The Odds At 90%

Tyler Durden's picture
Via Mark J. Grant, author of Out of the Box,
Grant’s Rules
Grant’s Rules have never been more important than they are now. There is Rule #1 that is cast in stone and reiterated nine times to form the bulwark of my thinking which is “Preservation of Capital.”  You may do what you like and there is certainly a place for some speculation at the edges but you do not, ever, put the core of your capital at risk. It is on this corner stone where I stand and hold court and have done so for the ten years that my commentary has been in existence. Not only is my viewpoint valid in all markets but the point is now of particular importance in a time of such low interest rates where it takes so long to make lost money back. Hedge fund, money manager, bank or insurance company there is never a time and now is certainly not the time where any risk should be taken that will diminish the bulk of your capital.
Besides the issue with minimal yields there is a second consideration which is the incredible amount of risk that is currently on the table. You may believe what you like about Europe. You may be wildly optimistic or incredibly pessimistic but what cannot be denied is that tremendous risk is currently present and that things could go wildly erratic in one direction or another. Economics, outside of the classroom, never exists without its cousin politics but the political considerations are now so huge and the money at stake is now so large that the sheer size of the capital on the table should and ultimately will give everyone pause. We are about to arrive at moments where the notion of “muddling through” will no longer be possible and where real decisions, tough decisions, are going to come into play. Predicting coming events is never an easy task but it is made easier if you can determine the limits past which boundaries cannot be stretched.
There are many events that could go either way such as the German Constitutional Court’s ruling on the ESM and I think the vast majority of market participants think that the court will allow the Stabilization Fund’s existence in one form or the other and I am not speaking today about these kinds of events. Today I want to pinpoint specifically the 90% events. I want to shift your focus to the boundaries of the playing field so that the consideration of everything else properly lies within the out of bounds lines that I will try to define. Today I mark the perimeter.
Odds at 90%
Germany with a GDP of $3.5 trillion does not have the capital or the resources or the assets to support the rest of Europe. You may think of a wooden cross bar and the Brooklyn Bridge and the absolute inability of some piece of wood to support the trucks that roll across the bridge. It is just not possible and the same can be said with exactly the same amount of certainty for Germany’s position with all of Europe; they cannot support the European Union alone which is exactly what some ill informed people think. Therefore given Germany’s realistic position and not some fantasy notion, it is possible to project the limits of what can be done and what they will allow to be done to preserve their own country and their national interests. I would put forth the point that no country in Europe will bankrupt itself to save its neighbors and work backwards from this proposition.
It may be in September or a few months later or even six months from now but Germany will not keep handing Greece money ad infinitum; it is not happening. Greece, on the other hand, is not capable of paying its debts; sovereign, bank or private obligations, they cannot pay them. They also know they cannot pay them which is why they beg for money using the strategy of a European Union which is all for one and one for all and the common good and all manner of schemes appended to this basic concept but the money they owe cannot be paid back and so they make this and those kinds of noises and plead to put off the final act for as long as they can. There are only three choices here which are growth which is economically impossible or debt forgiveness which is politically impossible or the refusal to fund which is the 90% odds play that I see coming soon. In one sense Greece played the game well and got way more money than they should have ever been given and Germany played the game badly and allowed themselves to be suckered into a corner where they should have never gone but now with the stakes so high it will end soon and you can bet on it; a 90% you have it right bet.
It may be Merkel and her allies or it may be the opposition but I project that the citizens of Germany have just about had it with tossing their hard earned money into the olive tree groves in Greece and that it will soon stop. Germany is being dragged into a recession along with her neighbors and I predict soon that the productions numbers, not quite accurate for their automobile industry among others and the real costs of their Traget2 funding and the cash that is pouring into their ownership of the ECB and of the EU will not only come to light but will glisten with the resonance of a loud “Auchtung” and then a screamed “Verbotin” which will thunder down the Autobahn between Frankfurt and Berlin. As we have seen with the idiocy of the IMF projections and the 120% debt to GDP ratio for Greece that was trotted out and flaunted by the wish-it-would-be’s of Washington; the real numbers a few quarters out eventually show up to embarrass those that created the fairy tale.
Then there is the Draghi Hail Mary pass. He has made a promise that cannot be kept because there is no possible way to keep it. The ECB on its own cannot rescue Europe and his muttered under the breath “whatever it takes” flashing neon billboard proclamation is stopped in its tracks by the realizations that someone has to pay for all of this, that there are economic consequences of printing money and that the ECB is only as sound as the financial health of the nations in the EU which fund it and so with Spain and Italy slipping into the Mediterranean along with Greece there may be the will at present but there are not the resources to do it. In my mind this is another 90% bet because the ECB does not exist in a vacuum and does not stand on its own and people would be better served using their hopes and prayers in other areas of concern rather than wasting them on fantasies of Camelot and on Lancelot riding out of the castle gates to save the day. Don’t bet your money on make believe fables; that is my opinion.
The next 90% bet is Spain; they are going down. For years they have provided inaccurate Real Estate valuations, inaccurate bank numbers, inaccurate regional debt figures and the manure has hit the fan and is splattering. The country can no longer afford itself, cannot afford their obligations for the European Union and I predict a very hard landing. The hogwash about the money being only for some banks that most of us never heard of until recently is a lie compounded by Mr. Rajoy’s desire to remain in power which is also something that I see soon coming to an end one way or the other. Perhaps somewhere in some unknown universe governments can live in castles in the air but not on this world and not in our universe and the rock is going to hit the hard place and the make believe is going to collapse.
The final comment I will make today is about the ECB. It is a 90% bet that the ECB cannot do anything of gravity without the tacit support of Ms. Merkel and of the Bundesbank. There will be no grand scheme without their approval because if there is then I think that Germany will refuse to fund it and so end any fantasy. It can certainly be said that Germany has now found herself in a corner of her own making. Germany has played the Great Game badly and allowed country after country in Europe to get in financial trouble and so the majority of nations in Europe are now up against it and pleading for funds, mercy and alms all under the banner of the motto of the three musketeers but what could be done has been done and now the intrusion of reality is making itself known to one and all. Soon, I think, Italy will be joining the chorus and the tumult will be loud and noisy but the road is already marked by the brambles that have been put in place and so the course is set.

The Days of Muddling are now behind us and the Days of Reckoning are to the fore!

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GetZeeGold's picture



It is a 90% bet that the ECB cannot do anything


Oh come on's almost a sure thing. Bet the house!


slewie the pi-rat's picture

another "soon" call?

have all these guys gone over to ori?

hey!  meebe's he's "right" this time!?

people keep "knowing" what MUST happen when they clearly have not yet come to accurate terms with what the hell has been going on here in markets/prices for the last 6-8 months of 2012

the do not understand the present

they have not looked up for almost a year?

they have not asked: why why why can't i "guess right" anymore?

but they got a biness to feed with OPM and "subscriptions" so they just never stop pretending

repeat:  never

soon soon soon soon soon next soon not long now soon must should shall soon muddling is soon to be over then soon the bad stuff will happen so soon next before the week is out before the meeting is over crisis soon next


hava grate day everyone; soon i SHALL be @ the casino whre i might even have some f.u.n. with bots, losers, hits, errors, crads and the FLOW of summer dresses

p.s.:  corner on stocks?  anybody home?  buh-byyyye!

Bananamerican's picture

noose "nifed"

I thought Slewie had a pretty good rant there, but i got the same capitulation shiver as the PieRat (probably) when he said "soon i SHALL be @ the casino whre i might even have some f.u.n. with bots, losers, hits, errors, crads"

want to see it all wash away 1st

want to see the return of a MARKET 

SoundMoney45's picture

The European debts cannot be repaid.  There are two options, either explicit default or default via monetary base inflation.  Place your bets.  

LawsofPhysics's picture

Come on now, you know that banks will not stand to have the fictional "valuations" on their assets impacted.  Inflation and war (because this time the entire western world goes "weimar") it shall be, hedge accordingly.

economics9698's picture

1.  Inflation.

2.  Bankruptcy.

3.  War

4. Austerity.

prains's picture

5. Rothschilds buy it all

Gazooks's picture

Where's the Fed in this equation?

Does the option exist for heavily euro debt exposed US banks to circle the drain in derivative shit storm?


Option #3 Fed monetizes Parthenon. 

Doña K's picture

Real Madrid has already monetized (colateralized, hypothecated) Ronaldo's sale/transfer value. Bizzzzzzarrrroooo!

nantucket's picture

90%?   so it's a 1 in 3 shot, huh?  that's some sweet action.

youngman's picture

"but you do not, ever, put the core of your capital at risk."....the key word here is YOURS.........but if its someone elses go girl...

RSloane's picture

Of course. Other people's money = risk on. Your money = risk off.

fockewulf190's picture

And the 7th Circut Court of Appeals just stamped their approval on that! Vaporisation is going to be the word of the decade.

Tinky's picture

At the risk of being pedantic, it's "you go grrrrl!"

francis_sawyer's picture

Time to goose step on outta there... I gotta say ~ China & Russia must be laughing their asses off while kicking back watching the West implode all over itself trying to appease the Zionist banking thugs & takes down their entire populations with them...

francis_sawyer's picture

Ha! Right on cue... (see next ZH thread, 8:34 timestamp)...

skipjack's picture

I am amazed at the naivte behind a comment such as yours.  Ever look at China and Russia ?  Yeah...they'll be munching dirt right along with the rest of us.

francis_sawyer's picture


I'd say you're missing the larger picture... If everything goes 'tits-up', sure, there will be many who are 'munching dirt'... But here's the distinction...

Russia is sitting atop vast resources (arguably ~ the territorial US has resources as well & China does too (as well as stockpiles)... But the 'fall from the pedestal' would be a lot more to endure for most fat assed Americans... It would be harder to build from scratch (& that's assuming there was the will to do so)... I'd predict, more likely, that the union would break up & faction off to individual states & territories... For example, Hawaii (which was 'stolen' and illegally made a US State under shady circumstances) would be lost... Probably Alaska as well (to the Russians ~ lol)... Texas would probably say 'adios', & I'm guessing many in the Dakotas would have a mind to do something of their own...

Moreover, the US would immediately lose it's force projection military capabilities (which would knock it backwards 100 years)...

It's all way more complex than that, but that's just a general sketch...

Vendetta's picture

Yeah.... just like everyone laughs and points fingers when a psychopath with a massive amount of munitions and body armor walks around a mall

francis_sawyer's picture

I tend to just assume it's an MK Ultra operative working for my own government trying to create a false flag... Then again ~ I don't hang around in malls too much...

madcows's picture

Right, just like we laughed at the Soviet Union when they collapsed.  Karma sucks.

fockewulf190's picture

Where do you think China sells the most of it's crap too? And ask the Russians how reliant they are on the Europeans buying their natural gas. The domestic markets of both China and Russia can't absorb that kind of loss. Putin will finally turn into the next Stalin amid the financial chaos. At least China has been smart enough to have peeked through the looking glass and have been buying, mining and stacking gold like crazy. They may end up being king of the hill at the end of this upcoming global shitstorm, but who wants to be king of Golgotha?

Peter Pan's picture

It amazes me to no end how Draghi, Merkel and the rest of them have not laid out some kind of long term strategy for Europe on the table.

They just make a step hoping that things might improve.

Well all I can say is that hope is not a strategy.

magpie's picture

It's a good enough long term strategy for certain people to exit Spanish and Italian bonds.

GetZeeGold's picture



exit Spanish and Italian bonds


You should be RUNNING!!!


magpie's picture

Those certain people have said i might be a psionic dolphin swimming in a tank, so porpoising away would be more accurate.

Peter Pan's picture

I agree and it beats the hell out of me why any investor with half a brain would invest in the promises of bankrupt nations.

RSloane's picture

Hopium is what's driving the markets. Hope was part of a major political platform in the US. A lot of people are falling, and have fallen, for both. Its the veil thrown over the absence of strategy.

Alea Iactaest's picture

More insidious than that. Hope is a coping strategy to get through tough times. Without hope people despair and desperate people do desperate things. What we saw in 2008 was a deliberate strategy to destroy hope, and the process is picking up speed.

bank guy in Brussels's picture

Draghi and Merkel really do have a plan, according to the UK Telegraph ...

Whereas ZeroHedge gives a little too much space to the Euro-Doomers saying nothing is prepared

Actually we have Euro-Doomer trifecta today -

Graham Summers & Phoenix Capital first ... Reggie 'Eurocalypse' Middleton following ... and now Mark Grant, popping again out of his jack-in-the-box, to spin his vague Euro-Doomer predictions

Told like a fairy tale ... Thrifty Teutonics versus Siesta-taking Spenders ... Often with quotes from Wizard of Oz or Alice in Wonderland to keep that fairy atmosphere

... Meanwhile, in the UK Telegraph - despite being strongly euro-sceptic - they are confirming that the German ECB Executive Board member, Merkel's own man, is approving of unlimited money-printing to buy GIIPS bonds

Of course there will be more German 'denials' for domestic political use - and to try to keep EURUSD lower for the sake of German exports -

But really the Germans are going to print, like everyone else, to try and keep this game afloat ...

Sure countries might leave the euro ... my guess Italy first if that happens, maybe early 2013 under Berlusconi ... but that's not 'the end of Europe', more the equivalent of US big bank restructuring upheaval and re-orginisation

The Telegraph gets it ... they have actually been covering euro-zone somewhat better than ZeroHedge in recent weeks - Here's the latest from their superb Ambrose Evans-Pritchard:

shovelhead's picture


No offense meant, because I like crazy people, but you and Pritchard are smoking hopium at your own Woodstock festival.

Unlimited bailouts? Forever? Who signs on the IOU dotted line?

Nobody says Europes going anywhere. What is going to happen is that the EMU is coming to some abrupt changes in it's composition and that a shitstorm causing credit event will take place.

Who's holding all that soverign counterparty risk and what do their books look like?

Germany will not commit suicide for Greece or Spain, unless they're completely stupid, as you and P assume.

I know how you feel. I used to hide in the cellar to avoid a spanking I had coming as a tyke.

It never worked.

Squealgies's picture

No Trucks on the Brooklyn Bridge, Please!


GetZeeGold's picture



I have that up for sale......if you're interested.


Paris Boston's picture

Yes, I was looking to see if someone else caught that.   Manhattan bridge allows trucks, Brooklyn Bridge does not.


Yellowhoard's picture

There is no strategy because the long term strategy is global collapse followed by global governance and global currency.

The tricky part is to arrange for all nations to join hands and collapse at once so there is no place for individuals to hide.

"imagine no possessions. it's easy if you try."

Son of Loki's picture

Print and they will come.  Too many banks hold 'peripheral debt' to allow failure. Their version of QE may be different but it will happen since paying a nation's debt with inflated money has been the historic (and very effective, if not stealthy) way of handling these matters.  The Fed is QE'ing right noiw although most people don't even perceive it b/c of the manner how they do it. It's also a smaller scale then Hanky did. But it's happening.


My guess it will be handled in some under-the-table way involving the Fed and swaps.

rwe2late's picture

Son of Loki


The bailouts (handouts) are not directed to the "olive groves" in Greece, but instead are to the TBTF global banks, many of which are nominally "German".

Chase, Goldman, Bank of America, Barclays are all part of the global financial cartel; London and the US Fed are already involved.

Getting average Germans to blame average Greeks, and vice versa, is just part of the divide and conquer scam.

sdmjake's picture

Yep...look at the balance sheet now levered at 66:1.

Dr. Engali's picture


"Germany has played the Great Game badly and allowed country after country in Europe to get in financial trouble and so the majority of nations in Europe are now up against it and pleading for funds, "


I didn't realize that Germany ruled over the various nations of Europe and "allowed" them to spend beyond there means. Another example of somebody trying to absolve the offender of their own actions and place them squarely on the shoulders of another.


AngryGerman's picture

germans "allowed" them to live beyond their means by simply letting them into the euro (and continue to let them be part of it). the strategy was simple: let the persiphery take part, open markets for german expots, and when shit hits the fan, let tax-payers pick up the bill. in short: transfer wealth from public to dividend-receivers.

shovelhead's picture

There it is.

Banksters shovel it out until they choke on it and then the taxpayers pick up the tab because TBTF hold a 'systemic failure' gun to to the (somewhat solvent) Northern head.

Works great for the US. Print and punk the little people.

Germany's holding dueces and the pols want to raise.The guys who are going to be stuck with the IOU know it's a losing hand and want to fold.

Pssst. Cut and run. Run like hell. You're the sucker at this table.

Winston of Oceania's picture

The lied, their accountants lied and wasn't is @**G S or <^^/J P M that helped them hide the debt?

youngman's picture

Its funny the Euro is getting stronger today...1.24.....stronger..what a in the hell...a 6th grader can see the problems they are facing....but the Euro is is doing it...and why????......when do we get back to that term we all want...confidence in the read the Greek joke today where they need more the Spanish banks saying everything is OK...but make sure the ECB can buy to see Obama say he has created 4 million jobs.....but yet 10 million are no longer working...and are on foodstamps or disibility now...and that is good???????? just seems today is a joke

GoldbugVariation's picture

Why is Italy supposed to be the 'next Greece'?  Italy deficit is much smaller as a % of GDP, Italian 10Y bonds are still 'affordable' at sub-6%, and not much bond issuance planned by Italy for the rest of 2012, the government is basically solvent.  Italy seems to be being tarnished in articles like this purely on the basis of geographic proximity.

Spain, in contrast, is a basket case, with super-high unemployment and rising, tax receipts falling, central government can only be funded by massive bond issuance for the rest of 2012 (which may be dependent on the ECB setting a cap on rates, otherwise rates could go off the chart), collapsing real estate, most of the bailout funds will have to go immediately to stem the Spanish banks' bleeding, and many of the regional governments insolvent.

AngryGerman's picture

"Italy seems to be being tarnished in articles like this purely on the basis of geographic proximity."




it's being trashed bc its a corrupt country, first run by a monopolist teen-humping ex-hairless bunga, now part of the squid's assembly of taken-over states.

Schmuck Raker's picture

Anybody remember France?

Used to be Big-Shots over there.

You don't hear much from them nowadays, I wonder whatever happened to them.

AngryGerman's picture

big baguette down their throat, and they love it