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Late Day Derisking As Sovereign Debt Crisis Is Becoming A Banking Crisis

Tyler Durden's picture





 

The late day collapse in financials (thanks to Fitch's comments that seemed to wake up a stubbornly ignorant equity market to the reality that credit has been screaming for weeks) helped drag equities (and HY debt) significantly lower. Most notably, amid a much higher than average volume day today, the dislocations of the last few days - that we have highlighted - have converged very rapidly this afternoon. ES significantly underperformed a broad basket of risk assets (CONTEXT) into the close as copper and oil gave back some of the day's gains. TSYs closed at low yields for the day - and 2s10s30s dropped significantly - as we warned it would have to sustain any sell-off as EURUSD tracked back towards its lowest levels of the day dragging DXY up to almost unchanged on the day (+1.7% on the week).

 

It seems the combination of yesterday's VIX-Implied Correlation divergence and the dislocation in credit and equity once again provided some comfort that fears were rising. We do note that despite heavy cost of carry (and borrow) on HYG, it was clearly the weapon of choice for hedgers today and provided the early warning signal that trouble was coming.

The dollar was practically unchanged on the day - but +1.76% on the week as we note gold's selloff pulled it almost perfectly in line with dollar strength as silver's high beta nature dragged it lower. Oil and Copper enjoyed some attention today (QE and JPM) but gave back significantly into the close as risk was well and truly off.

Financials closed down 2.5% but it was the majors that lead the charge. We pointed to JEF's bond prices as signaling much more fear - and this afternoon we reiterated the recent underperformance of the majors CDS and bonds. This afternoon saw them start to converge to that uglier reality. MS is down over 10% on the week with Citi -8.4% with most of this action today (and in the last hour or two):

Compared to the tremendous weakness in Spanish and Italian banks, US banks have been relatively unscathed (and somewhat rightly so given lower leverage and less direct exposure) but there are plenty of transmission channels (via lending, credit growth, direct counterparty risk, funding needs to name a few) to bring that risk onto our shores. Remember in times of stress Gross Is Net!

And from Peter Tchir of TF Market Advisors, who has been very vigilant on the HYG market action, highlights the concerns that have seemed evident in credit markets - that this sovereign debt crisis is morphing rapidly into a banking crisis (a la Rogoff and Reinhart, we suspect).

While we wait for the ECB to begin unlimited printing we are seeing signs that more and more this is becoming a banking crisis in addition to a sovereign crisis

 

Unicredit's earnings were a disaster - but actually had little to do with the sovereign debt crisis - those losses were from other dumb decisions made by them.

 

The landesbanks were downgraded - no surprise to anyone who has ever been on the other side of a trade with them.

 

Spanish banks are struggling to get even short term domestic funding - an their problems are far more real estate related than sovereign debt related.

 

Even with ECB intervention the bonds held by banks will still be at yields that have big unrealized losses couple with losses on the swaps they did to turn the positions into floating. Any hint that ECB printing (and I'm not sure they have really been sterilizing) brings inflation will hurt the banks who are in no position to add assets.

 

The new issue market is mediocre at best. Bonds come cheap. After a brief flurry in the "greys" they really don't tighten leaving the flippers with "cheap" paper they don't want to hold and existing bond holders afraid their bonds are going to get marked down to match the new issue spread/yield.

 

HY17 vs HYG on Thursday has performed well and shorting HYG yesterday morning has worked. I would take off the basis trade but would leave the short - seems like it has another point or two to run.

 

Italian long dated bonds are starting to look okay. Low prices, decent yields, and a captive buyer in a crowded short. I think shorting banks via CDS is good trade now, having started mentioning that last week, and that could continue to work well as the ECB can't bail them all out.  Spanish and Italian banks and maybe even good old MS are ways to play it. I would still be short Spanish sovereign debt but think Italy really is a better long especially against Italian banks.

 

On a longer-term basis, HY markets are priced for an S&P around 1190 currently  (and VIX around 37%) but as HY also collapses wider, we will rapidly see the 'expected' S&P level drop further. Credit Anticipates and Equity Confirms is often cited by old-school credit market professionals - it seems once again that it is true.

UPDATE: by request - there are a few ways to play the dislocations between equity and credit markets (as we discussed yesterday) but there are limitations on what instruments can be used (i.e. access to bond or CDS markets). In pure ETF space there are two approaches we have found useful - First, SPY Arb (which is a short-term intraday capital structure arbitrage model) - utilizing the relationship between SPY (equities) and HYG, VXX, & TLT (credit, vol, and rates). This is more for day-traders as it grabs intrday dislocations between the credit and equity markets based on a weighted basket. It is not always perfect and in sustained sell-offs like this afternoon - will tend to underperform - but offers a short-term medium-risk approach to the debt-equity market.

The second approach is what we call ETF Arb - it is a longer-term model of the relationship between stocks and the investment grade credit market. Holding periods tend to be days (at moist a few weeks) and it is a mean-reverting strategy. Today saw equities move to a very significantly expensive level based on this model - as the chart above shows. We believe that a short SPY vs Long LQD (short IEF) basket, weighted accordingly will be profitable as the relationship reverts back to its six month channel. The breakout, we suspect, reflects the equity market's hope for QE versus the credit market's reality check of the European and macro environment.

 


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Wed, 11/16/2011 - 17:29 | Link to Comment redpill
redpill's picture

It took them this long to realize they were one in the same.

 

Smoke 'em if you got 'em.

Wed, 11/16/2011 - 18:16 | Link to Comment The Big Ching-aso
The Big Ching-aso's picture

 

 

Somebody in the media better ramp the bullshit up to another level.    Even J6P is starting to raise a uni-brow.

Wed, 11/16/2011 - 18:42 | Link to Comment strannick
strannick's picture

Late Day Derisking As Sovereign Debt Crisis Is Becoming A Banking Crisis

Thats only fair, since it was the banking crisis that caused the sovereign debt crisis.

Meanwhile we wait for the Benevolent Federation of Planets to come buy all the worlds bonds and bailout earth.

Wed, 11/16/2011 - 23:07 | Link to Comment phungus_mungus
phungus_mungus's picture

One day the headlines proclaim its all over, everthing is fine...

The next, its doomed...

Do journalist actually keep track of the stories they write or is it a requirment now you contradict yourself with every other story you write?  

 

Wed, 11/16/2011 - 17:29 | Link to Comment SkySavage
SkySavage's picture

Seriously, you cannot look away from this market for a second.

Wed, 11/16/2011 - 17:56 | Link to Comment WonderDawg
WonderDawg's picture

No shit. I've been practically useless on the job the last couple of days, stuck between watching the markets and reading ZH, while trying to get some work done. Oh well, what can I say. We are witnessing a time in history that will be talked about for centuries. This is what a collapse looks like from the inside. It seems to be happening in slow motion, but when events accelerate, as they seem to be doing now, you can literally feel the tension rising.

Wed, 11/16/2011 - 18:08 | Link to Comment integrale
integrale's picture

That's the sound of 300M europeans saying fuuuuuuuuuuck...we have to start from scratch...AGAIN?

Wed, 11/16/2011 - 18:42 | Link to Comment GenXer
GenXer's picture

I slept so much better before I found ZH. Ignorance was bliss until you're diving in dumpsters for your next meal.

Wed, 11/16/2011 - 22:56 | Link to Comment xcehn
xcehn's picture

ZH has that effect, definitely.

Wed, 11/16/2011 - 18:57 | Link to Comment strannick
strannick's picture

Man, I think you just made the one statement EVERYONE here can agree on

Wed, 11/16/2011 - 19:17 | Link to Comment yabyum
yabyum's picture

Think I will stop by costco for a couple of BIG packs of tp, maybe some more cases of cheap vodka. Sounds like the new wealth to me. Bank run the MFer.

Wed, 11/16/2011 - 20:06 | Link to Comment RobD
RobD's picture

lol, I picked up six of those BIG packs at Sam's club a couple of weeks ago. The lady that checks the receipts on the way out gave me a strange look.

Wed, 11/16/2011 - 20:58 | Link to Comment DosZap
DosZap's picture

WonderDawg,

We are witnessing a time in history that will be talked about for centuries.

 

No, we are witnessing a Biblical event.

Sheep Dog has it nailed as many others.

Name ANY time in recorded world history, that  80%+/- of all nations are going to go down together, in Slo Mo, or overnight.

You can't.

Personaly I believe we are witnesessing the beginnings of the advent of the coming Antichhrist.

Once the system is in place SD spoke of, there will be ZERO doubt.

NONE.

Wed, 11/16/2011 - 22:48 | Link to Comment xcehn
xcehn's picture

So you don't think the print your way out of hell trick will work?

Wed, 11/16/2011 - 23:55 | Link to Comment topcallingtroll
topcallingtroll's picture

+1 dawg.

I think it will work out for now temporarily, but I cant take my eyes off either.

Somewhere here soon it will either all go to hell or be a great time for a triple bull etf.

Wed, 11/16/2011 - 17:32 | Link to Comment Tsar Pointless
Tsar Pointless's picture

I hope the Grinch steals this year's Santa Claus rally.

For an extra-special gift, I want the world to go MAD for Christmas.

If you know what I mean.

Yes, I am a nihilist.

Wed, 11/16/2011 - 22:48 | Link to Comment xcehn
xcehn's picture

NIHILIST!  LOL

Wed, 11/16/2011 - 17:33 | Link to Comment SheepDog-One
SheepDog-One's picture

You mean all the ECB's horses and all the FED's GS men couldnt put the insolvent broken banks together again?

OMFG!

Wed, 11/16/2011 - 17:34 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

Bloodbath tomorrow?  I'm seeing CNBC up late tonight studying the spin manual.

Wed, 11/16/2011 - 17:59 | Link to Comment redpill
redpill's picture

I took a walk at lunch and listened to some Bloomberg radio so I could hear of any changes (even the advertisers and weathermen have NY accents, gets REALLY annoying) and of course by mid-day they were happily declaring how the market was "well off" its lows of the day, "surging back up" after being down earlier.  Unfortunately I couldn't stand listening long enough to finally hear them shit their pants on air when this fake market finally rolled over for the day.

Wed, 11/16/2011 - 19:49 | Link to Comment upWising
upWising's picture

LONG Maxi Pads.

And whad da fuk...ya makin' fun a mai aykcent?  Whaddaboutit? Whad da fuk??? You's da one wid da aykcent!

Wed, 11/16/2011 - 18:03 | Link to Comment Roy T
Roy T's picture

 

Spin Manual Lesson #1

 

After you report any data, quickly follow up with "It is better than expected"

Wed, 11/16/2011 - 18:30 | Link to Comment Dr. No
Dr. No's picture

Or adopt the method used quite successfully by the us gov: report better than reality and then revise downward on the next release.

Wed, 11/16/2011 - 20:55 | Link to Comment Jay Gould Esq.
Jay Gould Esq.'s picture

Indeed, Dr. No -- a method exhibiting the unmistakable undertones of SPECTRE, in terms of the level of successfully executed deception.

"Government numbers." Oxymoronic.

Wed, 11/16/2011 - 21:21 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

yup

"...italy, in political turmoil due to recent un-seasonal bunga deficiency and facing about EUR400 billion in borrow-or-collapse funding for the coming year as well as having its banks needing to re-po a shitload of worthless paper from the FED system in january, today refused to release GDP data as scheduled...

"...super-mario ITA was overheard saying to super-mario IMF on his cell phone:  'dammit, mario IMF!  we're trying to make things look better here, not worse!' "  [not google translated]

 

Wed, 11/16/2011 - 17:34 | Link to Comment Mactheknife
Mactheknife's picture

CME's stock is in big trouble...CME stated this am that they knew of a 900mil wire transfer out of MFG PRIOR to bk filing.

Wed, 11/16/2011 - 17:48 | Link to Comment Scoted
Scoted's picture

Yes, MF global chapter 11 bigger issue than people think. Potential for investors to take fright due to CME stupidity.Surprised ZH has not had more to say

MF global + Euro crisis = potential imminent crash

HY tells all...

Wed, 11/16/2011 - 18:50 | Link to Comment ReallySparky
ReallySparky's picture

I too have been dissapointed that ZH has not been covering the MF debacle, however there is good coverage of the MF scandal over at Jesse's ( http://jessescrossroadscafe.blogspot.com/ )  and also Harvey has found quite a bit of info from various sources ( http://harveyorgan.blogspot.com/ )

I am grateful that ZH has been covering the Euro sitituation closely because where else would we get the information?  US Media very quite about Euro Crisis, sooo near as I can tell when Europe blows up and infects all our banks and 401K's go bust, MSM will claim "no one saw this coming".

Wed, 11/16/2011 - 20:00 | Link to Comment Zero Govt
Zero Govt's picture

Yes another "Black Swan" event (yawn)

..and Steve Liesmans happy data has been so encouraging recently too... for Steve it'll be a(nother) "surprise" 

Wed, 11/16/2011 - 17:36 | Link to Comment 0cz
0cz's picture

Get your shit together and attack already, Andromedans.  We are hurting over here on Earth and need some of the debt destroying laser action.

Wed, 11/16/2011 - 17:39 | Link to Comment The trend is yo...
The trend is your friend's picture

When will the ecb finally throw in the towel and print?  ES 1100?, 1000? 900?......i would normally say....god only knows BUT 'll re phrase....GOLDMAN ONLY KNOWS

Wed, 11/16/2011 - 17:42 | Link to Comment SheepDog-One
SheepDog-One's picture

Theyve tapped that keg dry long ago. No one wants their stinkin fake money anymore.

Wed, 11/16/2011 - 17:43 | Link to Comment CClarity
CClarity's picture

. . . cuz they do God's work . . . that Man of Gold.

Wed, 11/16/2011 - 17:48 | Link to Comment Dismal Scientist
Dismal Scientist's picture

Only when Sarkozy admits that Merkel is in charge. Then the ECB will print, but it will be too little, too late...

Wed, 11/16/2011 - 17:40 | Link to Comment Scoted
Scoted's picture

Deer in the headlights scenario.

Batten down the hatches everyone, a crash is coming!

Wed, 11/16/2011 - 17:40 | Link to Comment navy62802
navy62802's picture

It's always been a banking crisis. Only difference is that now someone had the balls to put it down on paper. I guess as long as we ignore the truth, then the truth doesn't matter. That's what I take away from this situation.

Wed, 11/16/2011 - 17:41 | Link to Comment pelagivore
pelagivore's picture

Market on risk-off mode... until the politicians promise another round of emergency meetings, or China investment rumours, or any other intangible 'positive' news comes off the wire. I give risk-off a week at most and then there will be another proposed stop-gap measure that will be completely useless and we start over from last month. Will be interesting to see how gold reacts over the next few weeks, probably sideways... until the printing begins as it must, eventually.

Wed, 11/16/2011 - 17:47 | Link to Comment SheepDog-One
SheepDog-One's picture

Darn, and just when everyone had declared everything fixed and humming along so smooth. Nah, no printing, time to pull the rug out. 

Theyve planned it all for decades, we're here now, everyone is screwed just like how they designed it, no more magical pixie dust farts from pink unicorns in equity market faces. World war and economic chaos is now, no doubt.

Wed, 11/16/2011 - 17:51 | Link to Comment pelagivore
pelagivore's picture

Planned it? Hardly, you give the establishment far too much credit... 'Milked it' is more like it, and they will all continue to milk it or at least try to keep the cow alive as long as they can... I give it about a year or so.

Wed, 11/16/2011 - 17:54 | Link to Comment SheepDog-One
SheepDog-One's picture

Nope, youre delusional if you think this was all just happenstance with random bankers just inventing new shit like CDS swaps to cumulate a debt of $1.5 quadrillion dollars...its been planned for decades to establish their 1 world bank, 1 world govt, and 1 currency. Theyre here now.

Wed, 11/16/2011 - 19:17 | Link to Comment Hot Apple Pie
Hot Apple Pie's picture

It's delusional to attribute a vast coordinated conspiracy over decades when it can all be explained by simple, short-term greed. The guys who got rich in the past 30 years don't care if the economy collapses, most of them have private islands, seafaring yachts stocked with supplies and small militaries worth of private security.

Wed, 11/16/2011 - 19:48 | Link to Comment g speed
g speed's picture

don't envy these guys-- their kids will kill them just like murders in the old royal families-- absolute power corrupts absolutely

Wed, 11/16/2011 - 19:44 | Link to Comment g speed
g speed's picture

No plan--just uniform greed and corruption makes it look like a cordinated effort.

Wed, 11/16/2011 - 20:19 | Link to Comment oogs66
oogs66's picture

I think the market is long now and needs more than promises

Wed, 11/16/2011 - 17:49 | Link to Comment SheepDog-One
SheepDog-One's picture

Hey where'd all the bulls go? Come on back and tell us how your BTFD went this morning, dont be such pussies all us 'doom n gloomers' are always here every day you guys! Come on Robo I see you there down voting my comments come on out and tell us what you bought today thats up! If you can find anything.

Wed, 11/16/2011 - 17:54 | Link to Comment pelagivore
pelagivore's picture

True! Robo and Million dollar trader have both been very quiet recently

Wed, 11/16/2011 - 20:54 | Link to Comment hardcleareye
hardcleareye's picture

That's because he pissed off his mom and she hid the power supply for his computer.

 

Wed, 11/16/2011 - 18:31 | Link to Comment HelluvaEngineer
HelluvaEngineer's picture

Fwiw, I mentioned BTFD this morning, and they did close the gap.  Also FWIW, I'm caught short.

One day this is going to completely crack and the market won't open.

The 20 somethings in my office are all buying momo stocks right now.  What can I tell them without sounding nuts?

Wed, 11/16/2011 - 18:38 | Link to Comment JohnG
JohnG's picture

Nothing.  Never argue with idiots.

Wed, 11/16/2011 - 17:49 | Link to Comment Mark123
Mark123's picture

Notice how nobody is even talking about Greece anymore?  I think once they told banks to atke a writedown it opened pandora's box....Italy and Spain look bad.  Until that point the only sovereign default was by inflation.

Wed, 11/16/2011 - 17:49 | Link to Comment ivars
ivars's picture

51 day of accurate gold(6 months) ,silver (8 moths) ,oil (51 day)  forecasting:

http://www.tfmetalsreport.com/comment/88527#comment-88527

Wed, 11/16/2011 - 17:51 | Link to Comment SheepDog-One
SheepDog-One's picture

If youre a taxpayer, your liability for the debt is ONLY 1,034,000...lower right hand corner  U.S. National Debt Clock : Real Time

Gee I dont think I have a credit card with a limit that high to pay the banksters back for their fine services.

Wed, 11/16/2011 - 18:18 | Link to Comment joemayo
joemayo's picture

Don't worry, they will loan you the money to cover your debt payments.

Banks are the reason we need a space program.  Think about it.

Wed, 11/16/2011 - 17:52 | Link to Comment Shizzmoney
Shizzmoney's picture

I want anarchy too.  Tar and feather all these big bank motherfuckers.  I'm ready.

Wed, 11/16/2011 - 19:45 | Link to Comment Yamaha
Yamaha's picture

Please blame the banks. Did you see 60 minutes on Sunday? Congress and the Fed have a Multi-decade history on requiring special help for the bottom 1%. What wrong? Don't like paying for it? Banks my ass.......

Wed, 11/16/2011 - 17:54 | Link to Comment rambler6421
rambler6421's picture

World WAR III bitchez.

 

libertarian86.blogspot.com

Wed, 11/16/2011 - 17:57 | Link to Comment Panafrican Funk...
Panafrican Funktron Robot's picture

Next Fed meeting December 13th.

Rabbit out of the hat "The Bernank Saves Christmas!" scenario incoming.  The script is too perfect not to execute.

Wed, 11/16/2011 - 21:02 | Link to Comment Carlyle Groupie
Carlyle Groupie's picture

The Federal Reserve get's a chance to remake It's a Wonderful Life.

http://www.youtube.com/watch?v=lxNXtjGY_Us

Oh how wonderful. A Christmas miracle even baby jesus would love this time jubus will be spinnin the dreidel.

Wed, 11/16/2011 - 18:01 | Link to Comment Archimedes
Archimedes's picture

The secret "Black Swan" event is going to be the canceling of the NBA season as small markets will lose ten's and even hundred's of millions of dollars in revenue. Cities like Cleveland, Altanta, Detroit etc will be crushed and even larger cities such as LA will be affected. This will accelerate the Muni default. You heard it here first.

 

 

Wed, 11/16/2011 - 18:15 | Link to Comment integrale
integrale's picture

NBA SEASON SCRAPPED. MARK CUBAN AGREES TO JOINTLY AND SEVERALLY GUARANTEE ALL PLAYERS' DEBT

CUBAN ANNOUNCES FORMATION OF "CORE" NBA WITH BULLS, CELTICS, LAKERS, HEAT. KNICKS TAKE TO THE STREETS.

CME HALTS TICKET FUTURES TRADING, STEALS FROM MF GLOBAL CUSTOMERS AGAIN

Wed, 11/16/2011 - 18:18 | Link to Comment aerojet
aerojet's picture

Nobody was going to the games and a lot of players had multi-million dollar contracts.  Crash imminent!

Wed, 11/16/2011 - 18:14 | Link to Comment chump666
chump666's picture

A sovereign crisis and banking crisis and soon a social crisis (in time for winter).  The ECB prints, which they won't do unlimited, and oil goes above 100 you can 100% guarantee that there will be riots in Germany and France.

ECB German members are dead against ECB bond market buying - and since the ECB board does not follow it's mandate anymore and just makes up the rules as they go, the rift at the ECB is at critical stages.  The central bank could be in trouble.  What will happen is the FED/IMF (US taxpayers) will pump unlimited amounts into the ECB swaps loans or whatever.  And oil will hit 100 +

The European endgame delay is now off, Italy/Greece will exit the EZ before Christmas.  The situation is so bad a money print job won't do anything.  As for stocks, these tight ranges have to be smashed and the bears will do it, with thin liquidity and evaporating volumes this market is not going up.

Also should note that Asian markets are beginning to be bearish prior to EZ/US markets opening.  That's another omen, Asia slowing down.

Wed, 11/16/2011 - 20:22 | Link to Comment oogs66
oogs66's picture

I think the ECB is printing rally will be incredibly short lived :)

Wed, 11/16/2011 - 20:48 | Link to Comment Desert Irish
Desert Irish's picture

You brought up an interesting point. Libya supplied 26% of all Italy's energy needs. That's a lot of energy that won't be flowing north in time for winter this year forcing Italy to purchase heating fuel on the open market - any hedging arrangemenets made with Libya under Gadhafi now void. Regardless $100+ fuel is going to slam European economies already on the edge.

Wed, 11/16/2011 - 18:20 | Link to Comment Mark123
Mark123's picture

Ponzi 1 - Debt and deregulation of banking industry

Ponzi 2 - Internet stocks

Ponzi 3 - Real Estate

Ponzi 4 - Sovereign debt

Ponzi 5 - TBD - war?

Wed, 11/16/2011 - 18:20 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

it must be 5 o'clock, somewhere, so

risk-0ff, BiCheZ!

got popcorn? 

Wed, 11/16/2011 - 18:24 | Link to Comment gserhan
gserhan's picture

Well, all the moving averages collapsed together the last two days, so fasten your seat belts, we ought

to see at least a 1000 point drop in the next two days.  Big gaps down both days.

Wed, 11/16/2011 - 18:26 | Link to Comment chump666
chump666's picture

ECB/IMF meltdown in realtime...

(Dow Jones)--The head of the International Monetary Fund's European department resigned unexpectedly on Wednesday, leaving the fund at a critical time as it grapples with the European financial crisis.

Chaos reigns

Wed, 11/16/2011 - 18:59 | Link to Comment sabra1
sabra1's picture

did the rest of his body resign to?

Wed, 11/16/2011 - 19:10 | Link to Comment chump666
chump666's picture

No, just this guy...but it would be awesome if they did.  The IMF are a joke. 

Wed, 11/16/2011 - 18:34 | Link to Comment rkahn
rkahn's picture

This is a stock option expiration week... Just be carefull this could be a gimmick by HFT (aka WS wise guys).

http://jessescrossroadscafe.blogspot.com/

Wed, 11/16/2011 - 18:37 | Link to Comment trx
trx's picture

The Negative Feedback Loop... will it ever end?

Wed, 11/16/2011 - 18:41 | Link to Comment JohnG
JohnG's picture

Yes, badly.  Very bad.  War.

Wed, 11/16/2011 - 18:44 | Link to Comment strannick
strannick's picture

While we pooh pooh those indolent Europeans, dont forget that in a week, the Super Commitee gets to show its austerity, budget cutting tax increasing powers, and let the world see how prudent government is performed. ie. expect a dollar plunge

Wed, 11/16/2011 - 18:42 | Link to Comment The Trade Group
The Trade Group's picture

Can anyone here explain how Japan is able to survive? and why they have such low borrowing costs (0.97% on 10 yr note). They have a debt to GDP of something like 480%!!!??? Yet their currency is appreciating and they seem to be able to borrow as much as they want with no consequences? What am I missing?

Wed, 11/16/2011 - 18:48 | Link to Comment RobotTrader
RobotTrader's picture

I have the answer.

Bernanke is simply not printing enough.

He is showing way too much restraint.  If he would just print another trillion the next 6 months, that assures our borrowing costs will crash even further.

Wed, 11/16/2011 - 19:21 | Link to Comment pelagivore
pelagivore's picture

Japan can survive, at least for now because of two key things: they borrow from their own people and their people demand very little return from their investment (there are quasi deflationary conditions in Japan - particularly as the Yen remains strong). As long as the Japanese buy their government's bonds there is no problem. But just you wait and see what happens if inflation were to appear in Japan and its citizens require a higher return... what a sight that will be!

Wed, 11/16/2011 - 18:46 | Link to Comment RobotTrader
RobotTrader's picture

NYSE Summation Index turned down just so slightly today.

 

http://stockcharts.com/freecharts/McSumNYSE.html

Any more follow through selling will trigger:

1) Instantaneous dumping of commodities and stocks

2) Abject fear and panic buying of U.S. "Paper" assets

In short, a 100 drop in ES will immediately translate into a 25 bp crash in the 5-yr. yield, and Tom Keene will have his mouth agape once again, muttering "The 5-year is now the 6 - mo. T-Bill".....etc.

And of course, it opens the door up to more monetizing, printing, and sterilizing of "bad loans" to goose stocks eventually.

Wed, 11/16/2011 - 18:55 | Link to Comment disabledvet
disabledvet's picture

my money's on "Greece comes to America."

Wed, 11/16/2011 - 19:08 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

is this like animals before a big earthquake, or what?

the financial fraud pretending to be the basis of the world economy is about to get called out and gutted,...

...and people have stopped junking!  robo_T is the bellweather of junking!  

R_T!  is this bullish for retail?

or what?

Wed, 11/16/2011 - 20:19 | Link to Comment chump666
chump666's picture

I agree. But the end of the world is soon. The current ranges are so tight with thin liquidity, end yr book closing, either we get one massive leg down, or ranges tighten to a break out on the upside.  For that we need the ECB going nuclear.

There is no infinity, just a beginning and an end.  The headline trading will continue, but the next headlines will be of Europe socially imploding, protests, riots, things blowing up.  If the academic madmen send oil to inflation levels (it is now) and Europe is going into a recession and the banks get bailed out (all of them).  Blood will flow.

There is not going to be a mega rally, this market will drift lower.

Wed, 11/16/2011 - 18:47 | Link to Comment slaughterer
slaughterer's picture

Two words: bear trap.  

Wed, 11/16/2011 - 18:54 | Link to Comment disabledvet
disabledvet's picture

I worked with a guy who once said "if the money's on the floor pick it up." Europe is staring at hundreds of billions of dollars from the USA--money that has been put in play at great political peril by this Administration...and the response? "No thanks." I can see this whole European facade exploding in the next few days. The implications are so profound as to be terrifying. I'm being told "this is America's gain." No...it's not America's gain. Nor anyone elses. This is a nightmare perhaps days away and the best these clowns can do is threaten the innocent in the USA by those who have sworn a duty to protect those innocent. I imagine the folks doing this think they have impregnable security details...but as they like to say up here "the Army stops in Albany." And i thank God everyday that i live right next door to these men and women who serve.

Wed, 11/16/2011 - 19:01 | Link to Comment slaughterer
slaughterer's picture

Fitch report says nothing we do not already know.  It just states the obvious. Are market participants stupid these days?  Wait a minute, never mind...

Wed, 11/16/2011 - 19:13 | Link to Comment pelagivore
pelagivore's picture

Market participants have little imagination so don't understand the consequences of the build in imbalances that has occurred over the past 20 years, they are afraid and in denial... I struggle to understand the market as well; what I find I have to do is leave reason to one side and try to anticipate how the market will emotionally respond, how politicians will respond as they get boxed in and understand that the market is desperate for positive news.. even if its not there. Probably obvious, but my 2 cents fwiw.

Wed, 11/16/2011 - 19:02 | Link to Comment Roger Knights
Roger Knights's picture

The SPY chart for the past three weeks shows a beautiful reversal triangle that is about to break out to the downside. Check it out:

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&instty...

Wed, 11/16/2011 - 19:15 | Link to Comment quacker
quacker's picture

Note how Bloomberg had to rush some asshat on 3 minutes after close to explain the "insanity of irrationally jumping on a headline."

Of course when it goes up 2% on a central banker fart, the asshat is nowhere to be found.

Wed, 11/16/2011 - 19:18 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

damned bloggers, too!

Wed, 11/16/2011 - 19:52 | Link to Comment Hannibal
Hannibal's picture

No coincedences. Planned, blueprinted and executed. Fucking Brilliant!

Wed, 11/16/2011 - 19:53 | Link to Comment bob resurrected
bob resurrected's picture

Please correct me if I am wrong. Doesn't each European State have the Resolution Authority to take control of a troubled credit institution within its borders with the aim of preserving the continuity of financial services, ensuring financial stability and protecting depositors.  Couldn't they keep most of the same employees and replace the execs by appointing a Commisioner from the State? Wouldn't this include imposing bondholder hair cuts, voiding CDS contracts and wiping out shareholders? Doesn't the ECB have the authority to recapitalize these State Owned Transitional Credit Institutions at will? Would Dec 24 - Jan 2 be enough time for the takeover?

1. Some states default

2. Troubled credit institutions (most) are nationalized to preserve continuity

3. ECB recapitalizes nationalized banks by popular demand

4. Banks become utilities, politicians get re-elected

http://www.ecb.int/ecb/legal/pdf/en_con_2011_72_f_sign.pdf

 

Wed, 11/16/2011 - 19:59 | Link to Comment Georgesblog
Georgesblog's picture

A banking crisis is like watching pro wrestling. Adversaries may actually be friends, play-acting to deceive the simple. A good guy this week may be the bad guy, next week. Watch out for the foreign object, hidden in the waistband of the tights.

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Wed, 11/16/2011 - 20:04 | Link to Comment Little Red Rooter
Little Red Rooter's picture

Buy seed-potatoes, bitchez!

Wed, 11/16/2011 - 20:18 | Link to Comment nlude80
nlude80's picture

Off topic....but the April high on WTI was around $113-114, while at the same time the EUR/USD was approximately 1.48.  Today, WTI hit $102-$103, while at the same time the EUR/USD is approximately $1.34.

So...in EUR/USD terms, WTI has already reached the 2011 high. 

It seems we are overdue for a decent correction, but who knows with this market.  If WTI has surged with the USD gaining, it is scary to think what might happen if we get another surge upward in EUR/USD.

Wed, 11/16/2011 - 20:34 | Link to Comment chump666
chump666's picture

from wires:

Markets are now eyeing the demand at the auction of up to EUR11bn in Spanish and French government debt later in the day after the turmoil in European debt markets.  French 10-year government debt spreads over German bonds rose to near 2%, a euro-era high, Italian 10-year bond yields stayed above 7%, a level at which it becomes unsustainable to service its EUR1.8trn borrowing and Spanish 10-year yields rose to 6.425%.  Yields on bonds issued by the Netherlands and Austria -- which along with France and Germany form the core of the euro zone -- have also climbed.  While France called for more ECB intervention to cut the risk premium on French debt, German Chancellor Angela Merkel made clear Berlin would resist pressure for the central bank to take a bigger role in resolving the debt crisis, saying European Union rules prohibited such action.  The deepening crisis was also reflected in greater funding stress in the dollar loan market. LIBOR hit a high last seen during a flare-up in the euro zone's problems in the summer of 2010 while the cost of swapping euros for dollars hit its highest since the collapse of Lehman Brothers in 2008.

 

Wed, 11/16/2011 - 21:09 | Link to Comment Schmuck Raker
Schmuck Raker's picture

Great post Tyler.

"Suitable for framing."

Thanks.

Wed, 11/16/2011 - 21:17 | Link to Comment michaelsmith_9
michaelsmith_9's picture

The late day selloff with the spike in volume should be a major indicator of bearish equities.  It is time to become bearish risk.  The USD is setting up for a major breakout to the upside, while equities are likely to make a severe breakdown to the suprise of many bullish investors speaking out in the public recently.  Also treasury bonds continue to tell us "risk off".  Here is a look at the SPX, TNX, DX, EURUSD, and AUDUSD.  http://bit.ly/v5NKFO

Wed, 11/16/2011 - 21:42 | Link to Comment chump666
chump666's picture

It's too quite.  Feels weird, bad vibes man.

 

Wed, 11/16/2011 - 22:48 | Link to Comment Snake Plissken
Snake Plissken's picture

What will become the biggest event in world history is unfolding before our eyes. Millions are likely to die. Let's make sure that those who caused it are amongst them.

Thu, 11/17/2011 - 00:15 | Link to Comment chump666
chump666's picture

Asian momo traders are bidding market up looking for the ECB to buy more bonds (Spanish/French bond auction in a few hrs), 1st or 2nd market doesn't matter to them anymore.  They are running with Einsteins definition of insanity.

The ECB are acting like a government.  Jeez Germany is going to love that...

Huge volatility ahead, these f*cking ranges are just TOO tight.

Thu, 11/17/2011 - 06:01 | Link to Comment bombimbom
bombimbom's picture

http://bottomline.msnbc.msn.com/_news/2011/11/16/8837409-citigroup-set-t...

Citigroup set to cut about 3,000 jobs, report says

http://www.leap2020.eu/Global-systemic-crisis-First-half-of-2012-Decimat...

Global systemic crisis – First half of 2012: Decimation of the Western banks

In fact, it will be a triple decimation (5) culminating in the disappearance of 10% to 20% of Western banks over the next year:
. a decimation of their staff
. a decimation of their profits
. and lastly, a decimation of the number of banks.

Thu, 11/17/2011 - 07:19 | Link to Comment falak pema
falak pema's picture

the recent posts over the last months on ZH have ALL been about Euro sovereign debt shenanigans; and everybody took their eye off the ball.

ITS ALWAYS BEEN ABOUT BANKING CRISIS ON BOTH SIDES OF THE POND. THIS IS JUST THE AFTERMATH IN EUROPE OF THE 2008 GLOBAL PONZI CRASH. AND EURO BANKS ARE TOTALLY GS RUN/COMPATIBLE AS WE SEE EVERY DAY OF THE WEEK. ITS ALWAYS BEEN ABOUT SOCIALISING DEBT AND PRIVATISING PROFIT.

Through ongoing derivative mountain plays, to pilfer social riches making it into private profit via the banking debt 'broke back market-mountain' ponzi. It goes on and on right before our eyes every day.

 

LOOK AT US CONGRESS : ART 10B5, SEA,  MISUSE IS LIKE PAPAL INDULGENCE AND SIMONY. WE'RE BACK TO THAT AGE.

US CONGRESS : THE WHORE OF BABYLON. 

If PETRARCH  were alive today he would spit on them. 

How can the elected members of the biggest capitalist country pretend controlling the financial banking ponzi if they are busy getting rich thanks to it? The Borgias run the world OPENLY. And they are all servants of the banking cabal, the new global ponzi church. USD being its divine God to which they bow.

Just look at the numbers in Euroland : Total sovereign debt 10T; Total Banking asset 50 T (of which socialised debt base : 50%, Oligarch private profit in off shore locations : 50%, aka 25 T  held by 185000 people around the globe).

Which do you think the political Borgias will preserve? The 50T  of which HALF is their ill gotten accumulated private profits. Not the Sovereigns. 

Game OVER, WS will rule the western world....Let the people burn. But...how do you stop contagion...If MErkel defies GS take over of EUrozone...Fourth Reich or continuing pax Americana? 

O'bammy's speech today in Australia is a clear signal that US Hegemony in PAcific is not over. China is not going to get a walk over. All three pillars of world economy now fragile, banks or tanks, its not getting better it's getting worse.

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