The End Of Act I

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors,

So Act I has played out and to be honest, has left the audience feeling a bit underwhelmed.  While no one expected it to be easy, a couple of additional scenes have not helped the mood.


The “squeeze” effect is over.  On Friday we really liked the possible squeeze names – those that had been most beaten up.  They have responded incredibly well.  JEF went from 11.30 on Thursday to hit a high of over 13 but has been fading.  MS from 14.51 to 16.70, but also off the highs.  In CDS, MAIN got as tight as 168 yesterday, only got as good as 169 today, and finished a bit weak.  So the easy short squeeze leg is over for now (which was part of why it felt like a fade this morning).


The Geithner press conference was  a little too weak.  We weren’t expecting the scene to be a show stealer, but it was very flat and noncommittal. It could be interpreted part of the overall plan to keep pressure on the treaty negotiators, but it may be that Geithner didn’t want to say anything that would turn out to be dead wrong within a week.


The S&P move was clearly ad lib, and has been digested surprisingly well.  The more I think about it, the more concerned I am about the actions.  I think the fact that S&P seems to have forgotten about EFSF (and possibly EIB) is a bit scary.  From everything they have written about EFSF it was obvious it had to go on negative watch, which leads me to the conclusion that it is a different group and they weren’t communicating.  I think this will taint EFSF permanently.  If S&P removes the negative watch for France and Germany, the market will quickly forget about it.  Structured products tend to not to forget so quickly.  It will be hard to convince investors that the AAA EFSF is safe.  I think there is now virtually no chance of using EFSF on a leveraged basis, and it will not even be a cheap source of funds on an unleveraged basis.  The EFSF is contingent on so many pieces, that I believe it has been permanently damaged by S&P’s action.  There will be a nagging doubt in investor’s minds that lasts much longer than for sovereign debt.


Which leads me to my next concern about the rating actions.  Lots of people are comparing it to the US.  In the US it was pretty clear if our politicians demonstrated an ability to work together and compromise, we would have been taken off watch (or at least not downgraded).  We also need to show a real attempt to rein in the deficit.   Those two actions were complimentary.  Show political leadership and fiscal conservatorship and get a better rating.  That is not how Europe is set to play out.  If France and Germany get everyone to agree to try for treaty proposals, you will have demonstrated political resolve, but it will also require capital from those two countries.  They will have to provide money.  France, which is being threatened with 2 notches if there is no agreement, is allegedly back to AAA if they get agreement and have to spend a lot of money?  I think S&P may have painted itself into a corner, because it is not that European political agreement and fiscal prudence go hand in hand.  Agreement will be positive for other countries in Europe, but France in particular may still have to face a downgrade.


Maybe it really is simple, and Europe gets an agreement to agree and they get taken off watch, but I think S&P has opened a can of worms, and it will impact EFSF long term, and France may not be let off the hook so easily.  The rating agencies will also likely wait to reverse their decision until after policies are implemented.  The ECB and Fed and IMF can flood the EU with money the moment they get the photo-op, but the rating agencies will be more careful.  I think this development is not only troubling, but does start to cap the potential upside of any post agreement rally.


Completely out of Europe’s control is the deterioration in China and Russia.  China had bad economic data and the stock market is down over 5% in a week.  Russia had elections that have led to rioting and a 4% decline in the market today.  The IMF certainly has been hoping for more support from those two countries and is likely most concerned about Russia where the political situation has changed enough that they may have to renegotiate whatever side deals they thought they had.  BRIC without the R&C just isn’t that helpful.  This was out of the control of the EU but is real and could become a sub-plot that needs to be addressed.  Our own data, while improving and okay, is not off the charts great and the political will here to help Europe is already pretty low (that is why Obama is letting the unelected dynamic duo of Tim and Ben do as much as possible).


The drama still has to run its course, but I think fears of a bad ending will take over for now, while the audience waits for some more scenes.  It is key to remember that Merkozy, as director, has no interest in releasing positive scenes too early as that would take pressure off the participants, so expect more nagging doubts to be added to a market that is balanced, if not a bit too long for the moment.

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Corn1945's picture

Peter Tchir is no different than RobotTrader. Both provide wishy-washy review-mirror "anaylsis" that conveys little to no useful information. Both provide information that can easily be gathered personally from a chart of the S&P.

Yet, I get junked everytime I point this out here on Zero Hedge.

Mr Lennon Hendrix's picture

I agree, this is a shit article.

JEF is getting hammered today.  Anyone that puts faith in a rise in equities is better off going to church to be healed.  Anyone that doesn't understand that Central Banks pumped liquidity into the markets to keep the Directs and others solvent is dilusional.


SheepDog-One's picture

Where would we be without continuous direct injections to keep these corpses flopping around? 

'Waiting for the next act'...whatever...what can they say that hasnt already been said?

GeneMarchbanks's picture

Remember JEF is still a piece of shit that hasn't hit the floor yet. Call it a hanger on - a dingleberry, if you will.

Peter has finally realized that there are other places that can affect 'markets' other than Europe. Instead of giving him shit, you should be congratulating him.

Kudos Pete.

Cdad's picture

No less than SIX Roach Motel [SPY] "stick saves" in the last hour and twenty minutes.  Injection...injection...injection.

Sell everything today.

gojam's picture

Don't bother pointing it out then.

Everyone's entitled to make their own mind up.

You're just repeating a general criticism over and over. After a while it just becomes spam.

Nothing you've written is actually specific to this article.

bank guy in Brussels's picture

Peter Tchir's recent analysis of the EFSF complexities was the best thing anywhere on that topic, closely read by bank desks and people in the EU itself (I confirmed this personally), and he likely has personally had a great positive effect on preventing the EU - ECB from pursuing some dead ends too aggressively.

So I am surprised to see some of these sharply negative comments on the postings of Peter Tchir of TF Market Advisors, because he's been overall quite superb in his analysis of the EU situation, and indeed quite specific and technical about the mechanisms that have been offered and partly deployed during the EU response to the crisis.

Many of Peter Tchir's points are subtle, rather than vague, and that is a big difference ... He is saying things that are on target, valuable and useful ... like the way he points out that the oddly sudden ratings downgrades are a kind of push on the panoply of EU players ...

Or how S&P has placed itself into difficulty by saying that France will be downgraded without an EU plan where France increases its debt commitment, but yet France is also risking downgrades by making that commitment

Or how Merkel and Sarkozy themselves are likely letting the crisis fester, and not announcing good news even when they have it in sight, out of a felt to need to push the actors into doing things.

Peter Tchir is one of the premium people supplying material for ZeroHedge, and that is saying a lot. He's a real asset, and Tyler should be duly commended for having him here.

junkyardjack's picture

I thought these posts were just supposed to be jokes kind of in an Andy Rooney sort of way.  

Stax Edwards's picture

Not sure why PT keeps harping on S&P not covering the EFSF in their outlook.  From WSJ:

S&P also said it placed the long-term credit rating of the European Financial Stability Facility, or EFSF, on credit watch negative. The move puts the bailout fund's rating on review for a possible downgrade. Yields on EFSF bonds spiked higher shortly after the announcement.

evolutionx's picture

the end is near



A deluge of an unprecedented magnitude is both inevitable and imminent. The consequences of the economic and political mismanagement will have a devastating impact on the world for a very long time. And the consequences will touch most corners of the world in so many different areas; economic, financial, social, political and geopolitical.

Cognitive Dissonance's picture

The drama still has to run its course, but I think fears of a bad ending will take over for now, while the audience waits for some more scenes.

The biggest mistake we can make is to severely underestimate how long this can play out. Never forget that the average Joe will support a failed system to the very end. One just needs to read some history with an open mind to come to this understanding.

Mr Lennon Hendrix's picture

I've been learning this, albeit slowly.

Captain Kink's picture

Well said, CD.  This garbage will be prolonged for some time yet, and we will get the photo op after the "summit" and the can kicking will continue....


Perhaps an Italian or Spanish default after a series of failed auctions as they try to re-fi $750B during 2012

junkyardjack's picture

The "average joe" is already unemployed and on welfare, he has no money for stocks.  This system is on the brink and will collapse as soon as the first fund puts its investors first and tries save their money before its over, luckily they get paid on management fees so that won't happen

SheepDog-One's picture

If the POINT was to drag things out, delay one knows what their plan is and the rug may be pulled out tomorrow so dont plan for best case scenario, prepare for worst case.

oogs66's picture

great point...even on corporate credits, default can take a long time

Nate H's picture

Peter is way different. He is Salomon trained so understands debt


NotApplicable's picture

Too bad he believes in fictitious actors, and believes that puppets can ad lib.

Captain Kink's picture

Obama?  Do they let him ad lib? 

Mercury's picture

Well...only one more act until climax...

CvlDobd's picture

I love when my screen is mostly red except for a handful of stocks in a group of 30. Interesting.

Captain Kink's picture

Never mention a gun in Act 1 that is not used in Act 3....

banksterhater's picture

Whenever R2K, Nas, SP DOWN, and Dow UP, it's MANIPULATION.

deepsouthdoug's picture

Is this play a tragedy or a comedy/farce?

oogs66's picture

all of the above and is amazing how this is what the market has devolved into

falak pema's picture

Economy, ecology and energy : all heading the wrong way and exponentially fed; Chris Martenson makes some great points.

non_anon's picture

keep your eye on a Christmas rally,not

gojam's picture

Didn't you hear ? There'll be no Christmas this year.

Let me tell you all about it.................

How The Greeks Stole Christmas!

Every EU
Down in  EU-ville
Liked Christmas a lot......

But the Greeks,
Who lived just south of EU-ville
Did NOT!

The Greeks hated Christmas! The whole Christmas season!
Now, please don't ask why. No one quite knows the reason.
It could be their heads weren't screwed on just right.
It could be that they were a little bit tight.
But I think that the most likely reason of all
May have been that their wallets were two sizes too small.

Then they got an idea!
An awful idea!

They loaded some bags
And some old empty sacks
On a ramshackle sleigh
And they hitched up G-Paps

Then the Greeks said "Giddap!"
And the sleigh started down
Towards the homes where the EUs
Lay a-snooze in their towns.

All their windows were dark. Quiet snow filled the air.
All the EUs were all dreaming sweet dreams without care
When they came to the first little bank on the square.
"This is stop number one," the greeks all hissed
And they climbed to the roof, empty bags in their fists.

Then they slithered and slunk, with smiles most unpleasant,
Around the whole room, they took everything present!
Gravy Trains! And Pensions! Subsidies! Funds!
Loans! Extensions! Guarentees! And Bonds!
And they stuffed them in bags. Then the Greeks, very Nimbly,
Stuffed all the bags, one by one, up the chimbly!

And the one scrap of paper
That they left in the vault
Was a debt so large that the bank must default.

They did the same 
To the other EUs vaults

Leaving debts
Far too large
So the other banks default!

It was quarter too dawn
All the EUs, still a-bed,
All the EUs, still a-snooze
When they packed up their sled,
Packed it up with their futures! Their pensions! Their savings!
Their hopes! And deposits!, Their works, And their slavings!

"Pooh-Pooh to the EUs!" they were Greekishly humming.
"They're finding out now that no Christmas is coming!
"They're waking up now to find they've no money!
"Their mouths will hang open looking quite funny
"Then the EUs down in EU-ville will all cry BOO-HOO!

prains's picture

Angela is dry humping Europe and it will be difficult to reach a climax.

Snakeeyes's picture

The EU Real GDP came out this morning and was unchanged at an anemic 1.4%. And that is with Germany really doing well with exports.

How how can The Zone overcome its increasing debt problems with 1.4% GDP? How will making the EuroZone colonies of Germany and France make GDP rise? It won't!

junkyardjack's picture

Which leads me to my next concern about the rating actions.  Lots of people are comparing it to the US.  In the US it was pretty clear if our politicians demonstrated an ability to work together and compromise, we would have been taken off watch (or at least not downgraded).


The problem is that we're at an unsustainable level of debt, the only compromise is to default on our debt anything else is bullshit.  Since default is out of the question, there is no clear compromise.  The system is at a breaking point

Peter K's picture

One other reason for France not being let off the hook is the failed bank they swept under the rug. Dexia will have to be dealt with sooner or later. And it looks like the French are stuck for the largest part of the bill.

oogs66's picture

yeah, funny how dexia is still lingering....wonder if that gets un-bailed?

yogibear's picture

In the US it was pretty clear if our politicians demonstrated an ability to work together and compromise, 

This guy is  so full of it. Time to get boots out.

loftgroovv's picture

What about Brazil?


They reported the economy entered a technical recession in the third quarter.


Oh dear...

earleflorida's picture

good point - the imf is without a doubt running on empty, and if brazil fades fast into a severe-negative-growth  story,... s. america will surely follow - the hop-scotching marsupial we call the american taxpayer's 'imf' [infinite monetary fluff] will have pulled-up lame, and certainly will have to be put down - 3x's and your outta here!


oogs66's picture

so just a billion starving indians to save the world?  they have a lot of gold though

MrBoompi's picture

"We also need to show a real attempt to rein in the deficit."

Who do you mean by 'We'?  The American people?  What did we have to do with Federal Reserve bailouts, wars, and general overspending by Congress?  We've paid into Social Security and Medicare separately, and all along, yet these are the programs you would cut to show we're serious about the deficit?

The "deficit" IS the money supply.  The Fed is doing everything they can to increase the money supply.  They will not allow deflation through debt reduction.  So I ask you again what can the American people or Congress do about it?



pineyard's picture

OK .. i have written this before ..I repeat .. in a different version:

1 US citicen wants to buy treasuries .. he chooses to buy for 100.000 USD European Bonds .. 10 years ago .. for ex BUND .. As the exchange rate then was 0.8889 USD to the Euro ..he recieved for 112.498 EURO worth of Bonds . During the Years he recieved some percent MORE in interest than he would have recieved in the US . Alltogether he due to interst increases his EURO Capital approx with 50% over these 10 Years . Now he has 168.747 EURO. He exchanges it back into USD as he wants to retire .. for his EURO he now recieves 225.818 USD ...because TODAY the exchange Rate is 1.3382 USD to the EURO . Nice SAFE INVESTMENT ... or what. Please substitute the EURO with almost any other currency .. ... Now try and do the opposite calculation ..  

A european wants to buy for 100.000 USD  10 YearTreasuries ..10 years ago . He pays 112498 EURO for the lot. He recieves paltry interest rates for all the years . combined may be 30% .. Then at Maturity he recieves 100.000 USD . He exchanges it back into EURO. He recieves 74.727 EURO ! Add the interest rate he recieved . approx 30.000 USD worth 22418 EURO . Combined he recieved approx 97.000 EURO in return after holding 10 Year US Treasuries for 10 Years ... an investment which cost him 112.498 EURO . So he LOST approx 15.000 EURO numerically .. well and then there is INFLATION .

The US continues to BORROW at breathtaking SPEED .. with NO END IN SIGHT..

It may be a SAFE BET we will see a REPEAT of the performance of the US Dollar ..the next 10 Years.

AccreditedEYE's picture

I think the fact that S&P seems to have forgotten about EFSF (and possibly EIB) is a bit scary.

I'll tell you what is really scary... the U.S. Treasury Secretary pounding his fist on the table that this was the end all be all of solutions for Europe. In retrospect, easy to see what little analysis these idiots rely on going solely to the "key soundbite" that will juice the momo monkeys and thoughtless Algos. What a sad performance indeed, and one readers of ZH are all too familiar with.

Mark123's picture

Latest bizzarro headline:


Why Sovereign Debt Ratings May Not Matter That Much

Historically, ratings downgrades have failed to predict downside moves.

rambler6421's picture

How will the end of Act III look like?  Hyperdeflation?

Piranhanoia's picture

We have seen a lot of pundit guest posters that have been illuminating in the last year!  Isn't it overwhelming how the hopey's have been eviscerated by the gloomies just by looking at how far we have moved forward on that never ending growth thing? Neverending growth is a synonym for cancer.

People that would tell us all we are liars if we were to suggest they would beg the Fed to print are everywhere. Anything to save their paper ass ets.  People that make a living at this casino can't admit there is no political solution, no monetary solution and no legislative solution that isn't going to cause the people everywhere to riot until they get to vote on whether they want their country to be insane or not.   

Watch the empty suits that are crying for austerity corner the market in knee pads for the begging and praying to their paper god and his idiot son the holy printer, Bennie. All hail and fellate the saviour.  Here's my wire instructions dog. You have all my numbers, right?

DarkStarDog's picture

Only way to win is don't play. It is all fraudulent.

Use of Weapons's picture

Doom'd for a certain term to walk the night,
And for the day confined to fast in fires,
Till the foul crimes done in my days of nature
Are burnt and purged away. But that I am forbid
To tell the secrets of my prison-house,
I could a tale unfold whose lightest word
Would harrow up thy soul, freeze thy young blood,
Make thy two eyes, like stars, start from their spheres,
Thy knotted and combined locks to part
And each particular hair to stand on end,
Like quills upon the fretful porpentine:
But this eternal blazon must not be
To ears of flesh and blood. List, list, O, list!

macromeister's picture

As erratic as S&P might be at times, very interesting that upon being questioned on recent negative Euro-debt rating actions, it responded that this was in part due to the lack of Greek CDS being triggered on that 50% haircut. Looks like the Germans and their 'fiscally sound' northern cohorts really shot themselves in the foot on that one (as many warned would be the case.)

And it is not fiscal union so much as an Austerity Club that Germany is proposing. And the weaker sisters will never be able to grow their way out, if they even choose to join in the first place.

evolutionx's picture

No Eurobonds – no euro

According to the EU monetary chief, the eurozone may only have a few days left to find a way out of the crisis. But economic analyst Michael Mross believes that Germany would rather let the euro die than support the idea of Eurobonds.