Focusing On The Wrong Zero...

Tyler Durden's picture

Peter Tchir is tireless today:

The NFP print of 0 today is clearly big news, but Greek 1 year bonds trading at 63 imply an almost 0% chance that they don't default.  2 year bonds are trading at 53.  Certainly at those prices, default and recovery are the drivers.  If you give any benefit for shorter maturities (which often do get slightly higher recoveries in sovereigns as opposed to corporates) it is hard to see that default isn't being priced in with almost 100% certainty.


On a quick glance, it looks like for recent stress test purposes, banks had to stress 1 year Greek bonds with a 4.5% loss in their bank books.  Now the market is saying it is at least 45%.  If you don't think Greece is going to default, you might as well buy the 1 year paper.  A 65% return.  You really think any other asset will provide a return like that?  At these prices it is actually getting hard not to own some Greek bonds.  They are trading very close to what would seem like reasonable recovery rates.  At the same time, it seems hard to go home long the SPX up here with such clear signs that Greece default seems imminent.


Will there be another hopeful yet bogus announcement out of Europe next week that solves this problem?  I think that is highly doubtful.  And if there is, the risk reward seems skewed to owning something European. 


If all we get is operation TWIST, then QE3 will be a big disappointment.  In spite of being told by Ben that he wasn't printing money, I believe that at some level, actual holders of treasuries sold them, and re-invested in something riskier, and that went all the way out the curve.  It was the sale of treasuries by actual holders (at some level) that spurred the asset valuation.  In TWIST, all they would do is let investors out of profitable recent long bond purchases and let them shelter in the short maturity treasuries the Fed would be selling.  I'm sure this makes no sense to anyone who understands the Fed, and fractional reserve accounting, etc., but I am pretty sure it was the flow of money (even in digitial form) that pushed people into riskier investments.  TWIST makes it too easy for investors to hide out and creates no new money in the system.


We may have Monday off, but Europe is in. 

Peter: "labor" day is here. Take a break. We get it: the shit has hit the fan. 

PS: LIbor-OIS just hit the widest since April 2009. Cue angry screams of "there is no liquidity crisis in Europe god dammit."

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
EscapeKey's picture

I feel like I _SHOULD_ buy some to hold onto for a few months, but I guess I might as well sell lottery tickets.

xtop23's picture

Putting ANY money in Greek debt, regardless of the return, is financially suicidal.

You might think you're good but trust me when I say you aren't fast enough to time that trade. When it implodes its going to happen at light speed.

You will get railroaded.

Id fight Gandhi's picture

But when WILL it implode? The can keeps getting kicked. It might actually be a worthwhile speculation.

When they do default it will ripple thru the world.

oogs66's picture

and some of it trading near 50, how bad is the downside?  short stocks, long gold, and long a bit of greece?  default may happen, but if recovery is 40 even, the downside isn't bad, and can be made up from long gold and short stocks? 

mcguire's picture

perhaps a better hedge is to buy greek bonds and buy volatility.  if nothing happens, you earn crazy interest but lose theta, but if greece defaults, you make money on vol regardless of the direction of the stock market.  

Greater Fool's picture

Hey, at least it isn't denominated in dollars....

Azannoth's picture

I think you'd be lucky to get 20% back in the end, better luck in Vegas

Id fight Gandhi's picture

It would be nice to collect that yield. But default it is.

10 days to think things over? Wtf? Greeks have the eu by da ballz

Cognitive Dissonance's picture


Peter: "labor" day is here. Take a break. We get it: the shit has hit the fan.

Tyler, with all due respect to your huge intellect and consistently right calls, there are many miles to go before we sleep.

Or maybe I should say that some shit has hit the fan. There is plenty more shit where this came from and 6.9 billion more spinning fans.

CClarity's picture

Agree with CD.  TSHHTF, but there is still more shit to fly.

cossack55's picture

Agrred, but it only seems to have come in contact with one blade. 

ZippyDooDah's picture

The cat is out of the bag, but has a long way to run.  The water is over the dam, but a deluge follows.  The shit has hit the fan , but....

Yeah, there is a lot more to come, but it seems like the quality of the present has changed.  The dam has burst...

CClarity's picture

Just talked to someone about how to actually buy some Greek one year notes.  Am trying to buy today, but it'll probably be Monday before it gets done - and their yield may be higher by then.  I'm okay with getting paid back in Drachma and a big haircut.  If I have 15% or better return, it'll have been an interesting investment.  Only a teensy part of my portfolio.

uno's picture

betting on football games is a better investment

Id fight Gandhi's picture

I'll move on it when it crossed 70% why not.

alexwest's picture


it is hard to see that default isn't being priced in with almost 100% certainty.

 At these prices it is actually getting hard not to own some Greek bonds.



what kind of idiocy is that? so you bought Greek 1-2 yy bond.. fine.. you made  your million.. but what about long duration 5-10-20 yy??


fine .. Greek will default , 50% haircut, so  instead of 150% debt of GDP, it will be 75%..




in any case default  will bring huge problems, so.. NOTHING BEEN DONE ON ECONOMICAL SCENE IN GREECE.. still corruption, tax avoidance, etc .etc



John McCloy's picture

  The Euro is completely doomed to fail. They cannot even spout talking point lines such as " It is our patriotic duty to pull together to combat this crisis" like the elites in the U.S. like to do at home. It is the marriage of multiple sovereigns, with multiple governments, less than a century removed from two world wars with multiple ideology who have all seen the failed wonders of globalism on that side of the Atlantic for the sake of the bankers at the expense of the few. 

   All you need to know is that aside from the U.S. economy being a tragedy continuing to deteriorate as we all have said 2 years ago is that all the citizens of the E.U. have seen the great wonder in the shortest time frame of a world govt for the banksters and by the banksters and it is a complete failure reliant upon corruption to feign a heartbeat. The U.S. stock market is the EUR and since we all know it is parity at best and failure at worst down we are headed. The experiment failed...the undeniable fact that everyday of existence is predicated on the rumor and rhetoric which yields no results daily to stay afloat and promises of bailouts & monetization leads to their currency rises while ours with the same leads to crumbling is all you need to know. 

     This is discounting the black swans of inevitable war when people begin to wage war of scarce resources. You cannot successfully tie so many nations to one currency and succeed and we can only do it here because we possess the grain to grow crops, unified constitution or what is left of it and shores which cannot be invaded unlike the landlocked othersiders who have already waged two world wars. All of these bonds are worthless or worthless when compared to precious metals if they continue monetization. 

   Meanwhile wannabe Playboy econ celeb Roubini who carries water for the banksters since his entire profession is reliant upon govt expenditure in lieu of actual free market based growth will be jet skiing in Lago Di Comi in Italy. Such a man of the people while you are Seadooing with one hand and Tweeting with the other I am reminded of that line from Jurassic Park when Dr. Grant comes to the realization that technology has made most of his education valueless since dinosaurs can now be created in a lab and how you must be feeling knowing that independent press and the avoidance of Keynesian Voodoo like the cancer of the priestly class it is with the following:

Dr. Sattler: So what are you thinking?

Dr. Alan Grant: That we are out of a job.

Dr. Malcom: Don't you mean extinct?

buzzsaw99's picture

too bad the sellers aren't all banks as they would get 100 every time.

how to trade armageddon's picture

I wouldn't be surprised if the whole Greek bailout falls apart right here. You've got the EU and IMF demanding further austerity before they dish out more aid. This holds up the bond swap, since the Greeks don't have the money to put up the collateral they're promising. It also creates a countdown till the Greeks simply run out of cash.

Meanwhile the Greeks are blaming the missed deficit target on the deeper than "expected" recession, and saying it's not fair they should have to make more cuts or raise more taxes. Plus the Greeks are promising that their economy will improve enough in the second half (like the rest of the world!! ha ha) to render further cuts unnecessary.

There's a lot of complacency out there, a lot of assuming that a default is just too hairy to happen. Reminds me of the prevailing assumption back exactly three years ago that no big US financial would be allowed to go bankrupt.


ambrosiac's picture



I should think the long-term scenario that sidesteps total collapse involves Greece's creditors acquiescing to a 50% haircut or so, as long as they can be sure of receiving the remaining 50%. This seems to be the idea behind kicking the can down the road while trying to straighten out some structurals and fundamentals.


There is a lot to straighten out.  Greece still has a primary deficit, indeed government expenditures have increased over last year's.  There is intra-party political reluctance to do what is necessary but unpopular to party voters, such as opening up closed professions, curtailing ensconced labor union privileges, and very crucially cutting down the public sector.  As much as 30% of civil servants (my estimate) could be let go, possibly with half-salary payments for a year; they are political pork-barrel hires, absentees, incompetent ones and the like.  [Instead of this the government has seen fit to cut elsewhere, namely: public investments.  THAT is going to turn out well...]


All this will have to be overcome if the scenario is to work out, with continuing bailout loans and eventually haircuts.  Papandreou's ruling party finds itself in a situation akin to the end of "Saw": it has to cut off its own foot if the country is to reach salvation.



cossack55's picture

"Focusing on the wrong zero........."  Yes, way too much time focusing on Obummer/CONgress.

gerryscat's picture

On the other hand, if you do think Greece will default and you still want that 65% you'd be better off in silver.

thunderchief's picture

Nice cat.

Wish I had a few of those for the house, but got to many as is. 

Keep buying physical, unless you can find a cat worth its weight in Silver, which is easier than finding an honest man on wall street.

ariele25's picture

how can you estimate a recivery value of a greek bond? you value the Acropolis? no way...this paper is good only for bathrooms.

ark_1980's picture

Peter Tchir is easily one of my favourite regulars here on ZH.


Highrev's picture

Greece is gone.

(As in out of the Euro.)

(Which BTW will rally hard on the news, as will Euro area equities.)


The question is WHEN, and I think soon. 


falun bong's picture

Folks we've been here before, I don't know why people are all surprised and everything.

In 1992 we had the ECU and EMU. Germany needed higher rates to fight the inflation that came with E.German union (they exchanged marks at 2:1 to make E Germans happy), the UK needed lower rates due to an economic slowdown.

Everybody knows the outcome, the UK left the Union after much huffing and puffing and gold sales and intervention, and Soros made $2 billion.

Euro doesn't, won't and can't work. They didn't write any exit clauses, so this time it will be very messy. They can and will, however kick the can down the road for quite some time, and stealth Chinese buying can prop things up for a while. So shorting EUR won't  work.

shacai's picture

Welcome to .Our company was founded in 2004 and was committed to internet marketing businesses in 2006. Replica Handbags are always in a great demand and sells well. Recently, we launched some new and updated them on our website. Here you can find some scarce Cheap Christian Louboutin shoes, which were difficult to find from other websites. sac à main are also always in hotsale.

We have gotten many great comments from our customers and earn a good NFL jerseys reputation in foreign makerts, more than 90% customers are satisfied with our products and service, till now our online members NFL jerseys are beyond 80,000. As of right now, we currently serve customers from over Christian Louboutin 18 countries, and we are still growing. We really hope to expand our business through cooperation with individuals and companies from around the world.