Grade 3 Math Assignment

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

Grade 3 Math Assignment

Tom has 1 apple.

Tom has promised to give Robbie, Jim, Anne and Mary, half an apple each.

How does Tom get 4 half apples from 1 apple?

Bonus Question:

While Robbie, Jim, Anne, and Mary are waiting for their half apple, Tom gets hungry and takes a couple bites out of the apple.  How does Tom now turn a half eaten apple into 4 half apples?

And you aren't allowed to call it an iApple and say it can do anything.

Here is the basic problem and why Italian and Spanish bonds are getting crushed again today (ignoring horrific unemployment data out of Spain).

If Italy defaults with a 40% recovery, there  is 1.613 trillion euro of debt affected (that is up about 10 billion in about a month).  That means creditors would lose 970 trbillion.   Spain with 663 billion would cost almost 400 billion (its debt has shot up about 15 billion in a month). 

The problem is that EFSF doesn't take default off the table.  It may delay the time to default (by helping roll debts as they mature), but all it mainly does is shift who would take the loss.  The guarantors can't handle losses that big.

There is no "ideal" solution because the problem is just an order of magnitude too large to provide any real help.  Either the economies are going to get to balanced budgets (some combination of growth and cuts) or it will fail.  Will EFSF do enough to see if the economies can get there?

And we have to help the banks too.  But it isn't just their exposure to sovereign debt that is troubling, but their exposure to Spanish real estate for example.  We are asking a lot from Germany and France and so far haven't gotten it.  China will likely come up with something, if they put a big number into banks at a good price, or buy all sorts of bonds of Spain and Italy, that is good.  If they buy some EFSF bonds, all they are really doing is buying Germany, France, and Holland - helpful, but probably something they are already doing.

Italian 5 year bonds just hit their highest yield since at least 2000. In 2000, German 5 year bunds were yielding over 5% too.  The ECB can cut rates, which could help a bit (they ar quite low already) or it could print money.  Either risks unleashing inflation, but I think we are a long long long way from "mission accomplished".  Maybe the 4 am press conference was the EU's "Bush" Moment.  

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Gene Parmesan's picture

The math problem requires an unacceptable answer, therefore it must be ignored.

topcallingtroll's picture


It will be ignored until it isnt.

Trade the trend. Find the inflection points, but reality is for entertainment purposes only. It should not be used for trading purposes.

Belarus's picture

It will be ignored until next year. All the ramifications Peter is talking about take time. For now, we can go back to watching the world series or Paris Hilton porn and ignore all and everything until next year. I'm almost willing to bet thre will be no melt-down THIS year at this point. 

rcintc's picture

It will be taken by gunpoint from the tax payers and redistributed to the.....oh wait, did I say that out loud?

abugarance's picture

all spot on, after the mother of all short-squeeze yesterday, the market is continuing the ride today, not even giving anything back, that clearly indicates rally to continue with coordinated easing and QE kicking-in. Could be window dressing, but all risk assets in same mode, including $, copper, oil, silver. this party is on. Shorts are fucked. Graham Summers just out with another idiotic all guns and canned food investment "letter"

bernorange's picture

Is the market blind, manipulated or irrational?  Really doesn't matter.  The effect is the same.  Caveat emptor.

Belarus's picture

I do think with no annoucment of QE3 on the 1st and 2nd you could see a litte sell off......but then, it'll be off to the races again into the new year.

catacl1sm's picture

Does Paris have a new movie out? I've been trying to find something to do until the end comes.

pods's picture

Just give them a sliver and call it the "new, low calorie" apple and be done with it.

Works with ever other product in the store.


XitSam's picture

Based on the past growth performance of apples, a quarter is expected to grow into a half over the next 20 years.

pupton's picture

I believe the answer will require the use of a mirror, and perhaps some smoke...

FreedomGuy's picture

Growing the apple is the hoped for answer.

ZackAttack's picture

It's hard to run a really good debt peonage system if bondholders have to take losses. If they did, they wouldn't be able to denominate the value of the peons' labor.

Fox-Scully's picture

Remember there are negative numbers.  Multiply two negatves and get a positive--must be what goverments are doing.

anonnn's picture

Fractional Reserve "guaranteeing" is an oxymoron, no? 

...An oxymoron that meets the definition of fraud.

Stack Trace's picture

Simple. Plant the seeds of the apple in the ground and wait for an apple tree to grow enough apples. Everyone starves while waiting but we can ignore that minor detail.

LawsofPhysics's picture

Of course you still need energy (now expensive) to provide water and fertillizer.  Yes, the answer is unacceptable.  The secret is, there is not secret.  got physical assets?

topcallingtroll's picture

After a big run up physical assets dont usually do so well for a while.

I think now is the time for paper. I may be able to get twice as much land and physical assets for my EWZ if I wait a while.

s2man's picture

If you think asset deflation is coming, that's a good plan.  I'm betting on inflation and hence, holding assets (except a comfortable amount of cash for an emergency).

writingsonthewall's picture

You need money for fertilizer and water? I get free water from the sky (I think it's called rain) and free fertilizer out of my ass!


My god man, don't you know what's coming?


You need to brush up on your horticultural knowledge quickly. No good having a pile of gold but can't scrape a meal together!

pupton's picture

There is plenty of free "fertilizer" being produced in the economic data/statistics out of DC...

disabledvet's picture

Just a Hanker Chief. Makes me weep it does.

DB Cooper's picture

How many Greeks does it take to plant an apple seed?  All of them + one German.

Frank N. Beans's picture

creditors would lose 970 trillion



Quintus's picture

Should be billion.  Unless Tyler is factoring in total collapse of the derivatives market too, although I don't think there's 970trillion gross even in that space.

Manthong's picture

Trillion, billion, schmillion.. at these levels what's the difference?

rcintc's picture

There is that much in the derivatives market....all held by J.P. Morgan.

wbill's picture

Trillion, Billion, Million confusion is a problem. The f-wads in charge skim off the top. whether it goes to buy their book, fund their in-laws construction company, to their buddies solar firm, their lobbyists defence firm, their own carbon credits company, or their benifactors bank. It's all skimmed off the top. In all accounting 1% is hardly ever noticed or looked after.  Think about it, if you throw 100 dollar bills in the wind, after you find and pick up the first 99 how long would you look to find that last dollar.  Gov't spending is the same (except that gov'ts probably would quit when they find the first 70 dollars, it's not their money anyway). Let' assume the only 1% is skimmed.   1% of a million is 10K and not worth the time. 1% of a billion is 10M and most wouldn't sell their country for 10M , but 10B? 10B of nearly any currancy in the world will make evil men out of most. When these NWO folks are kicking around trillions who the hell is finding out wher the billions are going. F-n-A that's a lot of evil potential just floating out in the wind.



rcintc's picture

I'm pretty sure it's supposed to be $970 Billion....Ouch still....

dracos_ghost's picture

The guarantors can't handle losses that big.


Boo fucking hoo. They should not have guaranteed then. These insurance dilletantes need to be taken down. Instead ,with all these bailouts, they are being coddled to the point of absurdity. When the transaction is on their side, you better pay up. When the transaction goes against them, they whine like bitches that they need bailouts.


Gene Parmesan's picture

Wait, I think I know the answer. Is it to punch someone else in the beak in the hope of distracting everyone from the unpleasantness at hand, and hopefully picking up a few apples in the process?

Comay Mierda's picture

Tom? I think you mean Timmeh

SheepDog-One's picture

Tom China has 1 $20 crack rock...40 European crack ho's beg for the crack rock, while also promising to be in crack rehab and totaly cured by Monday, while enroute to the much crack does each crack ho get and what are the odds of success that their promise to become nuns by the end of the year, and how many $20 crack rocks are then distributed from Toms original 1 rock?

knukles's picture

AM I the only guy here that's rubbed his gonads on the Elgin Marbles? 
Will that get me a rock to give to a nun just when she gets out of rehab for a fun afternoon?
Is that a Plan or is it a Plan?
Is it as good a Plan as the EU's between a Rock and a Gonad Plan?

Who gives a rat's ass. This is all hopie and changeie shit anyhow.
Not a Fucking Thing Has Changed.
The EU is still Bankrupt.
They have not yet even discussed the disease (spending in excess of revenues) but continue to focus on symptoms.
The Euro and EU are fucking dead, what all with the Rule of Law, of Contracts being abrogated with the Private Sector taking the Haircut and the Public Sector going out Whole when it's the fucking Public Sector Made the Problems in the First Fucking Place.
This is Europe's GM moment on a Continental Scale.
Lehman was a drop in the Proverbial Bucket, Bitchez.

Ghordius's picture

knukels, you sound upset!

"Not a Fucking Thing Has Changed", yes! and it's this way since quite a lot of time!

are you old enough to remember Mexico? or not that long ago Russia? or just shortly Brazil?

don't worry, the EU and the EUR will be still here next time you come to visit...

knukles's picture

Ghordie, I remember Penn Central and Continental Illinios, was trading bonds and running portfolios in them days.  
The song, the music neve,r ever changes.
It's always illiquidity or insolvency.  Always through the debt side of the ledger....
What's disgusting (not upsetting, downright disgusting) is the fucking song and dance show time at the Acrapolis routine that these fucking EU politicians engaged in.  No substance, mere shallow form.  
And yes, I shall visit again. 
I happen to love Europe, having been an ex-pat there for many many years, so my frustration is not from the perspective of a xenophobic Yank, but one who loves the place and hates seeing it driven into poverty unnecessarily.

NoClueSneaker's picture

... some unknowns there, number of Johns and fuckable children of the hoes .. ( aka sheeple to sell & fuck ) ....


lemme guess - the hoe with most of the children ( 82 Millions ), and the most of the fucks will get the rock, shoot or knive all the others and dump them to the river . Tom China will buy himself an Hummer, make an phonecall to the Tom Manhattan, create an AAA rated Fund  on the on the hoe,  and sell it to the sheeple as retirement.

... I'm still workin' on it. Me dumb.


Tsar Pointless's picture

Problem: Most Amerikkans can't do pre-school math.

Without an iPod or another electronic device to provide them with the correct answer.

Oh, technology - you've advanced us so!

poor fella's picture

Anyone have an S4 to ask? Be curious to the responses...

"Ask again tomorrow"  "Powers say 'yes'"  "Ich bin ein hosen"  "Bow before Watson"

prains's picture

Problem: Most Amerikkans can't do pre-school math.


American Bankers Can

E = M C nth


Earnings = Mine (as in Bankers) X Conned from to the n the degree

NoClueSneaker's picture

Yeah, but if Amerikkans deploy their main competence with the simple lowtec, there'll be an fast solution:

... we substitute the numbers with the headshots and choke, then count ...

Goldman Sux will be ready to give some free math lessons in no time ...


The4thStooge's picture

970 trillion? should just say .97 quadrillion just so you can use that word

Ronaldo's picture

More likely answer, takes someones else's apples.




Give them four equal sized turds that were derivatives of an apple eaten earlier, problem solved!


Now, that is leverage!

Laughinggrizzley's picture

Anyone that understands CDS's and is this true?

I'm told, so my "paper kills world" scenario goes something like this:

  • This weekend, one of the Big Players figures out they have more obligations due to the "voluntary" Greek pseudo-default and they're likely to go down because they won't be able to meet an obligation on a CDS.

  • Then, along about Tuesday of next week, they decide (woefully short of cash) to renege on a CDS obligation.

  • Wednesday, the counterparty who got stiffed discovers that they now don't have the dough to meet an even larger commitment and, since this is now quickly turning into musical chairs, they stiff the next party.

Within a week, maybe three or four tops, the whole global CDS settlement problem seizes up and we find out how good the political types really are at turning dirty paper into money.