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ECB's Latest Deja Vu Bluff: Rate Caps On Sovereign Bonds

Tyler Durden's picture


Just as Germany was warming its "Nein, Nein, Nein" machine, now that Merkel is solidly back from vacation and has caught up with all the desperation emails in the inbox, as reported yesterday, the ECB, in a furious attempt to preempt the unwind of every innuendo, speculation, "unsourced rumor", and everything else the ex-Goldman controlled printer of European currency (which however now and always is powerless without German support) has done in the past month to keep sovereign rates low, has just resorted to yet another deja vu preemption tactic: rate caps on sovereign bonds. Spiegel reports the based on unsourced data, "The European Central Bank (ECB) is considering to establish in its future bond purchases interest rate levels for each country. Thus, it would buy sovereign debt of the crisis countries whenever interest rates exceed a certain spread to German Bunds... At its next meeting in early September, the Governing Council will decide whether the interest rate target is actually installed." Which of course it won't for one simple reason: the same reason the ECB has done lots of talking in the past 3 months, and implemented absolutely nothing: the Bundesbank's Jens Weidmann, and the fact that as Danske (see below) and everyone else already explained when this idea was floated unsuccessfully the first few times, it would require an infinite balance sheet, something the ECB does not have, especially not when Germans are 'consulted.'

Furthermore, for the ECB to proceed with rate caps, it would need to trigger the "conditionality" phase of the crisis which as we have explained countless times, would require first Spain, and then Italy, to demand a bailout, which in turn would lead to political turmoil, coupled with a government turnover as well as ceding sovereignty to the Troika (explicitly) and Germany (implicitly).

Finally, to all those who are having a glitch in the matrix moment at this attempt to further jawbone rates lower without actually doing anything, the deja vu is indeed correct. Because as the following note from Danske from November (and countless other unsourced reports and articles from around the same time) confirm, the ECB was indeed considering rate caps at the most acute phase in the Euro crisis last year. And passed. In other words, the ECB very well may go ahead and implement a rate cap solution... after the periphery has demanded a bailout, and after both Spain and Italian 10 year notes are trading well above 8%. Until then, it will simply continue doing what it has been doing for the past 6 months. Talk, lie, and make empty promises.

From Danske, November 22, 2011: "ECB to defend an informal cap on rates"

  • The debt crisis is heading towards the end game. Mistrust has spread to Italy, Spain and beyond. In the absence of further policy action, interest rates spreads would probably continue to widen and the whole euro project could come to an end.
  • A number of feasible backstops are available, but face resistance. The German government as well as the Bundesbank is rejecting the use of the ECB as the lender of last resorts. It is also rejecting the idea that the ECB lends money to the IMF, which could then provide a temporary credit line for Italy. An increase in IMF quotas is an alternative approach, but this also faces resistance from, e.g. the US.
  • The two models for leveraging the EFSF presented at the euro summit a few weeks ago were designed to alleviate the debt crisis, but have attracted very little investor interest and seem unlikely to work unless they are made more attractive to investors.
  • Eurobonds that would allow government to raise funds up to a ceiling with collective guarantees could provide a much needed pause for governments. However, Eurobonds also face German resistance and would probably not be deployable as quickly as needed to combat the current debt crisis.
  • The ECB could provide a backstop by formally announcing a cap on individual countries’ yield spreads and saying that it stands ready to buy unlimited quantities of government bonds to defend this cap. However, the ECB and not least the Bundesbank, fear that this will remove incentives for structural reform. Therefore, in our opinion, the ECB is not going to make such a formal announcement unless the situation deteriorates significantly.
  • So, with no backstops immediately available will the debt crisis spiral completely out of control causing government defaults and possibly a euro break-up? We do not expect this to be the case. The ECB will not provide any formal guarantees to the market, but that does not mean that it will stop buying.
  • We believe that the ECB will defend an informal cap at possibly 7% interest rates on 10-year Italian and Spanish government bonds. The ECB will be averse to it, but do it nonetheless. This is due to the fact that until austerity measures succeed in  restoring confidence in Italy and Spain there are not many viable alternatives if the ECB wants the euro to survive.
  • The ECB has so far used its Securities Market Programme (SMP) to buy peripheral government bonds to the tune of as much as EUR200 bn. We would not be surprised to see them spend half a trillion or more before confidence is restored. It takes a lot of money to defend an informal cap.

And.... nothing. Why? One word - Germany.... and two more words "unlimited quantities" - good luck.

Full note below



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Sun, 08/19/2012 - 10:19 | 2717933 Seorse Gorog fr...
Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

In case of emergency, dial 'Nein, Nein, Nein'.

Sun, 08/19/2012 - 10:34 | 2717951 SeverinSlade
SeverinSlade's picture

Just dialed 999...ringing...Herman Cain just answered.

Which algo programmer decided to have them trade strictly on rumors and never on facts? If they traded on what is actually DONE instead of what is SAID the market would be 10 to 20 pct lower.

Sun, 08/19/2012 - 10:37 | 2717959 flacon
flacon's picture

Can I get a "rate cap" on my Credit Card please?

Sun, 08/19/2012 - 12:08 | 2718077 max2205
max2205's picture

And they may get the cash back feature

Sun, 08/19/2012 - 14:30 | 2718516 knukles
knukles's picture

"Whip Interest Payments Now"

Sun, 08/19/2012 - 13:16 | 2718247 monad
monad's picture

How much did he say you owe him?

Sun, 08/19/2012 - 19:23 | 2719101 oogs66
oogs66's picture

Been calling Nein Nein Nein since 1275 on spx? Maybe this time IS different. I will junk myself, but when was last time Germany really said Nein?

Sun, 08/19/2012 - 10:22 | 2717935 fonzannoon
fonzannoon's picture

If they are going to cap rates why not cap them all at 2%? Or better yet 1%? Since there is obviously no reprecussions....Why 7%? That still leaves some doubt in a few people's minds that perhaps things aree not actually well.

Sun, 08/19/2012 - 10:24 | 2717940 Tyler Durden
Tyler Durden's picture

In one case it is "unlimited purchases", in the other, "unlimited +1 purchases"

Germany will just say 9 to both.

Sun, 08/19/2012 - 10:28 | 2717947 fonzannoon
fonzannoon's picture

If the day ever comes where Germany actually has to choose between printing like mad to save the piigs or taking their ball and going home I guess it gets interesting. Everything between now and then is just posturing and can kicking IMHO.

Sun, 08/19/2012 - 10:50 | 2717976 bank guy in Brussels
bank guy in Brussels's picture

For now, need more 'euro-crisis' for short term to lower euro exchange rate and pump up German exports

For longer term, despite superficial 'euro-football', 'Germanic Bankers vs Indebted Latins' ...

When things get really pushed and pressed, Germany will agree to printing scheme in some form - as some Zero Hedge articles have long suggested - in order to attempt to save German banks and insurers and pension funds, and their exposure to EU debtors and contagion risk ... ditto other northern countries

Can will be kicked into 2013 ...

Something like the EU Sinking Redemption Fund may well be done after intensive autumn 'euro-crisis' ...
- taking on all euro-zone sovereign debts over 60% of GDP at moment, but no further debt, like USA and Alexander Hamilton did in 1790s for US states' debt
- being a finite and limited and defined amount - in trillions, yes, but still finite and capped - this can thus fit the German Constitutional Court's objections against open-ended blank cheques

As Jim Sinclair has long said regarding Western sovereign and bank bailout debt ...

« Whatever is required will be provided.

QE is coming. About that there is no doubt.

Regardless of the denials, all that is required here and there in terms of liquidity will be supplied.

It has begun and will continue in many ways and definitions ... »

Sun, 08/19/2012 - 19:30 | 2719109 oogs66
oogs66's picture

Great color. Nd I agree with you, they are pushing the envelope to find a way. So long as debt keeps rolling its just "profit" for ECB

Sun, 08/19/2012 - 10:52 | 2717979 mendigo
mendigo's picture

Germany will not act to save another country.
Germany will only act in thier own interest - as is thier charge.
While I can understand the frustration these people are not stupid our even short sighted - they are simply behaving to protect thier butts and will sacrifice anything to do so.
To portray these wealthy powerful people as stupid only plays in thier favor and is misguided.
The question would be that given that these people are smart and have unlimted resources and write the laws how are they going to bail themselves out. It is not a question of if the only point in doubt is how will the working people suffer for the transgressions of the wealthy/powerful and when will they somehow become aware of what is happening - which is simply that in this global economy we will all have same standard of living in the near future though some will manage to float above the unwashed uneducated masses.

Mon, 08/20/2012 - 00:07 | 2719748 sablya
sablya's picture

What is interesting is that the political power structure finds itself more and more at odds with the market.  The political powers can't allow the market to freely set the rates so an intervention is in order.  Right?  Wrong!  The idea of capping the bond rates will have horrible unforeseen consequences.  The ECB is declaring war on the financial markets and if it is war they want, it is war they are going to get.  The ECB will end up making things much worse for Spain and Italy with this brain damaged idea.

Sun, 08/19/2012 - 11:10 | 2717994 resurger
resurger's picture

If the German Court Cardinals either say "Nein" or "Ja" , it will be all fucked up ..

The 2008 marked the start of the great depression, keep an eye on APPL (AKA the market)

Sun, 08/19/2012 - 11:26 | 2718010 DavidC
DavidC's picture

Indeed, after Friday's ridiculous moves in APPL, it seems to be the only thing holding the market up (because it sure ain't Facebook or Manchester United's IPO).


Sun, 08/19/2012 - 17:11 | 2718843 gatorengineer
gatorengineer's picture

Well..... Lets just say Barry gets re-elected..... What would stop Ben from Printing to bailout the PIIGS.......  Nuttin........  So the can only need be punted 10 weeks or so.....

Sun, 08/19/2012 - 13:27 | 2718285 Neethgie
Neethgie's picture

The idea is not to do it, its to hoodwink the market into doing it first.

Sun, 08/19/2012 - 10:22 | 2717936 TwoJacks
TwoJacks's picture

rate cap, short selling ban. absolutely no difference and just as ineffectual

Sun, 08/19/2012 - 10:26 | 2717942 fonzannoon
fonzannoon's picture

The short selling ban seems to have worked in that the spanish markets have exploded higher since. I say cap rates. Let's see where it takes us. I also say that any citizen who buys spanish debt gets a free hooker. If you sell your gold to buy the debt you get two hookers. We need to start thinking outside the box if we want real solutions is my point....

Sun, 08/19/2012 - 10:31 | 2717949 Tyler Durden
Tyler Durden's picture

Hot off the NY Fed presses: 'Market Declines: What Is Accomplished by Banning Short-Selling?"


Taken as a whole, our research challenges the notion that banning short sales during market downturns limits share price declines. If anything, the bans seem to have the unwanted effects of raising trading costs, lowering market liquidity, and preventing short-sellers from rooting out cases of fraud and earnings manipulation. Thus, while short-sellers may bear bad news about companies’ prospects, they do not appear to be driving price declines in markets.

Sun, 08/19/2012 - 10:41 | 2717958 fonzannoon
fonzannoon's picture

Fair enough. I will go with your charts etc. anyday. From my rough estimate the Spanish short selling ban went into effect around July 23rd. I have the Ibex around 6k that day. I see it over 7k now. That was all I was getting at. I hope my sarcasm about this whole thing is evident. These stop gaps are never going to work.

Edit - I am leaving this up there because I wrote it. I did not have my coffee yet and so I forgot that Draghi gave his stupid speech on July 26th which probably has a lot more to do with the Ibex than the short selling ban. Tyler have mercy on coffee yet.

Sun, 08/19/2012 - 13:48 | 2718369 Hype Alert
Hype Alert's picture

Jawboning and promising the markets endless floods of money are much more effective.  For some reason.  Did Zimbabwe or Weimer Republic bother banning shorts?  I don't know, but one would think endless promises of moar QE would make people question the similarities.

Sun, 08/19/2012 - 10:56 | 2717982 Offthebeach
Offthebeach's picture

Ban long buying. Central planners need to get ahead of speculators criminally running up prices. Thus there would be no need for short bans. Matter of fact the Fed should have price stock stability. Maybe fix prices according to some formula +3% each year.

/central gosplan off

Sun, 08/19/2012 - 12:30 | 2718131 AynRandFan
AynRandFan's picture


That's the logical extension of the regulatory and monetary baloney we have already.

Sun, 08/19/2012 - 12:52 | 2718174 Randall Cabot
Randall Cabot's picture

What are these "price declines in markets"?

Sun, 08/19/2012 - 17:12 | 2718844 gatorengineer
gatorengineer's picture

I heard in the old days stocks were actually allowed to decline..... can you believe that????

Sun, 08/19/2012 - 10:56 | 2717984 fdgdfgd
fdgdfgd's picture

Outside the box, override laws to get the rate cap into the bond contracts. Now, how far are we from this solution moving inside the box?

Sun, 08/19/2012 - 10:59 | 2717986 fonzannoon
fonzannoon's picture

someone down arrowed free hookers

Sun, 08/19/2012 - 11:43 | 2718031 Global Hunter
Global Hunter's picture

no such thing as a free lunch?

Sun, 08/19/2012 - 14:11 | 2718453 Hype Alert
Hype Alert's picture

Maybe they thought "free hookers" and thinking outside the box was contradictory in nature.

Sun, 08/19/2012 - 10:26 | 2717944 SilverDoctors
SilverDoctors's picture

' The German government as well as the Bundesbank is rejecting the use of the ECB as the lender of last resorts.'

Germany doesn't seem to want to play ball. 
Anyone believe the official story that the Frankfurt International Airport dismantled it's massive € sculpture  (identical to the one in front of the European Central Bank) Thursday because the plastic parts were getting weak?

Looks like Germany is getting ready for a return to the Deutsche Mark.

Sun, 08/19/2012 - 10:44 | 2717968 bank guy in Brussels
bank guy in Brussels's picture

John Ward of 'The Slog' has also been writing about how they have mostly stopped working on the new ECB bank building skyscraper in Frankfurt since last March ... and no longer putting out their cheery newsletter about construction progress

One more item for those thinking the euro future is questionable

Tho personally I believe they will kick the euro-can for a while yet

Sun, 08/19/2012 - 10:27 | 2717945 Winston Churchill
Winston Churchill's picture

Its time for Draghi to change his name Quixote.

The windmills of the market will not stop.

Sun, 08/19/2012 - 10:28 | 2717948 SeverinSlade
SeverinSlade's picture

They already have a short selling ban...when is europe going to implement a ban on lying? Oh wait, jawboning the markets higher and yields lower is one of Europe's only "solutions" so never.

Sun, 08/19/2012 - 10:32 | 2717950 resurger
resurger's picture

this is the Joke of the day, right!!

Sun, 08/19/2012 - 10:36 | 2717956 Rathmullan
Rathmullan's picture

Well at least it's "informal" -- as if in a nod to those last few free "marketeers". The styrofoam lady will cave. And no, the cap can't be relative to the German bund. It must be absolute because without a doubt bunds are headed to 7% under such a scheme.

Sun, 08/19/2012 - 12:55 | 2718182 taraxias
taraxias's picture



Sun, 08/19/2012 - 10:40 | 2717960 JustObserving
JustObserving's picture

The US manages to keep its interest rates low (ten year at 1.625% or so now) with a debt of $16 trillion and unfunded liabilities (medicare and social security - politically impossible to cut) of $120 trillion and these together growing at $8.2 trillion a year.

Spain and Italy are in much better shape than the US as far as debt and rate of growth of debt is concerned.  So why should they be paying 3 or 4 times the interest that the US is paying?  Spanish 10 year yield is at 6.44% and Italian is at 5.79%.

Time for the ECB to put a cap on European rates before all the countries slide into a depression. After all, everyone knows that Western debts can never be repaid.  So might as well print your way out of the situation.  The sooner the ECB acknowledges that, the sooner the crisis in Europe can be managed.  As it has been in the US and the UK.

Sun, 08/19/2012 - 10:43 | 2717965 fonzannoon
fonzannoon's picture

Yes yes lets "print our way out". seems relatively painless. I am surprised no one has thought of this yet. Give that Krugman guy a nobel prize, he was early. Lets do this.

Sun, 08/19/2012 - 11:43 | 2718033 malikai
malikai's picture

Man, you may not have had your coffee yet, but you're on a roll here. You're killing me.

Sun, 08/19/2012 - 16:28 | 2718740 LawsofPhysics
LawsofPhysics's picture

Hey, he did say "managed" not "averted".  Spoken like every other highly "educated" arrogant insider fuck.  Wake me when folks like this start losing their head, literally.

Sun, 08/19/2012 - 11:25 | 2718005 SeverinSlade
SeverinSlade's picture

I technically agree. Only reason why bond markets don't is becsuse the US owns the world reserve currency and can devalue it at will. Spain doesn't and cannot print without Germany's blessing. But yes the fact that yields are where they are considering all the debt (you also didn't include all of the US derivatives market) is insane. It's a ponzi scheme...what do you expect? Party keeps going until the money stops.

Sun, 08/19/2012 - 10:42 | 2717961 AynRandFan
AynRandFan's picture

It's perfectly obvious that the ECB and EU officials are already using a rate cap and will continue to do so.  It doesn't matter what steps are taken, jawboning, outright bond purchases, unlimited liquidity, etc.  The fact remains that every time rates on Spanish and Italian debt come into the 7% range, a combination of actions are taken until rates fall.

The real issue is not whether the EU and its alphabet soup functionaries will defend the Euro, but to what extent private traders will continue to participate in this cartoon marketplace.  There simply is no place else to put the massive amount of liquid capital sloshing around the globe, so equity markets are bid up, bond prices are stratospheric, commodities are treated like tulip bulbs, and every kind of illiquid asset is treated like uranium tailings.

This boiling frog of a worldwide economy will not see a price dislocation in liquid assets until confidence collapses.  The trigger will be imperceptible.

Sun, 08/19/2012 - 11:40 | 2718027 Nachdenken
Nachdenken's picture

"There simply is no place else to put the massive amount of liquid capital sloshing around the globe.....The trigger will be imperceptible.."

....the trigger has been pulled, takes time for this complicated old market blunderbus to go off.

Sun, 08/19/2012 - 10:44 | 2717967 MFLTucson
MFLTucson's picture

"The European Central Bank (ECB) is considering to establish in its future bond purchases interest rate levels for each country. 


The height of stupidity just reached a new level.  

Sun, 08/19/2012 - 10:48 | 2717972 slewie the pi-rat
slewie the pi-rat's picture

marioECB is no brianSack, BiCheZ!

Sun, 08/19/2012 - 10:47 | 2717974 Colonel
Colonel's picture

Short selling ban = price controls.

"Economic affairs cannot be kept going by magistrates and policemen." - Mises

Sun, 08/19/2012 - 10:50 | 2717977 AynRandFan
AynRandFan's picture

Except in Japan, the anime version of a national economy.

Sun, 08/19/2012 - 12:32 | 2718135 Offthebeach
Offthebeach's picture

Chicago and every other shake down city.

Sun, 08/19/2012 - 10:55 | 2717980 TahoeBilly2012
TahoeBilly2012's picture

Is there going to be a ski season this year, or not? I am so over this crap.

Sun, 08/19/2012 - 11:02 | 2717991 Vet4RonPaul
Vet4RonPaul's picture

The EU and US really only have the kicking can model left; the capability to recover without implosion is now in the past and can not be be attained.  We are indeed already in the implosion phase but like most grief models, the majority are in denial that the death has happened.  The primary questions now for us are a) how much more wealth should we attempt to gain from the Denial phase and b) how should we prepare for the next phases (Anger, Bargaining, Depression, Acceptance).

ps - fuck timmy and berney

Sun, 08/19/2012 - 11:30 | 2718016 slewie the pi-rat
slewie the pi-rat's picture

timmahTheToe & bootinBen?

the moriarty & vautrin of can-kicking

as long as they can keep moving the goalposts, how can they evah miss?  L0L!!!

Sun, 08/19/2012 - 11:05 | 2717992 TrustWho
TrustWho's picture about arrogance breeding stupidity

Sun, 08/19/2012 - 11:16 | 2717999 LawsofPhysics
LawsofPhysics's picture

...because price controls always work out so well?  FAIL.


There is a very real cost for creating capital, especially without creating anything of real fucking value.  Stupid humans, time to tlearn this lesson again.  We have been here before, currency wars, trade wars, real wars.  Time to cull the herd, again.  hedge accordingly.

Sun, 08/19/2012 - 11:21 | 2718001 rehypothecator
rehypothecator's picture

This isn't market manipulation.  In particular, it isn't market manipulation when we do it. 


The ECB.

Sun, 08/19/2012 - 11:21 | 2718002 wandstrasse
wandstrasse's picture

we may say nein 9 times, but eventually, as always, we will do whatever Goldman alumni ask from us. Rest assured. Weidmann, Merkel etc just follow the 'at least we tried' approach.

Sun, 08/19/2012 - 11:28 | 2718006 Scalaris
Scalaris's picture


  • 'Therefore, in our opinion, the ECB is not going to make such a formal announcement unless the situation deteriorates significantly..'
  • 'However, the ECB and not least the Bundesbank, fear that this will remove incentives for structural reform. Therefore, in our opinion, the ECB is not going to make such a formal announcement unless the situation deteriorates significantly..'
  • 'We would not be surprised to see them spend half a trillion or more before confidence is restored. It takes a lot of money to defend an informal cap..'

So, amidst the already substantial deterioration of the social and economic climate, the imposition of structural reforms by the European peripheral governments are seen as less likely to materialise due to removal of the incentive, caused by the purchase of their value-less paper, while the Bundesbank opposes the establishment of a printing press in ECB, and the subsequent debasement of the whole of union's currency?

And most importantly, nobody likes destroying wealth for no result - Meanwhile, here's half a trillion euro for your periphery's value-less paper, in return for some confidence?

Why, I find it most unfathomable, that such immaterial progress has been made, towards the complete sociocultural shift of the largest part of Euro are, into industry-production economies, instead of central-bank cheaply funded, state-owned, nothingness-producing markets, during that past 5 years of tectonic social class relegating and parallel money printing, funnelled through transmission mechanisms as arbitrary as a state lottery sequence, with no expected results of any substance.  

It boggles the fucking mind.

Sun, 08/19/2012 - 12:37 | 2718149 AynRandFan
AynRandFan's picture

Awesome.  Dead solid perfectly right.

But, of course you must sublimate your natural instincts in order to be adjudged morally right in the head in today's enlightened western culture, where equality of economic outcome is taken as a given.  Weakness is a virtue, strength shall be villified, need equals right.

Sun, 08/19/2012 - 14:21 | 2718490 Scalaris
Scalaris's picture

Equality of economic outcome has been an illusory effect, perpetuated by the misconception of an overall social equality, regardless of social origin and the capitol at its subsequent disposal.

That being said, and by rejecting any notion of teleological assumption that history is driving toward some specific goal with an automatic progressive pace of improvement, formation of socioeconomic systems and implementation of socio-political policies, will inadvertently lead to inevitable convergences at inevitable historical meeting points as the social, economic and political outcomes of generational actions are compounded through time, within a theoretical market society which requires theoretical participants in order to function.

Since each participant group originates from diverse roots of capital, educational, skill accumulation, they hold different yet necessary positions within this theoretical system, which requires a compulsory equilibrium in order to function.

Until now, the positions within the system have been misappropriated and the flow of funds has been misallocated, with a result the current structural imbalance, and further systemic disequilibration.

A complete restructuring of the educational system, re-industrialization of service economies and a broad adaptation of global middle classes to the aforementioned standards should ideologically, maintain a level of equilibration.

If such task could even be branded as feasible, it would require a complete shift of geocultural identities, yield of national political administrations over centralized authorities, and a shift in the culture of corporate capital allocation, in order to satisfy the already pre-set mandate that has been implemented on a global scale.

Pragmatically, there is no equality, never has been, never will be, on any scale of any metric, anthropologically, socially, culturally, politically, economically or otherwise.

As such, whatever system exist will function on an unequal premise, and the only thing to keep an iota of evenness, is to shift unutilized labour towards productivity and subsequent justification of social welfare, through systemic educational adjustment and foundational alterations in the paradigm of expectation and social fulfilment, if it is to maintain some version of egalitarian congruence. 

Sun, 08/19/2012 - 11:29 | 2718013 ThunderingTurd
ThunderingTurd's picture

Good for a Monday uptick.  They (read:  TPTB) have figured out that simply talking boosts equity markets.  Afterall, this is the unmentioned mandate.  Someday, somehow, sometime this will not work and it will be comical.  Meanwhile, I watched Harry Dent say the market will be at 3,000 sometime between now and 2014.  Anyway we could move that to October puts need a little help!

Sun, 08/19/2012 - 13:49 | 2718372 CrashisOptimistic
CrashisOptimistic's picture

You, like so many others, are comparing, contrasting, analyzing, consulting with pros of "decades of experience" and all sorts of other things to address "The Market'.


Stop.  Open your eyes.  There is only HFT, and it's only trading ETFs.  There is no trading of stocks.  There are computerized correlators moving the index to align with ETFs, but the ETFs are MOVED.  Not predicted.  MOVED.

This has nothing to do with earnings prospects, economy or anything other than adding security to the jobs of the people running the computers.

It's all gone.  Just stop watching the S&P.  Its number does not compare to the past.  It's a different entity and it's the source of enormous risk.  Take your money and buy farmland.  Find a farmer to rent it from you and sharecrop.  Get away from this Ponzi.  

You know it's a Ponzi.  You call it a Ponzi.  Why are you guys still playing?

Sun, 08/19/2012 - 16:25 | 2718735 LawsofPhysics
LawsofPhysics's picture

"Take your money and buy farmland. Find a farmer to rent it from you and sharecrop" Started doing this in 2001 (the first time my paper got stolen) and have been mentioning it ever since joining ZH.  People think you are nuts.  I am part of a Coop, many veterans.  Defending your land will be important and you can't do it yourself.

Sun, 08/19/2012 - 18:23 | 2718983 startingnow
startingnow's picture

Farmland where I am runs six to ten thousand an acre.  Ground rent is approx $120. an acre per year plus water.  Biggest crop is going to end up being selling water rights.

Sun, 08/19/2012 - 11:31 | 2718018 djsmps
djsmps's picture

Joe Weisenthal likes the idea:

"It would be an incredible game changer for traders to know that the ECB was sitting there on the bid at a certain level, standing ready to buy sovereign debt. But what's critical is that the right ideas are starting to filter into the right places."

Sun, 08/19/2012 - 13:26 | 2718281 taraxias
taraxias's picture

Joe is a pimp

Sun, 08/19/2012 - 11:48 | 2718019 holdbuysell
holdbuysell's picture

""The European Central Bank (ECB) is considering to establish in its future bond purchases interest rate levels for each country. Thus, it would buy sovereign debt of the crisis countries whenever interest rates exceed a certain spread to German Bunds."

Mind numbing. Aren't these the same people touting free global markets and trade from the other side of their mouths?

My recommendation on this mess that is the financial system:

Sun, 08/19/2012 - 11:51 | 2718048 Nachdenken
Nachdenken's picture

What if no one bid ? Let the secondary market stew. 

Just avoid sovereign debt for a week.  September is a good month for risk.

Sun, 08/19/2012 - 12:35 | 2718142 Dareconomics
Dareconomics's picture

They will eventually monetize the debt, because it is destiny.

Sun, 08/19/2012 - 13:14 | 2718242 Cult_of_Reason
Cult_of_Reason's picture

You are asking the wrong question.

The question should be "Why a goldmanite is the head of the ECB?"

Sun, 08/19/2012 - 13:05 | 2718197 Cult_of_Reason
Cult_of_Reason's picture

This is just another ECB jawboning fantasy bullshit.

Rate caps on sovereign bonds would mean unlimited money printing + unlimited bond buying + "unlimited" Weimar-like hyperinflation. Germany will never agree to such suicidal nonsense.


Sun, 08/19/2012 - 14:22 | 2718494 Clever Name
Clever Name's picture



Maybe I am just an idiot and dont understand the whole bond issuance/buying process, but I see this as either:

1) An end around on unlimited CTRL P, without actually saying it, maybe by leaving that part out of an official statement

2) An attempt to drive the 'public' out of the PIIGS bond market, so they (ptb) end up controlling it to set the rates themselves without 'interference' from the 'market' (lulz!)

My limited understanding is that the bond rates/prices are still at least somewhat set by the 'market', but that the bulk of it is made up of some kind of bs scheme where the banks buy them to sell back to the gubt or some such crap. If the rates are capped by whatever means (and wouldnt all this apply to the US also?) why would anyone whos not involved in the whole scheme even participate? Then once you have driven out anyone who would demand a higher rate they can play their games indefinitely? Is this whats going on in the US and Japan, or am I missing something or just stumbled into something that everyone already knew?

Or just plain wrong?

Sun, 08/19/2012 - 17:14 | 2718849 Shelby Moore III
Shelby Moore III's picture

Germany and core might agree if the unlimited buying is coupled with strict conditions on PIIGS meeting fiscal deficit reduction.

Thus in any case, the key point is that unlimited bond buying will not stop the accelerating implosion of the European economy. I explained this is more detail in my other longer comments on this page.

Sun, 08/19/2012 - 19:59 | 2719165 StychoKiller
StychoKiller's picture

Sorry, but the drunks have to stay sober BEFORE anyone lends them a centime!

Sun, 08/19/2012 - 14:43 | 2718550 Joebloinvestor
Joebloinvestor's picture

I would bet the US is negotiating a "debt swap".

Both the US and the EU could monetize each others debt by buying their respective bonds.



Sun, 08/19/2012 - 16:22 | 2718710 Shelby Moore III
Shelby Moore III's picture

ECB will monetize the bonds, but this will not be an unlimited guarantee (unless hard-line conditions are attached), otherwise they will lose Germany from the Euro.

TPTB want the Euro to remain, and a greater fiscal union as a result of this crisis.

So the politics in Germany (and core, e.g. Finland) will be used to keep the pressure on the PIIGS to cut their budgets, while there will be enough bond buying to feed the insiders at the banks. So basically the people of Europe get squeezed, while the banks will be bailed out and the bailouts will be put on the sovereign balance sheets. And politically Europe will be held together and fiscally integrated.

It is desirable that there not be an unlimited guarantee, because this will maximize the amount of money the ECB will have to print, while also maximizing the pressure on the cutting budgets, thus keeping Germany and core in the Euro, while creating massive inflation and depression, and simultaneously greasing the pockets of the insiders. It is the perfect plan for TPTB.

So we will see a lot of noise about unlimited bond buying, but the guarantee will ever be formally made, unless it is also attached to a many hard-line conditions about budget cuts and tax increases.

Just remember the goal of TPTB here, is to keep the core in the Euro by appeasing their desire for the PIIGS to follow the rules of austerity. At the same, time, it has to appear that the PIIGS are also winning something to keep the in the Euro. But in reality, the people of Europe (both core and PIIGS) will be squeezed.

So the European markets and Euro are going to continue to crash, and this is likely to be a waterfall crash, because once the market figures out the above, then even ECB buying bonds won't help restore confidence in the European economy and Euro value. Note that a devalued Euro doesn't mean the EU disintegrates, and may help restore confidence eventually. Timing is probably Sept or Oct. It will take a little time for the market to figure out the reality.

I realize that many derivatives are hinged to CDS and interest rates, so ECB bond buying is critical to hold that together.

Most people have been looking at the problem as a question of who would exit the Euro. As I've detailed in my past comments, I don't think any country is going to leave the Euro. The plan is to use the CDS derivatives as a threat, to keep every country in the Euro as it goes down into a massive depression. ECB bond buying will do nothing to stop this depression, rather it will be used to manage the risk of contagion on CDS defaults, while the population will be squeezed by budget cuts and/or tax increases.

Sun, 08/19/2012 - 16:41 | 2718769 Shelby Moore III
Shelby Moore III's picture

In summary, remember the plan of the TPTB is not about saving the economy of Europe, but about saving and increasing their control structure over the governance, currency, and banking system.

There will be bond buying as it is necessary to achieve the above goal, but it will do nothing to stop the economic implosion of Europe.

The market has not yet figured out that the economy of Europe is orthogonal (separate from) the "control structure over the governance, currency, and banking system". Once the market figures out that bond buying doesn't stop the economic implosion, then markets will sell off.

Sun, 08/19/2012 - 16:33 | 2718755 W10321303
W10321303's picture

Ponzi Scheme is just another way of saying "THE EMPIRE"

Yanis Varoufakis: How the ECB is Complicit in a Macro-Financial Debacle

By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog

Ponzi growth happens when unsustainable capital flows, wilfully predicated upon funding schemes that Reason knows to be fraudulent, give rise to large spurts of economic activity.

Ponzi austerity, in contrast, is what happens when unsustainable spending cuts, wilfully predicated upon funding schemes that Reason knows to be fraudulent, cause significant drops in economic activity. (Click here for my original piece on Ponzi Growth and how it led to Ponzi Austerity.)

It is an incontestable fact that Europe’s Periphery shifted from Ponzi growth to Ponzi austerity some time after the Crash of 2008. Before the Crash, tsunamis of toxic money, minted and multiplied by US, UK and German banks, flooded the Periphery, causing bubbles in the real estate and public sectors. When that toxic money fizzled out, and capital receded from the Periphery like a vicious tide going out on a grim shore, the Periphery’s states and banks sunk deeply in the mud of irreversible insolvency. So as to delay the inevitable defaults that would strike huge blows on the tittering northern banks, so-called bailouts were arranged on condition of austerity policies that were as unsustainable as the growth whose collapse led to them.


Sun, 08/19/2012 - 17:31 | 2718878 scotsailor
scotsailor's picture

What rate will Greece get?

Sun, 08/19/2012 - 17:58 | 2718895 cranky-old-geezer
cranky-old-geezer's picture



We believe that the ECB will defend an informal cap at possibly 7% interest rates on 10-year Italian and Spanish government bonds. The ECB will be averse to it, but do it nonetheless. This is due to the fact that until austerity measures succeed in  restoring confidence in Italy and Spain there are not many viable alternatives if the ECB wants the euro to survive.

I think he has it backwards.

The Euro would survive way better without anymore printing.

Just let those PIIGS nations go bankrupt, leave, go back to their own (shitty worthless) currency.  Yea, it would wipe out a lot of bond holders, maybe kill the bond selling ability of those nations.  But it would stop debasing the Euro, best way to "save" the Euro.

But silly me, I forgot.  Debasing is the new paradigm.  Race to the bottom.  Debase faster than the other guy does.

Keep printing and buying more debt and earning more interest, how bankers make money.   Screw the Euro, they don't care, they get boatloads of interest to make up for any loss of value. 

Yea, wage earners and savers get screwed from currency debasement, but it doesn't matter, they're just filthy disgusting useless eaters.  Bankers are the only people that matter.

They can save the present EU and destroy the Euro, or they can save the Euro for what's left of the EU down the road.  One or the other, not both.

Sun, 08/19/2012 - 18:07 | 2718947 Joebloinvestor
Joebloinvestor's picture

They should be able to milk at least three meetings at 5 star hotels to discuss this.

Sun, 08/19/2012 - 18:39 | 2719006 tok1
tok1's picture

They have learnt to put posative news release to support markets.
Ie they release potential ECB action when real story
is Germany not wanting to provide Greece with additional funds( ie greek
exit possible soon) and the fact spain and Italy both have to
request to EU to get the ECB support ( or accept TRIOKA) supervision
of budget) which might imply further govt cuts / slower growth
and civil unrest ( ie see Greece ).
So yes they can get ECB buying if they give up soverenty.

and reduce spending .. If dragi could just buy he would have donw it.

Sader still whats the corelation between ECB action
and Spanish/ Italian unenoymemr seems pretty low ie like US
govt needs to shrink let weak companies fail so
real growth can occur .

Sun, 08/19/2012 - 18:57 | 2719038 Let The Wurlitz...
Let The Wurlitzer Play's picture

What solocialist thought of this nonsense?  The funny thing is that some idiot might thing this is good for the currency but personally I believe that it undermines the last bit if credibility that the euro has.  Good luck!


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roger714's picture

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Mon, 08/20/2012 - 13:47 | 2721041 Remington IV
Remington IV's picture

Obviously , an IQ cap has been implimented  in the comments

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bigfatgg's picture

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