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Once Again, Here Is The Full Playbook

Tyler Durden's picture


Two weeks of utter confusion by most market participants out there, when the complete deja vu scenario is so very clear. To help out those banging their heads over what is happening, here, once again, is the full playbook as it was laid out here for eveyone to read and prepare, because it explained to the dot precisely what will happen, and has been happening since May 19. And yes, that 1000 bps on XO is still about 25% away... Do the math.

From "Dear Angela, Dear Francois, Dear Mario" - From Citi, With No Love At All". The relevant sections have been bolded. Please at least read those.

The big banks are getting restless. Nowhere is this more evident than in the latest just released letter from Citi's European Credit Strategy, literally a letter to Europe's trio of leading politicians, which follows hot on the heels of yet another recent Citigroup missive from Willem Buiter, which was largely ignored in the noise, yet which made it all too clear that when all else fails, it is the Chairman's sworn duty to paradrop money. Because if anyone, it is the banks that know that if things aren't fixed (they aren't), it is up to the central banks to do something to prevent the vigilantes from forcing the politicians hands, as they did in the summer and fall of 2011 (which will not provide a long-term fix, but at least allow bankers to hope that the next collapse won't take place before bonus season). As Citi says, "Until the gravity of the situation is made clear, until the self-reinforcing mechanisms that already seem to be in motion are understood, we don't see how the solutions, the answers, and the certainty that market craves can be brought to the table." Which simply means that things are about to get much, much worse as it will be up to the markets to bring the world to the edge of collapse once again, just so Europe, with the help of the Fed of course, once again is forced to get over the political bickering and prop up risk assets, in yet another iteration of "this time it's different", even though it isn't. Sure enough: "Our impression is that markets will need to act as the proverbial 'attack dog', forcing the issue on the political agenda. We can't escape the sense that it is probably politically easier to let the markets run loose for the time being to make it apparent that further intervention is needed. But 1000bp on Crossover is much closer than you imagine." In other words, Citi just gave the green light for the bottom to fall from the market just so Europe's increasingly impotent political elite does something, anything. Look for many more banks to sign off on the same letter.

From Citi:

Dear Angela, Dear Francois, Dear Mario

It seems that we are at a watershed once again. Judging by the movement we have seen in the credit market and in other risk assets over the last week, a chain of events that could lead to implosion has been unleashed, unless checked by policy action.

2012 started so well. The LTROs allayed market fears about a liquidity crisis in the European banking system and created additional demand for periphery sovereign debt during the first quarter.

However, we reckon it is now time to face the fact that the market does not believe Schäuble's firewall works. Most urgently, the market fears a Greek exit, or the reintroduction of capital controls to stem deposit outflows, might spark deposit flight from banks across a number of other countries. Playing down the importance of a Greek exit now is hardly reassuring, when Mario Draghi said the consequences for the Eurozone would be 'incalculable' only last December.

While the lack of an elected government in Greece complicates matters, the market sees a growing risk any new government will not be able to make the concessions demanded by the Troika quickly enough – or at all. Then what? If a hard line is to be taken on Greece, then we reckon the firewall must be reinforced at least with a pan-European deposit guarantee scheme of some form. The market knows that it is not easy to sell politically in Germany.

It doesn't help that the Spanish spread to Bunds has drifted to record levels again, while there is no clarity on where the funding necessary to  recapitalise the Spanish banking system will come from. It may be that LTRO-driven bank demand can sustain the auctions for now, but it seems likely to us that foreign investors will continue to pull out.

Add in the prospect of Moody's downgrading more banks across Europe and North America, the persistent negative bias in the economic data  relative to consensus, the upcoming Irish referendum, all the funding Italy still needs to do this year and the prospect of Portuguese PSI discussions in only a few months – and it is small wonder that market confidence is breaking down.

Through the LTROs and extremely low interest rates policymakers have ensured that financial markets are flush with cash. We don't recall a time where the liquidity situation and the technical position of the credit market has been much stronger than now. But that isn't enough. Quite simply, the uncertainty is killing any incentive to take risk. What goes in financial markets generally goes in the wider economy too. Companies are flush with cash, but we struggle to see them investing – especially in the countries where investment is sorely needed – while there is no visibility on the Euro project. Meanwhile, things grind to a halt.

We understand the political constraints key policymakers operate under. We know that many backbenchers and ECB board members are not fully onside. We can see in the election results and the opinion polls that a large part of the electorates are not onside either. There seems to be a dangerous perception in many places that enough has been done already.

However, don't be fooled by the apparent resilience of many corporate bonds (and equities). Aside from the sheer amount of cash funds have been left with, it is only the perception that the policy intervention will come eventually, triggering a very large short squeeze that is preventing more selling. Every day seems to bring headlines that challenge that perception. We could be close to the breaking point. Already in the last week there are clear signs in credit that the selloff is becoming more systemic. If you have come across our 'five phases of grief' framework – it appears we are moving straight from 'depression' back to 'anger'.

Until the gravity of the situation is made clear, until the self-reinforcing mechanisms that already seem to be in motion are understood, we don't see how the solutions, the answers, and the certainty that market craves can be brought to the table. Our impression is that markets will need to act as the proverbial 'attack dog', forcing the issue on the political agenda. This would not be the first time that markets have had to bark to get a credible policy response. We can't escape the sense that it is probably politically easier to let the markets run loose for the time being to make it apparent that further intervention is needed. But 1000bp on Crossover is much closer than you imagine.

Moreover, every bark comes with a loss of credibility – a loss of faith in the institutional capacity of the European Union to address the fundamental imbalances. Reining in the market eventually may end up taking a bigger effort than policymakers are bargaining for.

The market needs to know what policymakers are committed to and it needs to see actions that validate those commitments. Inaction is just a carte blanche for investors to sit on the sidelines and wait for things to deteriorate further.

Yours sincerely,

Citi Credit Strategy

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Sun, 06/03/2012 - 19:04 | 2490138 zorba THE GREEK
zorba THE GREEK's picture

something has to break soon. There's too much that can go wrong.

Sun, 06/03/2012 - 19:10 | 2490143 Soul Train
Soul Train's picture

ES to shake down these next couple of weeks - hard meltdown. There are pent up high expectations for an instantaneous FED QE to save the day. What a set up. Any action must really be coordinated between global central banks. With all in chaos and unsetlled this month of June, we will see chaos rule in the equity markets.

Risk off Risk off Risk off.


Sun, 06/03/2012 - 19:23 | 2490174 ndotken
ndotken's picture

Citi is no different than GS or JPM ... they're all just looking for more flow.  I wouldn't trust any of those Wall St assholes ... they're lieing anytime their lips are moving ... or when their fingers are typing.  

Sun, 06/03/2012 - 19:35 | 2490199 The Big Ching-aso
The Big Ching-aso's picture



Millions preparing for...........

Market Halt.   Global Halt.   Going Galt.

Sun, 06/03/2012 - 21:57 | 2490539 Chief KnocAHoma
Chief KnocAHoma's picture

As soon as markets begin to whimper our jelly wimp in chief will do what ever he can to keep the peace. 

Understanding Obama: www.annoyanidiot.blogspot.com

Sun, 06/03/2012 - 23:34 | 2490732 rocker
rocker's picture

The question is will they allow the market to fall and those who are holding all the inventory to sell it.

On the last week of May Blackrock (BLK) did a SPO (Secondary Puplic Offering) of 26 million + shares at 160.00 a share.

Is it not a warning why the hell Blackrock needs 4 Billion + .   They are the largest holder of stocks, afterall.

Talking about things the make he go Hmmmmm.  This is simply the biggest fraud against their own shareholders too.  LMOA.

Sun, 06/03/2012 - 22:08 | 2490576 potlatch
potlatch's picture

why do you think there needs to be coordination b/w Fed and euro or other central banks?




I have been assuming for months now, this is simply about NATO pulling a fast one with a fake competitive currency designed to collapse.  NATO is Europe, and they will realize that when the tanks have to be rolled out.


Its a feature not a bug, I was under impression

Sun, 06/03/2012 - 19:18 | 2490163 quintago
quintago's picture

XO? I love extra oyster sauce.

Sun, 06/03/2012 - 19:23 | 2490175 bank guy in Brussels
bank guy in Brussels's picture

Re XO or 'Crossover': « ...1000 bps on XO is still about 25% away ... »

Background for those asking -

Article, 'Five facts about the iTraxx Crossover index'




Simple chart table ... iTraxx Europe Crossover current spread along with others ...


Sun, 06/03/2012 - 19:31 | 2490189 blindman
blindman's picture

thanks for the linkage.

Sun, 06/03/2012 - 20:05 | 2490279 LeonardoFibonacci
LeonardoFibonacci's picture

I prefer XO Cognac!

Sun, 06/03/2012 - 21:32 | 2490493 hedgeless_horseman
hedgeless_horseman's picture



VSOP pour moi.

Sun, 06/03/2012 - 20:55 | 2490418 philipat
philipat's picture

When the going gets tough. The French go on holiday?

Sun, 06/03/2012 - 22:10 | 2490582 potlatch
potlatch's picture

and this is a bad idea?  If it were possible, this would be a dandy time to be able to put out a "away for a few, be back later!" sign

Mon, 06/04/2012 - 00:26 | 2490830 FL_Conservative
FL_Conservative's picture

With Friday's commodity blast off, I wouldn't be surprised if Bernanke didn't let the June meeting come and go WITHOUT announcing any additional QE.....just to get commodities to correct BEFORE he were to sign off on QE etc etc etc.  I don't think he wants the market expecting it and he knows the political fallout that will come if he does it before the walls are coming down.   At least I'm hoping it will work that way.  I want to buy more gold and silver.

Sun, 06/03/2012 - 19:12 | 2490147 veyron
veyron's picture

Something tells me the bankers couldn't care about what Citi has to say ...

Sun, 06/03/2012 - 19:12 | 2490148 Let them eat iPads
Let them eat iPads's picture

Futures are looking ugly.



Sun, 06/03/2012 - 19:16 | 2490160 razorthin
razorthin's picture

Agreed.  Dow -500 would be pretty.

Sun, 06/03/2012 - 19:19 | 2490166 Soul Train
Soul Train's picture

easy - a single day may bring

Sun, 06/03/2012 - 19:43 | 2490213 razorthin
razorthin's picture

I thoroughly enjoy the "equity futures" oxymoron.

Sun, 06/03/2012 - 20:02 | 2490268 The Big Ching-aso
The Big Ching-aso's picture




Full PlayBook.   Full FadeBook.   Full PrayBook.

Sun, 06/03/2012 - 19:14 | 2490155 midgetrannyporn
midgetrannyporn's picture

Extortionist swine.

Sun, 06/03/2012 - 19:15 | 2490158 Michael
Michael's picture

The GOP still wants to fight over the crumbs of taxpayer dollars that may be left after the fallout.

Police Assault Ron Paul Delegate at LAGOP Convention


Assaulted Ron Paul Chair Responds After Release From Hospital


Sun, 06/03/2012 - 19:26 | 2490180 CvlDobd
CvlDobd's picture

I got thrown out of a bar last night. I told two people I over heard talking about Obamney that they are one and the same. Another dude asked me to keep my opinion to myself so he could hear the show. I said "FUCK YOU! If you can't hear a live rock show, I'm not the problem. Tell the fucking pussies in the band to turn that shit up!" Then the owner told me to leave and my friend stood up for me and said he would watch over me. Then after that song ended I yelled out "LOUD NOISES!" Then the owner threw me out for good so I threw my beer against the wall (it was 2/3 empty) which was awesome. He then told the bouncer to not let me back in so I took off my wrist band, threw it at him and said I didn't want to get back in his shit bar.

It was pretty awesome. RON PAUL 2012!

Sun, 06/03/2012 - 19:30 | 2490187 Soul Train
Soul Train's picture

fight club rules.

Sun, 06/03/2012 - 19:33 | 2490190 CvlDobd
CvlDobd's picture

Shit, you got me.

Sun, 06/03/2012 - 21:39 | 2490514 entropos
entropos's picture

You threw your wrist band at him?!?!?!?!

Fight the power, white boy. Fight the power.  

Sun, 06/03/2012 - 22:08 | 2490575 Jena
Jena's picture

A bar with wrist bands?  Honey, there are better joints to get thrown out of.

Sun, 06/03/2012 - 22:14 | 2490593 CvlDobd
CvlDobd's picture

You got a better story from your weekend? I didn't think so.


There was a music fest going on downtown this weekend so there were wristbands all over for keeping out those underage kids.


I meant to say I tied a beer bottle to the wrist band and used it as one would a slingshot and slammed it into his head.

Sun, 06/03/2012 - 22:47 | 2490650 Jena
Jena's picture

Actually, I do.  But it's none of your business.


Lighten up, Francis.

Sun, 06/03/2012 - 22:55 | 2490665 CvlDobd
CvlDobd's picture

This is ZeroHedge. We're all anonymous twats here. Tell it sister.

Mon, 06/04/2012 - 00:25 | 2490829 Jena
Jena's picture

You make me chuckle, it's good.

Sun, 06/03/2012 - 22:58 | 2490674 Marginal Call
Marginal Call's picture

I got thrown onstage at a janes addiction concert once.  When I chest bumped Dave Navarro he went flying and his guitar unplugged.


I guess that's like wearing a bracelet to a lame show.

Sun, 06/03/2012 - 23:43 | 2490749 CvlDobd
CvlDobd's picture

No thats better

Sun, 06/03/2012 - 22:12 | 2490586 potlatch
potlatch's picture

"And then, our eyes locked in fierce alpha male combat, I poured out my redcup of Old Milwaukee on the floor.  "Just so you know I do not fuck around," you say, as the bar grows silent, and someone turns down Hootie even it is so tense man

Mon, 06/04/2012 - 01:08 | 2490862 FreeNewEnergy
FreeNewEnergy's picture

Hey, cvldobd, if you're trolling, I'm a sucker.

Nothing more poetic than getting kicked out of a bar when you're blasted because you can't stomach the current condition. Like, "No Exit" or even better, "Nausea." Satre rules. Sure.

Tel ya what. I'm gonna make another bloody mary, roll a few cigs, check out the rest of the comments and re-check the Asian markets.

I thought the can was kicked to the end of the road two to three weeks ago. I have an exact reference, but I'm too fcking stoned to bother looking it up, especially for your sorry ass. (Please note that I am able to employ the correct conjugations of your and you're - and, yes, I know that some smartass is going to come along and tell me that my use of "conjugation" is incorrect... have I mentioned that I've been drinking (if you haven't been, you're a fcking puke))

Anyhow, the end is nigh. Hang on to any real assets you have, as in not paper or promises, lock and load, get ready for TSHTF in 3...2...1...

Mon, 06/04/2012 - 11:20 | 2492041 CvlDobd
CvlDobd's picture

Im not trolling and you aren't a sucker.

Jean-Paul was arrested for my namesake, Civil Disobedience. I like the dude.

Sun, 06/03/2012 - 19:17 | 2490162 caimen garou
caimen garou's picture

Math done

Sun, 06/03/2012 - 19:20 | 2490167 A Lunatic
A Lunatic's picture

Is it too late to fix this with a beer summit?

Sun, 06/03/2012 - 21:11 | 2490460 uno
uno's picture

or a trip to the choom wagon

Sun, 06/03/2012 - 21:34 | 2490501 Midas
Midas's picture

It's definitely a teachable moment.

Sun, 06/03/2012 - 22:14 | 2490592 potlatch
potlatch's picture

i vote for a choom summit too.  absolutelyu.  time for a choom summit.  are you kidding me?  Do you realize how baked you could get if you closed all the doors in the Oval Office? 


deep immersion indeed

Mon, 06/04/2012 - 07:00 | 2491067 neidermeyer
neidermeyer's picture

I'm going to have to order an "outdoor mix" of seeds from Canada ... when this all hits the fan nobody will be enforcing those laws and a few tall sticky plants will be a godsend.

Sun, 06/03/2012 - 19:24 | 2490176 blindman
blindman's picture

europe envy for a hank paulson moment.
is that a gun in his pocket or is he
just happy to take your money?
did h. paulson write that?
the technocrats have a lot of work to
do, programs to initiate etc. and of
course, there is no time or the crisis
may go to waste ! sheesh

Sun, 06/03/2012 - 19:24 | 2490177 sudzee
sudzee's picture

CB's too quiet. May be time to let nature take its course. Do it when everyone and his uncle expects the big print.

Sun, 06/03/2012 - 19:25 | 2490181 grid-b-gone
grid-b-gone's picture

Never waste a crisis, and if one is not close enough at hand, never shy away from letting one fester to eruption.

Sun, 06/03/2012 - 19:32 | 2490192 deflator
deflator's picture

  Bazookas have been fired, protect yourself bitchez.... BTFD!

Sun, 06/03/2012 - 19:32 | 2490194 slewie the pi-rat
slewie the pi-rat's picture

so what?

never seen a head-fake before?

Mon, 06/04/2012 - 01:23 | 2490867 FreeNewEnergy
FreeNewEnergy's picture

slewie, somehow I suspect you've been kicked in the head too often.

A few times a week is acceptable, but don't make a habit of it.



Mon, 06/04/2012 - 01:31 | 2490878 slewie the pi-rat
slewie the pi-rat's picture

why don't you go jerk off to somebody else?

somewhere else?

you add nothing.  ever. 

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