The (European) Show Must Go On

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

The (European) Show Must Go On

It looked like S&P had gone off script.  They slapped a negative watch on any euro country that didn’t have it already.  They even came out with details about which countries faced 1 notch and which faced 2 notches.  I’m glad I didn’t have this information on Friday as I wouldn’t have bet we would be up 1.5% on the week given that move.  Now, it looks like this move has been incorporated into the plot.  It puts added pressure on the countries to come to a “resolution” this weekend.  It is being viewed as increasing the likelihood of a deal since the countries all want to avoid the downgrade.  If they do reach a deal, then taking them off watch could add to the post photo-op rally.

A few weird things about the S&P action.  They didn’t put EFSF on watch, though that has to be an oversight since from their own memo they should have put it on.  I feel almost bad for little Estonia.  According to Bloomberg they have no debt.  They were just upgraded from A to AA- on August 9th, and now look like they could lose that rating.  Yes, S&P upgraded Estonia less than 4 months ago.  The fact that the rating agencies have so much impact on regulatory capital and have some designation as nationally recognized something or other is just a joke.  That they hide behind “freedom of speech” arguments when they get it wrong is even more bizarre.  The CPDO trial in Australia is interesting if not precedent setting.

Nowotny came out with some comments that downplayed ECB help.  That didn’t help the market, but may well have been another step towards pushing countries to claiming they have a deal by the end of the week.  It is important to note that it was Nowotny and not Draghi, as it makes it easy for them to change direction if they get the EU announcements that have been scripted.

Last Tuesday, the Italian 5 year bond closed the day at 7.61% yield.  It is now at 5.95% which is 166 bps tighter.  Pretty impressive.  German 5 year yields are 16 better, so that is an improvement of 150 bps on a spread basis.  German CDS is 15 tighter over the same timeframe, but Italian CDS at 435 is only 90 tighter from last Tuesday’s 525 close.  The outperformance of bonds is worth looking at.  The cynical side screams intervention and ECB purchases were the key (since they don’t yet sell CDS).  I can’t tell if the potential for the ECB to print money has any impact since the CDS trades in $’s and there is always some FX element to the trading.  Short Spanish bonds and sell Italian CDS is a possible trade.

Geithner has been invited to the set (possibly self-invited).  I am not sure what he can do, and doubt he can really add anything as I still believe he has cause and effect all mixed up on what happened here. The media, though has latched on to the visit as another positive, as his advice is “invaluable” (it hurt to type that) and that it may indicate our support of the IMF (in spite of what our elected representatives may want).

Probably time to fade the rally a little bit.  MAIN has been in about a 2 bp range all day.  No one knows what to do, but after the massive rally, some doubt is creeping in.  In spite of near term potential to fade the rally, the script still seems intact. My expectation of some photo-op with enough of a [bogus] agreement to let the alphabet soup of entities to send out positive headlines, cut rates, and hint at more money to come is still the likely outcome for the end of this week and early next week.

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GeneMarchbanks's picture

More summits are needed!

myne's picture

Here's one I prepared earlier


Is it possible to post images here?


Vincent Vega's picture

And more treaties; don't forget more treaties! This time everybody has to swear in blood, cross their heart, and spit over a stick.

This farce is about one thing only: don't let the implosion happen today.

glokk26L's picture

I picture a clown on a unicycle, juggling and playing a kazoo.  While his friends are sneaking up to hit you in the head with a hammer and steal everything you have, down to your toejam, nose hairs, and fingernails.

IAmNotMark's picture

That's disturbing.  I hope no one ever steals my toejam and nose hair!

BlueStreet's picture


All together on three,

Let me count the ways how I hate this market 

It's like the gentle wiff of shit you smell at dawn

It's like that first sun that hits your wife's unattractive face

It's like that cloud that pisses rain all day telling us loudly

That it's gonna be another lousy day, another lousy day for us

No thank you, no thank you, no fuckin' thank you.


/ ode to Lennon (sorry, John - RIP)


youngman's picture

yes another summit..and then another...and then more talk on haircuts for any debts...Greece..who are they...nothing out of Geitners mouth....isn´t this where he usually says something stupid....very quiet on his meetings...that is because he is telling them the USA will dump trillions into the IMF....thru a back door of course...its just printed stuff anyway...but be quiet about it...and we have a is now 80% controlled by central banks and governments....we are living in wierd times

Alex Kintner's picture

And the world's largest debtor nation (the US) bailing out Europe via the IMF with IOUs. Oh the Poetic Absurdity.

BetterOffDead's picture

S&P is helping the Germans put the squeeze on other EU countries to give up their sovereignty ahead of Friday's meeting. It just might work.

AngryGerman's picture

When everybody is downgraded, doesn't that mean that the lower rating will be the top rating possible?

crisis solved

the 300000000th percent's picture

But i just dont understand how another "deal" will help their credit ratings, isint it "deals" that got them here in the first place. I see that maybe a "deal" might help to lower their bond interest rates in the short term but more obligation to debt will inevetably sink them in the long run. As Germany and France and every other Central bank and financial wannabe superhero(IMF) for that matter step up to try and create a debt equilibrium, there will be more downgrades, more than necessary. There is no way out

SevensGarlic's picture

Just kicking the can down the road and few weeks/months further, to give countries the chance to get even further in debt, more austerity to be impossed and more freedoms taken away. Word on the vine is legislation for europe similar to the tyrannical NDAA senate bill is to be presented before europe in the coming week. 

Expect rug to be pull out from Euro and US currencies in mid months of 2012 and elite to properly push for Iran-Israel (and proxy war ally conflict) to be delayed until later into 2012 to attempt to recreate (in their minds) what they perceive to be Gog-Magog battle to falsely fulfilled prophecy of various religions (Gog-Magog is not one between countries and occurs later on in the events timeline, that is why it is false), to aid in 'end game agenda' of bringing in their 'universal christ' 

Nothing To See Here's picture

Damn, and I was dumb enough to think that S&P were unexplicably and suddenly doing their job. Makes perfect sense now, thanks for the wake-up call.

HarryM's picture

Fits in perfect with the holiday season, S&P ( the ghost of Christmas future) shows Merkel ( The Scrooge) what's in store if she doesn't start goose stepping to a different tune.

glokk26L's picture

Saw a quote the other day that made me laugh.

"Remember when "Insane Clown Posse" was just the name of a music group and not the current group of elected officials?"

Will have to remember where that was.

Racer's picture

“invaluable” (it hurt to type that)


I bet it did in a BIG way!!

bahaar's picture

It puts added pressure on the countries to come to a “resolution” this weekend.  It is being viewed as increasing the likelihood of a deal since the countries all want to avoid the downgrade.


Just like our own leaders in the US quit posturing, put aside their differences and came up with valid plans to reduce deficit and improve economy?

cranky-old-geezer's picture



It puts added pressure on the countries to come to a “resolution” this weekend.  It is being viewed as increasing the likelihood of a deal since the countries all want to avoid the downgrade.  If they do reach a deal, then taking them off watch could add to the post photo-op rally.

There is no "deal" and there is no "resolution" to out-of-control sovereign debt. 

...except printing money ...lots of it ...enough to debase and destroy the Euro ...and the EU.

...or massive sovereign defalut ...which would become cascading sovereign defaults very quickly ...and wipe out Eurobanks very quickly.

Wipe out banks or destroy the currency.  Pick your poison.

Snakeeyes's picture

Why? The US has to pay for failed Socialist policies in Europe?

S&P Places EFSF On CreditWatch Negative – EuroSov Reaction is “Meh.” Geithner Sidesteps The Fed Bailout Question, But Admits to Continuing IMF Bailouts

ddtuttle's picture

It is now clear that Germany will force a fiscal union.  Nobody wants it, incuding the Germans, so the alternative has to be the end of the world.  This is a balancing act worthy of the Wallendas.  This lead to a poorly thought out treaty, ineptly executed, but it will give sweeping powers to the ECB to print money.  Tax collection, retirement age, deficits etc will be standarized.  That this won't solve anything doesn't seem to ocur to the eurocrats.

This will create a moment of euphoria, follwed by the realization that a fiscal union that can't pay its debts is not a whole better than a monetary union that can't pay its debts.  We are in a war between an ocean of global debt and the feeble attempts of technocrats to inflate their way out of it.  They will succeed in inflating something, but the money is all going to the banks (creditors) where its stops.  Debotrs are not getting their hands on it, so debts aren't getting paid.  Until the debt is destroyed one way or another we can't even begin to dig our way out of this.

Michael Hudson's reminder that Aristotle had a perfect description of how democracy is inevitably followed by monied oligarchy follwed inevitably by violent revolution and the restoration of democracy.  Chilling that us super-modern folks are stuck in such an ancient cycle.


jmc8888's picture


If we believe shit is's still shit dumbasses. 

Gotta love the idiots that say they'll all want to serve up their country to the banksters on a platter, and that if they do so, then it may be enough for a one-two rock 'em sock 'em mindfuck to new highs because then they may get taken off negative creditwatch. I still can't believe people get paid, and the vast majority believe, and thus have the potential to move markets based on nothing but bullshit.  Hey dumbasses, this isn't value creation.  A fortune telling gypsy is more real.


guiriduro's picture

This is getting beyond a joke.  All this pressure on politicians to abdicate their responsibilities to their citizens is absurd.  If europe can find money now to "help" the southern european countries, we all know all they will really be doing is some can-kicking whilst making good on malinvested funds which will just go back to the investor classes anyway, which will mean that after a brief pause the economies will go back into tanking mode.  How much better it would be to use that money *once there has been a global default on all outstanding sovereign debt* - that money could do some real good, except that if it gets put in now all it does is briefly repay some banks and institutional investors who ought to have pressured the relevant government authorities at the time they invested into better fiscal management.  Paying them makes after-the-fact northern european taxpayers pay off the wolves at the southern european's doors only to become the out-of-pocket wolf themselves - a much worse situation than sovereign defaults, bank (wolf) failure, then reinvestment with new money on a clean sheet.