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Financial Weakness And French Distress As European Equities 'Stable'

Tyler Durden's picture




 

A wonderfully orchestrated 1Y Bill auction in Italy and some clear 'help' from the ECB early on was enough to shift a heavy BTP market in a positive direction for the first time in a week. However, while headlines will be writ large with the 40bps compression in 10Y BTP spreads to bunds, the action in the last few hours of the day in French bonds, European financials, and higher beta credit were much more symptomatic of risk aversion than buyers coming back. Record wides in OATs and EFSF spreads as senior and subordinated financial credit is dramatically wider on the week. In the same way as yesterday, ES was exactly 'balanced' as Europe closed, having shifted back to VWAP as broad risk assets leave a slight positive bias though the selloffs in gold, silver, and copper (and AAPL) suggest some liquidation was underway - even as the dollar leaked lower a little from overnight highs.

The red arrow shows the performance of Senior and Subordinated financials, Orange arrow is Main and XOver, and Green is the equity market. It seems once again that equities are holding the hope line - especially as the core starts to disperse significantly.

The spread between BTPs and Bunds dropped the 3rd most in absolute terms ever - impressively - but did end up 13bps wide of its intrday tights and still wide of the close from Tuesday - unimpressive.

But it was both the French bond market and the rescue fund EFSF that were a disaster today. For some context, the spread between French and German bonds rose 21bps - the most ever in a day and over 10 standard deviations!!

EFSF 10Y bonds trade 177bps over Bunds, having widened over 65bps since the EU summit. The EURUSD had a 170 pip range - ending nearer its highs than lows hovering near 1.36.

All-in-all, some positives from the trading day but it smells much more like a rest rather than resumption of buying and the moves in credit are much more worrisome - especially as short-sale bans are extended.

Charts: Bloomberg

 

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Thu, 11/10/2011 - 13:06 | 1866481 GeneMarchbanks
GeneMarchbanks's picture

PPT let yesterday go only to line things up today like clockwork.

Thu, 11/10/2011 - 13:06 | 1866482 lolmao500
lolmao500's picture

What's the importance of spread compared to yield? French 10y yields were 5.75% in 2001, not they are at 3.5%... they still have a way to go...

Or is the spread more important right now?

Thu, 11/10/2011 - 13:57 | 1866638 Withdrawn Sanction
Withdrawn Sanction's picture

In a world where the US and Japan (among others) have suppressed market interest rates, it's more useful to look at relative yields (i.e, spreads). 

An even better metric is to take the spread and put it relative to the underlying "safe" yield to derive a percentage (relative) spread.  If you do this over time, you'll see big time stress is re-emerging in markets despite artificially low absolute yields. 

Thu, 11/10/2011 - 14:09 | 1866740 reload
reload's picture

I think in a ZIRP world decent sovereigns expect to pay less. This after all is one of the drivers of that policy - although the ECB have been late to the party.

The significance of the spead is that it displays what the market percieves as the relative credit worthiness pf the actual credits being compared. So the yield on OAT`s widening out from the Bund yield is an alarm bell for french credit worthiness.

Thu, 11/10/2011 - 14:13 | 1866763 Ragnar24
Ragnar24's picture

Spread also signifies to where the capital is flowing: a widening spread indicates moves OUT of riskier debt and TO the relative "safety" of less-risky debt.

Therefore a wider spread leads to a "credit crunch" because the only borrowers that have access to financing are the ones that don't necessarily need it.

Thu, 11/10/2011 - 13:10 | 1866494 SmoothCoolSmoke
SmoothCoolSmoke's picture

Ber-shankie and company just trying to get things to the close Friday so they have the weekend to cook up more BS "fixes".

Thu, 11/10/2011 - 13:18 | 1866514 Mugatu
Mugatu's picture

Not sure what is funnier, Rick Perry's deer in the headlights performance or today's Italian Bond market farce.  

Was it me or did Rick Perry look like the guy in the movie "Scanners" right before his head explodes?

Thu, 11/10/2011 - 13:19 | 1866524 Belarus
Belarus's picture

Why do I get the feeling Italy is going to disaapear on the backburner for awhile? 

Thu, 11/10/2011 - 13:20 | 1866525 melanie
melanie's picture

New start in Greece? The new Greek PM Lucas Papademos (aka L-Pap) was governor of the Greek National Bank (1992-2002 = period that Greece falsified numbers towards ECB)

Thu, 11/10/2011 - 13:20 | 1866526 TheLooza
TheLooza's picture

someone clearly fell asleep at the switch yesterday.  now his whole family is dead.

Thu, 11/10/2011 - 13:21 | 1866534 Duffminster
Duffminster's picture

What is needed most is time and common sense.  To get that time, the ECB needs to have the same authority as the Fed and the Bank of Japan to print money.   If anything, a weaker euro would boost trade and given the global slowing of growth, given that we do live in a system wherein velocity and expansion of money are in some way proportional to growth, it seems that growth can continue as long as credit continues to expand.

Perhaps in the next 20 years we can produce nearly free energy and compensate for increasingly less currency systems as we eventually migrate to some kind of global currency that is backed by a number of things such as gold, silver, platinum and other substances that meet the primary criteria for being "money."

It is odd that gold is being hammered today based on "risk off?"   I think it more about mindless hedge fund algorithms that group gold and silver in with "all commodities" and just mindlessly sell baskets of stuff.   The CB's know this and in order to dispell the perception that QE can cause inflation, they take advantage of the mindless algos and apply a little extra pressure to keep mom and pop from protecting their wealth in gold. 

Another good buying opportunity for the Chinese and me today.

 

 

Thu, 11/10/2011 - 13:31 | 1866574 DB Cooper
DB Cooper's picture

Maybe smeone is having to sell gold yesterday and today to raise cash.

Thu, 11/10/2011 - 13:37 | 1866586 Ponzi Unit
Ponzi Unit's picture

...and maybe JPM slammed it yesterday in the lightly traded Globex session.

Thu, 11/10/2011 - 13:51 | 1866643 slaughterer
slaughterer's picture

GS 11DEC price target on silver is sub-30.  Go figure.  

Thu, 11/10/2011 - 13:25 | 1866550 lapedochild
lapedochild's picture

And the Spanish try to be as quiet as they can... focus will soon shift... I've learned that bonds don't lie

Thu, 11/10/2011 - 14:15 | 1866769 reload
reload's picture

You are spot on, Spain=tinderbox. Somewhere I can hear a box of matches rattling.

It does seem as if the market can only cope with fleeing from one Nation at a time, perhaps the media help in that respect. Either way the ECB has been in the Spanish market already.

Thu, 11/10/2011 - 13:30 | 1866562 Cdad
Cdad's picture

OMG...when will it end?

BlackRock takes to the corrupt airwaves of the BlowHorn [CNBC] to recommend BUYING ITALIAN DEBT.  Good grief.

Now...a  month ago, BLK was bragging about buying that debt...as the rumor machine turned Europe upward on each meaningless headline.  Then, more recently, as the shares were falling, they DENIED having much in the way of exposure to Italian debt...and that they were "comfortable."  And today...the call comes out to BUY Italian debt...that yesterday they were comfortable with....because they have it to sell, of course.

As always, and until the current regime of criminal syndicate Wall Street bankers is simply swept clean with a fire hose, there is no chance of capital formation, and therefore no chance of economic recovery.

OCCUPY BLACKROCK!

 

P.S.

This nation no longer needs Larry "make them buy equities" Fink.

Thu, 11/10/2011 - 13:40 | 1866607 Schmuck Raker
Schmuck Raker's picture

I occupy some BLK puts. Does that help?

Thu, 11/10/2011 - 13:51 | 1866644 Withdrawn Sanction
Withdrawn Sanction's picture

BlackRock takes to the corrupt airwaves of the BlowHorn [CNBC] to recommend BUYING ITALIAN DEBT.  Good grief.

Someone's gotta be the bagholder, and it sure as hell can't be Blackrock ...can it?

Thu, 11/10/2011 - 14:24 | 1866819 Cdad
Cdad's picture

And as if you just channeled the wind.  When in trouble, always count on the criminal syndicate to simply change the rules in its favor:

http://online.wsj.com/article/SB10001424052970203537304577028422145660162.html

"The two firms are discussing whether to reduce their use of mark-to-market accounting," 

 

this changing from this back in 2009:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aG3yyG.gDkRM

 

 

"Loyd Blankfien said the financial industry shouldn’t abandon the “mark-to-market” accounting rules that some banks blame for aggravating global economic woes.

The rules, which require banks to book profits or losses when asset values rise or fall, should be even more rigorous, Blankfein wrote in an op-ed piece published yesterday on the Financial Times’s Web site. New York-based Goldman’s adherence to the practice “was a key contributor to our decision to reduce risk relatively early” in the credit crisis, he wrote."

 

Thu, 11/10/2011 - 14:22 | 1866810 dracos_ghost
dracos_ghost's picture

Even better, while all this Euronoise unfolds, Lehman Brothers issues first synthetic arb CDO in Hong Kong:

http://www.ifrasia.com/first-synthetic-arb-cdo-to-be-managed-from-hong-k...

Yup, these guys learned a lot from their trials and tribulations -- NOT.

 

Thu, 11/10/2011 - 13:35 | 1866590 Ponzi Unit
Ponzi Unit's picture

Gangrene has set in; time to amputate the Med countries from the EZ before the rot spreads to vital organs.

Thu, 11/10/2011 - 13:40 | 1866608 Ponzi Unit
Ponzi Unit's picture

Roubini on Italy: Spoiler alert, it does not look good.

 

http://blogs.ft.com/the-a-list/2011/11/10/why-italys-days-in-the-eurozon...

Thu, 11/10/2011 - 13:42 | 1866613 lolmao500
lolmao500's picture

Penn state :

http://rivals.yahoo.com/ncaa/football/news?slug=ycn-10407023

Penn State Scandal: Rumor Claims Sandusky “Pimped Out” Boys to Rich Donors

Just when you thought the Penn State child sex-abuse scandal couldn't possibly get any worse, we may have just scratched the surface. Joe Paterno being fired could be just the start of arguably the biggest downfall in the history of college athletics.

Pittsburgh radio personality Mark Madden, who penned a column for the Beaver County Times back in April of this year named "Sandusky a State secret," a column which foreshadowed the recent scandal which has absolutely gutted those of us in the Penn State family, was a guest on the Dennis & Callahan Morning Show on WEEI sports talk radio out of Boston on Thursday morning. During his appearance, Madden, who has been mostly right regarding this issue from the very start, dropped what can only be called a bombshell, an announcement which could mean far more than the end of Joe Paterno's career.

Madden stated that two "prominent columnists" are currently investigating a rumor that Jerry Sandusky's Second Mile Foundation, a non-profit organization aimed to serve underprivileged youths, was "pimping out young boys to rich (Penn State) donors." Madden went on to say that Jerry Sandusky was told by those running the show at Penn State football that Sandusky had to retire after allegations made in 1998 that the defensive coordinator was guilty of "improper conduct with an underage male." Sandusky, thought by some to be Joe Paterno's successor at the time, abruptly and somewhat shockingly retired from coaching in 1999.

Thu, 11/10/2011 - 13:45 | 1866618 Steroid
Steroid's picture

As "noone" could foresee this yesterday the masters were stunned.

However, by today they have already had a past war so they could fight the current one.

It is anybody's guess what they will do with the next "unforeseen" development.

Probably, they will be stunned again though the weekend gives them ample time to prepare for scenarios.

Thu, 11/10/2011 - 13:50 | 1866626 blu
blu's picture

I called this one.

They had to save this auction.

But not the next one.

So. Italy is toast.

France is next, though for France it will happen in the shadows. It simply must happen in the shadows. They will be pretending and dancing to fine music and wearing fancy masks -- until the last dog is hung. That is how the French do things. At least they will be dignified about it.

After that ... I don't know. I just don't know...

Thu, 11/10/2011 - 13:55 | 1866654 magpie
magpie's picture

If we are moving into the heart of darkness, i am now only curious about what & when something happens to Japan and the UK in relation to the downfall of the EU, the USA and China.

Thu, 11/10/2011 - 14:14 | 1866758 blu
blu's picture

Oh that is easy: Japan and the UK both are island cultures. The nature of island cultures is to roll up the welcome mat, defend the beaches, and turn inwards.

Japan is blasted from within, hanging from a thread, and will disappear first. Give them 5 years. The UK (that entire island complex really) sometime after. Hard to say. They have a long history as outward facing imperialist players. But give them 20 years of kick-to-the-balls and they'll vanish, too.

China likes being left alone. They will lead East and South Asia into a new era of greatness, led by tribal emperors who kill people by the tens of millions without a thought.

The US is also an island. No, Canada does not count. Mexico (as a representative of the entire Southern hemisphere) counts a little more but they only barely exist. That "nation" will shortly vanish as a legal entity and nobody will even notice, leaving a vast and treacherous beachhead to the US southern flank. About the same time the UK rolls over, the US will explode internally and vanish from the political landscape for five generations. Probably the Europeans will appear on North American shores just as they did 500 years ago, and find a race of naive, blinking peoples clothed in their own skin and torn by internal rivalries, ready for the pickings. Only those Native Americans will be Whites, the red men of old having long ago gone north, seeking peace and their lost gods.

I write fiction. Can you tell?

Thu, 11/10/2011 - 14:21 | 1866799 magpie
magpie's picture

Heh, only fiction remains once facts disappear.

For a moment i thought they would survive the implosion despite the nuclear waste, secessionists etc.

Thu, 11/10/2011 - 13:56 | 1866657 Withdrawn Sanction
Withdrawn Sanction's picture

France is next,...

Indeed, though it seems likely their banks will fail before their sovereign debt implodes.  Shocker, the French jumping the gun on the Spanish and Portuguese.  How rude.

Thu, 11/10/2011 - 14:26 | 1866830 reload
reload's picture

Look at this bloody dow!

But  - French banks will simply NOT be allowed to fail - they go and so do some Germans. ECB is going to print (more) on a biblical scale. Rueltant USD strength will give Ben the big green light to crank up his own press.

 

Thu, 11/10/2011 - 15:47 | 1867249 Gief Gold Plox
Gief Gold Plox's picture

Absolutely right. I am not saying that the EU isn't royally screwed, but there will not be a collapse of any of the core sovereigns or major banks without serious printing first. People in power will use their power (legally or otherwise) in order to remain in power but, above all, to preserve the system that has bestowed said powers upon them.

Thu, 11/10/2011 - 14:28 | 1866842 littleguy
littleguy's picture

Frenchmen don't want for anybody. They're the most important.

Thu, 11/10/2011 - 15:50 | 1867257 srsly-wtf
srsly-wtf's picture

Isn't the real problem the loss of value of Italian bonds?  Banks all over Europe hold hundreds of billions worth on their balance sheets that are now worth a lot less!  Doesn't this trigger ratio requirements or something?  Not to mention the worthless CDS's.

Thu, 11/10/2011 - 14:27 | 1866839 littleguy
littleguy's picture

mmm France.

Thu, 11/10/2011 - 14:35 | 1866876 Neidhammel
Neidhammel's picture

BarrOuzo: "There cannot be peace and prosperity in the North or in the West of Europe if there is no peace and prosperity in the South or in the East." Being a avowing Maoist, Barroso demands standardized uniforms and wages all over Europe. Nationalism and populism will be declared punishable offenses. In case this turns out to be unenforceable due to national renitencies, Greece might conquer Germany to assert its rights by looting. 

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