Europe Doesn't Get It

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

Europe Doesn't Get It

I still think the most likely scenario is that some agreement to agree is made at the summit, which is then followed up by increased printing from the ECB, coupled with new Fed policies and fresh IMF money.  Although that still seems the most likely, I am getting concerned that Europe is once again missing the point. 

Many EU leaders seem to actually believe that the Treaty changes are important.  The reality is the market could care less about treaty changes.  The market cares about only one thing, that the ECB will announce new, bigger, more aggressive sovereign purchases.  That’s all the market cares about.  The market believes that the treaty changes provide an excuse for the ECB and IMF to ramp up their efforts.  The EU can do all the treaty changes it wants, but if it is not followed up with aggressive new printing policies, the markets will sell-off.

Not only are politicians acting as though the treaty changes mean much, there is even talk about being able to implement changes without national votes.  That idea horrifies me on a personal level as it is yet again trashing any sense of democracy, but it is bad for the markets.  I have been assuming that the meeting will result in another agreement to agree. That is relatively easy to pull together.  Since it doesn’t really mean much, any countries that aren’t really on board, can be cajoled into holding hands for the photo op and pretending they agree long enough for the ECB and IMF to throw more money at the problem.  Agreement is far less likely if real permanent changes are being implemented.  It is one thing to agree to the plan on the condition that you have to go back and get approval.  It is much more risky for someone to agree to permanent changes implemented using some backdoor legal technique.  Talk of actually implementing policy action this week is actually a negative as it makes it less likely that they can announce a “successful” summit.  On a side note, my favorite part of the proposal is the fines for going over the approved limits.  So countries that have the biggest deficits will be fined, adding to those deficits?  Debtor’s prison never worked very well, so why this would accomplish much is beyond me and would likely be waived any time it could be used.  But no one on wall street has bothered to read the treaty proposals because no one cares, all anyone cares about is that the ECB uses it as an excuse to print.

Yesterday’s FT rumor of ESM and EFSF working together was yet another reason to be afraid that Europe doesn’t get it.  Not only would implementing both at the same time place the AAA rated countries at greater risk of downgrade, it ignores the fact that EFSF has been a total failure.  I thought Europe had moved beyond floating yet another iteration of something that hasn’t worked.  The fact that they haven’t is a potential indication that the printing presses aren’t going to be turned on as soon as the market would like.

Finally, there is more and more talk about what the national central banks can do.  People are acting as though they were cleaning the living room, and found some money when they lifted up the cushions on the couch.  This is not “found” money.  Participants and lenders are well aware of these reserves.  They can be used for example to fund loans to the IMF to lend back to some countries, though I don’t fully understand why they can’t just lend to the countries directly, but I assume there is some law that lending to the IMF lets them circumvent.  But there will be a cost to these actions.  There will be a consequence, and although it will later be viewed as “unintended” the consequences are actually foreseeable.  The countries with large reserves at the national central bank level have a reduced cost of funds because of those reserves.  Lenders are not always totally stupid.  There is value that is being realized from having those reserves.  Using them to create loans for the IMF will impact that country’s ability to borrow.  Plain and simple.  The fact that many pundits are treating this as newfound money that can be used any which way, without consequences is absurd and is yet another example of why so many ideas have failed.  Any plan that raids the national central banks for money for the PIIGS needs to be thought through more carefully and the potential costs need to be addressed.  The cost/benefit analysis may be worth the risk, but I suspect serious analysis would show that it is a bad idea.  The cost/benefit should be about zero since it is just shifting money from one place to another.  There really is no obvious reason to believe that this is a net positive.  In the real world it is likely negative because as we have seen time and again, these changes break the existing model and that causes confusion which more than offsets any potential benefit (not triggering CDS is a shining example).

So while we limp along towards the most likely outcome, the risk of disappointment or even outright failure continues to grow.  The inability to hold yesterday’s rumor rally is a signal that the market has moved well past the short squeeze phase and is now trading long. 

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ghengis86's picture

I Couldn't care less about European Banksters. - dot in he'll you pieces of shit

achmachat's picture

you got autocorrect on?

Chris Jusset's picture

"Europe Doesn't Get It"


Europe is trying to fool the market ... but that never works for more than a few days.  I can't wait for the Eurozone to advance from the nursery school stage to kindergarten ... because this is really getting tiresome.

Ropingdown's picture

Europe is trying to fool Germany, really.  The market wants Germany fooled, and quick. "Put your credit in there, baby. C'mon."  Uh, no. Germany wants major treaty visibility and rights,  or no more advances. Simple. Belgium, Lux, Italy et al keep trying...cause their banks are about to bust.

ghengis86's picture

First comment and auto correct Bernanke's me; I can tell this day is going to be great

Irish66's picture

Its been over 2 years, why in the hell would you think they would get it now

gojam's picture

Personally, I think they do get it.

But how do European countries reconcile their people to the revolutionary and radical policies that will be needed to come out the other side ?

Only by exhaustively attempting to find a solution while increasingly harsh austerity measures are presented to the public.

Only then will the public accept the inevitable.

Irish66's picture

2 page piece of this or the world will end

gojam's picture

The recent Irish budget looked bloody awful. Not quite the 'end of the world' but I bet the Irish public are starting to wonder whether default might not be better in the end.

oogs66's picture

But it wouldnt end. Bankers would just be poorer. Instead they making more money again with swap lines

LawsofPhysics's picture

The world doesn't get it, Europe is just being forced to be the first to deal with it.  Hedge accordingly.

PontifexMaximus's picture

watch latest BB news re secs offered and stretching lines to 2 y

midgetrannyporn's picture

"The market" that's hilarious. There is no market, there is only the squid.

TruthInSunshine's picture

National Public Radio's 'Marketplace' (yes, I listened; no, I don't why; yes, I regret it now, as always), which ebbs ever so more closely to cnBSc with each passing day (as their sponsors are all retail brokerage firms now, running ads, to compensate for the black hole of 'giving' that the increasingly poor Amerikan Public isn't making), had a segment on this morning whereby they declared that the fate of the euro now rests squarely in the hands of the UK, which a) never technically went along with the common currency of the Eurozone, and b) has one of the highest debt levels of any nation on earth, let alone in the EU.

I find all of this absolutely fascinating.

The propaganda, that is...


What are the intrade odds on unmitigated, "open ze floodgates, Herr Trichet, and print ze fiat!," anyways?

GMadScientist's picture

Anyone waiting to be saved by England is well and truly "rogered".

TruthInSunshine's picture

I do believe we'll soon discover whether any fight, aspirations of freedom and sovereignty, and vestiges of rationality have been completely snuffed out of Germans and Brits, complete with spinal cord detachment.

Jonathan E's picture

Just learn some Geography...

digitlman's picture

Kai Ryssdal is just as much the market pumper as Cramer.  Just not as loud.

GeneMarchbanks's picture

Yes there is propaganda. Then, there is also the need to create a narrative for events that i) you never saw coming in the first place and ii) a general calming effect to the frightened masses.

'What are the intrade odds on unmitigated, "open ze floodgates, Herr Trichet, and print ze fiat!," anyways?'

Wrong question. You should be asking what the general psychology of the German population is re: the past generations and their mistakes.

Bass polled the Germans. No go on the 'printing'. I'm seeing no changes so far from that thesis.

Construct's picture

to hell with europe I am on my way out ASAP.

Fuh Querada's picture

Why could the market not care less about treaty changes? Because they know damn well that the existing fucking treaties (Maastricht: no bailout, no debt union, deficits under 3% and all the other shit) have been broken and trampled upon since their inception, so why the hell is there any reason to suppose that new treaties will be worth more then the paper they are written on?

Mike2756's picture

Treaties were always made to be broken, some of the EU countries broke it before it was ratified.

youngman's picture

It is sad that  is all the markets care about....whether a central bank is going to print fake FRN....sad...

oogs66's picture

Yet the people pretend banks are capitalists and deserve huge bonuses

Schmuck Raker's picture

Cue the Kenny Loggins soundtrack.

Nascent_Variable's picture

If a treaty changes in a forest, but the countries affected by it don't get to vote on it, does the death of democracy make a sound?

tim73's picture

Market also says go jump into burning lake. Market ueber alles! No wonder USA is fubar, they believe everything The Everpresent "Market" tells them.

Schmuck Raker's picture

"I have been assuming that the meeting will result in another agreement to agree. That is relatively easy to pull together."

Not for these yawhoos...

vegas's picture

They are all political hacks. Don't ever expect them to get it. That's why they're hacks. Nobody in the private sector would ever hire these fucktards for anything.

i be julia's picture

Europe gets it.

America gets it.

China gets it.

The global financial system is out of cash.

And the power-that-be want to keep the Ponzi going.

But the debt's too big.  So we're headed for a deflationary collapse...then war.

Case closed.

bbq on whitehouse lawn's picture

This is how the Euro dies. Cheap money ( US dollars ) drive out expensive money ( Euros ).

Banks need money and lots of it. Since the ECB will not print the banks will find other money for funding.

The US dollar is taking the place of Euros.  By not printing the Euro dies the same as printing Euros.

Germany will have to leave the Euro zone or lose more the just the Euro.

PoorMan429's picture

I love reading you guys.

1. Why would the Swap line between ECB and FED (whose purpose seems to be creating dollar denominated liquidity to EU banks) Do anything to help this issue. All we are doing is swapping Euro liquidity, for dollar liquidity. Sincve the Euro Banks are leveraged much higher (presumably in Euro Denominated Risk) HOw does this make a damn difference.

2. Since there is no net change in money supply, devaluation of hard assets should not occur. On the contrary, since PM's seems to follow the Euro, and AUD, the possiblity of increasing Euro supply supports a negative PM outlook no? RBA cut 50BP yesterday, furthering support on this position.

Somone take me to school please...

Spigot's picture

In brief, the $5 trillion slosh which is the planetary FX/Interbank liquidity ocean has found a new impediment on the part of those holding dollar positions to temporarily trade them for EURO's in the overnight market (interbank liquidity markets). So, the FED is providing swaps to keep the ocean moving.

Possibly dollar traders are becoming dollar holders, and for what reason?? Look at Europe's political actions against the financial markets over the past 6 mos. That will provide a few clues.

LawsofPhysics's picture

Somewhat of a self full filling prophecy, but I agree.  Dollar traders have become dollar holders or buying physical assets of all kinds waiting for a drop that they will cause in order to get the next "deal" funded.  Like bloody crack whores.

Spigot's picture

Hard asset markets are dominated by paper trades that have nothing to do with physical assets. Upwards to 100:1. The paper markets are an illusion, but since they determine/dominate the market, those paper trades dominate the pricing structure as well.

John Law Lives's picture

Printing... rumors of printing... bailouts... rumors of bailouts... stock market kiting on rumors of printing and bailouts...

What a FUBAR economic reality this is.  Let's see some REAL economic news where millions of good new jobs are created whilst nations spend tax money prudently.  I guess those days are gone forever.  It sure seems that way.

falak pema's picture

Europe as represented by Germany doesn't get it, you are right : Merkel does NOT want the market to dictate the spreads, as this market is a scam; CDS are scams, the regulators are totally corrupt as their treatment of UK market is absurd. In 2008 they saw shit all. Anglosaxon finance sector risks are horrendous, in UK and US sectors. Yet USD bonds have NO is true for UK which is not reflecting the spreads in Europe. The markets are being herded by the US cabal to run in THE specified direction. They may get Merkel's goat to get the whole world to kick the can towards global  fiat hyperinflation.

If this writer uses a sick market's knee jerk criteria as being the reaction of SANE market behaviour, he is comparing Nero's soldiers who burnt Rome with a natural phenomenun. This is a manipulated market and although the Euro construct is a total shit house it is NOT the only shit house. The market seems to look the other way on this latter issue. SO who is burning Rome? ANd what makes you feel that Nero's palace will not burn?

Europe does not get it? And the US does? and the markets based on naked CDSs, toxic unethical concotions, modern day Papal Indulgences, generated by these crazy PDs, sitting on a shit pile of synthetics, who think they be the Gods of Olympus! Where do you get your priorities from; Hades?

Optimusprime's picture

+1.  You really nailed this one.

longonSpam's picture

This is too easy, Nero was a proactive Keynesian..

Everybodys All American's picture

What you need to get Peter Tchir is that the people do get it and they don't want it. The powerful elite aside may want it but the people could care less about those chosen few. People don't want debt servitude to anyonenand when the debt gets this out of hand the better path is bk. Get it.

richard in norway's picture

people in europe dont get it, they still think that if they cut enough the markets will be happy, they are being decieved that this is about soverign debt and not the banks needing bailouts with printed money. i think the euro leaders has painted themselves into a corner they have been so succussful at distracting attention away from the banks that a program of printed money bailouts have become politicaly impossible


hell most of them think that the rating agency mafia goons are the good guys, its so fucked up

Spigot's picture

The markets are already ripping Europe to shreds, but the job is not yet done. Then they will either head to asian or to the USA to do their work. Compacency will kill you in these times.

Dr. No's picture

Well obviously a treaty change doesnt effect the market.  The Algos only mine articles with "rate cut" or "bail out".  If you can get a headline abotu the treaty to also contain "purchase" the market will react.

eBuddha's picture

"The market cares about only one thing, that the ECB will announce new, bigger, more aggressive sovereign purchases"

and that is why the govt's method of kicking the can and dilluting paper currencies as their approach is dooming us.

instead of just letting reality hit us all in the face and then everyone dealing with it - our political leaders have been acting like horrible parents needing the doting affection of their children and spoiled them with sweet candies.

good luck to these assholes now trying to solve this because their ponzi-styled solutions have run out and now the problem is 10x and we're all going to be eating saltines for a decade.

Ropingdown's picture

Why should Germany care that the market wants big printing?  Why should they care that Geitner wants big printing, just so the US can do the same next year without punishment?  The market want Germany on the hook for all the bad paper the market has bought, including about-to-go-bad bank paper.  So?  Screw the market. Treaty guarantees and structure or no money for you!

NEOSERF's picture

Completely right...treaty changes, ratifications, more summits...just delay tactics; what the EU will need to do which is declare war which will allow them to ignore rule of law, treaties etc....and then have the ECB print like there is no tomorrow...