I Love The Smell Of Denial In The Morning...

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

I Love The Smell Of Denial In The Morning...

It is not often that you can look at stock futures implying an open of down more than 1% and wonder why they are so optimistic.

European credit can be summed up as "the horror, the horror, the horror".  XOVER hit 808 or 35 wider on the day.  Main is at 202, or +11.  Financials are a mess - Fins Snr is 315 or +22 on the day.  All are back to near their wides.  SocGen stock is below 16 and DB was down almost 10% and 46% on the year.

SOVX is all the way to 350, 13 wider on the day and a level very few thought it would ever reach. 

And that was the good news!  Greek bonds are dropping again.  Yield is largely meaningless for Greece, but it is still eye-catching to mention that Greek 1 year bonds yields more than 100% at a price of 53.5% of par.  With the 10 year bonds at 45% of par, the yield inversion is almost over, and the next phase is for the market to create a rumor that Greece is going to be trading "flat" (trading with no accrued is the final step before default).

Spanish 5 year bondsd are trading 9 bps cheaper (and out more on a spread basis as German bonds rally).  Italian 5 years are back to almost 5%. 

There are few buyers in European credit right now, and even the attempts to rally on any bounce in stocks are half-hearted.

IG here is opening at 139, a new high for this part of the crisis and 8 wider on the day.  HY is down to 90, and 1 point lower on the day.

I think HY is looking cheap.  LCDX also seems to be getting to reasonable levels.  The leveraged loan market will struggle a bit as income will be low with LIBOR stuck perpetually at zero, but at 91, there is room for price appreciation, and the seniority has value here if the economy takes another leg down.  Both markets will be dragged down with the broader credit markets, but are looking like relatively expensive shorts - especially LCDX, given the senior secured nature.  HYG, JNK, and the cash market still look rich relative to the CDS indices and even to stocks.  I think the market needs one good round of capitulation and bid hitting to catch up to the CDS levels.  SPX is down about 9% for the year, HY16 is down a similar amount, and HYG is only down about 6%. We may get a move down today in the cash markets and it could be the opportunity to get long some cash or ETF's.  I would wait until we see that capitulation, otherwise you are overpaying for the right to own bonds with limited liquidity in a volatile market.

The DAX in particular, and most of Europe is now down 25% or so on the year.  They are down 3-4% today.  The S&P is down only 9%.  The outperformance is either well thought out and a clear sign of how much better it is here, or is just a short sighted parochial view of the world.  I'm betting on the latter as credit is too important for stocks to be ignoring it this much.  The move in the EUR has also been dramatic and the "cheap" dollar story is falling apart, with little fanfare.  Somehow the logic has been that if Greece gets kicked out a strong Euro will hurt Germany's exports.  That makes sense, but so far the Euro is reacting negatively to the problems in Greece, so that whole thesis may be gone.  I like remaining short SPX here, as I still believe we have to breach 1100, but on bounces, it does seem like European stocks may offer more value, as more pessimism seems to have been priced in, while we live in denial. 

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papaswamp's picture

Rumors circulating of a French govt take over of SoGen. The French....'How do we distract people so as not to notice financial problems?....hmmm....wait nuclear power plant problem..that's it!"



GeneMarchbanks's picture

SocGen = Shitshow

I'll be happy to see  them implode. If they're nationalized it'll mean that we have a sovereign default upcoming instead of private. This is getting good, real good.

oogs66's picture

yes, because if socgen can't pay all those huge bonuses, who will buy all those hermes' bags?  mon dieu

Snidley Whipsnae's picture

The dollar is once again the best looking horse in the glue factory...

Even Bernanke, who wanted inflation to 'help exports' (and banks), must be amazed that he can blow out the Fed balance sheet by $2.2 Trillion and still have a 'relatively' strong dollar.

Placing the monthly order for physical today. BTFD.

MsCreant's picture
I Love The Smell Of Denial In The Morning...

Nah, it's just a nuke plant you're smelling, go back to bed.

GeneMarchbanks's picture
'I Love The Smell Of Denial In The Morning...'

We all do, pal that's why we're here ;)

Rastadamus's picture

I love the smell of smoke. Babylon is burning! I love it Gold and silver bitchez!

ISEEIT's picture

Ahhh, I see. And so that certainly explains why the EURO is up 150+ pips from yesterdays low. Makes sense now. Thanks!

Wakanda's picture


-1% is the new normal!  Everything is fine!


mick_richfield's picture

I have an iPhone app that rotates all the stock charts 15 degrees counterclockwise.  That plus two Paxils with my coffee, and I'm good to go!

ZippyBananaPants's picture

Michelle Caruso-Cabrera is a discusting pig.  I cannot watch any more.

Sequitur's picture

Dude you said it. She asks the dumbest fucking questions, then waves her hands around, gesticulating for the canned answer. Can't stand it. Cannot.

oogs66's picture

she seems so arrogant, she just wants to interview herself, that way she will get the right answers

ZippyBananaPants's picture

Paper bag head, you are clicking on all cylinders today!!!

100% perfect observation.

HD's picture

She is recently divorced...her ex husband probably thought losing half his stuff to get out was a bargain of a lifetime...

cosmictrainwreck's picture

i'm pretty sure they hired her basically for the tits

Coast Watcher's picture

Even her tits aren't that great unless they're being held up with a boulder holder. Swinging free, they sag so much they almost cover her belly button.

Not that I've seen them up close and personal. Just sayin'.

DefiantSurf's picture

I'd do her, if I could turn the sound off...but then again, the crack of dawn isn't safe from me

equity_momo's picture

The old ones are the best for a reason. Thanks for the laugh all the same.

Irish66's picture

France has a nuclear problem

Sudden Debt's picture

Maybe they should put a tent over it to solve the problems?


Sequitur's picture

I posted earlier, should have seen the skirt-wearing airheads on CNBC Worldwide Exchange. Asking seriously dumb questions, trying to spin positive answers -- and their faces belied the truth, i.e. they didn't believe a word of it. Of course, no one dared come out and simply say, eurozone getting pummeled, bank massacre. Instead, they pose stupid questions of the ilk, "how can Greece avoid default." Not a one had the balls to say Greek bonds yielding over 100%. Lol.

Smiddywesson's picture

No, Bablon is not burning.  Ben and company will break up all the furniture and smother the flames with more fuel, thereby kicking the can but ensuring the eventual fire is bigger than ever.  This is definitely not over yet.

Sudden Debt's picture



It's all in the eye of the beholder.




Gandalf6900's picture

average chinese has no idea where eulope is

Sudden Debt's picture

And now let's ask the average American :)

uno's picture

they have problems finding the US on a globe

Snidley Whipsnae's picture

A US Postal Clerk recently remarked to me "There is no New Mexico, there is only Mexico"...

This guy was dead serious and we had to get the supervisor before I could mail a parcel to New Mexico.

So don't tell me about Americans being savvy geographers.

Arrowhead's picture

hell I didn't know they made a new one either

Sequitur's picture

Um, what was your reaction to this? And how about the postal clerk when he did learn, in fact, the U.S. has a state called, "New Mexico."

Maxwell Smart's picture

I had mail sent to me from the U.S. to Finland. Luckily someone had added missing information:




GeneMarchbanks's picture

You're clearly an alcoholic dude.

Gandalf6900's picture

get ready to put your chips on the table...september 20 is approaching and I wouldn't wanna be caught short lads

maxmad's picture

Id hate for the longs to feel the burn, when Bernanke has to announce that QE3 will not include riskier asset purchases! 

maxmad's picture

Gandalf, how's that -250 this morning feeling?  Dont worry Robo is here to give you rub down

Gandalf6900's picture

I love the thumbs down guys but lets not joke ourselves...they r definitely not letting the EU puppy off the hook yet and even though US and EU stock mkts are completely decoupled, we are in it together...for the long run

f16hoser's picture

"Oh the Humanity"

buzzsaw99's picture

the bernank can fix this.

ivars's picture

This February 6th forecast graph was not so bad as well:


As was the gold bubble forecast graph made on May 4th:


Snidley Whipsnae's picture

gold forecast graph = goat entrail and chicken bone reading

Does the 'forecast graph' include intervention by central banks/bullion banks to supress the price of gold?


Tense INDIAN's picture

its not all loose loose for the GREEKS....they should be proud of one thing....they are getting to play the central figure in this END-GAME

caerus's picture

denial ain't just a river in egypt

Gandalf6900's picture

I love the smell of GOLD in the morning

mccoyspace's picture

Quick technical question:

When he says ".... With the 10 year bonds at 45% of par, the yield inversion is almost over, and the next phase is for the market to create a rumor that Greece is going to be trading "flat" (trading with no accrued is the final step before default)."

Is he describing a situation where there is no interest rate difference between short term and long term bonds? So the yield curve is flat? That is the 'final step before default' he is describing?

Thanks for the clarification.

jm's picture

Not sure why you think HY is cheap. Well, I kind of do, but I'm not going there.

People long index credit are going to sell them all down before this is over.

Also, Deutsche Bank is making me a little nervous right now.


Fips_OnTheSpot's picture

GR 1yr: 139% yield (+42% as of TODAY) (17:15 CEST)


Spell Hyperbolic..