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Of European Insurance Funds and Short-Dated EFSF Issuance

Tyler Durden's picture





 

We have discussed the obvious lack of demand for EFSF paper in the last few weeks and note that Friday saw the longer-dated issue break above 4% yield - clearly indicating the market's unwillingness to 'believe' in the AAA rating (and therefore any explicit wrapper that may evolve from this entity). Peter Tchir, of TF Market Advisors, notes the headlines and rumors are already coming in fast and furious.

Looks like tradeable insurance certificates.  We analyzed a lot of the issues with the various proposals and should now be able to refine the analysis as details come out.

Also in the list of headlines was an indication that the EFSF was going to start issuing "bills" which seems to indicate very short term funding.  This is a very bad move in my opinion.  We already have a solvency crisis, there really hasn't been a liquidity crisis for any of the borrowers (6% 1 year paper is not good, but it isn't a full blown disaster either).  If the EFSF starts needing to roll short dated paper we are getting set up for both a liquidity and solvency crisis.  Trying to save 1% - 2% in interest costs is part of what got us to this point in the first place.

The switch to short dated funding is also a sign that there is not much (any) demand for EFSF paper.  French bonds are weak, Germany couldn't get to full size on a deal, existing EFSF paper is quickly becoming the "short" position of choice, EIB and KFW already provide cheap alternative ways to own German, or EU "guarantee" risk.

An Italian newspaper claims that the IMF is working on a 600 billion Euro bailout plan for Italy.  It sounds interesting, and is almost double given what the IMF says it has available on their own site.  Are ideas like this being talked about?  Probably.  Are they likely to be implemented now or in the near term?  Not really.

European leaders clearly saw how weak the market closed every day last week (futures accelerated to the downside after 4 pm) and are trying to talk up the market and really getting close to actually planning things that should have been implemented months ago.  It will be a hectic week, and there is a chance a real plan that could really work emerges, but we remain highly skeptical of that and will continue to use overly optimistic rallies to get shorter.

 


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Sun, 11/27/2011 - 12:53 | Link to Comment Dick Darlington
Dick Darlington's picture

Only viable long term solution for eurozone is debt defaults and DISINTEGRATION. Everything else is smoke and mirrors.

Sun, 11/27/2011 - 13:18 | Link to Comment Careless Whisper
Careless Whisper's picture

The Careless Whisper Sunday Update And Threadjacking

 

Naomi Wolf Connects The Dots On Coordinated Banker/Federal Gov Crackdown On OWS; OWS #1 Goal Is To Eliminate Corporate Money In Politics

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4 Brooklyn Firefighters Bring Dead Baby Back To Life At Thanksgiving Inferno; No Comment From Mayor Bloomberg Feasting At Bermuda Mansion

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NATO Bombs Pakistan By Mistake

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Hackers Intend To Send 60,000 Cell Phone Text Messages To Cuban Security Agents; "Stop The Repression"

http://www.miamiherald.com/2011/11/26/2519901/cyber-commandos-spill-phon...

VIDEO: Michele Bachmann And Straight Husband, Marcus, Promote New Book

http://www.youtube.com/watch?v=UZ8VkbAz3zc

Op-Ed Columnist Gail Collins Thinks She Disparages Ron Paul By Listing His Positions

http://www.nytimes.com/2011/11/26/opinion/ok-now-ron-paul.html?src=me&re...

Jon Corzine Criminal Lawyer, Andrew Levander, Recommended By General Counsel, Jefferies Asset Management:  "...very able and effective advocate, especially when a business or individual is facing potential criminal charges..." (click comments tab)

http://www.bestlawyers.com/lawyers/Andrew_J_Levander/default.aspx

Role Reversal: Egypt Protestors Post Wanted Posters Of Cop (Warning; Graphic Photos)

http://www.dailymail.co.uk/news/article-2066830/Egypt-protests-Suspected...

VIDEO: Best Black Friday Purchase; Ferrari

http://www.tmz.com/2011/11/25/paris-hilton-ferrari-video/?adid=hero4

 

Sun, 11/27/2011 - 14:04 | Link to Comment i-dog
i-dog's picture

@ Dick Darlington:

"Only viable long term solution for eurozone is debt defaults and DISINTEGRATION. Everything else is smoke and mirrors."

Funnily enough, this is also the only realistic solution for the US as well ... yet nobody in the US will recognise it!!

All the ZHedgies are calling for Germany, Greece, Ireland, etc to leave the EU/EZ and revert to their nation-state currencies, but won't for a moment consider doing exactly the same and SECEDING from the criminal syndicate in Washington, DC!!

France, Italy and the UK each have an economy the size of California's. Ireland's is the same size as Alabama's. Greece's is the same as WA's. Spain's is the same size as Texas',.,......

So why the reluctance to face reality in the US, while telling the Europeans to face reality!?!

Sun, 11/27/2011 - 15:23 | Link to Comment falun bong
falun bong's picture

Careless, please go away.

Sun, 11/27/2011 - 19:59 | Link to Comment Careless Whisper
Careless Whisper's picture

ppffffttt

Sun, 11/27/2011 - 13:04 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

'It will be a hectic week, and there is a chance a real plan that could really work emerges, but we remain highly skeptical of that and will continue to use overly optimistic rallies to get shorter.'

The days of 'workable plans' are long gone in my opinion. This continues to be treated like a liquidity problem when we all know the actual problem.

Sun, 11/27/2011 - 13:04 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Peter Tchir is first-class on EU issues. He's on it.

As he writes:

« ... Are ideas like this being talked about?  Probably  ... It will be a hectic week, and there is a chance a real plan that could really work emerges ... »

Something is indeed afoot here in Brussels behind the scenes ... something on a better level than the previous half-baked schemes, according to hints from my contacts here.

The UK - British press meme of imminent euro collapse is a little extreme ... am thinking it was put out there to fire up the Germans to get going at last and stop dithering ... hopefully it was not the Brits and Germans working together to try to crash European societies and banking systems into smouldering ruins.

Sun, 11/27/2011 - 13:09 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

'The UK - British press meme of imminent euro collapse is a little extreme ... am thinking it was put out there to fire up the Germans to get going at last and stop dithering ... hopefully it was not the Brits and Germans working together to try to crash European societies and banking systems into smouldering ruins.'

When finance/banking is almost half your economy you resort to anything. Sadly for them, it's a last ditch attempt. Atonement cometh.

Sun, 11/27/2011 - 13:20 | Link to Comment Börjesson
Börjesson's picture

And this, allegedly, is what is afoot in Brussels:

http://hat4uk.wordpress.com/2011/11/27/eu-crisis-bombshell-how-the-euroz...

Basically, the master plan is to let all the banks off the hook and leave the bill to the tax payers.

Sun, 11/27/2011 - 15:30 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

of course!

look how well it has 'worked' in the US!

if there is a better answer to the "problem" than Let Them Fail, somebody should come up with it pretty fast, i would hope.  apparently, the emotive forces involved in the propaganda are quite effective in keeping the fact that this is the best and actually the only real solution a "secret".  those darned "TBTFs" just never let up, do they?

that is a a big IF beginning the prior sentence, there, isn't it?  the corpo-fascist ownership and self-interests would be BK if they permit the little child to speak, so the poor kid thinks she's gone nuts.  all she can think of is:  "no clothes! no clothes! no clothes!"

Sun, 11/27/2011 - 13:05 | Link to Comment bingo was his name
bingo was his name's picture

It looks like the normal 3pm rumor mill has been is being replaced with a premarket rumor mill - once the Euro zone hires Bagdad Bob we will know the farce is complete

Sun, 11/27/2011 - 13:14 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Folks have to stop glibly crying out for default.

THERE IS NO DEFAULT.  A COUNTRY THAT DECLARES DEFAULT CAN HAVE THAT DECLARATION IGNORED BY BANKS.  The banks can carry their paper until it's repaid, regardless of declaration.  They can just wander around trying to confiscate eventual assets.

Banks can "write it down", but that matters only for accounting and taxes.  IT DOES NOT MEAN THEY WILL NEVER TRY TO COLLECT, WITH COMPOUNDING INTEREST.

Banks do not have to agree to anything.  If the country doesn't pay, and banks are denied swap trigger, they don't have to tear up the documents.  They can just go on carrying them and looking for a way to collect.  And obviously they'll try to do that in any interest rate they charge for a future loan.

Sun, 11/27/2011 - 13:36 | Link to Comment xcehn
xcehn's picture

At this juncture, with the retail industry desperately hoping to have a profitable holiday season, TPTB are especially likely to pull out all the stops in their increasingly desperate confidence game.  We all know that cons (governments) will do whatever it takes to defend the markets (TEPCO, BP), irrespective of the general welfare.

Sun, 11/27/2011 - 14:34 | Link to Comment NSEW_73
NSEW_73's picture

http://www.youtube.com/watch?v=zTF-5EvjHJQ

FYI - the Euro would be the red knight in this scenario

Sun, 11/27/2011 - 14:42 | Link to Comment i-dog
i-dog's picture

... and the black knight in this one!

http://www.youtube.com/watch?v=zKhEw7nD9C4

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