Goldman's Sigma X Spot On Once Again: Predicts Imminent UK Contagion

Tyler Durden's picture

Last Wednesday we put up the following blurb: "Five months ago, when Italian yields were still tame in the 3% ballpark, and not 7% where they are today, we suggested that based on trading patterns and overall volume in Goldman's dark pool, Italy may be about to experience a "Greek episode." Days later we were proven right as Italian yields and spreads started their relentless move wider, with only those who had access to Sigma X being able to get an advance whiff of what was about to happen. Well today we are happy to report that the German diversion may have worked: the truth is that nobody appears to care about Germany. Instead what everyone does seem to care about, is the nation with the greatest combined debt (government, corporate and household) to GDP in the world. Yup. The UK." Following that, a quick Twitter update from this morning indicated something was again going on with the UK from the perspective of the world's most connected insiders: "UK's LLOYDS and RBS top of most active on Sigma X this morning." Sure enough, here's Fitch with what may well be a precursor to the bond vigilantes finally focusing their attention on the last, latest and greatest AAA credit.

  • And the punchline: "the capacity of UK public finances to absorb adverse economic and financial shocks that would result in yet higher public debt while retaining its 'AAA' status has largely been exhausted"

And cue the imminent downgrade rumors.

For those who enjoy visual cues, here is today's Sigma X update:

And the full Fitch statement:

Fitch Ratings-London-29 November 2011: Fitch Ratings says the Autumn Statement and the updated fiscal and economic projections from the Office of Budget Responsibility (OBR) confirm the scale of the budgetary challenge facing the United Kingdom ('AAA'/Stable Outlook). The revised fiscal projections signal a significant deterioration relative to the March 2011 assessment by the OBR.
The sharp downward revisions to the OBR's assessment of the near-term outlook has brought them in line with consensus and Fitch's own forecasts of growth of just 0.7% in 2012 before rising to 2.1% in 2013. However, the OBR has effectively lowered its estimate of the size of the UK economy by the end of the period 2015-16 by around 3.5 percentage points. Consequently, the UK government's goal of eliminating the underlying structural budget deficit is now projected by the OBR to be met in 2016-17, in line with the government's rolling mandate, rather than its previous estimate of 2014-15.
The UK government has responded to the deterioration in the economic and fiscal outlook with additional measures with reductions to current spending amounting to GBP15bn by 2016-17 which over the remainder of the current parliament is used to fund temporarily higher capital spending. Subsequently, the savings on current spending feed through to a significant fiscal tightening in the first years of the following parliament.
Fitch's initial assessment is that the policy response does demonstrate a continuing commitment to placing UK public finances on a sustainable path, and the adoption of more realistic economic forecasts enhances the credibility of the consolidation effort, while the important target of reducing the public debt burden from 2015-2016 remains intact. However, the deterioration in the economic and fiscal outlook implies that net public sector debt will peak at 78% of GDP compared to the previous OBR forecast of 70% in 2014-15. On a broader measure of government debt used by Fitch in international comparisons, the UK government will become the most indebted of any 'AAA'-rated sovereign with the exception of the US ('AAA'/Negative Outlook). UK government debt is on this measure projected by the OBR to peak at 94% of GDP and compares with Fitch projections for Germany and France of 83% and 92% respectively.
As with some other major 'AAA'-rated sovereigns, unless off-setting measures were adopted, the capacity of UK public finances to absorb adverse economic and financial shocks that would result in yet higher public debt while retaining its 'AAA' status has largely been exhausted.


All of which is massively ironic given the vastness of safe haven flows into Gilts the last few weeks. The spread between Bunds and Gilts is at its tightest (Gilts < Bunds now) since 2000 (upper pane in the chart above). The differential (lower pane) has seen the largest two-month move since 1992! So now where does that safe-haven-seeking money flow? US TSYs are bid post Fitch's statement!

Chart: Bloomberg

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Is that a Snickers bar floating around in Goldman's dark pool?

Mr Lennon Hendrix's picture

This is why not to cheat on your other, then get drunk and ask for a tatoo.

Tatt-poo for cheater:

sqz's picture

Knew it had to happen eventually.

Also, interesting is that S&P would pick on the US and do nothing about the UK whose total debt in GDP terms makes the US look positively Swiss!

That said, trust a French credit agency (Fitch) to pick on the UK before it addresses its own problems! At least the UK has its own currency. There I said it :)

Maybe this will at least take the shine off that Gilt-Bund redenomination risk inversion, but I doubt it.

Mr Lennon Hendrix's picture

I just want to know what tattoo Germany will give Greece.

Buck Johnson's picture

The UK is so silent because they know that they are in worst shape than Italy and alot of the EU.  Many countries that where quiet when Greece was imploding are having trouble now, the UK will be having it's issues shortly.

redpill's picture

The UK's financial sector exposure is simply too high for this not to eventually crush them.

jwl2020's picture

Is this Sigma X Europe?

Quinvarius's picture

Pay a US congressman to take a bite.  They will eat anything...for a dollar.

ZippyBananaPants's picture

Today I gave $25 to the Tim Tebow foundation.

Last week, on Thanksgiving Day, I sent $50 to ZERO HEDGE.

redpill's picture

Norv Turner's retirement fund could use some help right now while you're at it.


Dude has been a disaster everywhere he has gone yet he still has a job. Perhaps he should go the way of the squid. 

redpill's picture

If he had taken a job with Goldman in 2007 he'd be in line for the head spot at the NY Fed by now.

Dick Darlington's picture

Wooot, printing ridiculous amounts of fiat doesn't result in prospeeretee?

CPL's picture

Sure it does.  $2 waffle irons and $1.98 towels complete with riots at no extra charge.

Dick Darlington's picture



Can i have my waffle iron with pepper spray and yelling straight to my face please.

Tijuana Donkey Show's picture

Pepper waffles! Sounds southern, let's sell them in Arizona, as long as the maker is a US citizen, tax donkey

GeneMarchbanks's picture

I believe it was $1.28 for them towels, not to nitpick because towels at any price are magic.


Spastica Rex's picture

Don't forget to bring a towel!

Zero Govt's picture

bring a truckload of towels ..this Tory Govt is so dripping wet they make 'pathetic' look like Iron Man

...and these pussies talk tough but just deliver zero cuts while spending more and taxing more

Eaton Socialists ...put em up against a wall and 'Fire'

Manthong's picture

Greatest AAA credit..  isn't that like brownest turd in the punchbowl anymore?

Carlyle Groupie's picture

Goldman's product Sigma X is a mother fucking money making machine!

Fuck the ties, get daddy a Sigma X this year!

Sunset chaser's picture

Well BAC reported $2,036,661,000,000 (2T) of liabilities against $134,194,000,000 (134B) in revenues last year, for an analogous debt to GDP ration of slightly over 1500%. That's a good investment, right?

redpill's picture

They are flirting with dipping below $5 today.  

Carlyle Groupie's picture

It was a slight exaggeration on my part designed to draw out the Goldmanites in the crowd.

This is my "I'm interested" look.

EZT's picture

can I get access to SigmaX..!?

Mr Lennon Hendrix's picture

You don't want that.  It will give you AIDS.

Carlyle Groupie's picture

And free training on The Hedge.

Mr Lennon Hendrix's picture

Finance is not going to catch a break.  For example, Japan just dumped their Italian holdings and went into British holdings.  So now what, Japan?  Go into USTs at their most expensive point?  Buy (more) equities?

The end result is when finance flees the bond market, and the FX market, and pile into....wait for it.....


Piranhanoia's picture

There are some really good synonyms for finance today that don't match the definition in Webster's.  It is about investing with the mob.  You really think you will get your money back?     Chaos,  3 blocks up and turn right.  Wait for it, it will be like a parade.

Ag1761's picture

Well, I am astonished. For once I'm ahead of the Market.

yogibear's picture

Quick, some handwaving diversion to distract the attention! So far the diversions and lies have worked.

schismjism's picture

no chance of uk bonds yeidls going up... read some MMT boys and girls.... next please!

have a new blog on new forms direct democracy - check it out:

youngman's picture

So Britain is slowing is the EU area...Japan too....the USA..I don´t know...the stats don´t make sense....China slowing down...but interest rates going up...commodities going up....and tensions rising inbetween teh Muslim world and the other is good...the consumer confidence survery just said so...

RobotTrader's picture

Goldman Sachs?

The most reviled and despised firm on the planet?

Is suddenly the "expert" on where the markets will trade next?

Handing out free advice to Zero Hedge readers on a silver platter?

So everybody can get rich betting on a UK collapse?

Sounds fishy to me.

Maybe I should bet on the opposite outcome.

slaughterer's picture

Buy a bull leveraged FTSE index product then.  Goldman's Sigma X is a pretty good leading indicator, though.   

monkeyfaction's picture

Perversely, buying a bull leveraged FTSE index product would not be the worst thing to do if you think the UK is going to have a debt crisis. The UK will never hard-default on its debts it will just print its way to massive inflation and currency devaluation.

A very big chunk of FTSE 100 is made up of large international companies that do most of their business outside of the UK. As the value of the pound goes down, the value of these companies measured in pounds will go up and so will the FTSE.

Ghordius's picture

Goldman's Sigma X is a good way for the Squid (bless it's work) to coordinate It's Tentacles, i.e. The Shorting Squad. Works like a cartel, is legally not. Only pity you'll have to guess when to stop...

fuu's picture

Better than your free advice.

Carlyle Groupie's picture

Canadian "dark pool". Sounds like a Muzzie terror guy. Man your battle stations.

Spastica Rex's picture



The most reviled and despised troll on ZH?

Is suddenly the "expert" on where the markets will trade next?

Handing out free advice to Zero Hedge readers on a silver platter?

So everybody can get rich betting on retail?

Sounds fishy to me.

Maybe I should bet on the opposite outcome.


DoChenRollingBearing's picture

@ Robot

Normally I too would bet against the Squid's advice.  MCP is a great example, they sold their stake on the IPO and it went up, up and away.  Yes, it has dropped a lot off its high, but it IPO'd at 14...

Caviar Emptor's picture

Tick Tick Tick Tick..........

The world as it was circa late 2011

TheAkashicRecord's picture

The Good Judge laying the smack down. 

Caviar Emptor's picture

Hungary tightened today in desperation to slow capital flight and currency collapse despite bad economy. 

Good sign

Bam_Man's picture

Coming eventually to a country near you!