The ECB's Scary Carry Trade, Or How The ECB Will Forego Greek Bond... PROFITS?

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

The ECB's Scary Carry Trade

According to the WSJ, the “ECB is willing to forego profits on their Greek bonds”.

That statement strikes me as one of the scariest things that a central banker could say (and there is some tough competition for that one).

Forego profits?   Here is the chart of a typical Greek bond over the past 2 years.  The ECB started buying Greek bonds in May 2010, and stopped sometime in 2011. 

How do they possibly have “profits” to give up?

They have “profits” because they live in an accrual accounting world.  They buy bonds, don’t mark them, and accrue the interest.  The accrued interest counts as “profit”.  That is the carry trade.  That is what everyone is so excited about for the banks.  Banks can buy bonds, not mark them, and book the interest accrual (and payments) as profit.

The problem with accrual accounting is when a sale is forced.  Whatever the reason for the sale (in this case, a restructuring/default by Greece), the accrual accounting game is over and you have real profit or loss.  The “profit” is the total proceeds received for the sale, versus total purchase price, plus any coupon payments received, minus costs of carrying the position.

Some entity is taking the real world loss.  These bonds were bought at prices far above their current value.  Since most Greek bonds only pay interest annually, there may be a lot of accrued, but unpaid interest that will also be lost. 

It strikes me as very scary that the central bankers seem more comfortable in an accrual accounting world.  It is also scary that all future policies seem to be based on an attempt to show that all prior policies worked whether or not they did in reality.  It also explains why they are so comfortable with plans out to 2020 when Greece just missed their projections for January by €1 billion.

Can’t wait to see the details of this plan, but can’t imagine that we won’t be discussing a second round of restructuring or default before long.

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Irish66's picture

Who would force the sale?

ilion's picture

I've lately started to have a feeling that we're not living in real world anymore, rather in some sort of computer game or a movie. Do you guys have the same feeling?

Vincent Vega's picture

Yes, Neo. There is no spoon.

Ahwooga's picture

Aye, and with the low volume and limitless supply of cash its really getting on my tits how they seem to be able to put a floor in the FTSE every 25 points and then run it up 50-75 in a heartbeat when seller fatigue develops. Talk about a grind.

RunningMan's picture

@ilion - spot on, and have felt it since late 2010. there is a lot of maneuvering going on everywhere. politicians, businesses, individuals. it feels fake somehow, more like a computer game then a movie. not sure what it all means though.

battle axe's picture

Were the Mayans on to something? oh oh.

MsCreant's picture

Not a feeling, a fact. Once your printing is not limited to paper bits, but computer bytes and pixels on a screen, you are in a computer game, con game that is.

Rynak's picture

And let's not forget HFT.... algo's battling each other on a millisecond basis - price wars with ZERO INPUT from reality: Bot deathmatches.

Archon7's picture

tosses him the red pill

LongSoupLine's picture



Maybe you all don't understand "central bank logic"...

"Profits" are a all depends how much they "print" to create the "profit".

Here...I'll make it easy:  If you were broke, had a money printer in your basement, what's your next move? 

spartan speculation's picture

Can someone please explain when greece's time is up ?? i thought their payments due on March 20 needed to be setup 6 weeks prior ?? that would make today the final day to get this resolved ????

Ancona's picture

Anyone seen my unicorn? He was here a minute ago......

RunningMan's picture

No, but this meatloaf is delicious. The decorative horn on top was a nice touch by the chef.

MsCreant's picture

Paradise by the Dashboard Lights. Horny Meatloaf.

knight99's picture

markets are way overdue for a correction. it will happen just hard as hell to keep watching my short position. live by the sword die by the sword

ConspiracyTheory's picture

Just make sure you put that stop loss in place in case the exact opposite happens. I have a feeling many ppl are waiting to jump into the market, so correction might be very little, especially with another ltro the end of this month and low valuation.

battle axe's picture

Greece "the country that never knows when to just default". GET ON WITH IT ALREADY FOR CHRIST SAKE YOU DOUCHE BAGS!!!!!!

Dick Darlington's picture


Short belgian catering firms

WaEver's picture

Draghi looks at the same graph but turned upside down

Josephine29's picture

Elements of this deal come from a fantasy world as are  highlighted below in a thoughtful article that compares all these manipulations to a giant game of pass the parcel.

Yes you have it some of the worst bond purchase decisions in the modern era (current price 20 or so and claimed (note the claimed please) purchase price of 70 to 75) only seem to have “forgone profits”. And the losses please? This type of accountancy would save the world an enormous amount of red ink before it tipped into an abyss.


As I type this I am trying to remember the name of the computer leasing company which collapsed in the UK because it accounted for its profits and income up front and parked losses in the future. This was considered quite a scandal by the sort of people who are making this proposal……..And the difference is?


EmileLargo's picture


ziggy59's picture

Scary??? Does he forget what planet this is? this is not Earth...its The Bizarro World; Htrae...where everything is backwards...

unemployment by the million is employment for the millions,

bankrupt countries are profitaable.


Byte Me's picture

Bad Bank of last resort...

...added bonus -- can also cover it's losses either by dipshit accounting or CTRL-P.

MsCreant's picture

You must not have been around for a little bit. Money "vaporizes."

Magic Bitchez.

Byte Me's picture

Thought I had that covered under the generic "dipshit accounting".

Thx anyway MissC.

MsCreant's picture

You won't see the details of this plan. There is no oversight, anywhere, because no one wants to see and do the real "marking to market."

Bankrupt is as bankrupt does.

LouisDega's picture

Lets get down to brass nut sacks. Are the futures up?

Ben Bermonkey's picture

It is definitely your fault, Tyler. Bloomberg changed the graph settings today morning from „price“ to „yield“, because the Draghon wanted it this way – so there are huge paper profits on their positions…

RunningMan's picture

I keep hearing about this recovery in the US, but my email inbox is empty of work related emails. Service sector is dead since fall of 2011... and 2011 was worse for me than 2008. Greece now missed their targets, so seems like the same except much worse. Seriously, can someone explain where this supposed recovery is? Do I need special glasses or something? Please? I want to be in the game, or see the secret picture or whatever. Can someone tell me where it is????

I guess I can go be an enforcer for the feds or something, hunting down sovereign citizens, whatever those are. This whole economy has become absurd.

vipobviously's picture

Clearly you don't understand how the magic works yet. Let me break it down for you...

1. Council decides "recovery" good for profit.

2. Spokesman for council calls mouthpeice at media hdqtrs and informs them of said recovery.

3. Media informs public of recovery.

4. Public knows deep down there is no recovery, but believes media anyways and dusts off the credit card for debt based spending spree

5. Council members happy

Number three is the most important part of the equation, but in a nutshell that is how a magical "recovery" works. Getting people to believe the lie is magic, not potions and spells or dried chicken bones or tarot cards.



RunningMan's picture

So like a good citizen, I should conclude it is just me and get on with it?


I got a haircut  and I paid with a credit card. Check off #4.

vipobviously's picture

 I guess, but the fact you read and post on this site probably makes you a sovereign in the eyes of the fibbies, or al the very least not a brainwashed subject/citizen,so I wouldnt count on a position hunting them down. You and I, along with all the rest of ZH readers, are probably on the same reeducation list, so if I dont see ya at the re-ed camp, excuse me "school" its probably because I went down fighting/protecting my family from fed/U.N. home invaders or something along those lines. I just hope the use a cool sounding missle like a hellfire or a MOAB, and not a DUMB bomb guided to my newly minted census coordinates

HarrisonBergeron's picture

1. Buy Bonds

2. ??????

3. Profit

Peter Pan's picture

They can try every paper trick knwn to man and in the end it will ll count for nil in the absence of jobs with a level of pay that enables a dignified existence.

All these central banks can do s create and shuffle debt whilst favouring banks and governments at the epense of the worker and the middle class.

Greek debt and soon other debt will be wheelbarrowed from bank to bank and scheme to scheme like some unwanted foster child until we either lose sight of it or until we gag on the debt when someone tries to cash it in.

Ima anal sphincter's picture

I could be wrong, but isn't this a power grab only. The "money" was all fake, so isn't the "debt"? Does the U.S. owe northwards of 13 Tril? Just what IS that number and who gets it all?

Corrupt central bankers have us all bamboozled. I signed no piece of paper that makes me responsible for that. Of course, they'll use men with guns to "get their payments" from me anyway.

Greece is being stolen from its people. If this "experiment" works. Watch everyone fall, one by one.

There IS an answer. "The People" are still standing on the sidelines.

Better get in the game before the score gets out of hand.

LawsofPhysics's picture

"Better get in the game before the score gets out of hand."

- sadly, you are more than 100 years too late.  Get back on that wheel and run, there is interest that needs to be paid to the central bankers.

airedalesrule's picture

"Some entity is taking the real world loss."  That would be the Euroland standard of living, from the playbook of the Fed and the US Treasury.

falak pema's picture

CB SCARY language is a product of its own : relinqishing profits means accepting losses; accruing liquid assets means printing money; and providing a financial backstop called EFSF means having a pierced barrel of fiat liquidity; what comes in vapourises instantly. 

Now lets talk about other possible SCARY language, the new upcoming legislation in Eurozone which could be a cut and paste "terrorist" legislation imported from USA, on a FED/ECB swap line type basis. I'm sure Merkozy have given it their green light! Sarkozy has already said : O'bammy the man to follow. He should know, they are both in election year. To blunt the National Front far right vote he has got his team talking like them. Its already gotten scary; clash of civilization stuff to stigmatise certain ethnic groups. Also, Merkel said two days ago ON FRENCH TV she supports him all the way ON ALL SUBJECTS!!! CARTE BLANCHE!!

So O'bammy, Sarkozy, Merkel are on same page, like FED/ECB, probably also to lie by minimising on fall out of ponzi bubble; can kicking now joint EURO-USA policy. And why not on other issues which are contiguous to spin and lie on banksta crisis and say "alles ist gut!" ?? Why not institute common legislation against upcoming social troubles; anticipate it in election year instead of defending against it. Take the initiative and scare the shits out of the would-be protestors, like ANonymous guys et al. I'm sure they are looking for a lead from USA to follow.

Anonymity and criticism could now be a luxury in first world. Logical collateral damage to already financially inflicted debt infested future : don't talk about it or you're in trouble! Accept your medicine, you are now in security controlled drone infested zone. Athens has to keep its hooligans in place; there is financial contagion we know but there is worse, for TPTB; there is social contagion. Can't have that! Worse than banks going belly up. 

When I said that China looked as if it would be our first world future geo-political model, I didn't know it was a cat already out of the bag wearing seven league boots!  We are in election year and all is possible, but maybe in pre-empt mode!....It makes me feel cold, this race to bottom emulation.

dr.charlemagne's picture

when you print the principal out of thin air............its all profit

Archon7's picture

The “profit” is the total proceeds received for the sale, versus total purchase price, plus any coupon payments received, minus costs of carrying the position...

...  plus the monopoly money printed and entered in the books along with the other hopium-induced numbers.

It's Orwellian blackwhite doublespeak from the "Ministry of Wealth", aka "Miniwealth".

HungrySeagull's picture

It's all pretend and fantasyland.

Has no bearing whatsoever on reality except to those who incur the losses while mentally incompetant to make a finicial decision.