Cashin On "The Rationality Put"

Tyler Durden's picture


Via Art Cashin,

Could The Greek Elections Cancel The “Rationality Put” - Many floor types think that there is a kind of “rationality put” in the markets. It evolved in the post-Lehman chaos. The premise goes something like this: world leaders were shocked and stunned by the scope and size of the nearly instant damage from Lehman’s fall. That shock caused them to rescue AIG, a far, far bigger project than Lehman.

Since then, central banks and governments have stepped in quickly as each new crisis emerged. (Think things like QE; LTRO; the first Greek bailout, etc., etc). As long as the crises remained in the financial arena, they could be softened and postponed (not cured). Now it is likely there will be a new Greek election and the risk that the Greeks may see it as a chance to make a loud and clear anti-austerity statement. Others, however, seeing the proximity of payment deadlines, and such, may see it as a vote on exiting the Euro.

As my very sage UBS associate in London, Paul Donovan, succinctly put it:

The elections are really about default or not default, but the risk is that they are cast as Euro or not Euro. That is a risk, because if it seems that parties characterised as "not Euro" are going to do well, investors, bank depositors and exporters to Greece may react as if Greece were leaving the single currency.

That presents a problem for governments and central banks. If people begin to believe that Greece will soon exit the Euro and the Eurozone, as we noted last week, it could ignite runs on the banks. First in Greece then quickly Spain and Italy. Would there be a rush to things like capital controls?

It’s hard to exercise a “rationality put” if things turn irrational beyond your control.

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Mon, 05/14/2012 - 11:07 | 2423711 Ancona
Ancona's picture

So if everyone defaults, did the debts ever exist?

Mon, 05/14/2012 - 11:08 | 2423716 Meremortal
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Mon, 05/14/2012 - 11:16 | 2423727 hedgeless_horseman
hedgeless_horseman's picture could ignite runs on the banks. First in Greece...

Already happening.  Pay no attention to the woman with the suitcase in front of you at the teller window.

Mon, 05/14/2012 - 11:17 | 2423747 markmotive
markmotive's picture

When was rationality ever in vogue?

Mon, 05/14/2012 - 11:18 | 2423753 JPM Hater001
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Check this article out...

The IMF said that the rising cost of retirement would also put pressure on public finances, KUNA reported. Only 7 percent of Kuwaitis work in the private sector, the report also said.

Mon, 05/14/2012 - 11:30 | 2423757 hedgeless_horseman
hedgeless_horseman's picture



Kuwaitis work?

Next, you will be saying they vote for a leader.


Type: Constitutional hereditary emirate.

Political parties: None; formal political parties have no legal status, although de facto political blocs exist.

Elections: There are no executive branch elections; the Amir is hereditary; prime minister and crown prince are appointed by the Amir.


Understand, the USA invaded Iraq, and some of our citizens died, to promote democracy and freedom maintain religious totalitarianism and the right to steal from your neighbors.

Mon, 05/14/2012 - 12:00 | 2423960 pods
pods's picture

Had read that old Saddam was not fond of the Kuwaitis pioneering of horizontal drilling.

Of course, that was many moons after I saw that story about how the Iraqi soldiers were tossing Kuwaiti premis out of incubators.

Seems the princes of Kuwait are big fans of Daniel Day Lewis?

"I drink your milkshake, I drink it up."


Mon, 05/14/2012 - 11:59 | 2423951 BlackMagician
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Start at the beginning of the video...and LISTEN to the first sentence and say it over and over and...

Mon, 05/14/2012 - 11:08 | 2423720 Motorhead
Motorhead's picture

Nah, they just vaporize.

Mon, 05/14/2012 - 11:10 | 2423723 CPL
CPL's picture

If no debt exists then no money exists because it's backed by nothing.


The man that first created one of the dollars in your wallet spent it 35 years ago on a sandwich in a deli and you didn't even get a bite.



Hopium and HFT's are hitting the market btw.

Mon, 05/14/2012 - 11:48 | 2423893 AldousHuxley
AldousHuxley's picture

In God We Trust


fiat is backed by one


no trust, no fiat.

well housing bust is forcing people to re-evaluate their relationship with fiat.

Mon, 05/14/2012 - 11:55 | 2423911 CrashisOptimistic
CrashisOptimistic's picture


You want rationality?  I'll give you rationality.

At this point in time it appears that there is essentially one man, the head of that SZIRIOS party, who stands in the way of the world getting a coalition in Greece to keep the wheels turning and continue the bailout.

One guy.

Do you really think the EU and the world will let him do this?

Either he dies in the next few days or more likely the other 3 parties who are saying no unity government without him will be bought off and decide they can have a unity government without him.

Odds of new elections in Greece . . . low.  It looks inevitable, but the EU will never allow it.  Just look at the shit they did in 2011 to make it happen.  You think they'll let one guy undo it all?

Mon, 05/14/2012 - 11:13 | 2423729 GeneMarchbanks
GeneMarchbanks's picture

Capital controls no matter what, and I wouldn't categorize them as 'irrational' either.

Mon, 05/14/2012 - 11:14 | 2423737 Cognitive Dissonance
Cognitive Dissonance's picture

It’s hard to exercise a “rationality put” if things turn irrational beyond your control.

The Big Lie from a professional trader/investor point of view is that "I" can get out before the shit hits the fan. The exit door gets mighty crowded when everyone heads there at the same time.

Mon, 05/14/2012 - 11:18 | 2423756 Centurion9.41
Centurion9.41's picture

No, the Big Lie was, and is, that Economics and Finance are quantitative sciences.

They are Human Action and Politics, respectively.

Mon, 05/14/2012 - 11:37 | 2423848 Cognitive Dissonance
Cognitive Dissonance's picture

The Big Lie from a general perspective is that "reality" is based upon quantitative sciences. Hard "science" is only now beginning to understand that "reality" is greatly influenced by the observer. Thus the herd (mentality), meaning a very large group of observers, is deliberately influenced in order to manipulate reality. 

Regardless of whether you pull back for the really big picture or zoom in to the quantum level, this seems to hold true.

Mon, 05/14/2012 - 12:10 | 2424000 Centurion9.41
Centurion9.41's picture

Utter BS. Physics long ago showed the relativity of the observer, on both the classic and quantum levels. That you claim such only, again, shows you should stick to your blog where you can cull heresy and reward sychophants.

And again, as I've told you many times, the quant finance BS you market, and 90% of the rest of the economic/market quant assertions being marketed as "science", IS The Big Lie.

Mon, 05/14/2012 - 12:30 | 2424081 fresno dan
fresno dan's picture

Very good point. Was WWI rational?  Was the leader of Germany rationale in starting a two front war in WWII?  (were the Germans rationale in following him?)  Is ten years in Afghanistan rationale?  Are Syrian civilians going against an army rationale?  It is irrationale to believe in rationality...

You can screw some of the people all of the time, and all of the people some of the time, but you can't screw all the people all the time.


Mon, 05/14/2012 - 14:09 | 2424399 newworldorder
newworldorder's picture

Put this in quotes. Frame it. Sell it.

Mon, 05/14/2012 - 11:19 | 2423758 carbonmutant
carbonmutant's picture

Today's maket reflects those wishing to avoid the rush...

Mon, 05/14/2012 - 11:19 | 2423760 pkea
pkea's picture

The exit door gets mighty crowded when everyone heads there at the same time.

 Isn't the JPM almost everyone? ha. they got stuck at that door and turned illiquid


Mon, 05/14/2012 - 11:22 | 2423769 Rainman
Rainman's picture

yes, and it's impossible for them to smell the smoke in the theater when they are paid to keep their heads up their arses.

Mon, 05/14/2012 - 11:16 | 2423749 Confundido
Confundido's picture

Say it with me: CO-RRA-LI-TO...That's right: "CORRALITO"!

Mon, 05/14/2012 - 11:22 | 2423750 pkea
pkea's picture

Don't they already have limits on withdrawals no more than500 euros a day for most, at least that's what is already in place in greece and italy...

Mon, 05/14/2012 - 11:16 | 2423752 GMadScientist
GMadScientist's picture

"...investors, bank depositors and exporters to Greece may react as if Greece were leaving the single currency."

Ummm...that's a good thing...because they are.

Mon, 05/14/2012 - 11:24 | 2423763 Centurion9.41
Centurion9.41's picture

Fear is when speculators and the long only side of Wall Street realize they are both on the same side of the human dynamic assumption, and are wrong.

One knows there is REAL fear because gold is being sold when currency fears are clearly in play. (PS, they sell it because they have to. )

Mon, 05/14/2012 - 11:22 | 2423768 RoadKill
RoadKill's picture

Common. Ive been waiting a long time for some irrationallity. I want to see Syrza and Merkel in a good ole chicken fight where NO ONE BLINKS

Ive got a couple million dollars of triple levered popcorn for the show.

Mon, 05/14/2012 - 11:23 | 2423772 midgetrannyporn
midgetrannyporn's picture

Cashin is a dinosaur. Go back out on the floor and buy something Cashin. LMAO!

Mon, 05/14/2012 - 11:22 | 2423774 savagegoose
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runs on banks? wtf if they aint already got gold FUCK EM

Mon, 05/14/2012 - 11:31 | 2423828 SmoothCoolSmoke
SmoothCoolSmoke's picture

Hmmmmm.  Looks like the "R-put" still good.  JPM being pumped to jack up the Dow.

Mon, 05/14/2012 - 11:33 | 2423841 aleph0
aleph0's picture

Nice pic !

i .. be rational , pi .. get real

Euler expressed it best : e*(i.pi) =-1


Mon, 05/14/2012 - 12:01 | 2423976 Liquid Courage
Liquid Courage's picture

Not that I know much about Imaginary Numbers beyond  i2 = -1, but I can tell at a glance that your notation is all fucked up. You must mean:

e(i*pi) = -1

I know ... I'm a pain in the ass.

Mon, 05/14/2012 - 11:39 | 2423867 Madcow
Madcow's picture

the bankers realize the age of growth is over - and so there will be no more stimulus, baliouts etc.   we've all had 100 years of growth - now we're going to see at least 3 decades of contraction.  isn't it obvious?

hoard cash and get out of all financial assets. The hyper-inflation-ists were wrong. So we're the deflaitonists.  We're going to have global hyper-deflation - and a return to local economies and bartering.  Also known as a "sudden stop" -


Mon, 05/14/2012 - 11:43 | 2423884 adr
adr's picture


The Dow has already dropped 155 points today and then made back 80 points of that drop. Today there will probably be another four or five 50 point or greater swings as the Fed steps in and buys stocks to keep the market floating.

The CNBS feeds say, "Market steps out on wrong foot to start week". As always the market going down is wrong, it must always go up to be right.

I guess the rational thought is if I throw a brick straight up, it will continue to go up and will never come crashing back down to break my skull open.

Mon, 05/14/2012 - 12:05 | 2423980 Jack Burton
Jack Burton's picture

Indeed! There are NO REAL markets anymore, there is only The Fed and it's intervention. The mere idea that stocks are trading on economic fundamentals is so laughable that only CNBC viewers can beleive it.

All the big entities are trading the Fed and using insider information from the Fed, computers and great mathematics to front run and manipulate the markets.

The few people I know who activly trade say to me "As long as the Fed is in the business of a guarnatee of stock prices, why should I not be all in"?

Hard to argue, they have made money in the manipulated market, while my cash holdings get ZIRP and Inflations. I lose for being prudent and getting out before 2008, they win by the Fed Put.

I dream of the day the Fed crashes and can no longer boost equity share prices. Till then, they will buy whenever needed to keep the confidence game going.

Mon, 05/14/2012 - 12:20 | 2424041 AldoHux_IV
AldoHux_IV's picture

While the break up of the Euro Zone/Union will be very chaotic as there are institutions that are no less in the business of predatory practices that the union has allowed to happen (mainly banks) which will make the situation more difficult than it has to be, it's one that will be inevitable and necessary if any of these countries were to actually have an opportunity to recover and put in place a more appropriate financial system. The problem of not doing anything and to continue to paper over huge inherent flaws in a system that only benefits the few at the cost of many will only make linkages that will do further harm if addressed later in time.

One of the drawbacks of having a system built upon another system that at the core is nothing more than theft.

Mon, 05/14/2012 - 12:34 | 2424090 Shizzmoney
Shizzmoney's picture

AP Poll: 1-in-3 Americans believe thier household finances will be better this year.

Jamie Dimon: "33%? I'm bullish! "

Mon, 05/14/2012 - 13:09 | 2424216 dbTX
dbTX's picture

Nothing to fear but fear it's self

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