Guest Post: ECB And Spain And Follow Up From This Morning

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

2 weeks ago the ECB spent 22 billion Euro.  More than expected.  The Spanish 10 year bond went from a low of 94.5 on Thursday August 4th, to close the following week at 104.  After spending 15 billion Euro last week, the Spanish 10 year ended the week at 104.125.  Greek and Portuguese bonds actually decreased in prices last week.  Of the PIIGS, only Ireland seemed to see continued strength in their bonds. 

So the EU spent marginally less money this past week than the prior week.  Is that a trend that will continue?  Are they getting reluctant to use their balance sheet?

If 22 billion could move the markets massively 2 weeks ago, why did 15 billion do almost nothing last week?  Has the marginal benefit from every euro of intervention declined?

These two trends combined show that we are no closer to solving anything in Europe than we were 18 months ago when it first started.  SOVX is back to 300.  That is almost as wide as it got before the big bailout announcement that inluded an IIF proposal for private sector involvement and new powers for the EFSF.  As my kids would say, it has been "crickets" on the private sector involvement front.  The EFSF, if it ever gets approved, may not be of as much use as people want to believe, and it is already big, at least in terms of the burdens it is placing on the AAA countries.  Anyways, it is curious that SOVX (which so far hasn't been manipulated by the ECB) is right back to its wides. 

BAC CDS is 30 wider, and back to 360.  Its stock is getting hurt.  How long before some renewed focus is applied to the other banks here.  Every day it seems that it is news about real estate that drags down BAC.  The residential problems are at the forefront, but there are problems with the commercial market as well.  Rating agencies, burned so badly before, may be reluctant to provide such generous ratings when deals need to be re-financed.  And in a country where commercial building continued for the past 3 years, but jobs haven't reappeared, how much pricing power is really there?  The CMBX are hitting one year lows (in price terms).  Since commercial real estate problems haven't been grabbing the headlines, I suspect there is more room to go on banks.

In Europe, the banks are all under renewed pressure.  This is morphing into both a sovereign debt problem and now a senior bank debt problem.  Stories of some difficulties getting overnight funding abound.  Most stories are probably just rumours, but in this environment, they are believable.

High Yield may be cheap.  It definitely offers some value, but I think a big part of the sell-off has been a function of relative value versus other competing assets - stocks and European credit in particular.  So far, I think only a small portion of the sell-off is related to potential credit specific problems.  That is just my guess from the moves, but if economic weakness starts getting investors concerned that some of the weakest high yield companies may default, we could see further pressure on this asset class.  It also seems like a lot of credit hedge funds got caught on the initial move lower and are trying to manage their exposure through indices.  If they get caught long on a down move (because they took off hedges) we may see a round of actual bond sales.  So far, many people seem to have been happy to hold onto bonds, remembering how hard they could accumulate.  That could change, so is worth watching.

In spite of the Fed telling us LIBOR should be effectively zero for a few years, the leveraged loan space may be getting attractive.  The coupon income is still going to be low, but as prices have fallen, almost in lock step with their unsecured bond brethren, some interesting opportunities may develop.  The low prices and senior secured nature could provide a nice balance of safety with profit in this shaky market.

Anyways, I just don't see why we aren't at new lows.  Since we hit 1100 almost 2 weeks ago, the vast majority of the information seems to have been negative.  Mind you I thought we were oversold at 1150 at the time (too early), but right now it feels that if anything, at 1125, we are overbought in stocks.  And credit is trading like once again people got caught too long with IG and Main moving out steadily here. 

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vast-dom's picture

Re: "Anyways, I just don't see why we aren't at new lows.  Since we hit 1100 almost 2 weeks ago, the vast majority of the information seems to have been negative.  "


Let me enlighten you: the markets are rigged and we are witnessing the last tethers of fraud before this motherfucker goes off it's moorings! New Lows coming....

SheepDog-One's picture

Rigged manipulated markets running on nothing but printed up Fiatscos by computers, Peter. I know you guys dont like to admit your business is now over, but it is. And you guys all supported it and bathed in the free money fountain, now its come around to bite you on the ass. Its your crap sandwich, you made it, now YOU eat it!

TruthInSunshine's picture

OT -

The Federal Reserve, and especially the New York Branch, is doing everything in its power to seemingly kill off the American Economy.

People should let Ms. Wylde know what they think of her:

Check out what the New York Times says happened at a memorial service when Schneiderman ran into an official in the NYFed

[Someone who was at the memorial service last week for the late Hugh Carey, the former New York governor, said Mr. Schneiderman "became embroiled in a contentious conversation with Kathryn S. Wylde, a member of the board of the Federal Reserve Bank of New York."]

“It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.”

Wylde told the NYTimes that their conversation was “not unpleasant."

One thing to remember is that the Obama administration has been trying to end foreclosure-gate with settlements since February. Another thing is that this might be Obama's extending an olive branch to Wall Street.


LawsofPhysics's picture

Okay, so tell these dumasses that they are in fact doing something indefensible.

slaughterer's picture

"but right now it feels that if anything, at 1125, we are overbought in stocks."

It is that kind of thinking that will get your short in trouble.  Be nimble and respond to all HFT squeeze dynamics: investor sentiment is too bearish for the algos not to play with.  The easy short $ has been made.  Carry no position for more than a few hours, unless it is gold...   

SheepDog-One's picture

4 days till Jacksons Cornhole bankster homo orgy...yet wheres the need for QE? Going in like this, all is perfectly well...oh an occasional drop here and there, but still within 10% of all-time market highs! Mass panic over DOW 11,000? Thats only a few measely thousand points from record top of 14,000+. I see no emergency QE conditions at all.

snowball777's picture

The more these charts look like the alps, the more I hate UBS.

SheepDog-One's picture

Overbought, oversold...bunch of overhyped BS is what I think it all is. This article is more napkin scribblings while some guy was on martini break. 'May be this, may be that, but who knows'. I seem to remember all these fund managers and market advisors supporting ZIRP and QE, now theyre wondering why things arent working properly? You guys made this crap sandwich, now you get busy eating it!

slaughterer's picture

Clearly the relative absence of snarkiness means PT is not a regular "Tyler" contributor.   Strange to see him pop up nearly bi-daily.     

ZeroPower's picture

Only takeaway point is that this guy is most likely short the market via credit (hence his focus on the credit indices and CDSs) and, as always, credit always tells the true story, i.e. credit blasted off in summer 07 whereas equities ignored the blowout for another few months, running up on basically nothing at all.

I wouldnt say this is 2007/08 *yet*... but with Xover (basically a HY index for CDSs) at 600+ (well, its at 695/700 right now) not all is well in the markets, and hasn't been for some time now.

jm's picture

The problem here is ZIRP.  MMMFs get no return on the risk and take on more term risk moving into treasuries rather than get nothing in CP.  Then Uncle Crackhead bailouts out the financial system.

This is the Japanese sickness in a nutshell. 

kaiten's picture

ECB´s keeping spanish/italian yields bellow 5%. That´s their "whole" job. 2 weeks ago they needed 22bn for that, last week 15bn. How is that a declining benefit? They´re doing LESS to achieve the same.

machineh's picture

Historically bank failures have been bullish -- more liquidity!

Irish66's picture

Some miracle happened over the weekend!

SheepDog-One's picture

Peter, quit your navel-gazing and call it like it is!

Trump2012's picture

What happened to GS downgrading US 2nd Half GDP? Haven't heard a peep about it anywhere today.


SheepDog-One's picture

Probably cant downgrade it any further.

Infinite ZIRP + Infinite on.

Dick Darlington's picture

What i have heard every time ECB starts to ask offers on Spain/Italy there's very aggressive selling from "real money" investors (and banks of course). Seems like ECB will repeat the mistakes it did by starting to buy Irish, Portuguese and Greek debt. ECB will be the only one left to hold the bag, a task in which ECB will fail. With the smaller countries that wasn't that big of a problem but with Spain and Italy the game is totally different due to the size of these markets. Once again, central planning will fail and the only thing they bought is just a few months delay of the inevitable. Congrats Trichet, You old fool...

valuetrader's picture

I have a couple of comments on this:

1. Funds have bonds and they buy the index for protection - they are going to blow up on this if there is a problem. As usual, the individual names will underperform leaving the so called ''hedgers'' totally wasted.

2. The so called ''secure structures'' with nice collateral are very tricky. You need to understand the legal structure to particiapate. Also, remember GM? Don't get involved in any trade where there are unions and governments involved. They will not hesitate to totally disregard the rights of the lenders and organize a nice wealth transfer to the unions.

oldman's picture


Good for you! This is best idea of the year.

" Don't get involved in any trade where there are unions and governments involved. They will not hesitate to totally disregard the rights of the lenders and organize a nice wealth transfer to the unions."

Exactly what is called for here to save the universe----all that dough pouring into the pockets of Main Streeters all over the gloobe will re-vitalize this stinking global economy and save our bacon. Everything will be fine again and we can back to doing nothing again.

How do we get started?

Let's get on this right away---besides maybe a few of the starving masses of unemployed will have hope again and stop planning lives of crime to feed their kids---a little something for everyone, no?

Great idea, thanks for sharing it---I think we are on to something important

Oh, shit----------what are we going to short when all is well again?

Let's give this some incubation time before hatching----I won't have anything to worry about if the collapse is remedied

I'll get back to you----I have to think about this some more       om

John Law Lives's picture

More good news from Europe:

Greece expects recession to deepen
Greek finance ministry expects recession-hit economy to shrink between 4.5 pct and 5.3 pct



IMA5U's picture

This market would be down 5% if it wasn't the week of Jackson Hole

whirlybird rules's picture

China’s Peoples Daily as saying that “the black death-like spread of the euro zone’s sovereign debt crisis endangered China’s exports to the euro zone.”


Moody’s warns that euro zone states reconsider seeking collateral for aid to Greece if they had any desire for the bailout to stay on track.


just gets spookier and spookier....

whirlybird rules's picture


It's a miracle!!! 3 mo. Spanish t-bills went off at 1.36%. bid-to-cover at 3.6..   If it looks like a duck and it walks like a duck - it must be a EUROBOND :/