The European Crisis Cycle: Hope, Relief... And Always Disappointment

Tyler Durden's picture

By now we can only hope (pun intended) that everyone has seen the David Einhorn chart showing the circularity of the European "summit-based" decisionmaking process - somewhat relevant since we have had 21 summits since 2008 and Europe has never been in a condition quite as bad as last week when a historic move by the ECB to lower the deposit rate to zero and the refi rate below the critical threshold of 1.00%... and nothing happened (that's not quite true: JPM, Goldman and Blackrock all made it quite clear European money markets are now officially dead).

Of course, the chart above can be applied not only to Europe in its current predicament, but to any Keynesian-based "resoution" which attempts to solve debt with more debt: initial improvement, only for the euphoria to fade once the realization that total leverage in the system has increased, actual cash flow has remained flat at best, or likely declined as none was used to generate incremental revenue, while the amount of eligible collateral for future use has decreased, until one day the debt-creation machinery grinds to a halt.

However, as the following empirical analysis from Credit Suisse shows, the "Einhorn" chart is not just a conversation piece at cocktail parties: there is an actual trade pattern which has made traders lots of money, and which makes Eurocrats the best friends of not only Belgian caterers, but short-sellers everywhere: go long into a summit when the clueless algos read headlines and send risk soaring, only to short the inevitable fizzles days if not hours later.

Once the chart above is updated for the most recent failed June 28-29 summit, we will make sure it is reflected empirically (primarily as a convenience for all those who think they can time the bottom in Spanish bonds just right... just like all those who said that Greek bonds yielding 100% was the absolute bottom, until they hit 1000% 3 months later of course).

So... all those hoping to make a quick buck shorting circular European stupidity have just one question: when is the next summit?

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TWSceptic's picture

Will the vicious circle break and will we crash or come to a resolution? Tune in next time for more drama in the Kick the Can Down the European Road Show.

HD's picture

Brought to you by: Fiat and your local fiat dealer.

Coke and Hookers's picture

You mentioning Fiat reminded me of something that perfectly illustrates the problem. The problem is not only that market pricing is based on government printing but also that traders seem to be more or less retarded. A good example is Peugeot stock. Peugeot announced recently that they were going to cut 10,000 jobs and the stock price jumped. Now the market seems to have realized that cutting jobs=problems for company and the stock price has been sinking.

Why would anyone in his right mind go long on a company that was canning 10,000 employees as a result of a serious crisis? The answer is that analysts and traders are generally not able to grasp reality. In their business school brainwashed minds things are upside down. Gutting the economy with outsourcing=good; Cost cutting (as a result of dropping sales - who cares about that)=good; Moving away from producing stuff to an intermediary model=good; Brand engineering ahead of real engineering=good; Firing employees=good, etc etc.

The market is not only being rigged by central banks, it's also being rigged by business school drones living in some sort of keynesian virtual reality where the difference between real wealth and debt not only doesn't exist, but those who belive in it are regarded idiots.


Hulk's picture

Bailing out these debtor nations is akin to trying to pump air into a flat tire without fixing the hole.

And the hole just keeps getting bigger the more you pump !!!

This is going to get interesting...

HD's picture

HULK: "Bailing out these debtor nations is akin to trying to pump air into a flat tire without fixing the hole."

Krugman: "Debt doesn't matter".  Need more stimulus.

HULK: Angry! You no like Hulk when he angry!

Krugman: Look at my Nobel's shiny and really hard to get - ask Obama.






Temporalist's picture

I believe you misinterpreted the Hulk. 

Hulk says "Bail out bankrupt sovereigns BAD!  Hulk want to crush puny Van Rompuy!"

Hulk's picture

The HULK SMASH has nothing on the Farage Barage...

Stock Tips Investment's picture

In fact, I think the main problem facing Europe is that the causes of the crisis. Rescues, fee reductions. liquidity injections and massive purchase of bonds, will not solve their problems. What's more, possibly to make it more severe. In recent days, Spain and Italy have adopted a set of measures that will allow them to (probably) less (although very little) government spending. However, not advertised no structural change. Go astray.

FreedomGuy's picture

It seems to me that we begin to lose faith in the economic faith-builders. We cannot be the only ones to notice this never ending cycle of hope and disappointment while things actually teeter on the edge of collapse. I think the only reason it has not collapsed already is the ability of the plutocrats to forcibly engage the national treasuries in this economic alchemy. In essence. governments force their citizens into the economic theology even if they are skeptics or nonbelievers (as am I). Through the authority of the State and central banks you will participate.

Downtoolong's picture

What do more volatility, more money supply, and more loss of faith in the markets have in common?

Answer:  They all contribute to a decline in real value of real assets, and they are all happening right now, right before our very eyes.

max2205's picture

Don't blame short sellers, longs blow out hard too on the cycle.

Snakeeyes's picture

The cycle can be broken if Europe starts DEREGULATING and LOWER TAXES. Right now, France is on a suicide course. As in the US under Francois Obama.

Winston Churchill's picture

You cannot break this cycle without a total collapse.

Currently re reading Atlas Shrugged.

Read it first time back in the early 70's and did not appreciate it.

Rand was truly a great.That book ranks with Brave New World,1984,

and Animal Farm with its precience.

Temporalist's picture

Be careful mentioning Rand on ZH.  You will get attacked for believing in eugenics and hating the poor, infirmed and elderly as well as being a "Randian" and becoming an "Objectivist."

max2205's picture

It all gets real when ViX gets back over 28-30ish. This is just batting practice folks

toady's picture

Sounds like my life ...

Always, in the end, disappointment.

max2205's picture

Your life or did you mean wife?!!

toady's picture

Take my wife, PLEASE!

iDealMeat's picture

Sounds like someone needs their own reset..  You only get one life dude.. Up to you to make it a good one..

digalert's picture

Einhorn makes it to third place in WSOP for $4.3 million. Quite an achievement.

Temporalist's picture

That was just the million dollar entry special contest with only 48 entrants each posting $1million buy-in.  $5 million went to charity.

RagnarDanneskjold's picture

What happens now that Chinese are hoarding U.S. dollars? The yuan is quietly setting up for a major devalution later this year.

Yardfarmer's picture

the contemptible, vain, and pathetic folly of mankind is being charted and graphed daily for our amusement. economics- truly the dismal science. I can only hope I don't die of boredom before the final whimper is breathed upon this bad show and its equally dismal actors.

ZeroPower's picture

Once the chart above is updated for the most recent failed June 28-29 summit, we will make sure it is reflected empirically (primarily as a convenience for all those who think they can time the bottom in Spanish bonds just right... just like all those who said that Greek bonds yielding 100% was the absolute bottom, until they hit 1000% 3 months later of course).


Finger pointed at one of the Najarians from CNBC.

midgetrannyporn's picture

Einhorn could make a better chart than that for insider trading (with himself in the center). Nobody goes to jail anymore. Blue Horseshit loves insider trading.

piceridu's picture

That scumbag headed New Century Mortgage...enough said

alfred b.'s picture


   It seems to me that we're in the 2nd season of a sitcom with a non-credible script and cast of bad actors...and until an adult takes over and either inflates or disasterously opts for austerity, exit stage right will be the only outcome.

   Buy physical gold and silver!



DonGenaro's picture

Tyler is finally zeroing on the CWO (Caterer's World Order). They're runnin' the whole show, I tell ya !

the 300000000th percent's picture

So sick of this shit, looks like its gonna be pergatory forever!

Temporalist's picture
Packing a Punch: Fist fights the norm in Ukraine's parliament

RobotTrader's picture

Europe has bottomed.


The "Black Swan" events (Strong dollar, crashing commodities, and soaring Treasuries) have already arrived.

Eventually, the clowns at the Fed and the U.S. Treasury will realize that Krugman had it right all along.  And they will start printing trillions and start handing out checks to the consumer.

Is it any accident that the "smart money" knows that this is coming?  Heh, retail stocks are the strongest performing sector right now, hands down.

Krugman will win another Nobel Prize, bank on it.

Coke and Hookers's picture

Europe has bottomed in the same sense as a dog totally covered in ticks has bottomed in the number of ticks that are sucking the life out of it because it has lost the ability to take on more ticks because there's no space left on its body. The fact that it can't take on more ticks could be regarded as good news, until the dog is dead of course. In the real world the dog can't come back to health unless the ticks are removed (for Europe ticks=debt). There are only two possible outcomes for Europe: Total crash where the financial system is burned to the ground or tyranny where the financial system owns everything and rules through its Brussels proxy Government.

This also applies to the US of course.

Robot - I know you're a troll but your post completely illustrates how a lot of people see things these days.

Vuke's picture

Coke and Hookers (Coke and Hookers???), you are correct.  The entire system has been corrupted by simple minded MBA's who finallly began to understand Excel.  The earliest have now been promoted to management so problems now are "solved" by tweaking a spreadsheet.

It works for one quarter after another...until it doesn't.

I am Jobe's picture

Like watching porn, EU crisis,  coming soon to Amerika.

q99x2's picture

i bet a dollar they get to 23 summits before the collapse.

TNTARG's picture

Well, at this point, if the Rotschilds & Co. among other things, managed to use the British Government first, in the earlies 30s of the past century and then commit terrorists attacks against the british administration in Palestine meanwhile they managed to use the American Government to create the State of Israel and they also to took control of finances and institutions all over the "Developed World" and some other places... If they have the power of pauperizing societies, bombing countries, use any kind of dirty actions to turn people aganist their own interests, controlling governments, mass media, using a bunch of "useful idiots" as their agents, turn peolple against each other by the excuse of religion,  ideology, etc... Why don't we nominate them Emperors of the West, they and their shitty banks, institutions and summits?  Maybe this way their barbarian architecture (which comes long from the past) will be widely exposed and we could all togheter find the way to exit this sick state of un-civilization we're into. It's been a little too much, now.

These guys have given all they could which isn't too much, isn't it? Just destruction in a number of different and very perverse forms. They aren't able to build anything superior, beautiful. What we see is all you can get from them. We should move on.

shovelhead's picture

No collapse...

Credit events are verboten in the Euro.

Good intentions and empty beer bottles are now acceptable collateral for banker bailouts.

1000924014093's picture

 . . . and Unicorn farts. They're the new investment grade collateral.

luckylogger's picture

I was wondering the cycle, Thank you Tyler for the chart................. It will definately help me position my put buying so I do not burn so much theta.

Keep up the good work Tyler !!