This page has been archived and commenting is disabled.
The Biggest Market Headfake Ever: Is A Wholesale French Bank Liquidity Run The Sole Reason For The Euro, And S&P, Surge?
Over the past two weeks, there is one simple thing that has been bugging skeptical macro observers: namely the paradox of i) just how ugly the European funding and liquidity situations have gotten, on the one hand, confirmed by the blow out in French bond yields (the French-Bund 10 year spread just hit an all time record yesterday) as well as continuing deterioration in credit spreads across core European nations, yet, on the other, ii) the euro, especially in that critical pair the EURUSD, has seen one of its most explosive rises in recent history, which as Zero Hedge pointed out yesterday, has totally decorrelated with the French-Bund spread, to which it had been firmly 'pegged' previously. As a result of ii), equity markets have surged due to legacy correlation arbs, which see Euro strength, and hence dollar weakness, as an empirical signal of equity "cheapness", which in turn leads all algos to treat a rise in the EURUSD as a buying signal. So how is it that even with the interbank liquidity situation in Europe frozen and getting worse, further keeping in mind that European banks are now expected to (or have already commenced - see yesterday's move in PrimeX) engage in widespread asset liquidations, that broad market risk is perceived as cheap? Simple. As the following note by Deutsche Bank's Alan Ruskin explains, the sole reason for the EUR (and hence S&P and global 100% correlated equity risk) surge in the past 9 days is not driven by any latent "optimism" that Europe will fix itself, but simply due to the previously discussed wholesale asset liquidations (as none other than the FT already noted), which on the margin are explicitly EUR positive due to FX repatriation, courtesy of the post-sale conversion of USDs to EURs. Which means that the ever so gullible equity market has just experienced one of the biggest headfakes in history, and has misinterpreted a pervasive European, though mostly French, scramble to procure liquidity at any cost by dumping various USD-denominated assets, as a risk on signal!
In other words, an internal bank run has somehow been interpreted to be stock positive... And there is your explanation for not only the paradoxical surge in the EURUSD and S&P, but why the correlation between the EURUSD and the Bund-France spread has completely broken down. Expect all of this to promptly, and very violently, correct once the market understands what an idiot it has been in the past two weeks.
From Deutsche Bank:
In the last few days there has been talk that European bank repatriation of capital may be behind EUR strength. Setting aside the timing of asset sales, and the reduced universe of potential bidders for these assets, it is worth considering what happens when a European bank sells USD assets. European banks in aggregate are regarded as having a still sizable shortfall of USD liabilities. The BIS has done some of the most comprehensive work on the USD shortage (see in particularly working paper: www.bis.org/publ/work291.pdf ). The most recent data for the end of 2010 (see the latest BIS annual report page 104), suggested the funding shortage had declined by at least half compared to before the 2008 crisis. More recently. the dependence on cross currency funding has gone up again, with the decline in US money funding. (DB’s Bill Prophet showed EUR region CDs of 7 of the 10 largest US money funds fell by over $70bn from May through September). Given this collapse, it is likely that European banks that do successfully sell USD assets, will try maintain the corresponding USD liability to mitigate against USD term funding that may not be rolled in the future. If a European bank sells a USD asset, it probably reduces the European Bank shortage of USDs by the sales amount. A smaller ‘USD shortage’, at the margin reduces the risk of a short USD squeeze of the sort seen in 2008, and to that extent is a minor USD negative, and EUR positive. It also fits with the EUR cross currency basis swaps coming in slightly of late, although this almost certainly has more to do with global risk appetite. This marginal USD negative, EUR positive impact, should not however be confused with a foreign exchange transaction whereby USD’s are converted into EUR.
Even Deutsche Bank is scratching its head to explain the dichotomy between the funding market and general risk. They do, however, provide the only real explanation, as opposed to the widely trumpeted by market cheerleaders ridiculous explanation that this is merely the latest "hope" rally. Ridiculous, because if that was the case, one would see a thawing of interbank liquidity and defaults spreads. As Zero Hedge readers know, 100% the opposite has happened.
Note also that the EUR is going in the opposite direction to much purer gauges of EUR tensions in the bond market. The collapse in OATS today is a major story. This is not least because France is experiencing the negative side of its (still) AAA status and being a member of the core - the fiscal transfers are going toward the periphery and away from the core in terms of ability to tap the EFSF for bank recaps, and possibly bond insurance/guarantees. In the past, we have noted that the periphery flows fleeing toward the core has tended to leave the EUR trading like a closed system to the outside world, which is one explanation for surprising EUR resilience to periphery travails. The latest French balance of payments data (http://www.banque-france.fr/gb/statistiques/economie/economie-balance/ec... ) again shows large French portfolio inflows that are very surprising, although the large errors and omissions do suggest the data is incomplete. (In the future, Target 2 balances will be another vehicle to use to check the degree to which inflows are being concentrated in Germany solely). In any event, instability in the French bond market has the capacity to significantly reduce points of refuge for risk averse funds at the EUR’s (shrinking) core, and adds to DB FX team’s doubt about the sustainability of the EUR’s rally...
And so on.
Naturally, the Eurocrats will be delighted to associate the run up in risk assets and the European currency as a confirmation that the market is interpreting further lies, innuendo, and confusion as a risk on indicator, and is encouraging their behavior, when nothing is further from the truth. However, the biggest beneficiary of the recent move is none other than the insolvent French banking system, whose very own liquidity run has caused asset values to soar, on an epic misinterpretation of underlying market signals, and thus sell even more into market strength, when in fact the market should be selling alongside France...
As for unwind catalysts for this most insidious market move, we are confident that the inability of the G20 to come up with any resolution over the weekend in Paris, nor the Eurozone Summit in one week to actually present any relevant details vis-a-vis the continent's bailout, or the EFSF's expansion into some multi-trillion Bailoutstein monster, will not be met too happily by a market which has just realized it has been thoroughly fooled by the cash-crunched French banking system.
»
- 49935 reads
- Printer-friendly version
- Send to friend
- advertisements -
Freakin' priceless!
Would that fench bank be Banque Nationale de Paris (BNP PARIBAS). Regardless of the Euro situation and total turmoil in all the spreads, the market will go up 5% monday in Europe & USA because people are hooked on HOPIUM!
"fench" == Frucking Piceless!
Great stuff Tyler. KUDOS!!
" Expect all of this to promptly, and very violently, correct once the market understand what an idiot it has been in the past two weeks" Couldn't happen to a nicer market.
Yep yep. Only Q is will it be MOnday or Tuesday?
ORI
Speechless
so another 10% up next week?
Hah! Anything CAN happen in this universe of infinite possibilities.
But certain stresses in any complex system can act as catalysts and guide outcomes. Right now, Catalysts abound.
Perhaps tomorrow will be known in history as Black Moanday!
ORI
It doesn't feel like we're at maximum pain yet.
I can't tell you how desperate the situation has become.
All I got to say is get your hands on as much gold and silver as you can.
For Inspiration;
REM - Shiny Happy People
http://www.youtube.com/watch?v=xNW809QqF1g
Is it possible that the algos are NOT infallible and inherently risk limited?
Say it ain't so.
"It doesn't feel like we're at maximum pain yet"
You're quite right: this market (recent rally) is starting to have all the hallmarks of the early 2010 move, when no amount of bad news (or fake/false good news) stopped it from grinding higher.
Unfortunately I expect many more shorts to be decimated in the following days/weeks before we have the next downleg
QE2 was in full force in early 2010, with net new 600 billion of money added to the system by Ben.
We now have zero net new money being added.
But we do have low earnings estimates and a plan for a plan from EU with a Nov. 4 deadline. Oh, and Tim just promised to bail out Europe if needed.
The shorts (I am one) could be in for a painful 3 weeks.
I think it's possible we have a short term dip this week that might be a nice place to exit shorts, before one final surge into December. Once that surge peters out, maybe around 1260-1270 S&P, we tank and tank hard.
QE2 only started after the Jacksons Hole meeting in late August 2010; it wasn't around during the Feb/Apr 2010 market ramp I referred to when the Dow added 2500 points in less than 3 months
So who's buying? The melt-up continues in 3...2...1...
The younger brothers went away and came back again.
We went to another planet, while they remained here?
Very interesting! Thank you.
When I was young and starting out, I used to have a Bill Joy quote on a piece of paper pinned up on my cube wall that said "Artificial intelligence is that which we don't understand" or something to that effect. I tried to source it, but couldn't find anything right off the bat. I burned my butter/almondbutter/nutella/sriracha power grain toast dessert doing this post, so gotta go fix my spicy tooth and head to bed.
Regards,
Cooter
I'm going to address this in detail in a post on both ZH and BoomBustBlog. This was seen coming in the 2nd quarter and it is quite apparent that it is being quite underestimated. These French banks can set off a chain reaction that will make Central Bankers long for the good ole Lehman collapse days. Until I get the post up (complete with downloadable models for everyone to play with - yes, Christmas comes early in the blogosphere), review:
"BoomBust BNP Paribas?" (it is strongly recommended that you review this article if you haven't read it already) as well as...
Thursday, 28 July 2011 The Mechanics Behind Setting Up A Potential European Bank Run Trastde and European Bank Run Trading Supplement
I identify specific bank run candidates
and offer illustrative trade setups to capture alpha from such an event.
The options quoted were unfortunately unavailable to American
investors, and enjoyed a literal explosion in gamma and implied
volatility. Not to fear, fruits of those juicy premiums were able to be
tasted elsewhere as plain vanilla shorts and even single stock futures
threw off insane profits.
Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer
In case the hint was strong enough, I
explicitly state that although the sell side and the media are looking
at Greece sparking Italy, it is France and french banks in particular
that risk bringing the Franco-Italia make-believe capitalism session,
aka the French leveraged Italian sector of the Euro ponzi scheme down,
on its head.
I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price!
So, What's the Next Shoe To Drop? Read on...
For those who claim I may be Euro bashing,
rest assured - I am not. Just a week or two later, I released research
on a big US bank that will quite possibly catch Franco-Italiano Ponzi
Collapse fever, with the pro document containing all types of juicy
details. This is the next big thing, for when (not if, but when) European banks blow up, it WILL affect us stateside!
Looking forward to your next article Reggie. Always appreciate your work.
Reggie;
Seems for a month or so the rumors were flying regarding a cut in euro interest rates.
The euro got sold & sold & oversold.
Then the rumored interest rate cut never happened. Gone. Poof.
Followed quickly by mucho short covering. Panic. Euro rises from ashes...
I wonder Reggie, just how much of a Phyzz stacker you are. I´m going to take an educated guess (in which you have been a part of based on the information you have provided over time) and predict your taking the same preventive action as many of us here are. If so, I thank you for your service.
At this moment I´m watching the German finance minister on TV trying to blow sunshine onto the situation for the German public to digest. The man is looking older and grayer than ever before. Not surprisingly, he never advises the public to take measures to protect themselves. It´s all a Leslie Nielson moment: "Nothing to see here... please disperse...nothing to see here...please!!"
http://www.youtube.com/watch?v=rSjK2Oqrgic
Yes, great work!
I guess that's what happens when one allows algos to drive their trading policies.
I think it's possible that stimulus/growth of the western economies is no longer possible. The reason I say that is two-fold: the curtailing of credit and high energy prices. We have not seen Brent prices drop below $100 for quite some time, and that is the price most of the world is paying. The Western banking crisis appears to be getting worse instead of better and that is hurting liquidity and thus loans.
I know that the ECB and the Fed are going to do everything they can to maintain liquidity and bank capitalization, and they might succeed in the short term and create some inflation in commodities. But there is also the likelihood of a black swan event, such as a major bank in Europe going down, that spins out of control like the Lehman event in 2008.
The bottom line, in my opinion, is that the debt situation in the banking/financial system is not fixable. At some point, all hell is going to break loose and a lot of bad things are going to happen. Inflation and deflation are two of those events. The other is high unemployment. Another is riots and martial law in the big cities. Then it just gets worse and we have to reorganize society.
How long do we have? My guess is that it could happen any day between tomorrow and the next 24 months. I call this the change point, and it is getting closer as each day passes.
The OWS gang can feel this change point approaching and they want to do something now to prevent it. But its too late. All we can do now is start over.
www.goldsilverdata.com
Let's get freaking started then,this perpetual wait is killing my popcorn supply
Again..."which is it son? The Franc or the Beans (counters)?"
basically the same as why the US dollar ran up in 2008... albeit at a much larger scale...so why should anyone be confused.
Cannibalization.
I wonder if the French banks got Goldman Sachs to help them like Greece did
Pretty much.
A year from now, if the Euro still exists, it will be 1:1 with the dollar.
October 2012?
EUR/USD over 1.6
Or 0.8. When the market panics, and it will with the current Eurozone mess, everybody scrambles to the USD for safety. Now, don't ask me what kind of safety you get there, I don't even know what the damn thing is really worth but they always do it. It is stupid but they will do it.
I wouldn't necessarily say that the market scrambles to the USD for safety... If we think about it, the only currencies which offer the liquidity needed by SWFs, CBs, Major Funds, etc. are the JPY, EUR, GBP, and USD. And the winner this year, thus far, is the JPY.
But, as fucked up as it may appear, with the USD still being the reserve currency funding most of the world's international trading (i.e. commodity prices for one), the USD, as we all well know, falls when world economy is doing well and gains during constrictive times like fears of an impending recession. This happens because the negative outlook and potential negative ramifications on business causes both American and European banks who in the good times are lending greenbacks to help support economic growth, to retrench and reduce their loans outstanding. So in the absence of new dollar-denominated loans and the paying back of currently outstanding loans the effect is a scarcity of USD liquidity and thereby a shortage of USDs! Looking at past recessions, this has happened in everyone of them for the last thirty years and has caused the USD to rally! So it's not necessarily the flight to safety as every TV pundit assumes, but instead it is quite simply loans being repaid and/or banks in a scramble to support the outstanding ones they have on their books.
And if the euro falls ( dollar rises) we can qe a few more trillions without repercussions. We can make the rest of the world pay up, and pay up dearly for liquidity preferences.
There is free money out there. The third world mercantilists are basically begging us to rip them off and make them subsidize the usa.
We should oblige them
1.6 to 0.8 on the same day, baby! Maybe 0.08 too! /roflmao/ Dicky V voice (of course): Its an Awesome opportunity! Its a dealaroonie from me to yoonie! :) /mask sez: smokin!/
If you can wait that long, have the same amount of ounces of gold and silver.
You won't have to play that game.
Safety in the dollar? Safety in a howling, driving rainstorm? That's like the safety you get from a really pretty green umbrella - made of paper.
Stay dry.
Euro up, Euro down... Dollar up, Dollar down.....what the fuck do I care!!! I'm into gold. Only interested to see some bankers jump out through the windows where they work.
everything else is manipulated, controlled, cajoled, and at large admitedly HFT computers control 80% of the volume... and you don't think gold can be controlled like anything else? You and everyone else in that slumber needs to wake up.
Hasnt it been pretty well established that gold is manipulated UNDERVALUE? If everything is manipulated, then is gold still not the best play?
I'm confused at to what you don't get? So the elites OR the ones causing this monetary death and destruction, I.E. Feds etc.... and you think they're going to let YOU and others like you retain your wealth and even get rich during this period of paper money destruction because you own gold? DUDE, that happens in a FREE market, this is not a FREE market. You cannot eat your gold therefore your gold will be worth nothing, absolutely NOTHIING in a monetary collapse. The fact this escapes so many people, even here on ZH amazes me. AMAZES ME.
You've been here long enough not to be such a simpleton. I pity your future.
The yipper sold all his Au at $1000, I remember when he posted that years back...
Hulk... I can't believe you remember that?! Now Rocky 'Racoon' ... 'Gold Selling' Raccoon, who called me a 'troll' should have remembered me way before you. As you can see I'm no troll, actually you can click on my user name and see my posts for years, that's NOT the def of a troll. Point is........ yes I had gold at about 500 and I sold it around 990-1120. Obviously I shouldn't have sold, I was wrong. I got alot of things wrong but i can tell you this, no matter WHO is right here........To think that gold is the place to be because our paper money, which has been backed by the strongest nation in the world for a century is going to lose it's worth(of course that will happen it's planned) is a massive feat, which IS happening....BUT then in the same thought say it's time to buy gold.....as if they can't cajole and manipulate that. What a JOKE, fairytales are made of more intellegent stuff.
The word "troll" was never used. That's your own concoction.
The pattern does seem to suggest that the headfake was not to the upside but to the downside and then the correction was back to the upside. Clearly TPTB want a strong Euro and a weak dollar. The recent decline in the Euro was a mistake that they quickly corrected via historically extreme movements. Avoiding that kind of blip is what they are working very hard at regardless of fundamentals, logic and reasoning. Government intervention always trumps everything else. The mandate is that the currency crisis shall be avoided at all costs. So we just might see a EUR/USD = $1.60 long before we see EUR/USD = $1.20 or less. JMHO
///
G20 tells euro zone to fix debt crisis in eight dayshttp://www.reuters.com/article/2011/10/15/us-g-idUSTRE79C74G20111015
I have comments on the banks in my review of Barron's this weekend. Interested to take a look? gmail me at my name for the link. My blog is not Fight Club, please assure me that you will behave...
A Barron's writer says the US banks are not only stronger (on average than Europe's) but they are stronger than they were in 2008.
Barron's Cover Story is about why (in Andrew Bary's view) bank stocks are a BUY now.
EDIT:
Germany, despite the many meetings with Sarkozy, may very well wind up running Europe after an orderly default on Greece is finished (Richard Morais, Oct. 12). France? No.
Personally, I disagree. I think the bank stocks are doing a massive head fake before further plunging. Most good stocks bottomed around August and made some good gains. Most bank stocks have been so weak since then that they are at best flat to making small break out highs that will likely fail.
http://thelastcanary.blogspot.com/
We all get to have opinions.
If we can get some modest positive surprises in gdp growth then usa bank stocks will take off like a rocket.
The bad news is all out there, at least to the people who count, current and potential future bank stock owners. A single modest beat of gdp would give a speculator a huge gain.
I have no interest in playing that game. EWZ is my five year plan now, until it isnt.
it seems as if your comments apply only to the united states. if you look at emerging markets or europe they droped further down 36 percent vs us 20 percent. check out vwo, vgk, or the vanguard financials etfs.
How does the United Bank of Switzerland (et. al.) do a "head fake"? A little "banking razzle dazzle" followed by "a Chicken Dance in the End Zone"? Ridiculous. COUNTRIES can do head fakes "in the name of their National Champions"...but not The Bank itself. Again...the banks are net long, we all know this, we don't want to own the bank stocks until either a) how this net long exposure is going to be 'netted out' is clearly and categorically understood and more importantly b) the US economy starts recovering in a meaningful way. In fact we really want to stick with the latter and just leave it at that. The history of bubbles bursting says "you can safely avoid those caught up in the mess for decades." Think Nasdaq...even today, real estate...now and forever, the bulk of the financial services sector. It took the energy industry decades to recover from the collapse of oil prices in the 80's--in some ways it's only truly happening now. Which of course if you actually are interested in either a) making money being long this market or b) being Zero Hedge and talking up your short book successfully you need to pay attention to this simple historical axiom.
Links, please.
To the research which supports your theory.
Thank you.
This weekend's Barron's (dated 17 Oct), likely at a newstand near you.
IT'S JUST A CARD!!
THE HOUSE STILL STANDS!!
BUT PLEASE WILL EVERYBODY STOP BLOWING AT THE HOUSE OF CARDS!!
If the Europeans were selling stocks then stocks would go down. It sounds like they are selling bonds, credit and credit derivatives mostly. There are still some people with money and if sovereign debt isn't investable that doesn't leave a lot of choices.
Stocks are mostly unchanged to down during European market hours, and only surge once the DE Shaw correlation arb drones tune in around 8 am and start "analyzing" the day's moves in EURUSD.
8 am is about when people start arriving at work in America. When the bots turn on, Europe rallies with the U.S. All I read into that is Americans have more money than Europeans. If Europe is selling dollars, why would Americans want to sit in dollars?
That is the point of the article: the USD sales are as a result of a funding squeeze which presents an FX arb, and a negative feedback loop into stocks. Of course, if America has the same "motivation" to sell USDs, more power to them.
Is it an arb or a new trend? What I basically understand is you think people should sell stocks and buy dollars or treasuries. I say in this environment stocks look better than sovereign debt and currencies, at least to the point I don't have a real urge to get short anything.
I say in this environment stocks look better than sovereign debt and currencies,
In that case
You would be wrong.
Just watch what happens to stocks over the next 15 trading days, and then come back here and say the same thing.
"You would be wrong. Just watch what happens to stocks over the next 15 trading days..."
Lol, ok. I'm wrong in the future... but not for the past couple weeks.
Such is the way with head fakes. Time will tell. I suspect there are lots of people reading this information and saying "Oh, %#$!". It sucks when your robots sucker you in deep.
Confirmation bias is a deadly trait... if you're wrong, eh?
"Expect all of this to promptly, and very violently, correct once the market understand what an idiot it has been in the past two weeks."
Tyler, why do you expect this to change so soon. Especially considering, as you stated, the French banks seem to be the biggest beneficiaries.
Surely Wall Street isn't complaining, nor Bernanke.
Apparently schmuck, you skimmed over the answer, here:
As for unwind catalysts for this most insidious market move, we are confident that the inability of the G20 to come up with any resolution over the weekend in Paris, nor the Eurozone Summit in one week to actually present any relevant details vis-a-vis the continent's bailout, or the EFSF's expansion into some multi-trillion Bailoutstein monster, will not be met too happily by a market which has just realized it has been thoroughly fooled by the cash-crunched French banking system.
Thanks for the response Belarus, as my question was a sincere one.
Yes, I saw that passage. And I thought it implied that the Euro-banks may well be forced into additional liguidations. But, why couldn't any additional liquidations lead to a replay of the phenomenon this report suggests is at work here?
I quess I just don't have faith that a "market which has just realized" will materialize, in the near term at least.
My response was sincere as well schmuck. I thought you missed it. Let me address your thoughts.
I believe you could very well be right that stocks rip higher yet again this week on a confluence of factors not least of which is what you allude to: it seems there will be a ton of liquidations going on, more strengthening of the EURO, weakening the dollar and sending stocks much higher from here. I've predicted this all year--that the shorts will have to get fried first, that wide-scale pessisims and fear needs to subside in a big way before stocks truly go down.
I think if markets go down they certainly won't go down this upcoming week: you've got the promise of the Merkozy plan to FIX EVERYTHING, you've got many in the G-20 all but saying they'll pour money into the IMF if they need it, and you've got the banks still trying to shore up capital for the teeter tooter effect with dollar/eurol. With all these things on the table, plus all too likely total blow-out earnings from Apple and good earnings throughout corporate America, I wouldn't be surprised for this to be another 5-7% week in stocks (I predicated right here on ZH this last week would be a barn burner). Oh, and now you have the momo chart watchers lining up on the long side and this will be especially true if you have two consecutive days where the S + P holds above 1220, which means the market will likely head to 1260.
The market, once it does realize any plans at all will have massive side effects and may not be big enough or quick enough, will finally sell the news once the "big plan" that they just promised to the G-20 w is released. Shorts will all too likely continue to get gang raped this week and they will continue to take cover. But I think any plan will be full of pitfalls, nothing at the core will be truly fixed, and not until the market realizes that will it tank.
It's all human nature; when the survival of the status quo is threateneded, all you need to know is what they will ultimately decide: death later as opposed to right now. There may be large hiccups, and I expect them, but at the end of the day.....expect the EURO can to be kicked down the road just as the U.S. has pullled it off (which has only given aid to more time, not ultimately far more pain). It will all too likely end very badly but i think the ultimate doom and gloom won't truly happen until Treasury's are no longer considered safe. We're a ways from that and reacting to every 'end of the world" article will probably continue to be very costly for many readers as they try to outsmart ALGO's and TPTB, which will continue to temporarily win many battles.
Thanks again B. I agree.
BTW, I wasn't one of your red arrows.
Computers have no fear of failure
Thats why they flashcrash instead!
Look to 10.23.11
So this is basically the same phenomenon that happened after the Japanese tsunami, they needed to repatriate currency which drove demand up thus leading to yen strength, except in this case the algos are programed to see Euro strength as a buying opportunity in the US market?
i had the same thought which may indicate you need help
i couldn't understand it after fuk_u, either
repatriation of fiat
let's run that up the flagpole and salute it!
i know that whenever the euro goes up, tyler makes the S&P go up too; i hadn't realized it was as eZ as legacy correlation arbs
that tyler has great arbs, doesn't he, BiCheZ?
I agree dump the USD's, flood the market.(Didn't Mr.B want some INflation?).
Two weeks or less ago, the GLOBE was short USD's(not as in Shorting them).Physically not enough to go around.
I am all for them lowering the dollar, and propping up the mkts.................just pushes the PM's higher.
Great for all, till it's not.
BTD.
Holy shit. I'd noted that things always seemed down when Europe was on its own, but then once our market kicked in it steadily pushed higher, and as I'm short everything the last two weeks have fucking sucked. At least now I have a really good explanation. Thanks!
Right there with you bud! It's reassuring to get a LOGICAL explanation other than "risk on" given the insane level of RISK that's clearly out there. I thought I was pretty damn smart closing out a good portion of my SPY puts near the low, but I got right back in a couple days later because I couldn't imagine SPX would reach the top of the recent range in 7 DAYS! Oh well, a little squeezin won't make me tap out...
Same pattern w/me; only puts on the IWM....I did buy QQQ calls on the low, but sold 3 days later as I couldn't imagine the rally would last. Now sitting on Dec IWM puts but thinking of picking up some calls next week to hedge if SPY can stay above 1230....
Gee! Wowzer! You must be a real (deep) expert.
And, who knows, maybe you are right. What about timing?
If you took a poll here how many readers know DE Shaw, DE Shaw/Hedgefund legal lexus and all of that intellectual math?
What are your return results? Long, short or what the fuck ever, put up a number or stop hiding behind some obfuscated pseuynodym.
Are you short the EURO? Big?.........short equities BiG TOO?
Your call expert.
I can eat crow........have before.
"What are your return results? Long, short or what the fuck ever, put up a number or stop hiding behind some obfuscated pseuynodym."
Was that meant for Tyler or me? I can't tell with all the comment layers.
hmm all the rumors.... by the voodoo priests
easy to resolve the problem of debt.
1. pay it off
or
2. default.
damned the consequences.... too late for that, should have thought about them when signed on the dotted line.....
Oliver Twist pushes his gruel bowl to you and sez: "Sir, may I please have some more debt?"
-lol yes, Oliver (the bernanK does the) TWIST....
debt to infinity..... we should throw away all reason and simply embrace the debt borg, hopium for future bailouts
-if 1 can't beat'em.... just borrow -g
3. inflate the debt away by printing. Given the size of the debt, default on the currency in real terms but pay back the debt (in numerical terms). Never mind, the US defaulted on the dollar in 1971. Everything else is an aftershock. I should make a sig out of the last sentence.
Let's have a boil a frog day!
As long as the frog is boiled slowly.
He has been and Merkel has too.
These are smart people who are playing with a bomb that looks like its about to go off.
As much as I admire the strong front they are putting up, they are fucked no matter what they do.
Pretending to keep panic at bay would a tough gig.
History is a harsh judge, but they are trying to keep themselves going at this point.
And at the end, nobody is going to be happy.
The Euro is going up, not down, when Greece defaults and the banks are bailed out because then everything will again be ok for the moment and that's all that the markets care about is the Euro being saved for the day. Fundamentally, the US is in much worse shape than the Euro as a whole. And if the Euro breaks apart, there will be a huge problem with all of those countries going back to their currencies..so they won't. They'll keep the Euro together until hyperinflation which will likely occur right after the dollar goes through hyperinflation. A rising Euro is going to cause the dollar to fall and a falling dollar will support stocks. I'm not saying that stocks are going to rise, but it will be tough for them to fall hard when the dollar is sinking. In addition, QE3 is already occur because they're selling short dated Treasuries to buy long dated ones, but they also are keeping the short end at 0%, so they must also be buying the short end. When they announce that they're doing QE3 or when the markets figure it out, that will put more pressure on the dollar to fall and also help out stocks.
Fundamentally the dollar is in worse shape than the euro.
All the data I see suggest otherwise. Besides, a strengthening currency is a business killer, look at the swiss solution.
A rising euro is not a sign of strength. It means that beggar thy neighbor is trending favorably toward the usa.
Usa! Usa! Usa!
Fundamentally, they are both wanting even as toilet paper.
What about the data that the US economy is 70% service sector, the US borrows 40% of what it spends, the US is the largest debtor nation in the world, the US has a gigantic trade deficit, the US has an unemployment rate of 16% if you include the underemployed and those that have fallen off of the count, the US gives food stamps to 16% of the population, the unfunded liabilities in the US are over $100T so there's no way the US will ever be able to slow down its borrowing without having major political consequences, the US has had 0% rates for 2 years already and has already gone on to Q1, QE2, and is now on QE3 (they're just not saying it yet) while Europe has yet to do any of that, the US is backing 90% of newly issued mortgages, only half of the US pays income tax, and 60% of mortgage holders have less than 10% equity.
all true... your forgetting one thing though... the PETRODOLLAR market and Kissinger's grand plan for recycling oil revenues into US treasuries. As long as oil is only transacted in US dollars, then the role of the dollar as sole reserve currency will remain intact. Trust me, your FACTS are undeniable -- I'm not disputing any of them. Unfortunately though, there has been some masterful geopolitical manuevering over the past 100 years that makes America's financial condition nearly irrelevant to currency valuation. Crony capitalism at its worst (or best if your last name is Rockefeller).
Or, as Dickhead Cheney said, "Deficits don't matter when you gots the biggest dick."
If there's another global recession oil prices will plummet... What happens to all them excess petrodollars?
Wrong. So long as there are 7 billion people on the planet, oil will get a decent bid, unfortunately people still like to eat. The "price" that is paid will always be significant moving forward, you just might not recognize the "currency" that is being used to buy oil.
Keeping the dollar hooked to oil is a big factor since oil is by far the largest commodity, but it won't be able to stop the collapse of the dollar. Now that money is mispriced so much with 0% rates + QE, the malinvestment ultra low rates have created is leading the USD into a nasty spiral downward. The economy cannot keep up with the malinvestment so more QE must be pumped in to keep the malinvestment from becoming exposed and the more QE that is pumped in the more malinvestment is created so even more QE must be pumped in. PETRODOLLAR or not, it won't be long until the Fed has done so much QE that it owns everything: Treasury bonds, corporate bonds, municipal bonds, stocks, companies, real estate, you name it..and that's when the can cannot be kicked down the road any longer and we get to witness before our very eyes the terrible economic destroyer that hyper-inflation is.
Like I said, I agreed with your assessment of US finances.... but we're talking about the relative valuation of a currency pair so regardless of the hyperinflation that is almost certainly in store for the US dollar, the euro will be the first to weaken in this matchup.
No go sir. The Euro may take a dip in the next few weeks before they come through with a Euro bailout but the dollar is by far deteriorating much much faster..and that's what the relative valuation of a currency pair is all about. The time frame may be measured in months, not years, before the dollar hits hyperinflation. If they choose to keep the Euro together, which I believe they will, the Euro can be ridden out much longer before it hits hyperinflation. Look at the mortgage situation for God's sake. 60% of mortgage holders have less than 10% equity. 25% of those being already underwater and 35% of those with 0%-10% equity. And the government is on the hook for almost all of that. And they're STILL BUILDING HOUSES! Rates have come down the last few months which kept the housing from tanking but the last couple weeks rates popped pretty good with the movement back into stocks so the next leg of the real estate bubble should be popping in 3..2..1... Very shortly, 60%+ of mortgage holders will be underwater and that is too much. Way too much. How long do we have after that? 5 days? 5 months? I don't think a year. The dollar is in bad bad shape.
Silver,
I don't know about the reasons----everyone seems to have a horse in the race, but intuitively I feel that doing away with the Euro is not in the cards and that fear factor is all I read here.
Like I say, I don't know, but it sounds more like confidence building than anything else; so many seem so sure that they rattle my cage a lot.
I just keep imaging what a mess we will have if the euro goes away----how much unwinding and rewinding and with no one having a clue nor the confidence to act. The whole idea of such a major currency changing----wow!!!!!!!!
But, this is the reason I have favored physical over the past six years-------------but who knows what that will mean either?
This is not so simple as some seem to believe om
Steady, oldman-
None of us know exactly what will happen, but you just need to do your homework and hope for the best. If this were chess, we'd be in the middlegame right now- time for you to set your strategy and position as best you can. Think safety, material and mobility. I think there's a decent chance you may be right in worrying about your physical stash, but only if your timeframe is relatively short.
In 2008, my physical metal went essentially bidless for months. Problem with physical is that you're somewhat limited by geography when it comes to both buying and selling- gold can be going for $5000 USD/oz in Shanghai- but that doesn't do much for you, if you're not there. What it does do for you is act as a placeholder while the storm rages. When everything begins to settle down, you still have something left to draw on. It also helps if you need to expatriate- a handful of Kruggerands is likely to change you from "refugee" to "visitor" in a hurry, provided you can keep them in a foreign climate.
Truth be told, I've actually stopped suggesting silver to friends and relatives at this point. From where I stand, it's looking like food, medicine, power and ammo are the better trades until we all know more. If the shit never does hit the proverbial fan, you can always buy metals with the money you don't need for groceries, gas and trips to the doctor later. Another good suggestion, and the position that I'm building next is energy backup. That means firewood for heat and cooking, and solar panels for at least marginal electricity. As with the food and medicines, all it can do is save me some money later if nothing much happens. I've got little ones, and bugging out is a far worse option than bugging in, especially with a degree of energy and water independance and defenses set.
Here's to hoping nothing happens, but only a fool could think that nothing will at this point.
'QE3 is already occur'
And all your Treasuries are belong to us!
Put simply.
Europe (the French) are selling Dollar Assets to get Euro cash.
Having sold the Dollar assets they need to sell the Dollars and buy Euros to meet Euro liabilities.
Is that right?
Yes, and in the process, the EURUSD goes up, fooling the robots to buy stocks.
Hmm. An interesting observation. I had not run into that idea before. Bravo.
I will try looking at that in the days ahead.
Now that it's out, it's over, and the days ahead should feature the severe reversal.
Are we expecting the EUR/$ to fall along with the equity selloff, or will the further asset liquidation of the European banks continue to move the EUR higher, decoupling it from the equities? Will the risk-off panic overcome the movement due to dollar-asset liquidation?
You fools! Don't you see this is simply part of my plan? The Twist is working! The Market is shouting! I don't care who the sellers are; I buy from all! The French? Who Dat?
I, in my unbounded giftedness of thermal intelligence, have foreseen this all along.
Never mind the lockstep move in the 10's and 30's....that is merely a transitory effect.....
I AM THE BERNANKE!!
Then u better than me, bernanke.
I'm just a bottom dwelling liar, former head of the NY fed, couldn't run it, so got a promotion to treasury secretary.
Everyone thinks I know what I'm doing. Ha! Jokes on them.
Later yall. My prison dinner awaits.
Access the internet from the jail? I thought only folks with death sentence have this previlege.
Why not the other way round? The US sold euro assets in september, that´s why the dollar went up. And is now buying it back for a lower euro price but they have to buy euro for dollar, that´s why the euro goes up again.
It's possible but I don't believe it.
The Dollar as reserve can print to eternity.
They don't "need" to "do" anything.
The Euro doesn't even have a "proper" Central Bank.
Because there was no equivalent urgency in September. The US didn't have to sell Euro assets. The EU banks HAVE to raise cash for their capital reserves reqmts.
You need to remember that Bernanke does not believe that banks need reserves.
He is of course speaking of Dollar hegemony.
He means that all of the rest need Dollar reserves.
"So is Bernanke actually proposing that banks should be allowed to have no reserves at all?"
Read more: http://articles.businessinsider.com/2010-03-17/wall_street/30053911_1_banking-federal-reserve-bernanke#ixzz1atNQaTw4
There's $2T in "excess reserves" sitting at the Fed ready to be marshalled in support of bank bonus season if necessary.
Quite.
But I would suggest that you cannot fool a robot.
Even one that is arb oriented.
Robots are programed. They can't be fooled.
Even the people who originally programmed the robots can not be fooled.
You have pointed this out again and again.
so here's the thing.
We now have highly paid humans trying to interpret the coding of goal seeking robots?
When the program was written for a completely different world.
You have said that 70% of all trade is robot driven.
You continue to remind those who have any interest in what's going on that HFT is a disgusting corruption of price discovery.
I say that the analysts are incapable in this environment.
They are human.
I say that volatility is not only a result of a not knowning how to assess the future.
It is now that the robots have taken over.
The humans are no longer in control.
Doesn't stop politicians pretending that they are in control.
Doesn't stop "bonus makers" using their knowledge to extract yet another transfer from the politicians to "save" the economy.
They are also fooling the robots to buy gold, silver, and oil. Fuk robots, I don't care if jewelry prices skyrocket cause it is useless to me but gas prices are.
Continuing on a similar vein that other comments (and this article) have hit upon - namely the selling of assets by European 'banks' - is the root cause of the effect of the euro soaring higher. With their equity and capital positions quickly deteriorating and the good ol' sov. debt situation spiraling the drain quicker and quicker, the EU gov't have been leaning on the banks to increase their capital. So as mentioned, equity prices have gotten worse so it makes no sense for the banks to raise capital by issuing more equity so the solution is to sell off assets while keeping the current capital structure as is. So we already know that banks have been calling in loans, but this is now going from a trickle to a bloody deluge as the banks are getting leaned on harder and harder to raise capital and improve ratios. So for the banks to to get their ratios to where they 'need' to be, they would need to divest themselves of ~€3 trln in assets and that's a fuckload (the technical term) of loans to be repaid. So this is the reason why the euro has been 'rallying' and will continue to do so in the near-term! Shorters might want to stand off to the side for the moment, but once this asset-divesting runs its course, then it might pay to look at a short position.
Yeah, the old "well dat's whut da correlatshun wuz da las few weeks, sos should woik da nex few, too, eh Augie?"
Sorta like the Grand Olde VAR calc artificially dropping off significant outliers at some point as they've aged. Assumpton... "Ah, dat'll never happen again."
Great insight!
And that's from the Lord of Leptokurtosis.
(Take a Leptokurtotic distribution, expand observation to accumulated goup of similar experiences and viola, maybe we be in a prolonged period of highly volitale substandard, maybe even negative returns.... oh never mind. Nobody but me believes it.)(Sorta like a dinner conversation I had with a well known finance professor at the trun of the year who is well known in the field of asset allocation models. We spoke of commodities and precious metals. He stated point balnk that gold never ever shows up as a good pick in his model. Which after some long probing I got him to disclose that since the model has no inclusion/capacity for commodities/gold, etc., no fucking wonder they never showed up. It's a financila asset allocation model! Whatthefuck!!!!!)
Obviously it is time to recalculate the Dollar Index and drop the Euro to about 15% and make up the difference with something way more stable like the Mexican Peso. Yea. That's it.
Pesos, HELL!
How about some Ukrainian hryvnias?
Let's juice it with some exotic names!
If it was a scheme to fool the robots it sounds like something right out of The Frankfurt School.
The article and your thesis is quite interesting. I immediately did a co-plot of FXE and SPY over the last 6 months. What seems to have happened is after the rapid -15% correction in early August, SPY has traded in a 5% range since with a pretty good correlation to FXE as you suggest. But its at the top of that range right now, so a breakout would be very surprising unless very good economic news were to occur-try saying that with a straight face. The bond market certainly knows there is no "plan" as the Euro soveign spreads relative to UST have been widening and all my financial sector puts are still deep ITM despite rolling them down in strike and out in duration in August-so no recovery in that sector. The 5% trading range is pretty hard to call a "rally" or even much "risk on" given the anemic volumes. I think you're likely correct in your accessment. Could also explain the signficant long end UST bond sales which have led to a significant yield increase in the +20 duration bonds.
thanks tyler, this is exactly the kind of post/discussion i asked for the other day. cool stuff
Yeah, in fact, the "plan of all plans" apparently might be delayed until early November....LOL. They must be having a hard time coming to grips with the idea that Germans should go all-in on the insolvency of all countries while Sarkozy is obviosuly staggering scared.
Apparently saying you have a plan is clearly better than what ANY plans can possibly unveil, and that is why they might delay them. Truth is, I don't think the EZ can survice another few weeks of nothing but pure rumors as the dominoes are begging to fall. I still don't think this is the week the market goes bidless. I think it's the week starting the 23rd.
if everyone who said they were going to diet and exercise, actually dieted and exercised there wouldn't be some many fat people
Sounds sensible.
" I still don't think this is the week the market goes bidless. I think it's the week starting the 23rd. "
It depends on when the internals of the robots detect that errant negative feedback loop.
bullish
as for the last paragraph, I wish your were / hope you are correct but alas I think that G20 and EZ will construct a Trojan the likes of which the world has never seen and like the Trojan of old it will be seized upon and greeted with celebration
A Trojan Hearse.
actually a brand of condoms favoured by Gree(k)(d) Studs
That would explain the all out of the US Treasury that has been going on as well.
If I am understanding this, this would also signal an algo to buy stocks.
10/7 I put out a hit on the BEARS and SHTFers. But I have now sold all my UMDD and am at least waist deep inton SMDD. Waist deep means I can still double up 2-3 times. But net / net Im now a buyer if SMDD, FAZ etc...
I believe some French taunting is in order.
http://www.youtube.com/watch?v=9V7zbWNznbs
I believe some French Taunting is always in order.
Bunch of Uppity Frogs if you ask me.
BTW, this insanity is why you have to ban yourself from trading with in-human objects where you don't stand a chance, because logic is rarely followed through, espeically when the robots are working in behalf of the sychophants. I was once told i was crazy to trade against Goldman, yet won all the time, but to trade against robots? Forget about it.....
Before robots were "allowed" to see my trades I was winning against them, now they can see my trades, before execution, this is the real reason why humans don't stand a chance!!! HFTs pay the exchanges for this "extra advantage", allegedly LEGAL!!!
The only slight chance is to position before them, which is slim but better then nothing!
Sorry :-(
You Are Now Obsolete, Human Arbitrage Unit
whatever the technicals behind the current pop, the EUR is now disconnecting even from its PP implied rate which have prevented it from collapsing so far, put differently, it is starting to get rich fundamentally - total abstraction of all the debt-related tensions and risks - which was not the case end of September. The puzzling bit is: where the hell are the non-robotized smart macro funds and why are they not shorting it back to below its implied PP level, where it belongs given all the issues surrounding it. Where are the bitchez???
You will see the bitchez when the volume picks up and the screen goes red. Why fight the bots?
makes sense why primex down...sell better quality stuff that still has a bid and where you can't really make money at current funding costs...
REMEMBER THAT FED SWAP LINE WITH ECB?
And in more important news, apple will be reporting.
How soon will "Mr. Market" discover his mistake and reverse course?
the robo has already been fed a stuxnet tape-worm that consumes every algo meal its grimy subs can take a byte of, before the asshole shows who really is the boss,... then mr. market will have his hemorhoid's flame broiled a`la petite
Tyler.. you still have pitchman selling the proles on the road to serfdom gimmick.
A forum where top experts explore the big ideas and core skills defining the 21st century
This is part of the four trains racing analogy posted earlier today.
BTW, don't eat or drink near your computer while watching link. No Bell cracker jack prize holder speaks.
So this idiot believes it.
They then pay him to make a fool of himself.
Hope they paid him enough.
Or at least that his family didn't see it.