Guilt, Growth, Lies, Laziness, And Liquidity

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

Guilt, Growth, Lies, Laziness, and Liquidity

We are getting closer and closer to some actual details.  Eventually EFSF will be only one or two things.  We will see how much or how little outside money gets contributed.


I attended a presentation yesterday and the one thing that surprised me the most, was the apologetic tone of the Germans.  They seemed sorry they hadn't done enough and almost seemed to be asking for forgiveness.  It was strange, since the largely American audience in most cases had already thought they had done too much.  It seems that there is a real struggle (more than I realized) between doing what they think is right and what they think other people think is right.  We will see how far this goes.  It won't show up in the headlines of any plan, but will be obvious in the details where restrictions are spelled out.


Austerity is off the table and now Greece and the other PIIGS have to "export" their way out.   China wants to keep Europe as strong as possible so they can continue to "export" to Europe.  Germany wants the PIIGS alive so they too can continue to "export".  The US is interested in making sure Europe is "fixed" so that we too can "export" to them.  Sounds like we need to rename some EXIM banks to EXEXEX or XXX banks for short.  It is great that the solution for the PIIGS is to export, and the reason to bail them out is so we can export, who the heck is doing the actual buying and importing?


This category could fill up entire pages, but I will stick to a couple of points.  If the EU doesn't get a signed, sealed, and delivered deal on PSI from the IIF and its members before the plan is passed, they never will.  Yesterday started the parade of IIF officials and Bank lobby groups mentioning it might be too onerous, etc.  The second the EU has signed off on the money, and PSI will be so watered down it will be hardly worth it.  The EFSF can allocate money for bank recapitalizations, but if it is done in the form of a free option, don't expect any banks to use it.  Banks will use the rally to say "see how much better we are" rather than raising capital - look at Lehman post Bear Stearns.  The more open ended the capital commitment from the EFSF, the more likely it won't be used until we are in the midst of another crisis just when no one in the EU can afford to provide the capital.

Italy and Spain.  Yes mommie, if you give us dessert we will do our homework, and our chores.  Really, we promise.  Please, we are sorry, but this time, really, if you just give us dessert, we will be better.  Greece might feel intimidated by the IMF and Germany and France, but I have this strong feeling, that Italy in particular will be quite happy to flex its muscle as biggest borrower and biggest economy at the trough - they will have the power once any grand plan is approved (unless the plan has a lot of conditions, in which case is it so grand?)


I continue to read about "how nobody knows where the CDS exposure is for Greece".  Here is an idea.  Regulators, call the banks, tell them to send you all the Greek CDS trades they have on their books.  Give them a file format you want it in, and tell them to have it by end of business today.  The banks all know and have records of each and every CDS trade they have on their books.  They would have to supply that info to a regulator if they asked.  On top of it, demand to talk to the person responsible for each book that has Greek CDS (single name desk, correlation desk, and bank hedging desk) and have them explain what trades they have on and with which counterparties.  10 junior analysts should be able to piece the entire Greek CDS puzzle together in 3 days (I'm being conservative, I think 3 people could do it in 2 days).  It is complete laziness if the regulators and politicians don't know the positions at this stage or are not working on getting the positions.


Everything in Europe and the Grand Plan is designed to provide liquidity.  Solvency is not the problem and the market seems to have more liquidity than it knows what to do with.  LQD - it is back close to its low yields on the year (4.4%) and that is with treasuries selling off dramatically over the past 2 weeks.  Shares outstanding have been rising as well, though not as much as for HYG.  HYG shares outstanding and price are rising almost parabolically.  HYG is back to almost below 7%.  If this was all about liquidity, the Grand Plan, would do something.  It isn't about liquidity, it is because Italy and Spain are on the paths to default and all the Grand Plan does is shift who bears that cost.  On a side note, HYG seems very overbought.  The difference to NAV is almost $4 and although the cash market is doing extremely well, the NAV isn't underestimating the strength by that much.  HYG should be sold, and if you really want to go long High Yield, HY17 seems a better choice.

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GeneMarchbanks's picture

Guilt: Germans realizing the rest of Europe isn't a workaholic machine-like society that wishes to integrate into a Pyramid-type hierarchy.

Liquidity: About to be unleashed in an attempt to mask the ever so visible panic in the streets.

Outcome: Violence

Archduke's picture

the same germans that are ever enthusiatic to vacation in the baleares or the cyclacles.

I'm tired of the nationalist finger pointing.  europe should be viewed for what it is:

a pan-national federation.  like any other country has demographic and economic

imbalances between urban profit areas and rural dead-ends, say between london

and cardiff.  In this case it's just that a bigger scope that crosses wider linguistic and

cultural barriers.  but it is normal for the profit centers to subsidize the poorer areas

to a degree, say to facilitate infrastructure works.  what's not normal is to skew wages,

pensions, benefits, and tax breaks in the oulying areas.  the opposite should happen,

thus we should see more incentives and mobility from the backwaters to the profit centers.




malikai's picture

I think you're missing the grand scheme of things.

The urban profit areas and rural dead ends are confused. The reality is urban dead ends and rural profit centers.

Well, I'm sure you'll understand that a bit more in the coming years.

falak pema's picture

you are a localist who grows his own beans.

qussl3's picture

The next time this comes around, the bailout will be for France, not Italy or Spain.

The Germans must be masochists.

pendragon's picture

agreed french pmi was particular weak yesterday. how can bonds that have a 120 bp difference have the same rating.

A Man without Qualities's picture

which is why France is pushing so hard for the ECB to be able to directly monetize debt...

gojam's picture

What about the SPIV ?

Yes, you heard me correctly. Special Purpose Investment Vehical

How do you turn 400 billion Euros into 2 trillion ? You use a SPIV.


qussl3's picture

Now where have i seen those before?

Oh...... well this time is different no?


oogs66's picture

spiv [sp?v]

Brit slang a person who makes a living by underhand dealings or swindling; black marketeer
[back formation from dialect spiving smart; compare spiffy, spiffing] spivvy  adj

Collins English Dictionary – Complete and Unabridged © HarperCollins Publishers 1991, 1994, 1998, 2000, 2003

breezer1's picture

i could use a couple of those.

ArkansasAngie's picture

Just what is wrong with bankruptcy?  Why in the heck are central bankers and governments so opposed to letting markets work their magic? 

The answer is that it is their skin that they are protecting, not yours. 

To stop them from stealing more time and money, politicians must be thrown out of office.  All of them. 

If the line is not drawn here, control of the economy will have been secured for the current cabal.

WonderDawg's picture

The problem with throwing the politicians out of office is that the ones who replace them will be bought and paid for before they ever take their oath. The political system itself is corrupt, therefore it produces corrupt politicians. We have to change the system and remove the open market bidding system from the process. It's been a problem for a long time, but we can thank the Supreme Court for making it legal.

ArkansasAngie's picture

The trick is to throw them out regularly.

This little event will require at least 2 rinses.

WonderDawg's picture

A corrupt system will continue to produce corrupt politicians. The cabal just ponies up to the new candidates. Take the money out of the system, or it's just an exercise in futility.

barkster's picture

and then there's the issue of the politicians' "staff" (the worker-ant bureaucrats that populate d.c. and keep their jobs regardless of who is elected). These cockroaches have to be purged as well.

ArkansasAngie's picture

What's the purpose of a purge if you don't get rid of them all.

Remember ... vote ... it is the preferred method of throwing the bums out.

ZeroPower's picture

Excellent point about increasing the much needed transparency for CDS. Even the higher level MDs i report to wouldn't have much of a problem with this, give some orders to middle office support and they'll organize and file every trade as needed. Quite a surprise this isn't required yet.

oogs66's picture

it probably is required but the regulators are all busy working on new versions of QE or some Volcker rule that will never get implemented, rather than regulating what they have

buzzsaw99's picture

regulators, that's a laugher.

Christoph830's picture

Regulators haven't asked for the books because they'll be terrified at what they find. Sometimes, it's best to not know what's in front of you and throw darts at a board you can't see because this way they won't be held accountable when the bailout inevitably fails.

three chord sloth's picture

"Plausible deniability" is the goal. When the whole rescue-the-EU plan turns to crap, the bureaucrats want a way to keep their heads out of the nooses... and their gonna use the old "Nobody saw it coming" excuse.

They're gonna blame "speculators" and credit default swaps... so they absolutely need to be in the dark about them. Enough stooges will believe the excuse, and that'll save their necks (and their favored programs and policies... but most importantly, their power).

Just like enough stooges believe the fairytales that "prove" Fannie and Freddie and the rest of the Federal government had nothing, NOTHING to do with the US sub-prime mess. These are folks who truly believe in the redemptive powers of the infinite state, and MUST do everything possible to deflect blame from their holiest of holies.

Dick Darlington's picture

German's formula argues Belgium has faked economic data

   Ilmenau, Germany (DPA) -- A German economist who used a
probability model to demonstrate that Greece faked its financial
data said Tuesday the same test suggested Belgium had cooked its
books too.
   Gernot Braehler of the University of Ilmenau and three other
academics said they had compared economic data from 16 nations.
   The group applied Benford's law, also called the first-digit
law - a mathematical principle which shows that numbers beginning
with 1 are the most common in lists of large numbers, making up
30 per cent of real-life data. Numbers beginning with 9 are the
least common.
   "In fraudulent numbers, the distribution does not match
Benford's Law," they said.
   The off-beam score by Greece in the test indicated some of its
numbers were false, the four said in an announcement. Belgium's
variance from the expected distribution was almost as extreme,
they said, and ought to be investigated.
   "Greece probably got into the eurozone in 2001 through this
deceit," they said, adding that faked data may also have helped
Greece avoid financial penalties later.

   "The European statistics authority Eurostat has already proved
that Greece manipulated its economic data, so we think our
findings confirm that the Benford test would be effective (in
other cases)," they said.
   The group analysed 156 published data series, including
investment and government spending, from 16 of the 17 European
nations which share the euro, between 1999 and 2009. dpa lan jbp
npr Author: Antonia Lange

LongSoupLine's picture

Laziness - please recategorize under Lies.  This is a mass dis-and misinformation campaign by all upper entities, financial, political and regulatory alike.  The great unwind will happen...when is not known, but the rabbit hole of dark knowledge not being shared with the public (read: middle class) is deeper than any talking head and/or MSM will lead on to.

slaughterer's picture

It is still unclear to me what was piling into HYG yesterday and with what intention.  I know there was article on ZH yesterday about this, but the volume and intensity of the rally in HYG has me still puzzled, considering how overbought it is. 


Guilt: it would be worthwhile to uncover if the guilt stems from Germans feeling as if they did not do enough to regulate the periphery or they will be doing too little on the ESFS by not allowing it to print.   Could be both.  You are right, the fine print conditions attached to the Euro-Rescue package will be far more interesting than the hedline numbers, since the latter are pretty much known at this point. 

Tense INDIAN's picture

We have to STOP using the word LAZY...some people might just want to lead a more calmer life ...

Use of Weapons's picture

Pretty sure that file of CDS trades hasn't been asked for in case it leaks... you know on one of those anonymous blogging sites that aren't fair, and are out of control.

TooBearish's picture

Italy and SPain? Default ???!! Shirley you jest Peter

MFL8240's picture

It is great that the solution for the PIIGS is to export, and the reason to bail them out is so we can export, who the heck is doing the actual buying and importing?



Export what, Olive Oil and Gyro's?  This is laughable!!

disabledvet's picture

liquidity, liquidity, liquidity because of course it's all about "solvency." we don't see the problem as solvency because governments don't go bankrupt--but they do change the value of money to something that no longer makes sense--and no one on the ground level in Europe is arguing Europe in its entirety hasn't already done that (12 dollar big macs in Switzerland whereas they are $4 just across the border?). In the USA we call giving the money over (bailouts) "moral hazard." In Europe they call it "anarchy and war." Obviously the latter is better theater. Unless of course "you're on the ground" in the form of an infantry soldier. Since this is not going to be discussed here or elsewhere then let us proceed directly to "lies, lies, lies."

NEOSERF's picture

At this point, I think everyone has bailout seems that money is not worrying about if and when anymore.  It simply will deal with a CDS trigger, bank failure or Greece default WHEN it one has the energy to worry about if and when any more..