Europe Wasn't Destroyed In A Day

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors,

Just like Rome wasn’t built in a day, the Eurozone won’t be destroyed in a day, but it is on a path that leads to eventual dismantling.  What day will historians choose to pick as the day that the Euro died?

  • The day Greece or someone else first leaves the Euro
  • The elections of May 6th
  • The day Greece changed laws to retroactively add Collective Action Clauses and created a new class of bonds for the ECB
  • The day that Greek Private Sector Involvement was finished and new bonds traded at 20% of par

Personally, I think the Greek PSI was what proved the Eurozone was doomed.  Greece restructured debt, made different rules for different holders, and yet, the new bonds trade at 20% of par.  It’s like drink non-alcoholic beer, why put up with the better taste with no useful result at the end.  So these elections, while important are merely another step on the path the Eurozone has been headed for months, if not years.

The markets will digest the elections as we illustrate in the weekly report.  We are already seeing it play out.  After an initial swoon in markets, they have rebounded, and already threaten to take out some post election shorts.  Germany has said they will play nice with France.  Merkel seems to have the trickiest job as she and her supporters lost support for their bailouts, and yet in Greece, the people who took the bailouts also lost power.  It is funny that both the giver and receiver are viewed as having done the wrong thing.  This will be important over time, but not this week.

This week we will see everyone play nice. Conciliatory words will be spoken.  Growth will become the topic de jour.  The markets will fall all over themselves once again on news of bank bailouts.  The headlines we get in the early part of this week will once again be overwhelmingly designed to encourage people and the markets.  Europe will have a new spirit of co-operation and will welcome fresh insights into the process.  Growth, growth pacts, plans to grow, infrastructure growth, etc., will be talked about.  There will be talk, and maybe even action on the bank recapitalization efforts.  Good banks and bad banks will abound.  Governments will promise money to banks at rates so low no sane investor would even consider.  So I look for a continued bounce and am a bit net long in the TFMkts Best Ideas™.

Ultimately these plans will fail, and we will see fresh lows on the year for stocks, with the U.S. and Germany hit hardest (having outperformed by far too much already), because:

  • Germany in particular, but France and the Netherlands will have trouble justifying their contributions to the bail-out.  They will be forced to turn to domestic issues to satisfy their electorate and this will become obvious to the market.
  • Growth isn’t easy to achieve.  Once “growth” moves from a vague concept stage into something resembled a plan, investors will likely laugh at the attempts.  It will be clear that most of the plans are unlikely of achieving long term growth above and beyond the cost of achieving it.  That will not help the bond markets, and in turn will spill over into equities as they realize they were fooled by headlines and hype over reality, once again.
  • The good bank/bad bank concept is a loser to start with.  The bank recapitalizations just enshrine zombie banks.  By the time a bank is getting government gifts, the problems they have hidden are likely as large as the obvious ones.  The managers don’t worry about lending, they worry about protecting their jobs and their income and hoping nothing else comes out.  They hoard the new money in an effort to grow capital and in the hopes that the problems no one noticed go away before someone notices.  Starting fresh banks would be ideal.  Or letting some bad banks fail and then starting them fresh would be okay.  Letting the existing banks get taxpayer money at uneconomic rates, does nothing for the citizens, or the country, and ultimately if there is any “winner” it will be the banks, but even that may take years to play out.

I remain slightly long having been significantly short at the start of last week.  I will look to add to some areas that should benefit the most from another short squeeze – with Spanish stocks sticking out.  I continue to avoid Spanish and Italian bonds as I think the fixed income markets will be less likely to be tricked by the headlines, and there really is no natural buyer.  I am looking at adding Greek bonds now that the election is over and we have seen a bit of a sell-off.  A treasury short looks appealing, and the economic data in the U.S. continues to support the idea that high yield bonds should perform decently (ie, paying the coupon without much price volatility in either direction).

And here, courtesy of SocGen, is Europe's new framework based on three pillars (i) economic governance (ii) rescue mechanisms (iii) financial stability. Pick your poison for the next pillar to fall.

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SilverTree's picture

The day the FX stood still.

GetZeeGold's picture



Let's make the pain last as long as possible.


GetZeeGold's picture



Watch as the neo-Nazi orders the press to stand up OR ELSE


Guess what? They do as they're told.......just like in the USA.

Spitzer's picture

The Euro does not and never has claimed to be a long term store of value like the dollar has.  The dollar has the SOV function to lose. The Euro is simply a good medium of exchange.

The dollar is so mis managed to keep its SOV function alive that it will lose its MOE function as well. The Euro will not.

GetZeeGold's picture



It was always designed to fail so they could bring in the real plan.


One of the main architects of the single European currency, Jacques Delors, has said the eurozone was flawed from the beginning.

He told Britain's Daily Telegraph that the lack of central powers to co-ordinate economic policies allowed some members to run up unsustainable debt.

As head of the European Commission from 1985 to 1995, he played a key role in the process that launched the euro.

The comments come amid growing doubts over the viability of the eurozone

Spitzer's picture

allowed some members to run up unsustainable debt.

They have seperate bond markets to deal with that.

cossack55's picture

"loser from the start". Are you referring to The Bernank?

Boilermaker's picture

Doesn't matter at all.


ES teetering on green, France now green,...seriously, so what?

GeneMarchbanks's picture

So nothing. Poor bastard is out of ideas, his world is crumbling.

Boilermaker's picture

It isn't HIS world that will crumble.

GeneMarchbanks's picture

I am looking at adding Greek bonds now that the election is over and we have seen a bit of a sell-off. --Pete


junkyardjack's picture

There is a price stability that is being shown right now.  Even when bad news hits markets don't collapse that far, we're probably somewhere near a bottom.  It'd be good to keep watch on stocks that go up right about now

Boilermaker's picture

Right because you or I sit on the FMOC.  Other than that, who gives a shit.

l1b3rty's picture

And the lifeboat of the US Dollar will continue to get weighed down by fools who don't look beyond the nearest lifeboat.

orangegeek's picture

The fall of the Eurozone is a process, not an event.


It will take several years.  Today, everyone is friendly.  This time next year, it won't be as friendly.

junkyardjack's picture

Exactly, shorts will be broke by the time Europe breaks

HarryM's picture

"Ultimately these plans will fail" - boy that sounds familiar.


Feels like the Fed has 20 advance moves planned and we have 5


Went to bed last night knowing that this morning would be business as usual - and I wasn't wrong

slackrabbit's picture


In fact the longer this process lasts, the sicker they all get and the more it will look like a cripple fight





GeneMarchbanks's picture

Just when I thought Grant secured the-most-insane-article-of-the-day-award, out comes Pete with his Greek bond buy call.

You just can't move on, can you? There is no cure for your myopia.

SheepDog-One's picture

Everyone is now myopic and thinks they got it all figured out. Im not so sure any of them do.

slackrabbit's picture

I got it figured.....I'm running like hell.... ;-)

Element's picture

But what if the financial system locked solid in the coming month or three?

That'd give euro-zone break-up a pretty big shove down the road.

And let's not forget the US is also going to have another round of debt-ceiling farce and a downgrade, that will run parallel this exploding Soverign default mess and induced banking system collapse in Europe.

Zero Govt's picture

"(iii) financial stability"

Er, we're past midnight on that one

midgetrannyporn's picture

The eurozone experiment proved only one thing. The bankers need an overarching militaristic despotic power to make their tyranny stick like it has in the usa.

smb12321's picture

I dislike the central planners as much as you but I have absolutely no idea what you mean by "overarching militaristic despotic power".  The Euro and dollar survive not by military threat but but because of size, inertia, group dynamics and the unwillingness of humans to admit mistakes.  Now, China (or Syria or Cuba or North Korea) are examples of states whose regimes depend on military force.  So at a minimm, we should center our concerns of military tyranny to countries whose secret police would take you for writing what you did. 

Some ZH posters go out of their way to excuse despotsic powers like Syria, Iran or China while missing the obvious - they can sit around in their undies spewing hatred for the US "regime" without a worry in the world. 

MarsInScorpio's picture

Respectfully, may I disagree with you vis a vis the US? America does have despotic militaristic power - the entirety of the federal government.


First, and most obvious, is the military itself. Just as Eisenhower called out the 101st Airborne, no president will have any trouble calling out the Army to establish control over the population. Posse Comititus is a dead concept - the military can, and will, be used for internal policing. That's what happened in Little Rock to enforce a Supreme Court decision, and that's what happened in New Orleans after Katrina to enforce the law there.


Then we have the para-military security forces, such as the Federal Protection Service - a 1984 label if there was one. The way they are suiting up, you can throw in the DEA, the ATF, the US Marshall's Service, the FBI . . . all of them will move in a heartbeat against you.


And let's not forget our local security forces: the State Police or State Troopers depending on what they call them where you live, the county sheriffs, and the local police. As the so-called "exercises" in LA and Chicago show, they are interacting with the federals and these combined forces will kill you as soon as look at you.


And for you Second Amendment people who think your small arms are going to protect you, tell me about the Army taking away the guns in New Orleans after Katrina. Or do you think some macho "from my cold, dead fingers" rap will happen? They will be happy to oblige you. A home-grown mercenary army with its auxillary para-military federal, state, and local security services isn't going to rebel in your favor.


Forget the Constitution; it's dead. It and its Fourth Amendment went out the window with 9/11 and the creation of the TSA. Now the rationalization for warrantless searches is to "protect us" from terrorists, even though they have never caught even one with their checkpoints at the airports - and now expanding to our highways, train stations, buses, and subways.


As they tell you - and the fools that make up the overwhelming bulk of Americans agree, "If you don't want the search, don't fly." OK, so now we can't drive, take a bus, a train, or a subway either. How much longer until the sidewalks everywhere become like the sidewalks of NYC, where they set up street scanners?


While it could be argued that the US government doesn't depend on military force, the truth is that the military, and what are now para-military security forces, stand in silent hovering over the population to remove anyone determined solely by them to be a threat to the establishment, courtesy of the NDAA and the Patriot Act, which established secret courts (despite the constitutional prohibition against Star Chambers) where they get secret warrants, for secret arrests, for secret incarceration, for secret trials, for secret punishments, to secret locations.


Don't lie to yourself, the US is now a police state, and the masses say, Amen!!"



gnomon's picture

Governments everywhere feel threatened because globalization (and global finance) is on the ropes.   But to your point about the U.S. being a Police State, that is an overstatement.  A lot of things have been put in place on a de jure basis that were implemented in the past during national crises without the enabling laws and Executive Orders.  BUT those laws and EOs have not yet been widely exercised during peacetime, (now).  And if and when that time comes, (people being pulled out of their homes for things that they have said, and homes searched for "contraband"), then there will be an open rebellion that will startle the authorities.  And it will be of such force and vehemence that it will split the armed forces and LEO community.

The "cold dead hand" contingent is in the millions in this country, and despite the horrible odds they will not let the U.S., (such as it was conceived), end with a whimper.   If you have nothing to lose, (because you love Liberty above all else), you comprise a very dangerous contingent. 


tmosley's picture

Strictly speaking, the Greeks weren't the ones who were on the receiving end of the bailout, as their net debt increased afterwards.  It was the banks who got it.

This is why this system must be destroyed.  It is pure, unadulterated fascism.

The Axe's picture

Fed will not allow the market to move down...and china will defend the what?

Frastric's picture

A bit like Lehman when the markets initally shrugged it off... Or Mercutio laughing off a fatal wound... Give it a few days and we'll have a nice little correction followed by some crazy gyrations (so like 2011).

Jake88's picture

what are you going to do... bleed on me?

q99x2's picture

Looks like SFP #4.

junkyardjack's picture

At some point people will realize that Europe is not going to be destroyed at all and the market is going to go apeshit in a rally.  That day is coming soon

midgetrannyporn's picture

There is no spoon. Try to pay attention.

smb12321's picture

Right, because the EU debt crisis is being solved by member states having an influx of children and workers for the rapidly accelerating retirees!  Europe is broken as a world power but they can slog along in the glow of decline.  Nobody in their right mind is going to suddenly get all warm and fuzzy about Europe - particularly investers.

Everybodys All American's picture

It would be if Bernanke and the Fed weren't desperately saving the markets every day..

Quinvarius's picture

You know, there is zero difference between the US and its states structure vs the Euro zone with its national stuctures.  Despite all the whining and garbage you hear on TV, there is no difference at all.  You have a series of bankrupt smaller entities using the same currency as a series of not yet declared bankrupt entities.  Anyone who actually shorts the Euro because they think it is will die before the dollar or for (LOL!!!) technical reasons is just plain ignorant.  The EUR/USD exchange rate is FIXED by bankers the same way as the Yuan/USD rate.  There is no currency FOREX market.  All paper is exactly the same thing because all banks are cooperating to maintain bogus exchange rates.  You are either in uncontrollable physical gold and silver or you are in rigged paper.

Village Smithy's picture

Definitely for the time being this is true. Will they be able to hold back market forces indefinitely? I'm not so sure. My feeling is that the uber wealthy want a crash, that is where real wealth is gained when things are bought at the bottom. They know that any improvement in equity values from these levels will only be had by debasing currency, no real wealth improvement at all.

smb12321's picture

The problem with your analysis is one that Merkel recognized, thus the push for a financial pact.  The US, because it is indivisible, can change monetary policy for all states.  Euro nations on the other hand are trapped in the web of nonaction. 

Asking Europe to develop a growth economy is like asking Iran to become secular.  Alas,  Europe is becoming less and less attractive to investers as the world returns to its natural order of Asian ascendency.

falak pema's picture

Ascendancy organised by Walmart-Apple. Woweeee some ascendancy. Its called shared slave empire amongst Oligarchs. Only ends one way. Whereas the day the Euro zone gets OUT of its Pax Americana legacy that hoisted this shit storm on them....

ebworthen's picture

Cramer talking about cheaper oil being bullish, and Morgan Stanley is undervalued.

Central bank debt funding on the backs of future generations is the only reaason DOW is over 7,000.

Quinvarius's picture

If Cramer is pumping banks, you need to be very worried about the banking system.

Temporalist's picture

Hollande won on making promises that he can't keep?  You don't say.  How unusual.

Milton Waddams's picture

Anybody catch the Sunday Propaganda, er, News-Talk shows?  All the ( vetted ) pundits now admit that the economy is terrible and we exist in a 'have and have-not' type of society.  Rewind a year or more and they were all talking about green shoots and a vigorous economic recovery.  It's fucking amazing what the American populous is spoon-fed by their 'thought leaders'.  LMFAO

SheepDog-One's picture

Yep ever since Friday I did notice the decidedly 'negative' take on everything now.

Village Smithy's picture

I agree with Peter that short squeeze is the play today. The algos know the numbers, they know where the stops are and they know it's a vicious circle once they get it started. With billions of ZIRP dollars available it's easy for them to get the ball rolling, even uphill.

SheepDog-One's picture

Sex with a blow-up doll....if thats their game, wildly pathetic huh?