Deutsche Bank Exercises In MADness: "Crisis Likely To Get Worse Before It Can Get Better... If Indeed It Ever Does"

Tyler Durden's picture

Deutsche Bank's Jim Reid, who has taken etudes in Mutual Assured Destruction to a level not even Leopold Godowsky would be able to execute (which is expected: DB is the one bank in Europe that has the biggest disconnect between reality and where the market trades its securities) reminds us once again that without the ECB stepping in it is all lost: "We are fast running out of options. The great hopes of the last few weeks for Europe have fallen one by one. We first had China pulling back, then a Levered EFSF scheme that has stalled before it has taken off, a powerless IMF and now yesterday we had even more insistence from Mrs Merkel that Eurobonds are not the answer and neither is a more aggressive ECB. It leaves us scratching our heads as to what the answer is." Yet the ultimate step: the questionable integration of Europe's countries in a union whereby they abdicate their sovereignty to Germany in exchange for the issuance of Eurobonds, is not only extremely unlikely, it will also come too late: "Should we get excited ahead of the treaty changes? The answer is that we are undoubtedly slowly moving closer to the start of a path towards fiscal union. However this process, even if it runs smoothly, will likely be a long, drawn-out, arduous journey. Unfortunately markets are moving at a much, much faster pace and we probably don’t have the time for a slow measured path towards fiscal union." In other words, even if the ECB, and thus Germany were to relent, the markets can at best hope for a few days rally before risk tumbles off once again, only this time there will be no scapegoats aside from the bloated and terminally broken European bureaucratic engine which, when all is said and done, is the fatal flaw of the European experiment.

From DB's Early Morning Reid

We are fast running out of options. The great hopes of the last few weeks for Europe have fallen one by one. We first had China pulling back, then a Levered EFSF scheme that has stalled before it has taken off, a powerless IMF and now yesterday we had even more insistence from Mrs Merkel that Eurobonds are not the answer and neither is a more aggressive ECB. It leaves us scratching our heads as to what the answer is. The press conference between Mrs Merkel, Mr Sarkozy and Mr Monti ended with us being told that information about plans to change the EU treaty will be announced in the coming days ahead of the December 9th EU summit but it won’t involve changing the ECB’s mandate. The leaders agreed to respect the independence of the ECB.

Should we get excited ahead of the treaty changes? The answer is that we are undoubtedly slowly moving closer to the start of a path towards fiscal union. However this process, even if it runs smoothly, will likely be a long, drawn-out, arduous journey. Unfortunately markets are moving at a much, much faster pace and we probably don’t have the time for a slow measured path towards fiscal union. As a result the crisis is still likely to get worse before it can get better, if indeed it ever does. The only hope is that there’s enough unity and encouragement in the leaders’ upcoming statements that persuades the ECB that notably upping their bond purchasing is a worthwhile interim measure prior to a fiscal union that they now think is likely.

The market had initially hoped for a tone change from Germany, particularly after the Bild hinted that Merkel’s coalition may be warming up to the idea of euro bonds. The mood quickly reversed after the Trio confirmed that there are no quick fixes to the problems. The news also completely overshadowed the stronger-than- expected German IFOs in the morning. The Stoxx600 fell as much as 2% from the highs to close -0.15% on the day. The FTSE (-0.24%) extended its consecutive down days to nine, a run that was last seen in January 2003 where the FTSE dropped 11 days in a row on the back of geopolitical tensions in the Middle East and on signs of economic slowdown in the US. The Stoxx600 Bank index rallied 1% though after having fallen 8 consecutive days. Dexia gained nearly 28% after a French official said that a deal between the French and Belgian governments can be reached within days.

Asian markets are mostly softer across the board as we type. The Hang Seng and the Kospi are -1.2% and -1.3% lower respectively. The market remains on the back foot after Merkel’s continued hard line stance yesterday. Somewhat interesting is the 6bp rise in JGB 10 year yield to 1.025%, the highest in about 3 weeks. The market is perhaps still digesting S&P’s comments yesterday. To recap, the agency said that “Japan’s finances are getting worse and worse every day, every second” and added that “it may be right in saying that we are closer to a downgrade”. Japan’s Sov CDS were +6bp wider overnight at 131/134bp. Elsewhere in credit the Asia IG and the Aus ITraxx are +4bp and +7bp on the day.

In other overnight news, Moody’s has taken the lead to cut Hungary’s sovereign rating to Junk. The rating was cut to Ba1/Neg from Baa3 with the agency citing rising uncertainty around the country’s ability to meet medium term fiscal/debt targets and the rising susceptibility to event risk

Moody’s decision is somewhat at odds with S&P which decided to deferred its decision on a negative action until February pending negotiations between Hungary and the IMF on a financing deal. Hungary is rated BBB-/CW Neg by S&P and BBB-/Neg by Fitch.

Whilst on rating actions Fitch yesterday downgraded Portugal to BB+/Neg from BBB-, on a day which saw an organised strike paralyse the nation’s capital. Portugal’s 10-year yield rose 84bp on what was another difficult day for the EU government bond market. 10-year BTPs closed above 7% for the first time in 6 days. Elsewhere in Europe, Irish 5yr bond yields rose 47bp to 9.62%. The 10yr Bund yield rose nearly 5bp to close at 2.19%. The recent rise in Bund yields has also seen the Bund/UST spread widened to 31bp, the widest since April 2009. Back to Portugal, the agency said the country’s large fiscal imbalances, high indebtedness across all sectors and adverse macroeconomic conditions as no longer consistent with an IG rating. Portugal is rated BBB-/Neg by S&P and Ba2/Neg by Moody’s.

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BaBaBouy's picture

Rotten To The Korzine ...


No chance ever of this Mega-debt to be paid off.

AND Don't think the US is any different.

Same shit, they print more Paper Fiats, and its a Fiat Race to the Bottom...


While Russian and other CB's loading up on DELIVERED Physical Gold.

Ahmeexnal's picture

And selling eurozone gold is also out of the option table,'s already gone!

Ethics Gradient's picture

I see the beard and will myself not to read your comments. I try, Lord knows, but I can't stop myself and each time I read, a little piece of me dies.

MillionDollarBonus_'s picture

I personally share Jim Reid's sentiments. The process of European integration and fiscal union has been painfully slow, and lacking in real economic reforms. President Herman Van Rompuy summed up Europe's central weakness nicely when he said:

"We cannot have a common currency, a common monetary policy, and leave everything else to the states involved, and yet this is what we have experienced"

In order to implement effective and broad fiscal stimulus programs, the European commission needs more power over legislation and indeed taxation. Europe is at a cross-roads: it is time for them to decide whether they want capital to be allocated by

(a) Experienced economic and political professionals of the highest degree


(b) Smelly Euro-trash party animals

Nobody For President's picture

I'll take Euro-trash party animals for $200, Alex.

BaBaBouy's picture

"" (a) Experienced economic and political professionals of the highest degree ""


Hahahahahahahahahaha ... Thats so funny .

PS, I Gata Bridge to sell you ...


caconhma's picture

Normal people always prefer a "nice & clean" girl rather than a highly professional and experienced whore.

Escapeclaws's picture

Why is it that the word "reform" always means sticking it to the powerless?

Prison reform--now we just tazer them when they get out of line.

Economic reform--cut benefits like SS and Medicare, cut back on poverty programs such as heating supplements in the NE, cut back on unemployment benefits, raise taxes on the middle class and cut out deductions for RE taxes and mortgage interest, etc

Health Care reform--giving the Insurance industry everything it asks for, thus raising deductibles and premiums while disqualifying people who might have the temerity to get sick.

etc. You get the point. One of those weasel words, like your boss saying there are "concerns" about your performance.

Bicycle Repairman's picture

"Why is it that the word "reform" always means sticking it to the powerless."

Because you cannot say "stick it to the powerless".  You need to go to the Orwellian double speak style guide and use "reform".

fonestar's picture

A better alternative is for the citizens of Europe and the UK to rise up and overthrow their respective governments, charge them with treason and imprison them.  If they offer resistance, execute them.  Set up a vetted citizen's tribunal on both sides of the Atlantic to investigate anyone who holds public office for any financial ties to entities such as GS, MS, JPM, Barclays et al.  Expell them from office or put them on trial.

english serf's picture

Please please please let me be on the committee!

upWising's picture

How about the same "reform" program that you suggest for European Government functionaries and lackeys (prison or execution) apply to their sops and apologists here on ZH?  Yes, I am talking about YOU :: Million Dollar Idiot!  Off with your tiny little head and other tiny little appendages!

BlakeFelix's picture

MDB is hilarious. I often get a couple sentences in before I stop and have to ask myself "Is this guy serious?" Then I glance back and see it's MDB. Then I lol. Gallows humor is the best kind.

ratso's picture

It is unrealistic for anyone to expect Germany to bear the burden of the Eurozone debt.  Any plan in which they become the ultimate guarantor will be still born.  It is also unrealistic to think that Eurozone countries are prepared to surrender their fiscal sovereignty at this stage of the game when they have no leverage and have to bargain from a position of weakness .

So, there will be a painful but gradual dissolution of the Eurozone as it is now constituted. What kind of arrangment the present Eurozone morphs into can not be seen from here because the current members have not adequately viewed this option and understood its consequneces.

WALLST8MY8BALL's picture

Husum- we have a problem...

He_Who Carried The Sun's picture

Politicians need to stop giving costly presents to their client constituents and BIG government has to stop spending the money of our kids.
Right on, Mrs. Merkel. Your fight is pro democracy!

All this blabla about ceding souvereignty to the Germans is fear mongering germanophobe nonsense as has been displayed by the London Times. This is about the EU which Germany wants to prevail and ALL governments finally have to give up some fiscal souvereignty in order to make the monetary union work. If the Brits are scared of it, so be it! Italians, French and Germans have to and will work together on this.

If markets are impatient and want a quick fix a la Bernank they need to wake up. There is no legal background for QE-style intervention neither in France nor in Germany and politicians do not want to end up in jail afterall (although some clearly deserve it already!)
Fact is: Companies inside the core Eurozone are earning well, so does a good part of corporate America. Stop being hypocrite about the future by predicting Armageddon. It won't happen! Stop being impatient, start de-leveraging, stop overspending and if trading does not support the lifestyle of those dumb Squid managers anymore, they better go and find themselves a real job!

Escapeclaws's picture

If the US is anything to go by, giving up local or state rights in favor of federal oversight is the road to serfdom. The Europeans would be fools to fall into that trap. It just leads to a vast centralization of banker and corporate power with no say for ordinary citizens.  Smaller is always better in matters of politics and government.  Let's hope the Europeans don't give up one iota of their sovereign power.  In addition, Brussels is trying to pull a Paulson, with the insistance that the financial reforms it institutes will be irreversible, un-auditable, and secret, with no legal recourse.

Hopefully, at some point, power in the US will return to the states and the odious and illegal debt imposed by the bankers will be spurned. Only in smaller judicial entities is there any chance for justice for ordinary people and control over sociopathic elements ranging from individuals to giant corporations.

He_Who Carried The Sun's picture

Oh sure. Revert to petty chiefdoms and funny principalities is the answer.
Having fun living in the medieval eating acorns and riding barren horses to town to grab some garb and lettuce? Ridiculous idea! You shoulda changed the type of weed you're smokin' some time ago.

Escapeclaws's picture

What wheezing mule did you ride into town on?

He_Who Carried The Sun's picture

Its called BenB, its for sale actually. Want it?

Escapeclaws's picture

Only if it doesn't mind being insulted.

bugs_'s picture

is it really a crisis anymore?

political class standing around the crater waving hands in denial.

donsluck's picture

Excellent, simple and clear. I like your thinking. It is no longer a crises, now it's a predictable process, trade accordingly.

GeneMarchbanks's picture

DB knows the end is near. Eurobonds are dead. Germans aren't giving in to this 'engineered crisis' and Merkel appears to be the honey badger...

SheepDog-One's picture

Honey badger dont give a damn.

The Fonz's picture

I had never heard of "Honey Badger" here is a link to the video that explains it :P

JungleJim's picture

"Honey Badger", or, "Honey Pot" ?

tony bonn's picture

good - let the crisis get worse to wipe out the crapulence infesting europe's economy - to say nothing of the usa economy

michaelsmith_9's picture

The crisis will likely get worse.  The technicals are pointing to a longer term move lower in coming in the weeks ahead.  A short term retracement seems to be underway for the SPX and DX as they continue to move inversely to each other.  The DX continues to remain in a very bullish formation.  The chart technicals are available here.

vast-dom's picture

post-apocalyptic fiscal union. 

Elwood P Suggins's picture

The insolvent leading the insolvent.

Big Slick's picture

"post-apocalyptic fiscal union." 

Monetary unit?


Caviar Emptor's picture

Yes. It should be scary to all that things are getting worse slowly and not suddenly like in a crash. It signals that the rebound will be slow and painful and may never reach the previous peak. It means that business as usual is bad and that the economy is retrenching. No external shock, just internal weakness

sabra1's picture

after all is lost, we 99%ers are coming after you, your families, even your pets! you can chem trail us, place more flouride into the water supply, inject gardasil into boys, build more nuclear reactors on fault lines, nuke us with those airport scanners,we're still coming after you! even if we're all mutants, we're coming after you! GOT IT???

topcallingtroll's picture

Chem trails?


We have another million dollar bonus and hamy here.

A paranoid wacko socialist-survivalist.
Chem trail believers usually dont talk the 99% talk.

Whats next? A drag queen oath keeper?

mess nonster's picture

Keep your commie hands of my Constitution! ... and my nylons...

economics1996's picture

Go after the politiciians.  Start with Princess Nancy and her court jester John Kerry and his corrupt skinny ass.

CORNGUY's picture

How are you going to tell who 1%ers are?


StychoKiller's picture

Peasant #1:  "He must be a King!"

Peasant #2: "How do you know he's a King?"

Peasant #1:  "He hasn't got shit all over'im!"

"Monty Python's Holy Grail"


lolmao500's picture

Duh. Deutsche Bank found their brain?

SheepDog-One's picture

I dont care what silver and gold are price at in USD.

Pegasus Muse's picture

I don't know if precious metal investors can trust Sprott and Sprott's funds anymore. He has repeatedly issued Follow-On Offerings in his PHYS (gold fund) which effectively robbed investors of their accrued premiums resulting from the increase in the POG in the market. Investor put their capital at risk by investing in Sprott's fund. Instead of being rewarded, they watch as the fund manager skims off some their premium.

And now, after promising not to, Sprott apparently is going to do the same thing in his PSLV (silver fund). Ref:

Sprott told Eric King, in his Jan 29, 2011 interview, that he “would not do anything to hurt existing shareholders of PSLV”. At the time, Sprott was well aware of the anger and pushback he getting from existing shareholders after he diluted them by executing several Follow-On Offerings in the PHYS. Clearly, Sprott implied in this interview he would not do Follow-On Offerings of PSLV shares.

You listen. You decide.

I am coming to realization investors cannot trust anyone in the financial services industry. Even the advocates of Precious Metals. Buy the physical. Hold it yourself so you don't get ripped off.

WhiteNight123129's picture

I agree somewhat, at the same time you need more physical Silver funds out there so that the paper market gets it lesson, what would you do to increase the quantity of Silver against the paper market ? The more physical silver is traded and the more people decide not to lend their shares, the harder it will get to have the paper market dictate teh price.

fonzanoon's picture

Once the ESFS deploys the trillion dollars into the bond markets things will calm down substantially.

JustObserving's picture

We have shrinkage... the ESFS has shrunk to about $500 billion already ... maybe it's the weather, maybe it's Merkel ..but the ESFS gets more flaccid everyday

spartan117's picture

Tyler, it's obvious Germany wants the Euro DOWN.  I mean they ARE an export oriented country.  By telling the world how bad the Eurozone is, they get to have their cake and eat it to.  A weak Euro without the necessity to print.