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Premature Speculation

Tyler Durden's picture




 

Via Peter Tchir of TF Market Advisors

Monday afternoon the markets shot straight up after taking a dose of CNBCialis. CNBC was the first to break the story about letting EFSF use leverage or turning the EIB into a vehicle to increase the potency of the EFSF funds.  That was followed up by more leaks to other news sources.

Stocks went higher quite happily but failed to drag the credit markets with it to a large degree.  Any analysis of the various plans all lead to the same conclusion - no matter how complex or convoluted the plan, the only way it works is for Germany and France to risk their credit ratings to support everyone else, or to print money.  No miracle solution was at work.  Plans may yet be put in place, but it is clear all they do if shuffle the deck chairs and obfuscate who is picking up the tab, but solve nothing.  It is clear that if it gets implemented, any further problems would become far worse as there would be no Eurozone country strong enough to support the rest.  What wasn't clear, is whether the downgrades would occur even before the plans were launched.

Germany has been staunchly opposed to the plan since it was first announced.  During the entire 18 months that this slow death of Greece has been playing out, no plan that had any chance of becoming reality was ever launched without Germany's involvement.  I wonder if the plans had been proposed and shot down, and some excitable ministry of finance official tried to get it approved via the back-door by leaking it to the media and hoping it got so much positive momentum that the people who had rejected it out of hand would have to reconsider?

I read a great piece yesterday titled "Take The Loss".  I continue to believe that the best solution for Europe is to allow Greece to default and then protect all the banks and institutions that can be protected.  Provide liquidity and capital at a fair price and finally move on.  All the banks trade well below "book value" because everyone knows "book value" is just a garbage number.  Let book value decrease by taking the appropriate write-offs.  The market may have priced in a lot of what is out there already.  HSBC has shed over $20 billion in market cap over the past 12 months.  SocGen and BBVA both over $15 billion, DB close to $10 billion.  A big part of these losses in share price is attributable to their PIIGS exposure.  Let Greece default, let the banks take the hit, let's see what other dominos drop, address those with either more defaults, write-downs, or capital, and repeat the process and very quickly we will have a much stronger residual Eurozone.  I doubt that more than 3 countries take debt haircuts and probably 20 to 30 weak/mid-size banks need to be shut.  Painful, YES!  But this is do-able.  The market caps of these banks has been hit hard already, the politicians are likely too afraid of the consequences of default.  Much is already priced in.  What isn't priced in, is a system not spending each and every day worrying about Greece, and a world where politicians can govern, rather than attempting to manipulate markets they don't understand.  Removing those uncertainties may help more than we realize - possible unintended consequences that are positive.

Government support shouldn't be forced on anyone, and it should be priced fairly.  BofA and Buffett showed everyone the fair price of raising capital.  Governments should charge no less, and if a bank can't handle that cost and can't live without an injection, and can't get a better deal from the private sector, well that's just too bad.

As I wrote earlier, I will change my view of the market when something real comes out to make me change it.  I also really believe that in the near term, after a Greek default, SPX is likely to move in a range of 1000-1150, and the next big move will be if the global economies can resurrect growth.

 

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Thu, 09/29/2011 - 14:49 | 1723081 JW n FL
JW n FL's picture

 

 

Think of a time when Eurpoe turned its back on the Untied States in its push for Energy Security..

fast forward to today.. and what do we have?

pay back.

Thu, 09/29/2011 - 14:53 | 1723106 metastar
metastar's picture

Collapse into the NWO bitchez!

Thu, 09/29/2011 - 14:51 | 1723094 Deadpool
Deadpool's picture

when will all this Euro-bable be over and the world focus on the real issue and that's US insolvency? what a joke this 24/7/365 Europe issue is when the numbers are really added up they are NOT the growth drivers of the world. Screw France and italy. It's all about CA, IL, NJ and social security/medicade/military budget. dollar doo-doo.

Thu, 09/29/2011 - 15:00 | 1723141 CIABS
CIABS's picture

anglo-american media are keeping the focus on the eurozone.

Thu, 09/29/2011 - 14:51 | 1723095 ivars
ivars's picture

Here is comparison chart between my feb 6th chart of DJIA and actual prices. After 8 months with mistakes in the middle, its for last 2 months within 0-5% of actual DJIA:

 

http://saposjoint.net/Forum/viewtopic.php?f=14&t=2860#p34298

 

In original chart, the trend continues to go down with increasing speed.

Thu, 09/29/2011 - 14:52 | 1723096 Hiwatt
Hiwatt's picture

There's A LOT of ringfencing still to be done to think about a proper Greek default. Such a proposition in the current envirmonment is plainly stupid.

Thu, 09/29/2011 - 14:53 | 1723104 stiler
stiler's picture

time is money...

Thu, 09/29/2011 - 14:55 | 1723109 HistorySquared
HistorySquared's picture

Iceland did well by letting their banks go bust through losses to private bondholders and shareholders. The same applies to governments. Bankruptcy allows previous promises to be restructured (such as untennable pension deals, government salaries, etc) This is much better than putting it on the back of taxpayers, who are prone to riot if forced to bail aforementioned parties. Unfortunately, printing is easier politically and satisifies short term stability, but sets up the economy for long term catastrophe. Pretty sure polticians make 99% of their decisions based on < 2 year out look. 

Thu, 09/29/2011 - 15:27 | 1723305 bxy
bxy's picture

the difference is Iceland has no political capital......the elites go for the big scams.

Thu, 09/29/2011 - 15:32 | 1723330 shazbotz
shazbotz's picture

<2 yr outlook...and how much their secret banks accounts are filled by special interest groups and lobbyists

Thu, 09/29/2011 - 14:59 | 1723124 hambone
hambone's picture

Premature E-Speculation???  In these very exciting times and situations, I share that problem.

Thu, 09/29/2011 - 15:06 | 1723185 aVian
Thu, 09/29/2011 - 15:08 | 1723199 HardwoodAg
HardwoodAg's picture

Just image u'r in the sack with Robo. There, one problem is solved!

Thu, 09/29/2011 - 15:55 | 1723252 hambone
hambone's picture

.

Thu, 09/29/2011 - 15:01 | 1723151 A Man without Q...
A Man without Qualities's picture

"I wonder if the plans had been proposed and shot down, and some excitable ministry of finance official tried to get it approved via the back-door by leaking it to the media and hoping it got so much positive momentum that the people who had rejected it out of hand would have to reconsider?"

yes - and my money's on France.  Sarko thinks he can charm Merkel into anything, because he's a narcissist, but Merkel knows she cannot agree to it, whatever the consequences otherwise.  

Thu, 09/29/2011 - 15:03 | 1723160 pantheo
pantheo's picture

Too generous my friend. Once Greece goes down, Port, Ire, Italy and Spain will follow, plus a couple of huge US banks that placed the trillions of derivatives bets. France will be BBsomething, no EFSF, no ESM. 2008 will be a walk in park. SSE broke a 20 year support, TLT its resistance, DXY is about to cross 79 and a million other signs that the mother of ALL wars is coming. Middle East is a mess, Putin will be another 8 years facelifted on the top along with his fiancee Dimitri...Just take a look around you, even if you are leaving in Beverly Hills. There will be no growth for the next 3 to 4 years at least, because everyone is lying about their entries in the books, from the grocery store, to the smallest Spanish municipality, to the biggest US bank to the biggest Chinese ghost town. It's a paradigm shift, S&P by Nov will be 900 and by the next March at 400. Full stop. Take a big breathe and dive....

Thu, 09/29/2011 - 15:29 | 1723317 narnia
narnia's picture

There is no painless way out of the global bankruptcy.  The EUR is fundamentally flawed.  The EU should release the legal tender provision / monetary restrictions, let the currencies go where they need to go, and stay committed to a free trade & travel zone.    

What the EU does not need is more EUR fiat or an even greater and more flawed IMF SDR fiat.  

Thu, 09/29/2011 - 15:03 | 1723165 TradingJoe
TradingJoe's picture

More like 850-950 rather then 1000-1150 Pete!

Thu, 09/29/2011 - 15:05 | 1723182 DormRoom
DormRoom's picture

Hedgefunds may start more deleveraging Monday, after Redemptions are called.

Thu, 09/29/2011 - 15:07 | 1723193 THE DORK OF CORK
THE DORK OF CORK's picture

Given the fact that the Irish banks are not producing credit I do not see why they can't be shut once they can continue to operate their checking accounts - transfer their term deposits over to the post office and give the ECB the mortgage crap - I would like to see those bastards getting their money back in a all cash market.

This country is still running a huge trade surplus ,  a marginal current account surplus - but all the infrastruture is depreciating into the soil so that those bastards can save their miserable hides.

Thu, 09/29/2011 - 15:16 | 1723201 Smithovsky
Smithovsky's picture

In the end they will print, absolutely no doubt about that.

Thu, 09/29/2011 - 19:49 | 1724248 Nate H
Nate H's picture

I think there is CONSIDERABLE doubt about 'printing'.  Printing money as response from central banks to end of growth is a blogosphere meme gone awry. Central banks do not control our money supply -via monetary policy they have done about all that can be done. Money is creating via bank lending. Hard to do that now....Gold may go up but not due to 'printing'...

Thu, 09/29/2011 - 15:08 | 1723202 gmak
gmak's picture

Let all the banks fail - make them take their write=offs. Then, take $3 trillion from around the world and set up 30 clean banks with $100 billion in capital each. Allow them to lever 10 - 15 to 1. What sort of economic growth could one get from $30 - $45 trillion in loans priced appropriately to avoid malinvestment, and used to add to productive capacity?  We are all what we produce - no more no less. This is where economic growth comes from. If I bake 10 loaves of bread a day - that is what I have to exchange for food, shelter, clothing etc. You are what you make.

Thu, 09/29/2011 - 15:09 | 1723204 monopoly
monopoly's picture

Sold core positions. Have nothing but physical gold, silver. This looks way to scary for me. Time for all to buy miners, lol.

Lets see what happens in October.

Thu, 09/29/2011 - 15:11 | 1723214 Long-John-Silver
Long-John-Silver's picture

Apparently pulling the plug on Greece is like pulling the plug on your Mom.

Thu, 09/29/2011 - 15:13 | 1723230 caerus
caerus's picture

s&p should downgrade after the bell

Thu, 09/29/2011 - 15:15 | 1723238 YesWeKahn
YesWeKahn's picture

Tyler, your equilty and credit market analysis has been right on. I've made 100% return since I joined the group, insane!.

Thu, 09/29/2011 - 15:17 | 1723245 monopoly
monopoly's picture

Just too much event risk to play this game. Even miners collapsing. And they should have excellent earnings this quarter. Margin calls just never seem to stop.

Thu, 09/29/2011 - 15:22 | 1723278 Reform1776
Reform1776's picture

CNBCialis = INSTANT CLASSIC!

Thu, 09/29/2011 - 15:25 | 1723300 MaximusR
MaximusR's picture

Anyone see that moron Bob - PiSS in my pants Pisani...I can't stand that guy speak...pure market cheer leader....they market can be down 200+ points and the fool is still trying to bring up the positives and some how pass over the real issues.....

Thu, 09/29/2011 - 15:35 | 1723356 gwar5
gwar5's picture

So true. My favorite worn out phrase by MSNBCers after a big downturn, "time to BUY?!"

 

Thu, 09/29/2011 - 15:36 | 1723361 gwar5
gwar5's picture

So true. My favorite worn out phrase by MSNBCers after a big downturn, "time to BUY?!"

 

Thu, 09/29/2011 - 15:36 | 1723362 gwar5
gwar5's picture

So true. My favorite worn out phrase by MSNBCers after a big downturn, "time to BUY?!"

 

Thu, 09/29/2011 - 15:37 | 1723363 gwar5
gwar5's picture

So true. My favorite worn out phrase by MSNBCers after a big downturn, "time to BUY?!"

 

Thu, 09/29/2011 - 15:54 | 1723443 Joe Sixpack
Joe Sixpack's picture

Not even original- stolen from gold/silver bugs

Thu, 09/29/2011 - 15:33 | 1723335 gwar5
gwar5's picture

"Premature speculation is often the result of a cunning linguism." -- Schweddy B. Alls

 

Thu, 09/29/2011 - 15:45 | 1723403 jal
jal's picture

HAHAHAH!

 

 

... the next big move will be if the global economies can resurrect growth...

 

HEHEHEH

Thu, 09/29/2011 - 15:47 | 1723415 s2man
s2man's picture

Since all trading is done online, now, wouldn't that be better termed, Premature eSpeculation?

Thu, 09/29/2011 - 15:58 | 1723473 NoTTD
NoTTD's picture

Better  headline: "Premature eSpeculation".

Thu, 09/29/2011 - 16:34 | 1723637 slewie the pi-rat
slewie the pi-rat's picture

Growth?

now, with deflation, they will probably adjust:  "GDP shrank 5% y-o-y, but the deflation rate was (-)6.5%, so the economy grew  ...adjusted for deflation..." 

Thu, 09/29/2011 - 17:21 | 1723857 navy62802
navy62802's picture

If it gets to the point where no Eurozone country is big enough to bail the other Eurozone nations out, the US will step in against the will of its citizens. Hell, the US has already done this to a certain extent. I have no doubt that the Fed will do it again. We could say that the US is actually the most influential member of the Eurozone.

Thu, 09/29/2011 - 20:11 | 1724311 Fedophile
Fedophile's picture

I continue to believe that the best solution for Europe is to allow Greece to default and then protect all the banks and institutions that can be protected.

Why? The banks have known of Greece's problems for years now, if they haven't already taken steps to protect themselves they need to fail, not be protected.

Thu, 09/29/2011 - 23:55 | 1724783 zorba THE GREEK
zorba THE GREEK's picture

Whenever I have premature speculation, I fall back on my talent of being a cunning linguist. Keeps the gals happy.

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