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David Rosenberg On The Insanity Of Fixing Excess Leverage With More Leverage, And The Relentless Euro Rumormill

Tyler Durden's picture




 

We though we were the only ones brought to the verge with the relentless lies out of a completely clueless Europe, which as we learned at last weekend's G20 meeting, has 3 more days to get is act together. Oh wait, they were lying too? Got it. Well, no, David Rosenberg has also had it pretty much up to here. More importantly, Rosenberg also, like us, but also like Citi's and RBS, to throw some more "credible" names, is convinced that this latest deux ex machina is D.O.A. To wit: "How cool is it that we live in a world where complicated financial engineering in a radically overleveraged system forms the cornerstone of the solution to these debt problems...Why are we so skeptical? Well, when you go back to the opening months of 2010, it was all about Greece and the prime goal was to prevent contagion to Portugal and Ireland. We know how that went. Then that fall, the risk was Greece, Ireland and Portugal and this was when the term PIG was coined. At that time, the goal was to protect Spain and Italy. And we know how that went. Then just this past July, the crisis moved beyond just Greece, Ireland and Portugal to include Italy and Spain (and this is where PUGS was coined). At this point it was about preventing contagion to the banks, but nothing has worked. The contagion has merely spread, and this is not the first time a late-day press release or policy announcement was leaked to juice the market. So, we are still living in a world were levering up is somehow deemed to be a solution to a world of excessive credit and all this will do, again, is just kick the can down the road." As we made it all too clear, far less diplomatically yesterday, "Are we the only ones dazed, confused, and tired beyond comprehension with this endless, ridiculous, pathetic, grovelling Groundhog Day bullshit? Stop risking civil and international war just to satisfy your bureaucratic vanity. THERE IS NO MONEY! YOU KNOW IT, WE KNOW IT, THE PEOPLE KNOW IT. ENOUGH!!!" So much for enough: 6 hours later we had the latest European rumormongering fiasco courtesy of The Guardian which has now devolved to the status of England's latest "paid for publication" tabloid.

From David Rosenberg of Gluskin Sheff

The Europeans are living in a world of denial that they can continue to give funding to Greece as it continuously refuses to meet its fiscal targets

Well, once again a leaked press report from a pro-EU newspaper (the Guardian) has cooked together a new strategy that leverages up the EFSF and insures bondholders against first losses on their sovereign bond holdings has the markets in a brand new giddy mood. Equities are rallying across the planet (check that — what is with China down now two days in a row?) and safe-havens like the U.S. dollar and high-quality bonds are selling off (and we ask, why in this pro-cyclical buying of stocks and selloff in Treasuries and bunds is copper of all things down three days running? The red metal is down 1.2% today!). Again, not even gold is rallying, and we admit that we are becoming a tad perturbed over how the yellow metal is trading of late.

It's an open question as to whether this is the deal breaker at this weekend's EU leaders' meeting but there is reason to be skeptical that nirvana has just been discovered with respect to this complex European debt crisis — involving governments, banks and all locked into a single currency zone. And nobody wants to pay the price for bad decisions made, so why not end up going through the back door by penalizing the taxpayers of the rich countries? In terms of commitments, Italy and Spain account for 30% (it's interesting that Italy is committing to a program that will be used to backstop Italian bonds, no?). As one of the co-managers of our hedge fund, Michael Isenberg put it, "It is a quasi-euro bond — without constitutional, legal, historic, linguistic, cultural or political backing — so it's weak." Yet, the market sees a headline: wow, 2 trillion euros in a new fund — that's QE — I better cover and get out of the way. So we have to recognize this and understand that we're playing in a game where rules change every day.

I remember people saying the agreement to expand the power and funding for the EFSF on July 21st was going to be the panacea — the Dow actually swung +185 points that day (the amount it rallied yesterday), only to be totally erased in the next three sessions. How cool is it that we live in a world where complicated financial engineering in a radically overleveraged system forms the cornerstone of the solution to these debt problems. I would not be surprised at all to see stories coming out in the next few days that contradict this plan. In fact, now we see German Finance Minister Schaeuble saying that the EFSF firepower will be expanded to 1, not 2, trillion euros. Go figure.

Both Dow Jones and Reuters have run with 'denial' articles from EU officials, but don't you see, it's always like this with the equity market crowd — react first, worry about the details and repercussions later. At this stage, the surprise is that we have another 'leak' on our hands with no credibility, like all the noise someone in the media created ahead of last weekend's finance minister meeting and we ended up with nothing but policy discord.

In fact, what is interesting is to go back and see how the markets reacted to each of the brave new plans unveiled during this crisis. The DAX, for example, surged 5.3% when the EFSF was first introduced back in May 9, 2010 and then rallied 1% on the July 21st agreement to expand the bailout fund; each rally faded. I have no reason to believe this one will be different.

Or just go back to the 'leak' late in the afternoon (these always happen about an hour before the close in New York — have you noticed that too?) on September 12th that China and other Asian sovereign wealth funds were going to line up and start to bailout out the Eurozone bond market. The very next day the DAX rallied 2% and over 3% the day after that and euphoria reigned ... for about a week.

All these leaks are doing is generating more market volatility, though as we are told, one of them is bound to come to fruition at some point. Better to be a spectator here than a participant.

Let's look at what else is happening that deserves attention that is not exactly validating this new announcement-led risk-on rally.

  1. First, Spain's credit rating was cut by Moody's for the third time in the past 13 months to Al from Aa2 (note the two-notch downgrade and the 'negative' outlook was retained). This is actually big news because what it shows is that Spain's vulnerability to market stress and event risk remains acute, and leaving the 'negative' outlook is a sign that there is no confidence in the country's economic, fiscal or political prospects. Indeed, have a look at Spain Hit by Downgrade, Falling Home Prices on page A8 of the WSJ — home prices are deflating now for three quarters in a row and at an accelerating pace.
  2. Second, and this is buried in the small print because the big print is all about the Guardian's "extra extra!" but Standard & Poor's, to little fanfare, downgraded 24 Italian banks and financial institutions last night (and people are buying the euro at levels that are 20 points above where the IMF pegs 'fair-value'. What a bizarre world this is). Have a look at Martin Wolf's column on page 11 of the FT—There Is No Sunlit Future For The Euro.
  3. Third, there has been no relief so far in the Eurozone bond market, with Italian yields still backing up (now just lbps shy of 5.9%) even though apparently this new plan is intended largely to bring down debt-service costs in countries like that (Spain as well).
  4. Fourth, France-German spreads have not reacted anything close to what the global stock market has as they remain near historically wide levels of 107 basis points (see Ratings Firm Warns on French Debt on page A8 of the WSJ as well). The spread of the problems to France is relatively new and as such makes 'leaks' necessary to buy time and adds extra pressure for a quick solution; a French downgrade would deal a huge blow as it would mean that the EFSF would lose one-third of its AAA-rated firepower.
  5. Fifth, there is no sign of meaningful improvement in the fiscal situation and in the next two days Greece is going to be experiencing the most intense protests against austerity since the deficit-reduction plans were unveiled. In other words, the Greeks have had it with years of economic implosion and, as such, the risk of outright default is high and rising from a political standpoint. Will bailout money continue to flow in if the fiscal targets are deliberately abandoned?

Why are we so skeptical? Well, when you go back to the opening months of 2010, it was all about Greece and the prime goal was to prevent contagion to Portugal and Ireland. We know how that went. Then that fall, the risk was Greece, Ireland and Portugal and this was when the term PIG was coined. At that time, the goal was to protect Spain and Italy. And we know how that went. Then just this past July, the crisis moved beyond just Greece, Ireland and Portugal to include Italy and Spain (and this is where PUGS was coined). At this point it was about preventing contagion to the banks, but nothing has worked. The contagion has merely spread, and this is not the first time a late-day press release or policy announcement was leaked to juice the market.

The Europeans are living in a world of denial that they can continue to give funding to Greece as it continuously refuses to meet its fiscal targets. Ditto for Portugal. How will France be able to avoid a downgrade? And how do the banks not take a big haircut in all this? It's not as if the countries have refrained from tough measures — they simply aren't tough enough. In the meantime, creating a vicious cycle of deflationary and recessionary pressures that makes it impossible to maintain the fiscal austerity and hence the quality of credit continues to erode, alongside that, the quality of the assets in the European banking system.

The reason why EU kingmakers are in a rush is because even with all the ECB support, Italian bond yields are heading back to 6%, a level consistent with high and rising default risks. France and Belgium are now tarred with Dexia support. The dangerous game of not allowing a Greek default has continued because of the fear of triggering a CDS, and we have Tim Geithner convincing the Europeans that allowing Greece to default outright and have the bondholders take the pain invoke a "Lehman moment" (it's not even clear that things would have turned out to be better if Lehman had been propped up ... it's not as if allowing WaMu to fail produced any long-lasting effects on anything and that was a biggie too).

So, we are still living in a world were levering up is somehow deemed to be a solution to a world of excessive credit and all this will do, again, is just kick the can down the road. Unfortunately, post-Lehman the concept of cramming down debt holders to arrive at a more sound financial position has been thrown out the window. Causing pain to bond-holders or equity holders is a sin right now, believe it or not. There will be a price to be paid down the road for failing to allow bad risky decisions to be penalized. Instead we paper over our issues with QE and financial engineering that may make things worse down the road.

It is truly hard to believe that a Greek default could produce any worse results than what we have already seen from all these bailout attempts. This too-big, or too-important to fail strategy has got to come to an end if we are ever to fully emerge from this increasingly unstable global debt cycle.

 

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Wed, 10/19/2011 - 12:55 | 1789406 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Too much common sense in this article. Articles of this type no longer have a place in this brave new world.

Wed, 10/19/2011 - 13:25 | 1789507 Unprepared
Unprepared's picture


On The Insanity Of Warning of Excess Leverage Addiction With More Common-sense Talk

Wed, 10/19/2011 - 13:34 | 1789539 Hard1
Hard1's picture

but...but...but...I can always pay my debts with new (larger) ones...can't I?

Wed, 10/19/2011 - 13:46 | 1789567 tickhound
tickhound's picture

no problem...

with some voluntary compliance, working retirement, debt reduction through credit expansion, and every other feel good pain.... it all ends up in that sanitary landfill called growth.

Wed, 10/19/2011 - 13:47 | 1789588 redpill
redpill's picture

To paraphrase and summarize the article:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

Wed, 10/19/2011 - 14:08 | 1789678 Surly Bear
Surly Bear's picture

John Law called...he said you're pretty much fucked.

Wed, 10/19/2011 - 16:14 | 1790191 Crisismode
Crisismode's picture

Let's hear it for "a final and total catastrophe of the currency system involved."

 

The sooner the Euro is revealed for the Naked Emperor that it is, the better.

Wed, 10/19/2011 - 16:31 | 1790228 nantucket
nantucket's picture

aha, another reader of Von Mises.  That may be his most prescient quote.

Thu, 10/20/2011 - 14:04 | 1794049 glenlloyd
glenlloyd's picture

Debt is nothing more than a palatable way of saying someone else has a claim to your future earnings.

We've pushed the claim to such an enormous size and out to such an extent that nothing can be done to correct it.

There really is only one way that this will end, Mises was right.

Wed, 10/19/2011 - 14:41 | 1789832 ElvisDog
ElvisDog's picture

Ah, the unspoken premise of Keynesism - debts never have to repaid, only rolled over into bigger debts. You have learned your lessons well, padawan.

Wed, 10/19/2011 - 13:49 | 1789598 Taterboy
Taterboy's picture

This Rosenberg guy sounds real smart but if he was REALLY smart he'd tell us who's going to win Dancing With The Stars! You know, important stuff.

Wed, 10/19/2011 - 16:35 | 1790237 nantucket
nantucket's picture

yeah, certain of my relatives know every detail of that show, or the kardashians, or the bachelor, etc., but have no effin clue who their state senators are, or their congressman, or what the fed does, or why it matters.   and they bitch and moan about the current situation.  you can't make this stuff up.

Wed, 10/19/2011 - 12:58 | 1789414 Deadpool
Deadpool's picture

quick get me a liar loan with a cash out so I can buy Appl on this dip! ;0)

Wed, 10/19/2011 - 13:01 | 1789427 The Axe
The Axe's picture

All true but computers do not give a rats ass....SP pushing against the high end of the range, computers say buy.....buy...buy....

Wed, 10/19/2011 - 13:48 | 1789590 candyman
candyman's picture

more accurately,  young kids using computers like PS3's, Fundamentals are not taught in college anymore...it's taken me years to change my investing habits and I fucking hate it.

Wed, 10/19/2011 - 13:09 | 1789430 Manthong
Manthong's picture

"Groundhog Day bullshit"

Says it all..  Here, there and everywhere in the market and goverment.

Problem is that Groundhog's Day will likely suddenly be interrupted by Halloween.

Wed, 10/19/2011 - 13:04 | 1789437 slaughterer
slaughterer's picture

Surprised Rosie did not comment about the recent accounting tricks showing up in US bank earnings.   I guess the focus of the report was just Europe.   

Wed, 10/19/2011 - 13:07 | 1789448 kengland
kengland's picture

It's not going to collapse on your request or Rosies. They have debt money and that is what the majority of the system works with. There's another few years of this EASY.

 

 

Wed, 10/19/2011 - 21:45 | 1791082 Element
Element's picture

Yes, the bank collapses have barely begun yet. There are at least 25,000 bank collapses to come over the next few years. This game can drag on and on ... except the unemployment is already getting very serious, GDP is slumping, and the political situation is just going to explode.

And that is what will prematurely destabilize the financial house of cards.

You can play these games all you want to but when the family budgets runs-out just two days after payday, it's still going to be game over, because extend and pretend must end once enough people run out of money to pay their bills, and NET spend.

 

Rule #1 : Banks go broke because their customers went broke.

Rule #2 : If you're a Bank, do not DELIBERATELY make your customers go broke.

 

They kinda screwed-up #2 ... which is related to #3 and #4:

 

Rule #3 : Countries go broke because their workers went broke.

Rule #4 : If you're a Govt, do not DELIBERATELY make your workers go broke.

 

Oh, you're a Govt, and you believe you neveh-evah made your workers go broke? Well then, what about the derivatives you allowed to fester like a cancer on society, what about the public assets stripping you insisted on until everyone paid more and more for everything, and the bubbles you allowed to grow and burst, and the banks you deregulated, and the protection you removed, and the cronies you pandered to, and the bonuses you winked at, and the illegality you fostered, and the destructive legislation you enacted, and the parasitism you thrived on, and the yoking of the producers to the taxman's trough, and the way you made sure the bankers could endlessly screw the prole, in a hundred difference scams and schemes, and the industrial relations laws that were redesigned to bias exploitative practices, and the jacking of interest rates to 'regulate' growth and inflation, and the constant currency debasement, and the wage arbitrage, and the foreclosure debacle, and the police state oppression of any protest against all of these injustices?

And now you want to "create jobs" ... right?

Rrriiiiiiggghhht! ... sure you do.

Yes, the blowback is all still just starting, so this will go on for years - EASY.

Wed, 10/19/2011 - 13:12 | 1789451 Vagabond
Vagabond's picture

The real problem is the fact that we have a debt based world reserve currency which requires continually increasingly more debt to perpetuate itself.  There is no wonder that the world is leveraging up, what else can you do when the people have caught on to your money printing schemes?  How else do you perpetuate the ponzi?  You can't just liquidate all the bad debts.  They are the basis for so much more.  Without the debt there is no money, and with the debt we will have to learn to live with serious inflation as we try to service the debt, until we can't.  So here we are.  It is time for a new monetary system that is not set up to rob the common people until there is nothing left but to cannabilize itself.

Wed, 10/19/2011 - 16:05 | 1790164 The Big Ching-aso
The Big Ching-aso's picture

On a positive note, a Costco hot dog is still $1.50.

Wed, 10/19/2011 - 22:03 | 1791107 Element
Element's picture

yes, but is it really dog still ... or are they substituting?

Wed, 10/19/2011 - 13:10 | 1789453 semperfi
semperfi's picture

The bailouts will continue until morale improves, or the shooting starts - whichever occurs first. 

Wed, 10/19/2011 - 13:11 | 1789458 NEOSERF
NEOSERF's picture

The more money heaped on Greece every quarter makes them look less like Greece in size and more like Spain.  Also, as you point out, if the Euro printing presses aren't going like mad right now, and foreign investment is withdrawing, then ECB, EFSF, levering etc, is really all just playing with a shrinking pot of taxpayer money.  Don't see how this can end well over there..and this is the US future in about 5 years once the EU has come out of their depression debt-free and are going to start demanding higher yields of the US once we start banning short sales, CDS etc...

Wed, 10/19/2011 - 13:15 | 1789471 Abitdodgie
Abitdodgie's picture

I live in North Dakota ,just wait untill the food shortages start showing, that will get things going.

Wed, 10/19/2011 - 13:51 | 1789605 SheepDog-One
SheepDog-One's picture

Just cut food stamps $100 a month, the shit will totaly hit the fan!

Wed, 10/19/2011 - 16:11 | 1790179 The Big Ching-aso
The Big Ching-aso's picture

Countermove = beer stamps.    SHTF riots cancelled.

Wed, 10/19/2011 - 13:33 | 1789536 jdelano
jdelano's picture

On Bloomberg just now, some asshole nattering on about how central banks like Japan and China are just DYING to jump into the euro as soon as they know what the plan is.  MY HEAD IS GOING TO FUCKING EXPLODE.  

Wed, 10/19/2011 - 14:45 | 1789847 ElvisDog
ElvisDog's picture

It truly is frustrating when I read about "central banks printing money", because that is exactly what they don't do. They issue debt. The ECB is not giving Greece a bailout, they are rolling over their existing debt into a new, larger debt. Printing money would be the equivalent of the banks taking a haircut on their bonds, because the purchasing power of those bonds would diminish due to debasement of the currency. If we have learned one thing over the past three years, it's that banks will never voluntarily take a haircut. Therefore, they will not "print money".

Wed, 10/19/2011 - 13:13 | 1789465 Irish66
Irish66's picture

#2 is priceless

Wed, 10/19/2011 - 13:21 | 1789488 wang (not verified)
Wed, 10/19/2011 - 13:14 | 1789468 yogy999
yogy999's picture

I'm new to this web-sight and thus far I will say unequivocally that both the authorship and readership of this forum comprise some of the sharpest minds I have yet come across. What a refreshing place to visit 20 times a day. I don't know who a Tyler Durden is but he/she is by far and away the most knowledgeable, inspiring, and humorous author I have yet to come across in my 45 years on this earth. Thank you all very much in so many ways. :-)

Wed, 10/19/2011 - 13:20 | 1789493 Abitdodgie
Abitdodgie's picture

Good to have you aboard , but look out for trolls and people always wanting a fight.

Wed, 10/19/2011 - 13:21 | 1789496 NotApplicable
NotApplicable's picture

Rumor has it that Tyler is actually a rogue server on the net that has gained self-awareness.

Thu, 10/20/2011 - 00:30 | 1791555 prains
prains's picture

Rumor has it that Tyler is actually a rogue server on the net that has gained self-awareness.

 

Tyler "Mother" Durden

 

what's for dinner mom???

Wed, 10/19/2011 - 13:41 | 1789566 Unprepared
Unprepared's picture

Tyler Durden is just a "psudoname" used  by a bunch of schezophrenic bastards headed by no other than the white-bearded chairman. Legend has it that they were born to a chaste robot mother and only sleep 1 hour a week. They spend their nights policing the web.

Wed, 10/19/2011 - 13:50 | 1789601 Ricky Bobby
Ricky Bobby's picture

Careful Yogy it soon becomes an addiction!

Wed, 10/19/2011 - 14:24 | 1789761 yogy999
yogy999's picture

Already is :-)

Wed, 10/19/2011 - 13:15 | 1789474 The Axe
The Axe's picture

James Gorman....says Tyler is "surreal"    ha ha   you surreal   dude.....

Wed, 10/19/2011 - 13:17 | 1789479 slewie the pi-rat
slewie the pi-rat's picture

and remember!  you heard it here!

THE END of TBTF = M2M*

_________________________

*mark-to-market, you idiot!

Wed, 10/19/2011 - 13:19 | 1789482 SheepDog-One
SheepDog-One's picture

All 100% bullshit all the time now, right up until the second it all completely implodes...whether thats next day or next year no one knows but thats how it ends, in 1 second.

I'd advise just being completely clear of this demolition zone.

Wed, 10/19/2011 - 13:19 | 1789490 Traianus Augustus
Traianus Augustus's picture

Never underestimate the elitist ability to look the other way in the face of total devastation.

Wed, 10/19/2011 - 14:02 | 1789652 ssp2s
ssp2s's picture

The Titanic metaphor is being replaced by the Johnstown Flood.

Wed, 10/19/2011 - 13:22 | 1789499 Dr. Gonzo
Dr. Gonzo's picture

It does kind of make you want to completely cash out of the market and say fuck you. I'll just buying physical gold with it. They do not want the market to go down at any cost. The market wants to go down so bad.

Wed, 10/19/2011 - 13:28 | 1789518 yogy999
yogy999's picture

Dead on. I guess I do a bit of everything. Gold, silver, guns, canned goods, medical(baby boomer) REITS, land, and a good copper stash in order to build a reflux still when the time is right, (probably around now):-)

Wed, 10/19/2011 - 14:58 | 1789902 ElvisDog
ElvisDog's picture

You're wasting your money thinking that land should be part of your survivalist stores. When have property rights ever been respected during times of widespread civil unrest? Did the Vandals respect Roman property rights in 476 A.D.?

Wed, 10/19/2011 - 13:26 | 1789512 Dick Darlington
Dick Darlington's picture

So the 110 billion bail out #1 and the coming 109 billion bail out #2 is NOT ENOUGH for Jabba the Hut. He want's more money from the EU's structural funds too! And all the eurofanatics are telling us that Greece is IMPORTANT AND INTEGRAL part of the death err eurozone. I would rather call it an incureable cancer.

 

10-19 13:14: Greek finance minister says need EUR 3.5bln per year from EU...
Wed, 10/19/2011 - 13:29 | 1789520 bbq on whitehou...
bbq on whitehouse lawn's picture

The sign above the Euro : Abandon all reason ye who enter here.

 

Wed, 10/19/2011 - 13:31 | 1789530 pmcgoohan
pmcgoohan's picture

The Guardian messed up the plan.

We were meant to meltup through the rest of the week, meltup again over the weekend, and then hit the moon on Monday when the plan was announced. But we found out too soon and the markets are now floundering. Yes up- but floundering. They've missed at least 5 days of free meltups with this leak.

I feel much more comfortable about my shorts now the plan is out there. A mystery plan in irrefutable, unarguable, it could be anything- maybe something great.

But it isnt- its this plan- thats it- that's all you get- no really- after all this- thats all you get

Wed, 10/19/2011 - 13:41 | 1789563 slaughterer
slaughterer's picture

pmc, tend to agree with your assessment of the Guardian.  They prematurely leaked the best possible plan--everything else to come will fall short, including the real plan.  

Wed, 10/19/2011 - 13:33 | 1789535 Temporalist
Temporalist's picture

The new Greek austerity measures will eliminate 30,000 jobs and cut pensions. 

 

At 10:1 rioters/protesters to riot police I'd think that adding to that mob is not going to go well for the Greek banks and government.

Wed, 10/19/2011 - 13:44 | 1789574 topcallingtroll
topcallingtroll's picture

And if germany decides that they will no longer fund greece what is the solution?

Total default and saving the interest expenditure is a drop in the bucket.

Take moderate hardship or take severe catastrophic hardship, the choice is up to the greeks.

Wed, 10/19/2011 - 13:40 | 1789558 pelagivore
pelagivore's picture

This article ignores the realities that we see every day. It is no good to expect reason in the current extremely volatile financial environment that we find ourselves. I agree with the premise of the text, but its not about figuring out what is wrong... I think that is evident to almost everyone (even the Bernanke I'd wager). It is about understanding the forces, emotional forces primarily, that will be inbvolved in the unwind of the financial imbalances that have been created over the past 20+ years.

Tyler, I understand your frustration... but get beyond this. It is about expecting government to do everything in its power to preserve the status quo, its what they understand. Its about the publich, doing the same, as we are seeing in Greece (an event that was practically guarranteed in my mind). Public resistance will increase, government policy will continue to use outdated, and unworkable economic theories and investors will be lucky to survive with what they have. Irrational behaviour is only going to increase, get used to it... but more importantly expect it and you have a chance to make money.

Wed, 10/19/2011 - 13:40 | 1789562 YesWeKahn
YesWeKahn's picture

This is similar to deal with margin calls. You can either put more money in or sell the asset. Apparently unexperienced traders tend to put more money in to eventually get completely wiped out.

Wed, 10/19/2011 - 13:41 | 1789565 topcallingtroll
topcallingtroll's picture

PIGS acronym is from the eighties.

Bond dealers called them pigs bonds long before the euro, and long before ireland became the atlantic tiger.

Wed, 10/19/2011 - 13:42 | 1789568 Alexmai
Alexmai's picture

Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling:


I could end the deficit in 5 minutes,” he told CNBC. “You just
pass a law that says that anytime there is a deficit of more
than 3% of GDP, all sitting members of Congress are ineligible
for re-election/

The 26th amendment (granting the right to vote for 18 year-olds)
took only 3 months & 8 days to be ratified! Why? Simple!
The people demanded it. That was in 1971 – before computers, e-mail,
cell phones, etc.

http://investmentwatchblog.com/warren-buffett-in-a-recent-interview-with-cnbc-offers-one-of-the-best-quotes-about-the-debt-ceiling/

Wed, 10/19/2011 - 13:47 | 1789584 devo
devo's picture

You really think a bill like that would pass the house and senate?

Does the President have the power to create such a law via executive orders? I honestly don't know...curious how that would ever pass.

 

Wed, 10/19/2011 - 13:53 | 1789611 Unprepared
Unprepared's picture

And who's gonna pass that law? dead politicians?

Wed, 10/19/2011 - 13:44 | 1789572 devo
devo's picture

I honestly believe Greece has no intention of changing anything, and this is great scam on EU and the US. They're taking handouts and saying the right things (to continue receiving them), but what's their motive to actually change? They know the US and EU are terrified of them defaulting, and I don't think Greece expects anything but default, so there's really nothing for them to lose. They have all the leverage. Joke is on America and Germany.

Wed, 10/19/2011 - 13:49 | 1789593 topcallingtroll
topcallingtroll's picture

I think the greeks and sarkozy/merkel know that default is inevitable. Everyone is trying to keep it going as long as they can so they can loot as much as possible before it crashes, greeks, bankers, etc.

Wed, 10/19/2011 - 13:59 | 1789634 devo
devo's picture

There's probably some habituation going on, too. Just trying to prepare the markets slowly over time so it's not a great shock. I expect this to be drawn out as long as possible, and then a "selective default"...that is the soft landing they're trying to manufacture.

I haven't looked at what assets France and Germany have tied up in Greece, but the fact that they care this much is alarming. The risk of contagion (and a harder fall) is greater the longer the charade is propped up, so while they're saying contagion avoidance is their movitation, it simply can't be true. Unless they are just stupid. That is possible. But more likely it's toxic asset galore over there.

Wed, 10/19/2011 - 13:45 | 1789575 Irish66
Irish66's picture

2 o'clock rumor is?

Wed, 10/19/2011 - 13:46 | 1789578 Belarus
Belarus's picture

ain, not even gold is rallying, and we admit that we are becoming a tad perturbed over how the yellow metal is trading of late.

I think if the market truly believed the ECB would start buying distresssed-debt "for as long as needed," according to French wishes, that Gold would have been skyrocketing with equities as well. But that hasn't happened, which is why I think the market will be in real trouble next week, when the market might actually start believing the Germans are simply not going to allow debt monetization to happen by the ECB.

Gold has told us all along all these market rocket blasts are artificial....because the only way to truly "kick the can" is to monetize the shit out of all the toxic debt collasping on itslef in Europe. Everything is just noise.

Tread very cautiously next week gentleman. The game is finally going to be on. 


Wed, 10/19/2011 - 13:50 | 1789599 devo
devo's picture

Who really cares what gold does? We all know its true value is about 3x current prices, if not more, so there's a ton of room for error. The only people affected by gold prices are people looking to buy it today and sell it next week.

Plus, most people who buy gold do so as a hedge against the inevitable collapse of paper money more so than inflation (though it is a pretty good hedge against the latter, too).

If you buy gold, you sleep well.

Wed, 10/19/2011 - 13:55 | 1789615 Belarus
Belarus's picture

Devo. Missed. Fucking. Point. 

Wed, 10/19/2011 - 13:53 | 1789612 topcallingtroll
topcallingtroll's picture

Seven percent ewz yield will look good in a deflationary environment for the first world.

The third world is the best growth for the next ten years.

Wed, 10/19/2011 - 13:48 | 1789591 The Onion Of Tw...
The Onion Of Twickenham's picture

The author of yesterday's Today's Big Rumour was a certain David Gow - The Grauniad's Brussels correspondent. He was asked to comment on the shit storm that his article (released at 19.30 BST last night) caused and he added some colour that you might find entertaining:

 

Barroso and his team say that, when EU budget funds are combined with European Investment Bank financing, €230m put up in the first phase can, magically, leverage investment of up to €4.6bn.

That's 20 times, not five times, and, if applied to the EFSF, would give more than a big bazooka, it would produce a megabomb of almost €9trn. Game over, a Barroso aide said with a huge grin.

 

PS €9trn is the entire GDP of the Eurozone.

Wed, 10/19/2011 - 13:57 | 1789622 Quinvarius
Quinvarius's picture

It is kind of weird that they call it "magic".  That is exactly how fractional reserve banking works.  I guess we have to ease people into the idea that the whole banking system is already set up like that.  All the EFSF has to do is make that 400B deposit at JPM and have JPM loan out the 9 trillion using "magic" fractional reserve banking.

Wed, 10/19/2011 - 13:52 | 1789607 Irish66
Irish66's picture

Can we get the feed for Greek parliament vote?

Wed, 10/19/2011 - 14:02 | 1789654 Little John
Little John's picture

 When I was a kid my father taught me that it was wrong to kill anything without a reason.  He also taught me that putting an end to needless suffering was a valid reason - “putting something out of it’s misery” was the way he put it.  I’ve never enjoyed killing, but it is better than standing by and allowing death to be accompanied by pain and misery.  Economic death by debt is slow, painful, and inhumane.  Somebody needs to take a 30-30 rifle and do the right thing to the  EU.  

Wed, 10/19/2011 - 23:00 | 1791353 honestann
honestann's picture

And the USSA.
And all predators who control these fictions.

Wed, 10/19/2011 - 14:07 | 1789677 ninj4master
ninj4master's picture

Fixing excess leverage with more leverage !?? but but

it is a Super Ponzi Scheme ! :) oh my god it's not cool :/

Wed, 10/19/2011 - 14:23 | 1789756 jjsilver
jjsilver's picture

How about the insanity of us, the people allowing a private banking cartel to control our money supply!! where are the marshals, there should be mass arrests and trials.

Wed, 10/19/2011 - 22:59 | 1791349 honestann
honestann's picture

That's simple.  The predators-that-be appointed other predators as marshalls.  That's why the marshalls now regularly destroy honest, ethical, productive individuals and protect predators.  How obvious could anything be?

Wed, 10/19/2011 - 14:42 | 1789814 Threeggg
Threeggg's picture

This whole charade is to stop the stampede of currencies into PM's. Be aware that next Tuesday is options-ex in the metals. I say that this market grumbles until next Tuesday and then @ around 12:00 noonish there will be a deal (or a rumor of a rumor) in the E.U. and PM's will see a "paper hammer blizzard"  (by the CME) into the close of the OP-EX and the reason will be "risk-off". I think the slow grind down in PM's starts tomorrow and crescendo's next Tuesday/Wednesday with a "White out"

Let's see how well I have been paying attention to these markets all these years. ?

Wed, 10/19/2011 - 14:59 | 1789909 cranky-old-geezer
cranky-old-geezer's picture

 

 

This is the biggest sovereign debt ponzi scheme in human history short of America's sovereign debt ponzi scheme, the biggest in human history.

Bankers have become the undisputed masters of monumental ponzi schemes, contriving all manner of (fraudulent and criminal) tricks and gimmicks to keep them going far longer than anyone could have imagined.

We're truly at the endgame now. This monstrous Euro sovereign debt ponzi scheme is going to blow up and crash sooner or later, bringing the world financial system down with it in cascading collapse starting in Europe and spreading worldwide.

But it's just the lofty discoupled financial system collapsing, not underlying economies.

Bankers would have us believe underlying economies will crash too, but it's just no so. Underlying economies will weather it with little impact, partly because most underlying economies are already in depression.

Wed, 10/19/2011 - 16:00 | 1790144 dcb
dcb's picture

in my view the crux of the problem is the demonization of deflation, I understand why it happened, and why the powers that be have decided this is the problem. they are of course wrong. (and I have looked at almost every economics papaer i can find on the subject). In a nut shell, the assumptions put on the subject are aextensive as the efficient market theory, and the idea that humans are rational economic actors. It gets even worse, their idea to help the economy is to induce enough inflation so people are scared and have to buy today for fear the cost will go up the next day. there is a complete lack of understanding that as inflation goes up, people worry and save to make sure they have enough for the future. It may work with very high inflation in theory, ut we all know how that works. it doesn't. But, underdeflation, the rational person doesn't feel the need to have to save as much for the future. Hence the can continue to spend. the analogy is a sale. if everything is on sale, peole buy. the vast majority of people won't in fact wait to by things becuase it will be less in the future except for big ticket items. yes people wait for sales to buy. but in this case if I buy two pairs of pants at regular price, I may buy 6 on sale. this keeps double the people employed and hence in fact helps the economic recovery. the logic is all wrong.

 

The reality is the assumption of the powers that be are all there to help the banks, that's it. any other motive or logic from the fed, is in fact a lie. I believe they know it, because I can't believe these peole are so stupid. Therefore, they are in fact sell outs. Their entire belief system is opredicated on the belief that there is never too much leverage/debt, and cleaning up afterwards is easier than limiting it. Limiting expansion of credit hurts bank profits the most (although it causes more economic stability), but that isn't their aim.

 

the faulty logic is really correllation. the see deflation in a downturn, hence believe that is the cause. the deflation is the natural result of the elimination of excessive credit. it is the chemotherapy to the cancer of excessive leverage. they confuse the symptions of the chemotherapy with the evil that is really the cancer.

Wed, 10/19/2011 - 22:05 | 1791208 Element
Element's picture

The other counter-intuitive part of this that is missing is the fact that large-scale bank closures have historically resulted in a sharp GDP surge and true economic recovery in the following year.

They want everyone to implicitly believe that if hundreds of banks fail that the economy will be totally destroyed, when historically the converse has been true.

Wed, 10/19/2011 - 16:00 | 1790145 dcb
dcb's picture

in my view the crux of the problem is the demonization of deflation, I understand why it happened, and why the powers that be have decided this is the problem. they are of course wrong. (and I have looked at almost every economics papaer i can find on the subject). In a nut shell, the assumptions put on the subject are aextensive as the efficient market theory, and the idea that humans are rational economic actors. It gets even worse, their idea to help the economy is to induce enough inflation so people are scared and have to buy today for fear the cost will go up the next day. there is a complete lack of understanding that as inflation goes up, people worry and save to make sure they have enough for the future. It may work with very high inflation in theory, ut we all know how that works. it doesn't. But, underdeflation, the rational person doesn't feel the need to have to save as much for the future. Hence the can continue to spend. the analogy is a sale. if everything is on sale, peole buy. the vast majority of people won't in fact wait to by things becuase it will be less in the future except for big ticket items. yes people wait for sales to buy. but in this case if I buy two pairs of pants at regular price, I may buy 6 on sale. this keeps double the people employed and hence in fact helps the economic recovery. the logic is all wrong.

 

The reality is the assumption of the powers that be are all there to help the banks, that's it. any other motive or logic from the fed, is in fact a lie. I believe they know it, because I can't believe these peole are so stupid. Therefore, they are in fact sell outs. Their entire belief system is opredicated on the belief that there is never too much leverage/debt, and cleaning up afterwards is easier than limiting it. Limiting expansion of credit hurts bank profits the most (although it causes more economic stability), but that isn't their aim.

 

the faulty logic is really correllation. the see deflation in a downturn, hence believe that is the cause. the deflation is the natural result of the elimination of excessive credit. it is the chemotherapy to the cancer of excessive leverage. they confuse the symptions of the chemotherapy with the evil that is really the cancer.

Wed, 10/19/2011 - 16:30 | 1790227 Mark123
Mark123's picture

It seems to me that there is a general tone that Europe is so messed up, and if only they would do the right thing the world would be back on easy street.

 

I disagree.  Europe is just having to face up to the mess sooner than than the rest of the g20.  Hopefully for Europe (not their banks) this insane extend and pretend will fail soon and then they can rebuild based on sound fundamentals.  Great paper wealth will be destroyed, but the weatlh has already been squandered so let's get over it.

 

We were in Italy about 4 years ago staying in a town north of Rome.  We rented an apartment in a 15th century building, which had been completely gutted and renovated (and lost most of its character in the process!).  The people that owned it were from Britain and had moved there about 7 years before and now owned about 3 apartments and managed many more - all weekly rentals.  According to them, the deal was that if you lived in an eathquake zone, the government would pay 100% of the cost to upgrade to earthquake standards including interior renovation AND pay for your rental costs while the work was done.  There were an incredible number of construction cranes in this hilltop town....everywhere!  Apparently they were rushing to take advantage of this before the program shut down at the end of the year.

 

Sounds stupid....but the US government was and continues to give people credit to buy homes and cars they cannot afford.  That is not a loan....it is an expenditure.

Wed, 10/19/2011 - 20:35 | 1790889 Zero Govt
Zero Govt's picture

"As we made it all too clear, far less diplomatically yesterday, "Are we the only ones dazed, confused, and tired beyond comprehension with this endless, ridiculous, pathetic... bullshit?"

Fine words. Completely wasted of course.

Yes we must come to realise any regime becomes a herd that must fulfill it's own delusional destiny (increasingly delusional as matter of fact). These are systemic lemmings, in lock-step with one another not wider society heading toward the cliff. They cannot change course, they act in concert with one another gaining moral support, encouragement and even courage from each other toward their grisly goal of supporting one another which they know in the back of their tiny minds is suicidal and has ever less chance of the increasing risks paying off in success

Note how the plan that was to bring us out of recession and avoid the double-dip has failed but they are still fulfilling the plans tasks (bailouts etc) toward the supposed succesful outcome which they know is no longer realistically achieveable. It gets worse. They know they cannot even save the Banks, so they have only half their goals left to bailout the sovereigns. They're spending more money to achieve even less (half) of their original aim.

But have they re-calculated wether the costs are worth half-a-job? Have they hell. These lock-step-lemmings have entered a sort of shared euphoric mental state where practical and numerical aims are out of the wndow and they've started humming a religous bailout mantra.

Watch the Zulus of Africa bouncing, jumping and chanting to whip themselves into a group-state frenzy.

Well Bernanke, Trichet, the European, American and Japanese leaderships and bankers have entered that Zulu zombie state. They have little to no practical reasons left to continue on their course. They only have the mantra of authority acting to save something which anyone sane knows is not achieveable. Their 'authority' is an end in itself (ie. a vacuous bag-full of ego).

They have entered the vacuum of all authorities, which is to be seen to be doing and to be seen to be in charge even though it has no real valid end-game (ie. it is practically insane). 

Practical achievement has been replaced with the stupidity of 'authority seen to be acting' in its messaged path. This is the ultimate vacuous (vandalistic) path of all leadership or authority. To continue its path despite increasing alarm it will fail less it admit it is inept, wrong and they are a failed leadership. It is the empty hole of human ego... authority looking and being authoratative

Yes boys they're completely freekin insane and have no practical valuable purpose... only an ice cold shower or bankruptcy can wake these delusional hummers from their group-think stupour

The lights are on but nobodies home. They aren't listening to anybody but their colleagues humming the same tune back at them ...wise words are wasted on these mantra chanting goons ...anyone got bullets?

Wed, 10/19/2011 - 22:17 | 1791269 sgorem
sgorem's picture

THERE IS NO MONEY! YOU KNOW IT, WE KNOW IT, THE PEOPLE KNOW IT. ENOUGH!!!"  Yeah Baby, gotta love it!!!!!!!!!! HANG 'EM ALL!!!!!!

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