some bitcoin from WAYYYYY back. paid around $70 a piece. Now I don't want to use or sell them cuz they are worth over $1750 a piece, Crazy shit.


messystateofaffairs's picture

I dunno, maybe cause its not meant to be anything but money and you don't 'invest' in money objects, you just store it to spend, if it holds it purchasing value that is. Anyway "shitcoin" is at $1870 funny munnys at the moment but don't let that worry you.

gunzeon's picture

Pal, Bitcoin has matured since those days, it is now like an experienced woman, the Madame Macron, Carla Bruni, Jerry Hall, Bianca Jagger of crypto, moving among the A grade players. There is NO WAY a 40% drop would happen unless it's cryptography base was forced by a quantum computer, before code upgrades could be done. Now, with Ethereum-esque features being finally exploited it is unstoppable. Think more like a 10% profit taking dip the worst that can happen, anything less than that 10% is mere noise as the Big Boys load up.

BarkingCat's picture

It is more like Catlin Jenner.

tuetenueggel's picture

Don´t worry, be happy.
Europe is given Millions of best schooled, extremely good educated, freedom searching new employees for Starbucks, Mc Ronald, Burger Burglar and other US shitty companies like Amashit or noneway.
As long as ECB is printing coloured paper and people accept it for payment, everything looks fine. No one thinks on gold or other PM because that will be forbidden, as soon als fiat shit will collapse. Mr. Ndranghi will be hanged, because he´s
the only one who couldn´t forsee this.
So, don´t worry, be happy as a motherfucker now became president of france, GB looking for more fertile fields and Putin standing at sideline, watching god´s only country collapsing.
Have a nice day gringos.

Dave the jew's picture

The complete annihilation of common sense, intellect, and the ability to think and speak without fear of the state hanging on your shoulder like impending doom!! That's what's happening in Europe matey...
but we seem to love our servitude and defend it with great gusto!
When people are literally eating each other , maybe then the penny will drop- then again maybe not.

Arnold's picture

Moorish Monarchy seems the only solution.

Oldwood's picture

It's the only one that appears to be offered.