And In The Meantime Back In Reality

Tyler Durden's picture

As the market marinades in the latest confusing Bernanke Q&A aftermath, we get two very disturbing headlines. The first:

  • China’s Zhu Says ‘Too Soon’ to Discuss Further EFSF Purchases
  • While there are proposals to revamp the European Financial Stability Facility, “there’s no concrete plans yet so it’s too early to talk about further investments in these tools,” Zhu Guangyao, Vice Finance Minister, told reporters in Cannes today.

This goes hand in hand with the disaster that was the overnight news on the EFSF pulling a meager €3 billion bond auction. If you gave us Jefferies' rolodex, we could probably raise more for a bankrupt MF Global in ten minutes (kinda like what they did). Oh well, so much for Europe.

And in other news, and confirming what we have been saying over the past two weeks, namely that foreigners are dumping US bonds to shore up emergency balance sheet capital, we get the following confirmation from Dow Jones:

  • IIF Sees Euro-Zone Banks Selling Govt Bonds To Meet Capital Targets

That's right: government.

Recall what we said last week "in the last 8 weeks foreigners have sold a unprecedented $93 billion across the custodial account bringing it to $3.392 trillion, the lowest since March 2011! So the next time someone asks where European banks are finding emergency liquidity now that commercial paper, money market and Libor Markets are all dead, you will have the answer." Now it has been confirmed. Because when raising capital, you don't sell the bonds which are trading at nickels on the dollar. You sell the liquid ones. It will be very ironic if Europe's collapse drags down America following a wholesale dump of US bonds, as we have been suggesting. Naturally this confirms 100% what we suggested two weeks ago, namely that the only reason the EURUSD is as high as it has been is due to liquidation of US bonds by French banks, and the prompt repatriation of the USDs into EURs. Meaning while the EURUSD correlated market figures all is well, everything behind the facade is falling appart.

In other words, expect to see the downward slope in the chart below to get more and more acute with each passing week as the European fiasco accelerates.

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wisefool's picture

Why would they buy EFSF bonds when they can buy bonds in re-emerging currencies tied to single fiscal policies of same in about 6 months?

The Chinese are not dumb, and of all things, they are known for being patient.

Peter K's picture

Because the big Panda is long about 1.1t of that superlicious Eurobamboo that will gap to the 30% to 40% recovery level, if they pulled the plug. It is pretty obvious that the socialist welfare states have spent all their money. They were funding itself with US MM funds (Northern Rock anyone?). And now that this market has dried up, all they have left is selling all their IG jewels, and hope it's enough to forstall nationalization. Can anyone say "Perastrioka":)

css1971's picture

How much do they need to meet capital requirements? €3 trillion? Or was that the whole shebang; sovereigns included?

TruthInSunshine's picture

They are going to lever up the EFSF.

Which is the functional equivalent of getting a Rent-A-Center customer in default on their Plasma Screen $143 per week payment plan to sign another personal guarantee pledging that they "really, really, really are going to seriously catch up with their payments."

It should work.




WonderDawg's picture

Sort of, but worse than that. It's like giving them another loan so they can make their $143 payment with borrowed money.

TruthInSunshine's picture

This is true.

They'd have to agree to double their payment and sign up for automatic deduction payment from their already overdrawn banking account before being allowed to sign the "cross my heart" repayment pledge.

slewie the pi-rat's picture

this is why there is such a critter as:

double secret probation

wisefool's picture

I thought it was double super secret probation.

rokka's picture

It's double penetration.

FeetOnTheGround's picture

It's 'double top-secret probation.'

JLee2027's picture

You forget ultra corrupt. The first known failure of a paper currency Ponzi scheme occurred in China during the 13th century.

LongSoupLine's picture

I've said it for a long time...Sun Tzu, bitchez.

wisefool's picture

Timeline: 2011-01

SEC-DEF Gates (ret.) "The Debt is the biggest threat to US national security"

Timeline: 2011-08

Joint Cheif Mullen (current) "The Debt is the biggest threat to US national security"

NotApplicable's picture

So, why can we not have a War on Debt? Let the military occupy Wall St. for a while.

wisefool's picture

current and former members of the US military support Ron Paul more than all other candidates combined.

"Nearly all men can handle adversity, if you want to test a man's charactergive him power."

DosZap's picture


Well at 8%, it ain't gonna happen, Herman(Big Lead Herman), just pulled a whopper.........the most knowledgeable/capable man on the A Team (Besides Ron P), just THREW the RACE card.

Now, he has some issues I do not agree with that could have been worked out.(w/his fiscal plan)

NOT NOW. When your ACCUSED(not proven ) of something you do not LOSE it, and you do NOT throw the race card.

He just lost my vote, and likely many others, this PC shit,makes me earp.

jekyll island's picture

Looks like I picked a good month to short Treasuries.

peekcrackers's picture


right on right on !

Sun Tzu at high Noon~

TheLooza's picture

Allow me to show you how the Algos read the china headline:

there’s [no]strike] concrete plans [yet so it’s too early]strike] to [talk about]strike] further invest[ments]strike] in these tools,” Zhu Guangyao, Vice Finance Minister



peekcrackers's picture

The best way to read the china head lines is sideways

like they'er truth telling

nope-1004's picture

"everything behind the facade is falling apart".


It's about time.  Good night insolvent banks.  Too-da-loo liar Benocide and Geithner.

Welcome to jail, Mr. Corzine!!!

JLee2027's picture

In a week, the entire world could change as the zombie banks will finally meet their maker. Here's hoping we have arrived.

sushi's picture

Teheran banks might meet their maker first


UK military steps up plans for Iran attack amid fresh nuclear fears


css1971's picture

Yup. They've got Weapons of Mass Destruction.


We're going to have to invade to .... Y'know, I've forgotten but I'm sure it was a jolly good reason.


drink or die's picture

Something about invading to protect our freedoms?  Or something. 


CrashisOptimistic's picture


The phrase you're grasping for is "Protect Civilians".

dizzyfingers's picture

Quote: Unquote


So, will US strike using collapse of Europe as cover, or will Europe collapse using US strike for cover?  Good grief, it's keystone cops.

delacroix's picture

first, we freeze their assets

MSimon's picture

Then their shit backs up.


Warmers and Ex-lax in great demand.

Raskolnikoff's picture

Say what you want about Shari'a Law, but compared to our 'lawless' society.... at least you know where you stand with them, the Iranians, radical muslims, etc.

WonderDawg's picture

Maybe so, but I would have had a hand or something worse cut off by now, so I'll stick with our "lawless" society and maybe have a chance to be part of the change for the better.

Comay Mierda's picture

in order to keep the euro ponzi scheme alive treasuries will get dumped.  a lot of ppl are bullish on the dollar.  i'm not so sure. my gold is looking pretty shiny today though

DoChenRollingBearing's picture

+ 1

Gold is now the default option.  And some FRNs.  Be armed to protect what you have.

css1971's picture

Good one. I see what you did there.

No One's picture

Can ZH stop dealing in "reality" please. I am too busy ramping up my equity exposure as some people on CNBC just said that equities were undervalued.

Doubleguns's picture

As soon as the dollar drops in value your equities will rise. They are presently undervalued because the dollar is so over valued at present.

lapedochild's picture

Can someone remind me again, what's the necessity of insolvent banks? What purpose do they serve in our economy?

Deadpool's picture

Again, no banks = no loans = no business = no jobs. Congress gets re-elected on jobs, Jobs, JOBS! k?

nope-1004's picture

Would be interested in hearing which banks are currently lending to small businesses.

This economy needs to purge the leeches and parasites:  The BANKS.  Until then,

"they terk err jerbs!"

DB Cooper's picture

Only small community banks lend to small business. 

faustian bargain's picture

Maybe there's a missing piece... no savings = no investment = no banks = ...etc

Deadpool's picture

-8? wtf, you guys are crazy.

brew's picture

-12 now, and climbing...

CPL's picture

I'm down voting because all the other kids are doing it.

theMAXILOPEZpsycho's picture

I guess thats where QE comes into the frame...

midgetrannyporn's picture

They hold many toxic assets which if released into the environment could be detrimental to human wealth.

iDealMeat's picture

They hold many toxic assets...


no..  they don't.  FED bought them all and paid 100% LTV.. 2 Trillion worth.. Banks get paid to "service" those "assets" on the FEDs Black Hole Books.

Which we'll never see..  F.U. FED!

Withdrawn Sanction's picture

How does anyone know?  Neither the Fed nor the banks produce trustworthy books on which to base such an assessment.  Maybe they're sound, maybe they aint.  Their silence, however, speaks volumes

WonderDawg's picture

The Fed did not buy them ALL. 2 trillion is big but it's still just a drop in the bucket of the banks' exposure. The big banks are most definitely insolvent.