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Europe - Solving The Solution - Not The Problem
From Peter Tchir of TF Market Advisors
Europe - Solving The Solution - Not The Problem
Several (all) European nations spent too much, borrowed too much and promised too much to their people.
That led the market to question whether these countries could pay back their debt.
That led to spread widening.
As spreads widened and deficits increased, investors became concerned about the ability to roll over their debt. This caused spreads to widen further, CDS activity to pick up as investors want to hedge their positions and speculators want to profit from further weakness.
Economic conditions decline. Debt grows more rapidly than forecast and current budget deficits increase. Rolling over debt in the public market becomes very difficult if not impossible. CDS trades in points up front and the yield curve inverts as the bonds trade on price rather than yield, with investors focusing on potential recovery.
The solution that they are closest to "achieving" is the destruction of the sovereign CDS market. Naked short bans are on the way. Forced Restructuring that doesn't trigger a Credit Event is the current plan, and one of the EFSF or ECB is likely to sell protection. Sov CDS only has any bid because people don't believe they can force 100 per cent of bonds to restructure so their will be residual value as countries choose to pay off or default on the stub pieces.
Anyways Sov CDS is gapping tighter but yields aren't responding and the tightening in bond spreads is only because German bunds are being taken to the woodshed. CDS was one of the solutions banks used to manage their risk. It was not the driver of the problem. Crushing Sov CDs market out of existence does nothing to fix the problems. The more days the market sees Sov CDs tighten and bond spreads and yields underperform, the more the market will realize how clueless and helpless the politicians and their advisors are.
Investors stop rolling short term debt for new deb when they see a problem. To avoid losses they trim risk. At some yield new investors with bigger risk appetites will step in, but only an insane person would roll the debt into new debt at tighter levels. Rather than letting the market deal with the rolls, we have created the idiot - EFSF. The EFSF will take risk no rational investor would take. The core problem isn't solved, just a new problem is created.
When will investors doubt the ability of the EFSF to pay their obligations? Since nothing has changed at the core level and all the EU has done is address symptoms, the same symptoms will pop up again. I think the EU should include EFSF in their naked ban on CDS. If they had any sense they would ban CDS on EFSF altogether.
If rolling debt was really the problem (and it really is) why did the ECB spend so much money in the secondary market and not just facilitate new issues? Because somehow I think that is against the rules :D buying bonds in secondary market at inflated prices so those investors can buy cheap new issues is fine though :)
Seriously who knows what more announcements we see but I really hope they stop or get stopped before the damage they do is irreversible.
The original 21 per cent write down was never a write down no matter how much they say it was. Greece got no real benefit and the banks weren't going to have to book a loss - so where is the write-down other than in the title? Just like the 2 trillion headline will be repeated over and over until it is believed whether true or not.
And I do highly recommend watching the divergence bond yields, bond spreads, and CDS. Killing CDS does little or nothing to the real market and that is playing out to the chagrin of all those who thought they had killed the devil. And no hedge funds are outright short Greece via CDS at these prices.
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So tell me, where will the snp be when a levered up EFSF is agreed to? 1400? They can keep this thing on toothpicks longer than you can stay solvent
If you don’t own/short or have anything to do with this shit then it does not matter to you. PMs and cash are all that is need to be solvent.
It's the only facking game in town.
Sarkozy's leavin' on a jet plane
They don't know when he'll be back again
Oh, babe, he hates to go
-snark-
10-19 9:50: France's Sarkozy ready to travel to Berlin this afternoon
Now it is getting scary:
French finance minister says France would like EFSF to have banking license, but recognises reticence of ECB and Germany
Cancelling your life insurance does'nt mean you wont die.
Peter just replace 'Europe' with 'U.S.' and you can run the same article over tomorrow morning. Except in the U.S. article, you have to use WAY bigger debt numbers.
kudos
focus, sheepdog-one, focus (+1)
we want the Euro lower so that the snp goes higher! Focus!
Out of interest, if a plane becomes Air Force One when entered by TOTUS.... Actually, I think I'll stop there.
Because somehow I think that is against the rules :D buying bonds in secondary market at inflated prices so those investors can buy cheap new issues is fine though :)
Lol!
the people who run the system will never stop until the point of violence, and then they wil use all the tools of state to maintain the status quo. It never ceases to amaze me the pundits on this iste wh expect either a rational or right thing to be done. these people are beholden to a system, that system has iven them wealth and power. to expect them to destroy/ alter that system is insane. it isn't going to happen. the goal is to keep it intact and get out with as much as you can and hope it lasts until you leave. the issue is going to be will your own troops fire on your own people. that what the end result will be. I predicted the sovreign debt crisis based on the wy they wanted to "fix the system" it's taken 3-4 years for that now to show it's face. based on that fact two years until all hell breaks loose. by then they will have looted all they can.
it gets even worse of course.
Agreed.
Greece and the PIIGS are fundamentally irrelevant to the issue. They are window dressing.
The real issue is the fact that the EZ political elites need to find a way to transfer public funds to the EZ financial elite.
The EZ 1% know how to make and protect their nut. To hell with the 99%.
Everyone is trying to loot all they can until it falls apart, welfare mothers, 99 ers, lawyers, politicians, everyone. Even ur next door neighbor who now engages in casual workplace theft. The culture is changing and we are becoming third world in our casual thievery, among other ways.
I think most people here think it will end in violence.
If it doesnt end in violence then we have looted a lot. If it does end in violence then we have looted a lot. Our culture does not punish looting anymore, so the looting will be a permanent feature of this and future political systems. Loot as much as you can cuz you never know what tomorrow might bring.
Ethics and morals appear to be luxuries, soon discarded in hard times.
get ravioli...
This leveraging idea of EFSF makes no sense. Doesn't anyone remember Lehman Brothers? Just a few short years ago leverage was the problem. Now it's the answer? There is only 1 way to solve this debt crisis. Let the shit go down. Countries default and restructure. Euro dies.
The emperor has no clothes - who would be worse to see naked - merkel or sarkozy?
is this a trick question?
if you see Sarko naked you might have a chance of seeing the French First Lady naked, too...
Well, as I am heterosexual and I would prefer to stay that way, I'd rather see Sarkozy naked if I had to see one of them.
I fear seeing Merkel naked might drive me to celibacy, whereas seeing Sarkozy naked could never drive me towards homosexuality.
promised too much to their people.
I agree pensions are a bit too high (and can be gambled on by outside investment sources that dont have the pensions' best interest at heart), do you think that people DON'T have a right ot free/affordable health care, a good job that won't screw them over and have a good future, a fair tax rate based on their pay, and maybe even more leisure time (which will give them time to spend their new found income)?
I understand we all, in our heads, want to be boss/father of everyone else.
Humans' fascination, and lust, with control of heirarchy has existed for ages (hence why humans have been the most profitable crop in the world's history).
Jesus invented the second Golden Rule: Treat others as how you want to be treated.
The true Golden Rule however, which has existed since the Egyptian and Babylonian civilization is: "He who has the gold, makes the rules." Today, gold's value is traded and defined in currency. Without currency, gold goes back to it value of just being a precious metal you can do stuff with, not resell. It regains its TRUE value back.
That's what the uprisings are all about: the dispute on what is TRUELY valuable.
Finally, maybe after 10K+ years of human existence, people want to have more soverign abilities to control their life w/o someone telling them how they should be living it. AND this is a bad thing?
But you are telling people how to live. In your system here are the messages
Dont work too hard, because your money will just get taken from you to give to others.
Dont work hard, because job security and vacations are guaranteed by our beloved progressive country.
Dont work too hard. Your retirement is guaranteed.
Dont work too hard. Your healthcare is guaranteed.
Your progressive system promotes laziness and rewards low productivity. The highly productive who pay most of the taxes are punished. Then eventually expenditures are higher than tax receipts and we are all greeks now.
Let me see if I understand this. If I spend far more than I make by using credit cards getting 2nd mortgages and any other credit I can get my hands on with no expectation of paying off the principle but just rolling the debt into new debt I'm not only a fool but probable committing fraud to extend my credit.
If I'm a government this is considered standard economic policy and we should just double up on our efforts?
This ends in only one way and it's not going to be pretty...
look, they have terms to explain the difference
Sovereign Debt vs. Consumer Debt
Now, which word is related to armies, navies, bridges to nowhere, and all things glorious?
Where's that iPhone personal money printing App when you need it, iFiat?
http://www.infowars.com/the-big-wall-street-banks-are-already-trying-to-buy-the-2012-election/
The faster European credit deteriorates
The faster the U.S. retail stocks climb up.
XRT only a few dollars away from 3-year highs.
SBUX and WFM already at world record highs.
????????????
inverse correllation between commodities and retail?
that just means this is the stuff to ramp now I guess. I find it strange, but heck that's how they keep the markets up. Me I have been buying banks on the dip, but now expect another drop back some.
...let me get this straight, so what you're saying then is; ...if you're solving the solution, you're part of the problem.
This guy Tchir is getting more play on ZH than he deserves. If you reread all that you will see there's not much there.
Citibank had a far superior analysis some months ago in which the writer pointed out that US hedge funds were taking positions in Euro and Greek bonds, in order to refuse unanimous agreement with restructuring. This would force default and let them profit on their swaps.
There is NOTHING that has happened to suggest any of that has changed. These people are waving hands in the air and trying to move markets with the breeze those waving hands generate. There is no cash there. Nothing.
Europian Union :=> Debt Union. just f'ing end it before it collapses all economies. creative destruction. We should have spent the 12T given to the banks to green tech.
A CDS market isnt really necessary.
If countries want to ban sovereign CDS they can self-fund the insurance premium by paying higher interest rates on their borrowings.
Lack of sovereign CDS does not mean a free lunch. The premiums are paid one way or another, either through an official CDS or through the rate structures of sovereign bonds.
The fact that not a single politician can understand what i just wrote proves that financial idiots are managing the system.
CDS were created by dealers for dealers. Speculators are a very small part of the total bid. The dealer business model is to inventory risk until it is sold. They need a hedge on the position if nobody will buy their inventory or the mark takes a hit and they need to manage Tier 1 capital requirments as a result. OK, the latter doesn't matter so much anymore, but it used to. The first reasons will always matter for financial markets.
And if they cant hedge their inventory they will lower their bids accordingly. Thus raising interest rates on sovereign debt.
these morons should just ban rain
Interest rate IS already the premium for risk! CDS should be banned, not only for souvereigns, or, at least, only detainee of the Bond should be entitled to buy a corresponding CDS and the CDS should follow the Bond.
Terrific recap. Thanks Peter.
Problem is simple. Infinite growth meets peak oil (coal not too far behind). Debt based fiat currency with fractional reserve, compound interest banking only exaggerates the problem. The ponzi will collapse....just a matter of time. The collapse of industrial societies is going to be quite the sight. I plan on staying out of the way. That is until the "golden horde" encroaches and I run out of ammo.
otherwise intelligent people believe we have hundreds of years worth of coal and 300 worth of NG.
The problem is that the investors put themselves aside and out of the societies which they live in otherwise they would see the convenience of not pushing on the interest rate gas pedal in order not to push societies (I mean States, not corporates) in the corner. In this sense Merkel is right when she says that there is a war. A war about wealth distribution where few major financial institution, able to influence the behaviour of the majority of market operators, are maneuvering in order to squeeze all that is possible out of the so called "welfare states".
If it weren't so, they would understand that the ability to roll over and to repay the debt (in short, the sustainability) depends on the interest rates the States have to pay. Further, they would see that the best insurance to their earnings in the medium to long term is to keep interest rates to a sustainable level. A huge debt at a moderate interest rate may be more sustainable than a little debt with huge interest rate.
But they understand this all too well but couldn't care less in a war for all or nothing: in facts it's the financial institutions (say the one which thinks of itself, it makes the job of God and its like) that suddenly ask for higher interests that put the sovereigns in a position of not being able to service the debt anymore. If these institutions felt themselves as part of the society, in these times of econimic crisis (they contributed to create for a good part, by the way) they would "pull the cart" together with the other parts of society instead of jumping the States like street robbers.
If politicians had some spine and would truly respond to "us the people" they had raided the offices of those who robbed God of his job and had put all these people in a re-education camp toghether with Madoff and had trown away the key a long time ago already...
This whole analysis has as basis that markets are fair and that those who invest are fairminded people. The fact is the markets are screwed and those who invest are the Corporate assholes and cronies who run the world and who should be brought to judgement, not allowed to play more games of beggar thy neighbour using the market as lever for their strong arm tactics and total regulatory capture of dunce regulators via manipulated markets to fool the fools who believe this whole boxing match is still Marquis of Queensbury.
Its time that the Europeans tell the Americans Oligarchs its NOW that WE END the ponzi markets. And may the cookie crumble after Europe solidifies its common front.
Will they be able to do it? Is the Oligarchical structure of EU now all powerful and are all EU politicians totally the surrogates of the Oligarchs in the aftermath of the banking blood bath of 2008, and is the financial situation of Sovereigns/banks irretrievable in Euro land, God alone knows...and we humans will soon find out.
p_tchir tried to buy a vowel & got emoticons instead?
wtf~~~maybe it's "bong wednesday" for him, too
he seems to have grasped the kernel: bond prices (& investors) are supported by this goobermint bullshit so that their "wealth" is maintained at the expense of nations and their taxpayers; except for GM, where the UAW + prez0 trumped & thumped the bondholders (and the public, too!), also a travesty of law, debt & capital integrity, and property rights
either way, there is all this collectivist "energy + nannyism" which will shove it up yer ass sidewayZ w/ no vaseline to keep TPTB + TBTF from marking-to-market and actually booking the losses. just book all the joyous "proftits + bonuses passed thru to the elite", danno!
this charade's half-life may be shorter than advertiZed
in the final episode of this farce, you can bet yer bong that mr market will meet our friend mark!
however, the final financial M2M has not been firmly schuduled, but many are "occupying" themselves with getting it onto a calendar near you
That is the mentality, today. Treat the symptoms, ignore the cause. The profit is in the treatment, not in the cure.
If people understood what I'm saying, I wouldn't have to write the words.
http://georgesblogforum.wordpress.com/2011/10/19/different-worlds/
"I really hope they stop or get stopped before the damage they do is irreversible."
Too late.