Macro Commentary: We Are Moving To Disneyland

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

After a recent trip to Disneyland the kids decided we should move there.  The vote amongst the children was unanimous. So, are we moving to Disneyland?  No!  There votes don't count.  They are not the decision makers.  What does this have to do with anything going on in the markets?  I think everything.  I think it may provide the best lens with which to watch the noise out of Europe.

There are only 2 countries that really need to be watched closely, and 1 in particular.

Germany, the strongest economy in the Eurozone, the country with the strongest balance sheet, is against massive expansion of the EFSF.  They are against proposals that trick their people into providing promised EFSF money, only to lever it up massively.  They, the only ones who seem to have gotten the concept of what AAA is supposed to mean, say it is a stupid idea.  They are the adult in the room.  They have managed their way through the entire crisis better than anyone else.  It is mostly their money that everyone else wants to play with.  Whatever is coming out of Germany is most important because they have the money, but should also be listened to since they are the only ones who have been consistently right.

France.  We will come back to them in a moment.

Greece.  Yes Greece is 110% committed to austerity and yes at every review their debt needs are 120% greater than projected.  Realistically you can only be 100% committed to something, and it is not clear that Greek is even that committed to austerity, and it is clear that it isn't working.  Debt levels can be greater than 100% of projections and Greece has rarely disappointed on that account.  Why will any of this change?  Why won't Greece just have a bigger and worse default 6 months from now?  Greece is along for the ride.  They will say anything to keep getting money but will be very careful about what they actually do. 

The United States.  Let's not forget our own debt situation.  Debt to GDP is high.  Current deficit is high.  The economy is weak at best.  We have lost a AAA agency.  In spite of 2000 some odd pages of Dodd-Frank all we have learned from the economic crisis is "TARP" and "No Lehman Moment".  It is amazing to me that somehow we have defined the problem as having let Lehman fail and the solution as TARP, in spite of evidence that they were only small parts of the overall situation.  In any case, we should be more worried about out own plans and their credibility than running around in complete confidence that we understand all the world's problems.  And heck, we aren't even part of the direct family, this is like the crazy uncle in the corner putting in his 2 cents.  If the IMF takes a bigger role in the new massive bailout, will taxpayers here revolt?  We can say what we want, but Europe is unlikely to pay too much attention.

Barroso, Junker, and the EU in general.  Their whole life and livelihood are tied to the Eurozone remaining the Eurozone.  The more integration, the better for them.  Every statement uttered by them is self serving.  Period, end of story.  Ignore them.

The rating agencies.  I am not a big fan of them, and generally prefer to ignore them, but S&P has already come out saying the new plans risk the AAA rating of the top countries.  Other than Germany, where the bond market, like those of Japan and the USA, could shake off the downgrade, the rest of Europe would face additional funding pressures.  France is already starting to diverge from Germany in terms of funding costs.  Last thing it needs is the AAA taken off the table.  I cannot disagree with the view of the rating agencies at all.  If the US could be downgraded, at least in part due to stupid economic decisions made by politicians, Europe abandoning any prudence to avoid a Greek default, would qualify.

IMF.  Why do we still have an IMF when most of the countries that are funding it, are negotiating directly with the recipients on other packages?  The only thing the IMF does is hide how much money the US and the EU are giving to the bailout because it requires a second step.  We read that the IMF is giving 10 billion, but the reality is the US is giving 4 billion and the EU is giving 4 billion.  It just makes it more politically palatable to keep the IMF around.  There are also enough cozy jobs at the IMF that no one really wants to examine it too closely.  They can say a lot, and even do a fair bit, but they are under a lot of pressure to not lose money and do seem to be treading carefully.  Their opinion is important and real, but actually seems mostly rational.

The BRIC's.  They have money (how much is debatable) and are willing to use it.  But they already contribute some through the IMF, already own some bonds outright, and are definitely NOT a charity.  Whatever they do, it will be out of their own self-interest.  Anything that sounds too good to be true, is.  These countries do not act as a block, in fact they compete with each other, and they all have strong nationalistic priorities.  Since they have money, it is worth listening to what they say.  But listening carefully.  Russia has said they "will invest in bonds of the eurozone('s strong countries)"   Reading only half of a sentence can create a false impression of what they are willing to do.  Our positions always skew how we read a headline, but it seems that we have wilfully chosen to ignore caveats in the statements coming out of BRIC countries to feed the false optimism.

The Banks.  They don't need money, but want cheap funding lines.  They don't need capital, but wouldn't mind if governments made it available at off market rates.  They don't need capital or money if the governments which just pay par for all their bonds.  Banks are their for the benefit of their management, their employees, and their shareholders (in that order).  They will say and do what they need to get the best deal possible for banks - it's why people invest in them.  They clearly made a lot of horrible decisions to get to this point, but they are in full lie, deny, and counter-accuse mode to get what they want.  They pull out the "Lehman Moment" card any time it seems as though the EU has come to its senses and will allow some sovereign defaults in order to support a simplified, but stronger world. 

Italy.  They are just having fun.  They are part of the problem and part of the solution.  They are so big, the EU can't let them fail.  They are so big, they could walk away if they wanted.  It is hard not to picture Berlusconi sipping wine with some colleagues and some "friends" asking them what strings they want him to pull the next day.  I think they don't care that much because it will come out fine one way or the other and in the meantime it seems like its fun for them.  They don't seem particularly serious about austerity, but certainly aren't opposed to getting some leveraged EFSF money.  For all the talk about the problems Italy is having funding, their average 5 year yield from 1999 until the end of 2008 was 4%.  Yes, it is currently close to 5%, but if we really live in a world where a country having to pay rates 1% above their long term average is unsustainable, then we are in deep trouble.  Seriously, think about it.  5% isn't great, but it is a long way from crisis mode, and to "fix" this, we are going to create leveraged EFSF?

ECB.  They are so deep into this mess that it is hard to tell what is real or not.  They have spent so much money buying bonds, at such bad prices, that a lot of what they say has to be taken as posturing to protect their legacy.  Trichet is the only Frenchman who can say the word sterilization and keep a smile on his face.  They have done a lot, it is worth paying attention to them since they have power, but they have an agenda to hide their big losses from open market bond purchases.  In the end they will either have to print, find some bizarre program to take them out of their positions, or ask member countries for more money. 

France.  Since Germany seems to be fighting the plans to lever up EFSF, then one can only assume that France is the adult that is pushing it.  I am not sure what they are thinking.  They seem to be too afraid of default.  Too afraid of the Lehman moment.  Too afraid of their own banks.  The world seemed about as ready as possible to accept a Greek default coming into this week.  Instead of pushing the button and letting Greece default and working incredibly hard and ensuring that liquidity and capital are sufficiently available, they stepped back, and with a wave of the hand decided they can create some bigger bold plan.  Maybe it is all the jokes about France constantly surrendering that made them decide not to retreat.  Retreat is not always bad, and living to fight another day has a lot benefits.  Maybe the fact that the French still control the IMF and ECB gave extra confidence, but this latest push makes no sense to me.  I think France in particular is at risk of losing its AAA rating even before a plan gets implemented.  Its finances aren't that great.  Its debt already trades significantly behind that of Germany, and now they seem willing to subordinate their own finances to prop up banks and weak countries.  The original EFSF was a drop in the bucket compared to this.  Proposing the plan may be enough to force a downgrade, accelerating the crisis rather than kicking the can down the road.  Their position is nonsensical, particularly when the market was prepared to deal with a Greek default.  Whatever the result of this push to lever up EFSF, the Eurozone will become more complex, more intertwined (in the bad way that two cars in a high speed head on collision become intertwined), and who knows what the unintended consequences will be.

I think the European leaders should go to some management bonding exercise and spend a weekend with a psychologist who tries to talk them out of their fear of default.  Their fear of default is bordering on irrational, and maybe they need to be reminded of it.  Maybe they should also be reminded that they represent their people and have some shred of responsibility to do what their citizens want.

Anyways, back to the headlines, but I think if you filter out who to listen to, the outcome becomes more clear.  In the meantime, it seems like 3% daily moves with big intraday volatility will be the norm.

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Sequitur's picture

Ugh. Both LIESman and Caruso-Cabrera are yapping on CNBC. Both are beyond annoying and disgusting. Seriously, who would want to tap her junk?

spiral_eyes's picture

Their fear of default is in no way irrational.

They're not working for Europe or their countries.

They are working for the banks.

But even then they still can't co-operate. 

LongSoupLine's picture

...and the fact they're "interviewing" Dear of CALPERS for his "expert opinion" only reinforces how f'ing total left-wing-harry-nut retard they have gone.

Gully Foyle's picture

"The vote amongst the children was unanimous. So, are we moving to Disneyland? No! There votes don't count. They are not the decision makers."

Does that mean in Disneyland votes don't count?

Which reminds me of this poll via the heinous Ace of Spades site

Who is your current favorite choice to be the 2012 GOP presidential candidate?

Ron Paul is NOT listed. Neither is none of the above.

Sucks ass don't it.

In that Disneyland votes don't count because those particular cartoon characters aren't worth the effort and time wasted to click oold Mickey Mouse for a selection.

Zero Govt's picture

The kids don't need to move to Disneyland.. just watch the President, Senate and Congress any day of the week on TV for all the Goofies, Mickey Mouses and Loony Tunes characters you can stomach ..and then there's EuroDisney, NipponDisney and ChinaDisney ...plenty of non-stop comedic cartoon entertainment, laugh your guts out

But more than an hour watching these 2D stiffs cardboard cartoon cut-outs go through their theatrical acts to fake 'democracy' and your flatscreen tv may not be all in one piece.. it's a farce, and has been for decades

Govt : the Biggest Social & Economic Mistake of the Century 

Pegasus Muse's picture

Thanks Peter.  Great stuff.

covert's picture

you would get bored there and it's overpriced. semase street is more fun for the money,lol


papaswamp's picture

Disney World is much nicer....

As someone commented on a different article...Eastern European situation is being largely ignored...and it is nightmarish....Austria has rather large exposure there.

johnQpublic's picture

screw disney world....i'm going to Graceland


elvis aint dead,and he has the solution to the eurocalypse!

Edward Fiatski's picture

Europe is in RED! WE NEED A RUMOUR, NOW!

Sequitur's picture

Queue Financial Times/LIESman in 3, 2, 1 . . . .

SheepDog-One's picture

Not to worry! US markets all green for lift-off of course! Nevermind theres not ONE reason in the world for it, we now live in Disneyland.

BorisTheBlade's picture

As part of "New Normal" red will be renamed into green, green will remain green.

The Deleuzian's picture

The comparison between a 6 year old trying to lie their way out of a lie...out of a lie...out of a lie... to the whole 'EU' thing is freightening...!

gmak's picture

Is the authour saying that it doesn't matter what the people want (kids and disneyland) and that the politicians are the adults here? Mercy! That is why we are in the situation we are in: because supposed decision makers decided that what was best for them was best for all (I'm still wiaiting for my $200 mm windfall bonus payment... stil waiting..)

-Michelle-'s picture

That''s not what I got from it.  It seems he's saying that it doesn't matter what everyone else in the Eurozone wants; Germany is the one with the money and that means they get the final say.

Gully Foyle's picture


"Is the authour saying that it doesn't matter what the people want (kids and disneyland) and that the politicians are the adults here"

No the author is saying that because he ignored his kids they will dump his cranky ass in the cheapest nursing home they can find. Of course that's a decade or so down the road and he might be homeless composing articles at whatever public library survives the big shutdown.

He already ate his Ipad.

SheepDog-One's picture

Thats right, Peters kids will make him pay DEARLY!

Edward Fiatski's picture

Communists work for Goldman Sachs.

papaswamp's picture

There is a Forbes interview...the guy is a day one the BBC found him is a mystery. He seems to know less about trading than I do (I don't know much).

Diogenes's picture

He said in another interview he likes to get publicity and shoot his mouth off on TV. Somehow he gate crashed the Beeb and now he gets to rub shoulders with Jim Rogers and Hugh Hendry, metaphorically speaking.

The Deleuzian's picture

I thank my god(s) I have no part...never taken part...never will take part, in any Huffington post anything... The Borg of dis(information) spreads like the cancer Rastani was so eloquently warning us of!!  I will never go to the Huffington post ever again!!! I mean it!!!

I think I will finally think about donating some Ag to Tyler(s) for all of their truly wonderful work!!!! 

Yes!! I'm having fun with the (x)'s

BorisTheBlade's picture

Doesn't matter though whether it's HuffPost or ABC, they all started bashing him. Reminder to anyone choosing to speak publicly anything contrary to a teleprompter.

hardcleareye's picture

Just love the YES MEN, the Management Leisure Suit and the Reburger are priceless......



disabledvet's picture

I prefer Disney World myself. And when you talk money and preference for delusion that's like talking peanut butter and jelly. the bottom line is this: the Titanic sees the iceberg and the Germans are blaming the Greeks for it.

msmith's picture
It appears that the EURUSD correction higher may have completed, which could confirm the move lower for equities. - Anyone else has a perspective here?
papaswamp's picture

Fins passed the improved ESFS....I suspect it will creep higher.

GeneH3's picture

Excellent summary. The observations of a cool head are refreshing. I would like to forward a link to my associates; but, like many posts here, this one needs a proofreader. Misuse of there/their and won't/want are distracting and detract from the intellectual quality of the piece. Many of us, including myself, are too eager to post and overlook the fundamentals. A good post nevertheless.

j.tennquist's picture

Don't nitpick, the substance is still their (oh sorry, THERE)

Ghordius's picture

Yes, excellent summary - don't know why grammar has to be an issue

What I am missing in this picture is the "pushing" by the City of London and the Squid (who started the whole Greek-is-worth-it business) - there are huge interests that have to be protected

the ECB situation, IMO, is not that bad - IF IT STOPS THERE. Meanwhile, the USD needed some windowdressing, so a faltering EUR had to be somehow constructed, eh?

I'm not sure what I would do as Italian PM - probably the same, since the external situation cannot be changed and the internal situation would take more then 5 years to change - in their view it's a matter of small degree.

the French finances are not that bad, IMO, it's the question what they are supposed to do with their banks (which are the Maginot Line of Italian Debt)

Diogenes's picture

Spelling and grammar are important if you want to get the meaning right.

What about the Scotchman who walked into the Ladies thinking it said Laddies?

the not so mighty maximiza's picture

Micky Mouse would run Europe better.

Ghordius's picture

hahaha ;-)

if TARP, TALF and QE is what Micky Mouse would do to "run Europe better" then I'm happy we don't have my beloved Micky Mouse in charge.

a lot of comments in the media go like "if the banks fail, we'll be back to the stone age"

the EuroZone has seen two world wars, a few hyperinflations and the shift of several key borders, and you know what? it's not the end of the world, it's only "the end of the world as you knew it"

falak pema's picture

I can see the seven dwarfs in Euro-Disneyland. Merkozy the two headed one, mixture of grumpy and dopey; Van Rompuy as Doc.  BUT  No sign of Snow White. There is a guy from Euro commission, selling us juicy, poisoned apples called EFSF for FREE!, named Jose BArroso. Could he be the black witch, Queen Grimhilde,  in this psychodrama with no happy ending?

Unsung villains and Rune alphabet, to confuse and abuse the innocent. I'm no Futhark fan but a true pagan lover, Odin-Thor and law of honour.

Love to meet a true Walkyrie...that is, before the end at Valhalla!

Tic tock's picture

The Silver price is being pushed lower via a weak dollar, rather than in a series of outright shorts. .. for the time being

Tense INDIAN's picture

Mankind has been  in Fantasy Land for atleast a in a system completely created by the elites for their benefit and have been pushed to accept changes , forced into compulsory education, creating an environment where living in Cities is the way forward for people who can...( which may be common now but NOT NORMAL)......we have been in fantasyland for quite sometime ...seperated from NATURE....doing things for which we are not built....anxious all the time...

pelican's picture

Is that correct that a massive amount of shorts has been taken out for Oct?


I want to move to Disneyland and have the job of wandering Donald Duck.

Casandratarian's picture

It seems to me what's going on is the banks are using the PIIGS (and US mortgage-holders) as an excuse for a looting-binge before what they knew was an inevitable demographic-collapse of the fractional-reserve Ponzi-scheme.

Who is really paying 100% interest? German workers and savers, not Greeks.

Tho pols are only too happy to accomdate and cash-in too, since in the future they can blame their austere, imposed-serfdom on the banksters in Brussels or Zurich.

Mercury's picture

Their fear of default is bordering on irrational, and maybe they need to be reminded of it. Maybe they should also be reminded that they represent their people and have some shred of responsibility to do what their citizens want.

What Euro bankers/politicians should be reminded of is that their constituate states are rather famous for overhauling their political systems every few decades or so...often in a very colorful manner (how many types of government has France had since 1789?).

But he’s right, although default can be ugly it’s usually not even close to the worst case scenario and also the least worst option.  Hell, personal bankruptcy in the United States has practically developed into a rite of passage in the last few decades. Currency devaluation used to be a core competency of places like Italy...and now that's been taken away.  You'd think there would be a greater push to jettison the Euro just on cultural sensitivity grounds! 

 And "Lehman moments" in the marketplace are as natural as brush fires in forests.  Constructing artificial barriers to thwart them at all costs just makes the inevitable all the worse in the end.


Something's gonna give...

LeonardoFibonacci's picture

pass a Mickey Mouse outfit to little Tim cause that is about the only job he will be able to do!

disabledvet's picture

Actually that's the most valuable one. Perhaps you meant Cinderella?

Peter K's picture

Excellant analysis. A pleasure to read, as always.

One small suggestion as to the key to this whole crisis. The word that wansn't mentioned is the Euro currency, or rather it's demise. The key is the French, and their megalomaniacial need to be a super power. They could not do this on their own (Waterloo put the last attempt to rest), and after the war decided to 'corral' the Germans into a political union to give them the firepower. (DeGaulle's dream). Their means by getting to a political union was first a free trade zone (a great idea on its own). The 'grandeur' opportunity presented itself when the Berlin Wall fell. They supported the Germans against the Brits, who didn't want the Germany's to reunite. And the price that the Germans paid is the Euro. But as with any well laid plan, it had unintended consequences. And most 'sane' economists knew what they were (anyone remember the ECU?). Anyways, the unitended consequences appeared due to the Germans gaining relative competitiveness via a fixed internal exchange rate. And this allowed the Germans dominate the greater Euroland through an effectively cheap currency (75% of German exports are to Euroland). This internal exchange rate is the largest cause for all of Euroland's problems since it make the PIIGS uncompetitive. And the rest, like they say is history........  

Ghordius's picture

also a pleasure to read your comment, even if I disagree

this meme with the currency helping exports is somewhat fallacious - yes, in the short run a softer currency helps, in the long run it hinders your ability to calculate sharply your costs and to reinvest your gains in your own business

in the US nobody would dream of having separate currencies per State or group of States

in a gold standard world, the depreciation of a currency would have clear consequences

If you produce something of value, you can exchange it for something of value. At the moment this "something of value" is being debated, yes.

Portugal, Ireland, Italy, Greece and Spain have several other reason why they are in a mess. Ireland because of a building frenzy (nobody was saying the EUR is a prob for the boom they had), the others because they overspent and in some cases have simply too much "submerged economy"

No, the most important sentence you've written is here "...the Brits, who didn't want the Germany's to reunite"

The British, the British Media, and by reflection their cultural cousins' media (including Murdoch) etc. have an historic tendency of being wary of any "unification" of Continental Europe, particularly if the French are involved. It's a reflex. "Oh, the Continentals are doing it, it can't work, ever."

About the EUR: IF the ECB stops buying bonds (and no, what they have done so far is still somewhat ok) then there is no reason why it should not keep marching on for the next 70 years or so.

Peter K's picture

Actually, the most important sentence that I have written is the one that alludes to the direct cause of the present EuroMess. And I assume that you agree that it is a mess. The prime cause is the French maniacal dream to be a superpower. And even how, as their banks disintegrate from holding tons of worthless paper, they still can't let go and save themselves. But I guess the CAP payment to their backward farmers plug their budgetary holes. But I digress.

But back to the Brits. PM Thatcher was a product of the past, but aren't we all? But it's one thing to live in the past, but quite another to misread the present. And this combined with pursuing the classic British policy toward the Continant, i.e. divide et vice (remember the 5 alliances agianst Napolean?) she misread who the enemy of Britian is, i.e it wasn't Germany but France. And she gave Mitterand the perfect weapon to "corral" Kohl into the Euro.

As to the assertion that weak currencies are a net benefit to the given country, and the true driver for the destructive machinations to keep the Euro afloat, look all around. Do you see any Central Bank (Except for the Poles, but that's a horse of a differenct color) intervening to strengthen their currency?

Nuff said :)