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Market Slowly Figures Out ECB Fake Out Is Euro And Greece Negative As Greek 1 Year Bonds Hit 639%

Tyler Durden's picture





 

Yesterday, when the rumor (because it has not been confirmed by the ECB, and most certainly not by the Bundesbank) that the ECB would distribute its "gains" (i.e., personally fund the difference between cost basis and par on Greek bonds - incidentally, a development which BUBA president Jens Weidmann has said would only happen over his dead body) we urged readers  "to ignore the constant barrage of meaningless noise and flashing red headlines" as apparently nobody who trades the EURUSD has any clue what subordination means or has ever participated in any debt for equity transaction. Specifically, with regard to the idiotic EURUSD reaction we said: "Today [yesterday] is a great case in point of a tangential detour which does nothing to change the reality that Germany no longer wants Greece in the Eurozone (remember, oh, yesterday), and that the ECB is merely playing possum with PSI creditors who will block the deal with even greater vigor than before (anyone recall the FT story about the PSI deal being on the verge of collapse not due to the ECB but due to private creditors?) as the ECB's even bigger subordination will simply make the amount of hold outs even greater." We concluded by assuming that "algos will take the required 12-48 hours to figure out what just happened today." Well, the algos are still lost in idiot vacuum tube world, but at least the banks are starting to comprehend what the 'deal' really means and that the Nash Equilibrium is even worse than before. From Bloomberg: "A plan being considered by the European Central Bank to shield its Greek bond holdings from a restructuring may hurt the euro because it implies senior status for the ECB over other investors, UBS AG said. “There are at least two euro-negative dimensions, which will likely lead to euro weakness” as a result of the plan, Chris Walker, a foreign-exchange strategist at UBS in London, wrote in a research report today." Once again, we urge all FX traders to read our primer on subordination, and why and how it will define trading this year, as reactions such as the one yesterday confirm that the market is not only broken but also very stupid. Which is just as those in charge like it.

More:

The risk of a voluntary restructuring morphing into a coercive one has arguably increased significantly,” Walker said. “It may appear that the ECB is receiving preferential treatment, raising questions about whether the ECB is senior to private sector bondholders, not only in the case of Greek debt, but also regarding the debt of other euro-zone nations that the ECB may be purchasing.

 

A private sector bondholder that has been suddenly and unexpectedly subordinated may have a reduced incentive to continue to hold onto that debt,” he said.

 

UBS, the world’s third-biggest currency trader, estimates the shared currency will slide to $1.25 in three months and $1.15 in one year, according to today’s report.

And while FX, and naturally stock, markets are getting dumber by the minute, the one final bastion or rationality remains credit. Indeed, Greek 1 year bonds just dropped to a new all time low, yielding a jaw-dropping 583% and trading as high as 639%.

 


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Fri, 02/17/2012 - 08:51 | Link to Comment digitlman
digitlman's picture

Default this fucker and move ON!

Fri, 02/17/2012 - 08:52 | Link to Comment silver500
silver500's picture

Some people think that default means that the Greeks need to exit the Euro, so a default will involve capital controls and take considerable planning.

Of course this is not true, they should just go for a simple default and not worry about leaving the euro.

Fri, 02/17/2012 - 08:56 | Link to Comment Ghordius
Ghordius's picture

this is anyway the Franco-German plan and a lot of Greeks are hoping that the haircuts are done in a way that they can keep the EUR.

The City of London is on the other side and fervently hopes the eurozone get's smaller and loses "ground".

Fri, 02/17/2012 - 08:58 | Link to Comment economics1996
economics1996's picture

If the Greeks want to stay in the euro fire 200,000 federal workers and get the fucking federal government to less than 11% of the GDP.

Fri, 02/17/2012 - 08:59 | Link to Comment silver500
silver500's picture

If the greeks do exit the euro and issue a new fiat currency it will devalue 100%.

Fri, 02/17/2012 - 09:06 | Link to Comment economics1996
economics1996's picture

Naw, just 50%.

Fri, 02/17/2012 - 09:26 | Link to Comment silver500
silver500's picture

Why 50%?

The Greek government will not be able to issue a new fiat currency with value.  They will not be able to confiscate a large enough proportion of "Greek Euros" so the new currency will have no integrity amongst the Greek people, who will be unhappy about the Greeks who had foreign currency, Euros in a non Greek bank accounts or cash. (and some people who had gold of course)

Fri, 02/17/2012 - 09:12 | Link to Comment PhilB
PhilB's picture

You need a lesson in math...100% deval is impossible.

Fri, 02/17/2012 - 09:14 | Link to Comment silver500
silver500's picture

No, if the new Greek currency falls to zero (which it will), thats a 100% devaluation

Fri, 02/17/2012 - 09:33 | Link to Comment Roland99
Roland99's picture

then Groupon can buy it and offer it up on Ebay

Fri, 02/17/2012 - 10:22 | Link to Comment SeattleBruce
SeattleBruce's picture

How about 99.99% deval?

Fri, 02/17/2012 - 09:59 | Link to Comment Ivanovich
Ivanovich's picture

So what?  The subsequent explosion in tourism and trade will make them Iceland 2.0, and in a year and a half they'll be laughing at the EU, and telling Italy and Spain "hey guys, lookeee here!"

Fri, 02/17/2012 - 11:22 | Link to Comment silver500
silver500's picture

No it will not, no hotels/restaurants will accsept the new currency.  They will just use the Euros that the government did not manage to confiscate (or gold/dollars/silver whatever).  No one will want the new currency

Fri, 02/17/2012 - 12:46 | Link to Comment Ivanovich
Ivanovich's picture

It's good that you know so much about the future.  Could you tell me tomorrow's lottery number too while you're at it, Swami?

Fri, 02/17/2012 - 08:56 | Link to Comment economics1996
economics1996's picture

One wonders what the fuck all those high paid politicians are good for. No one can get this shit done? Those bastards are useless.

Fri, 02/17/2012 - 09:07 | Link to Comment The Swedish Chef
The Swedish Chef's picture

If you shit on the dining room table, the hosts are prone to throw you out...

Fri, 02/17/2012 - 10:25 | Link to Comment crawldaddy
crawldaddy's picture

this isnt about Greece as much as it is about the CDS. Its the credit default swap bets  that if trigger is the real elephant in the room.

 

Greece would matter very little if not for the trillions in credit default swaps hanging out there.

 

Thats why tehy are pushing so hard for the private holders of debt to come up with some number they agree on, so the market isnt triggered.

 

The credit default monster almost took the world down in 08, it hasnt been tamed, it will take us down next time. 

Fri, 02/17/2012 - 08:53 | Link to Comment disabledvet
disabledvet's picture

again..."NATO moves in. The Americans get paid." That's how "subordination" works in ACTUALITY.

Fri, 02/17/2012 - 09:24 | Link to Comment Commander Cody
Commander Cody's picture

Not exactly correct: Jackals move in.  The global banking cartel gets paid.  Everyone else is subordinate.  Got it?

Fri, 02/17/2012 - 08:53 | Link to Comment EscapeKey
EscapeKey's picture

I feel as if I'm taking crazy pills. Futures up, and:

http://www.marketwatch.com/

Greek deal hopes revived

Fri, 02/17/2012 - 10:24 | Link to Comment SeattleBruce
SeattleBruce's picture

Greek deal hope #400 (as someone commented earlier...)  Can't let a good crisis go to waste, hmmm...

Fri, 02/17/2012 - 10:38 | Link to Comment espirit
espirit's picture

Save the Euro (hence the CHF) at all cost.  Even if it means destroying the dollah - BTW, it's dead already.

Fri, 02/17/2012 - 08:54 | Link to Comment Ghordius
Ghordius's picture

Trying to find the "fair market price" of the EUR is this environment - particularly based on the CB's balance sheets is simply a lost cause.

All currencies are battling to go down, down, down. As soon as the dollar is stronger Bernanke can QUx more.

Fri, 02/17/2012 - 09:04 | Link to Comment economics1996
economics1996's picture

And wiping out the poor, middle, and upper middle classes along the way.

 

 

Fri, 02/17/2012 - 09:05 | Link to Comment PontifexMaximus
PontifexMaximus's picture

thats already happening and is/will be the big danger, heading for big government

Fri, 02/17/2012 - 08:54 | Link to Comment The Reich
The Reich's picture

D'oh, BuBa prez iz dead nao?

Fri, 02/17/2012 - 08:56 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

'And while FX, and naturally stock, markets are getting dumber by the minute, the one final bastion or rationality remains credit.'

All FX fluctuations from now will come from intervention or geo-political strife.

Fri, 02/17/2012 - 09:01 | Link to Comment CPL
CPL's picture

It's all going to shit now isn't it.

 

630%+  insane.

Fri, 02/17/2012 - 09:22 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Orderly default is jumbo shrimp my friend, no such animal. Great little meme for Bloomberg though.

Fri, 02/17/2012 - 09:00 | Link to Comment LongSoupLine
LongSoupLine's picture

 

 

A head fake headline?

 

gasp.

Fri, 02/17/2012 - 09:02 | Link to Comment stopcpdotcom
stopcpdotcom's picture

639%! You won't get that sort of return with gold or silver. Buy, buy, buy!!!


Fri, 02/17/2012 - 09:05 | Link to Comment economics1996
economics1996's picture

Hell yea!  David Corzine bit on that turd!

Fri, 02/17/2012 - 09:10 | Link to Comment Turd Ferguson
Turd Ferguson's picture

and I still have teeth marks

Fri, 02/17/2012 - 09:22 | Link to Comment Commander Cody
Commander Cody's picture

Who's David Corzine?

Fri, 02/17/2012 - 09:40 | Link to Comment economics1996
economics1996's picture

Jon

Fri, 02/17/2012 - 09:19 | Link to Comment Taterboy
Taterboy's picture

I'd like to see all teachers unions buy a bunch of these for their pension plans.

Fri, 02/17/2012 - 09:53 | Link to Comment surf0766
surf0766's picture

And use the profits to buy volts

Fri, 02/17/2012 - 09:07 | Link to Comment firstdivision
firstdivision's picture

Feds are prop-ing this shit up.  They have done quite a few purchases with more planned.  Looks like QE3 is getting warmed up here.  http://www.newyorkfed.org/markets/tot_operation_schedule.html

Fri, 02/17/2012 - 09:11 | Link to Comment ConspiracyTheory
ConspiracyTheory's picture

Rally time baby. Ride the wave while it lasts. Buy buy buy 1000x

Fri, 02/17/2012 - 09:11 | Link to Comment TradingJoe
TradingJoe's picture

Expect a shitload of rumors today!

Fri, 02/17/2012 - 09:13 | Link to Comment Ted Baker
Ted Baker's picture

RUMOUR HAS IT:-

GREECE TO DEFAULT NEXT WEEK AND THE DOMINO EFFECT TO SHAKE THE MARKETS WORLDWIDE. IT WILL HOWEVER FOLLOW SIMILAR TREND DURING SUMMER THIS YEAR WHEN PORTUGAL AND IRELAND WILL HAVE TO ALSO BE RESCUED BY THE ECB AND COLLEAGUES IN GERMANY...

CURRENCIES TO BE IN:- USD, MXN, CAD, BRL...

BEST FIXED INCOME:- EMERGING MARKETS AND COUNTRIES LIKE VENEZUELA, COLOMBIA & BRASIL. MEXICO BONDS TOP NOTCH THIS YEAR INCLUDING INFLATION LINKS OR UDIs.

EURO WILL SINK TO 1.12 VS. DOLLAR, GOLD WILL HIKE TO 2010 USD THE OUNCE OVER THE NEXT 2-3 WEEKS.

FINANCIALS (USA AND EUROPE) A MUST SALE...MORE LIABILITIES FOR BOFA ON ITS WAY.

MORE DOWNGRADES FROM THE RATING AGENCIES INCLUDING COUNTRIES LIKE UK, FRANCE, ITALY AND SPAIN.

BERNAKE TO LAUCH ITS NEW EASING TOOL WORTH OVER .7 TRILLION MARCH 2012 USD AND LTRO FROM ECB ON 29 FEB OVER 1TRILLION EUROS

Fri, 02/17/2012 - 09:30 | Link to Comment junkyardjack
junkyardjack's picture

Sounds bullish, buy while you can

Fri, 02/17/2012 - 10:01 | Link to Comment Ivanovich
Ivanovich's picture

What's the downside?

Fri, 02/17/2012 - 09:32 | Link to Comment Roland99
Roland99's picture

U.S. Markets missed the memo. Looking bullish yet again today

 

Fri, 02/17/2012 - 09:54 | Link to Comment AmazonNemesis
AmazonNemesis's picture

"reactions such as the one yesterday confirm that the market is not only broken but also very stupid. "

 

The first rule of investment is: the market is never wrong. If it is stupid, then it is just easier to make money for the smart people. But if I read your post, Durben, it seems like you're not making money - in fact you seem to be betting on a market down because a Greek default is coming.

 

Well, I've news for you guys: A Greek default is not an option.

No one - I repeat, no one - can truely predict the result of a Greek Default. As a trivial example, it could lead a UK court to freeze all Greek assets in the euro zone, including shit that is owned by government subsideries (e.g. aicrafts). Only a final decision by the EU court will matter, and since it will get very ugly very fast, it can also mean overnite hunger in greece. 

 

I'm not saying any of this will happen. I'm providing a possible path of things to come from a greek default. Simply put, no one can afford the risk. Certainly, it will be worse than LB. A deal has to be striked.

I do expect Germany to leave the Euro (but they CAN do it orderly with initial 1 marks = 1 euro, all debts still in euro kept as-is, float the mark), but this might take a year. History (Berton woods) tells us Germany will be 1st.

Currenly long INTC/MSFT/DELL/AMAT

Fri, 02/17/2012 - 10:31 | Link to Comment Dermasolarapate...
Dermasolarapaterraphatrima's picture

639%? Thats better then my 0.09% "high yield savings" acct here in Arizona.

 

Maybe I should buy some of that fo rmy IRA?

 

http://www.crossfitnewmarket.co.nz/wp-content/uploads/Funny-Pig.jpg

Fri, 02/17/2012 - 10:33 | Link to Comment crawldaddy
crawldaddy's picture

lets see, volume tells us there are only a few large traders left, they all simply tell their algo to buy on basically any news, so its buy buy buybuy buy, and everyone wins in their mind. Free money from the central banks, free money for the books via a never ending pump.

 

what possibly could go wrong.

 

The market is pushing highs, while Japan becomes a nuclear wastleland with 150%debt to gdp ratio, while europe is headed into recession with various members ready to default, with a limping, in debt and going now here US, an over extended china, and a crazy Israel looking to start ww3 in the mid east.  I mean who wouldnt be bullish

 

Its all insane.

Fri, 02/17/2012 - 10:56 | Link to Comment espirit
espirit's picture

Ponzi masters are insane.

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