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Repost: Why A €1 Trillion EFSF Is Not A "Bazooka" But A "Peashooter", And Is Woefully Inadequate

Tyler Durden's picture


The most important news of the night is not that the Greek haircut will be 50%, which is still insufficient as it excludes ECB Greek debt holdings, plus as the IMF noted, a 60% NPV haircut on all bonds is needed for Greece to return to viability, but that the EFSF will be just €1 trillion. Unfortunately, the EU Council and its advisor, JPM, refused to read the Zero Hedge analysis on why anything less than €2.4 trillion is insufficient (not to mention assumes no French AAA-downgrade... ever). Which is why we repost it for whatever sentient carbon-based life forms are left to realize why tonight's Euro TARP should be promptly faded until it is at least doubled to well €2 trillion, which, alas is impossible: absent Uncle Sam footing €250 billion solely to bailout French banks, this will not work!

From October 18

There Is No Bailout Spoon: The Math Behind The €2 Trillion EFSF Reveals A "Pea Shooter" Not A "Bazooka"

The latest and greatest plan to bail out Europe revolves around using the recently expanded and ratified €440 billion EFSF, and converting it into a "first loss" insurance policy (proposed by Pimco parent Allianz which itself may be in some serious need of shorting - the full analysis via Credit Sights shortly) in which the CDO would use its unfunded portion (net of already subscribed commitments) which amount to roughly €310 billion, and use this capital as a 20% "first-loss" off-balance sheet, contingent liability guarantee to co-invest alongside new capital in new Italian and Spanish bond issuance (where the problem is supposedly one of "liquidity" not "solvency"). In the process, the ECB remains as an arm-length entity which satisfies the Germans, as it purportedly means that the possibility of rampant runaway inflation is eliminated as no actual bad debt would encumber the asset side of the ECB. A 20% first loss piece implies the total notional of the €310 billion in free capital can be leveraged to a total of €1.55 trillion. So far so good: after all, as noted Euro-supporter Willem Buiter points out in a just released piece titled "Can Sovereign Debt Insurance by the EFSF be the "Big Bazooka" that Saves the Euro?" there is only €900 billion in financing needs for the two countries until Q2 2013. As such the EFSF would take care of Europe's issues for at least 2 years, or so the thinking goes. There are two major problems with this math however, and Buiter makes them all too clear.

One: rating downgrades and ongoing deterioration - should the financing needs of not only Spain and Italy, but also Belgium and France, post its inevitable AAA-downgrade, need to be funded the total insurable amount rises to €2,371.6 billion through Q2 2014. And since there needs to be headroom, and since a number of €3 trillion has been thrown around, there is just no practicable math of how one gets from the current committed funding to the €726 billion that would be required for the full funding amount, especially with a AAA-rating still retained by the CDO. Second, and just as important, is taht the 20% first loss ratio "may well be far too optimistic." Simply said, a far more realistic recovery rate would be one of 50-60% meaning a first loss guarantee of 40-50% will be required, which collapses the total insurable "pot" to about €600 billion. Buiter's unpleasant, for Allianz, Merkel and Sarkozy conclusion is that "that would likely not fund the Spanish and Italian sovereigns until the end of 2012. It would not be a big bazooka but a small pea shooter."

So just like we proclaimed the second Greek bailout DOA when it was announced, so we proceed to say that, once the market has had the time to digest what is really happening and proceeds to go after the weakest links in the plan one by one, that the EFSF is also dead on arrival. But in the meantime, it will buy the Eurozone a little more time to pretend that all is well, and provide skeptics with very attractive short-term EURUSD shorting abilities.

Here are some of the key observations from Buiter. First, he estimates what the pure unencumbered capital of the EFSF could be in an ideal case, starting with the flawed number, previously cited by Aliazn, of the full €780 billion in Guarantee Committment which can allegedly be used and leveraged 5-fold to get to the critical €3+ trillion number.

Total guarantee commitments from the 17 EA member states are just short of €780bn (see Figure 1).

From that number, we here subtract i) guarantees by the current set of countries with ‘stepping-out’ status (all of which are out of the primary sovereign debt markets for the time being), ii) guarantees provided by Italy and Spain, as these two countries are not credible guarantors because they are highly likely to default themselves (on their own sovereign debt and on the guarantees they provide to the EFSF) whenever there is a call on the guarantees provided by EFSF to any of the non-stepping out sovereigns, iii) other countries that, like Spain and Italy today, could potentially benefit in the future from EFSF guarantees of their sovereign debt, or are likely to ask for ‘stepping-out’ status, iv) existing and likely imminent EFSF commitments.

Next, he removes the "step out" guarantors sequentially:

Greece (€29.1bn of notional EFSF guarantee commitments), Ireland (€12.4bn) and Portugal (€19.5bn) have become “stepping-out guarantors”, that is, their guarantees cannot be called upon as long as they remain Troika programme countries receiving funding from the EFSF. Portugal remains liable as guarantor in respect of notes issued prior to the time it became a stepping-out guarantor. Estonia (€2.0bn) is only a guarantor in respect of notes issued after the effective date of the Amendments to the EFSF Framework. This means that, as of today, the aggregate of the active guarantee commitments for the guarantors which are not stepping-out guarantors is € 726bn

Then, Italy and Spain:

But, in addition to the guarantors belonging formally to the stepping-out guarantors category, there are the de-facto stepping-out guarantors which currently need the assistance of the ECB, through its Securities Markets Programme of outright purchases of sovereign debt in the secondary markets, to secure funding on affordable terms. Spain (€92.5bn of EFSF notional guarantees) and Italy (€139.3bn) are in that category since the ECB resumed its SMP purchases at the beginning of August 2011. Indeed, the insurance programmes proposed by Achleitner and Kapoor are mainly aimed at ring-fencing the Spanish and Italian sovereigns – and, lurking behind them, the sovereigns of Belgium and France - and ensuring continued access to the funding markets for them. Again, Spain and Italy cannot insure themselves when they are both at clear and present risk of being cut off from market funding at affordable interest rates and are therefore unlikely to make good on any notional guarantees they have offered to the EFSF, should the EFSF have to call on these guarantees. Taking Spain and Italy out of the €726bn guarantee pot would reduce it to €494bn

Next, remove pre-existing commitments.

Under the Troika programme for Portugal, the EFSF has committed €26bn, of which €5.8bn has been disbursed thus far. The commitment of the EFSF to the Irish Troika programme is €17.7bn, of which €3.3bn has been disbursed thus far. Subtracting the commitments of the EFSF to the Portuguese and Irish Troika programmes leaves €445.5bn uncommitted.


Under the proposed €109bn second Greek programme, the EU/EA contribution is likely to be at least two thirds, or €72.6bn, if the ‘two thirds for the EU/EU, one third for the IMF’ division of costs for the Greek Loan Facility and for the other Troika programmes is maintained. The European contribution could be higher because, as of now, the IMF has not given any formal commitment that it will make a financial contribution to the second Greek programme. The European contribution could be lower if the IMF continues to take on one third of the total official funding commitment and if the revision of the terms of the 2nd Greek bailout facility results in a smaller total official funding contribution than the €109bn announced on July 21.


Assuming, for the moment, that the two potential sources of variation cancel out, the EFSF commitment would be two thirds of the original agreement or €72.6bn. Of this €72.6bn, at most €11.5 billion could be funded by the European Financial Stabilisation Mechanism (EFSM), the supranational source of funding backed by the EU budget. This is because only €11.5bn remains uncommitted of the €60bn EFSM facility. So €61.1bn has to be subtracted from the total available for sovereign debt insurance, leaving €384.4bn uncommitted. If, as seems likely, the EFSM does not contribute to the second Greek programme, the sovereign debt insurance pot would go down to €373.9bn.2 If the IMF decides not to co-fund the second Greek programme, it goes down to €337.1bn. In addition, roughly €27bn of the European contribution to the Greek Loan Facility that has funded the first Greek bailout programme is still to be disbursed. Given the difficulties and funding rates that some of the EA creditors face in raising funding for the Greek Loan Facility (which is funded, unlike the EFSF, on a bilateral basis), it is at least plausible that the remaining tranches of the first Greek programme (i.e. €27bn) will be paid out of the EFSF pot. This reduces the EFSF resources to either €346.9bn or €310.1bn, depending on whether the IMF co-funds the second Greek programme.


Sovereign debt insurance is not the only remaining claim on these resources. The revised EFSF framework agreement mentions explicitly the possibility that the EFSF offers support for recapitalising euro area banks, including those in non-programme countries, though any such assistance would still need to be routed through the respective sovereigns.


The EFSF has already contributed to the recapitalisation of banks in programme countries (Ireland and Portugal) through loans to their governments. Sovereign debt insurance is not even mentioned explicitly under the intended uses of EFSF resources. No doubt, however, it could be shoehorned in under “precautionary facilities”. A very conservative estimate for the amount the EFSF ought to set aside for the recapitalisation of financial institutions in non-programme countries (in the first instance Spain and Italy, and beyond them possibly Belgium, France and other core EA member states) would be at least €50bn, leaving at most €296.9bn and possibly just €260.1bn for sovereign debt insurance. Clearly, banking sector recapitalisation outlays could be much larger. For instance, Citi’s equity research Banks team estimates that banks from EA countries alone that have difficulty to access private capital markets (Greece, Italy, Ireland, Portugal and Spain) currently would need €104bn to bring their Core Tier 1 capital ratio to 9%.


These estimates don’t allow for the possibility that Belgium, now on negative outlook for all three rating agencies (see Figure 1) and with historically high sovereign 5-years CDS spreads and spreads over 10-years Bunds, might join the ranks of countries needing sovereign bond insurance rather than contributing to the resources needed to provide such insurance. This would reduce the sovereign debt insurance pot to €269.9bn or €233.1bn. Having France move from the insurer to the insured category would deplete the resources available to €111.4bn or €74.6bn.

Naturally an insurance fund working with just €74.6 billion, regardless of the amount of first loss assumption is a joke. So for all intents and purposes, Buiter has used the €310 billion number bolded above.

What does this mean for total maximum notional insurable?

[There is] €310bn if France remains among the insured and no banking sector support is provided by the EFSF, around €260bn with a €50bn provision for banking sector support, and less than half that if France were to join the insured.


With a potential first loss guarantee of just 10%, the resulting maximum amount of new debt issuance that could benefit from a guarantee could be up to €3.1trn without EFSF support for bank recapitalisation or, in the more likely case of a €50bn bank recapitalisation contribution, up to €2.6trn. A 20% first loss guarantee (a figure that seems to be in the air quite a bit) would imply maximum issuance amounts of around €1.55trn or €1.3trn, respectively, and a 40% first loss guarantee would result in maximum issuance amounts of around €777bn or €650bn.

So what is the fundamental reasoning for a bailout mechanism? Why to make sure that the trillions in European debt that has to be refinance and rolled over the next 3 years, are, respecitvely, either refinance or rolled. Let's take a look at what amount we are talking about here. First the stock amount, which means insuring existing debt.

With the insurance approach, the EFSF can target flows of new sovereign debt issuance in the primary markets while leaving the outstanding stocks of sovereign debt uninsured. Under current circumstances, the EFSF could focus fully on guaranteeing new debt issues by Spain and Italy, the two sovereigns that are still in the markets but at risk of being frozen out of the markets through a fear-driven denial of market funding by the private sector. Greece, Ireland and Portugal have been taken out of the market and are being funded (in part also through the EFSF) through loans.


The ability to insure just the new flows rather than both the new flows and the outstanding stocks is valuable, as (see Figure 2) the outstanding stocks would swamp the capacity of the insurance facility.



Italy and Spain together have just under €2.5 trillion worth of general government debt outstanding. Tradable Spanish and Italian sovereign debt alone amounts to €2.1 trillion. Adding Greece, Ireland and Portugal raises general government debt to €3.1 trillion and tradable government debt to €2.6 trillion. Adding Belgium would raise these totals to €3.5 trillion and €2.9 trillion. In the perhaps unlikely case that France would need sovereign debt insurance, targeting the stocks rather than the flows would require taking care of €5.1 trillion of gross sovereign debt or €4.3 trillion of tradable government debt.


These numbers are beyond the size of even the most optimistic estimates of the most audacious of rescue umbrellas. Fortunately, to avert a funding disaster for the vulnerable sovereigns, only the flows of new funding need to be insured. As Figure 3 makes clear, these flows, while large, are more manageable than the stocks.

Flows simply means focusing on new issuance, to guarantee there is a natural market bid from the private sector, combined with a helping hand from the EFSF. How much debt would have to be insured? Well, depend on which of three scenarios we are looking at: i) just Spain+Italy; ii) Spain+Italy+recently imploding Beligum; or iii) Spain+Italy+recently imploding Beligum and most recently collapsing France (take one look at the OAT-Bund spread to see what we are talking about). The numbers are not any prettier.

Focusing on the flows that matter, the total financing needs of Spain and Italy, Figure 3 gives us €153bn for 2011 Q4, €557bn for 2012, €348bn for 2013 and €295bn for 2014. For the seven quarters from 2011 Q4 to 2013 Q2 (the last quarter before the start of the European Stabilisation Mechanism, the successor of the EFSF) the total financing needs of Spain and Italy are €881bn.5 For the 11 quarters from 2011 Q4 to 2014 Q2, they amount to €1,196bn. Adding Belgium raises the seven-quarter funding total to €1,006bn and the 11-quarter total to €1,377bn. This would be manageable if the markets were willing to fund these amounts with a 20 percent first loss guarantee, assuming the triple-A insurance capacity of the EFSF is around €300bn and the market provides new funding to the sovereigns at acceptable rates with a 20 percent first-loss guarantee. If, however, France were to join the ranks of the countries needing external official guarantees to fund themselves, the seven-quarter total funding need would go up to €1,684bn and the 11-quarter total to €2,372bn. Neither would be manageable with the existing size of the EFSF resources.

Here Buiter makes a great point: the EFSF would effectively create two markets in each nation's sovereign securities: existing, or ex-guarantee, and post EFSF, including the guarantee:

Of course, focusing the insurance on the flows of new funding alone leaves the prices of the outstanding stocks of sovereign debt to be determined in the secondary markets, with the ECB most likely absent from the secondary markets if the insurance option is implemented. We see no point in supporting an orderly secondary market through outright purchases of sovereign debt under the Securities Markets Programme, even if the price in the (uninsured) secondary market is significantly below that in the (insured) primary market. Banks and other systemically important financial institutions that have to mark their holdings of sovereign debt to market will of course be adversely affected by any wedge between the primary and secondary market prices, and may even have to raise additional capital to deal with any mark-to-market losses, but that is the way of markets and market economies.

But wait there is more. The biggest weakness of the EFSF is the embedded assumption for how much first-loss a potential investor will be ok with. According to Allianz and the Europeans 20% should be sufficient. It won't be.

Even in the absence of a panic, the (average) 20 percent first-loss ratio assumed in much of the calculations in this note may well be far too optimistic.


The historical recovery rate for sovereign defaults from 1983 up to 2010 reported in Moody’s (2010) is only 53 percent (issuer weighted) and as little as 31 percent value-weighted. Sturzenegger and Zettelmeyer (2005) find, in a study covering sovereign defaults between 1998 and 2005, haircuts ranging from 13 percent to 73 percent. Clearly, the cost of default to the defaulting sovereign has an element of fixed cost in it. The reputational loss associated with a breach of contract does not double if the recovery rate falls from 80 percent to 60 percent. Even if sovereign defaults are unlikely and infrequent, the size of the NPV loss for the investors conditional on a default having occurred is therefore likely to be large: if the sovereign is going to default at all, she might as well be hung for a sheep as for a lamb.

And any incremental rise in the first loss guarantee threshold implicitly removes the leveragability of the underlying notional. Said otherwise, a €310 billion pot which insures 50% of losses, means a mere €620 billion in notional can be guaranteed: a failure off the bat which the market will stampede over.

Which brings us to Buiter's less than glowing conclusion:

The partial/first loss sovereign debt insurance proposal has merits. Its principal value is that it permits the decoupling of the essential flow funding aspect of the Euro Area sovereign debt crisis from the much less important stock valuation aspect. Insurance can be offered for new issuance of sovereign debt in the primary markets without extending the offer to the outstanding stock of debt – the debt traded in the secondary markets. The further option of using the partial insurance route to enhance sovereign debt issued as part of a sovereign debt restructuring, e.g. through a ‘voluntary’ exchange along the lines of the Greek PSI proposal, is also valuable.


There are three problems with the specific proposal made by Achleitner and Allianz. First, we believe the arithmetic materially overstates the total amount of debt issuance that could be insured with the existing resources of the EFSF. To get to the €3 trillion worth of debt touted in some of the proposals, we estimate the EFSF would, with an average first-loss guarantee of 20 percent, have to make available for its insurance activities nearly all of its notional €726bn worth of non-stepping-out member state guarantees, and these resources would have to be viewed by  wouldbe insurance purchasers as being of triple-A quality. This would mean (1) that the EFSF would have to renege on all its outstanding and pending commitments other than insurance, (2) that Spain and Italy would effectively be insuring themselves, and (3) that a triple-A guarantee capacity of €440bn is miraculously transformed into one of €726bn.


Second, the insurance mechanism is not fool-proof or disaster-proof. There is no guarantee that, in a panic, the most generous terms on which the insurance could be offered (say, for free) would be attractive enough to bring in sufficient private buyers of the insured sovereign debt. Failed auctions and sovereign default are not ruled out. A standby purchaser of last resort for sovereign debt is required. This standby purchaser of last resort would have to be either an official entity or a private entity created, funded and directed by the official sector.


It could be the ECB through the SMP along the lines of its interventions buying Greek, Irish and Portuguese sovereign debt since May 2010 and Spanish and Italian sovereign debt since August 2011. However, because of the Treaty prohibition on the central bank funding sovereigns directly, the ECB can purchase sovereign debt only in the secondary markets, which would be an inefficient use of public resources. The ECB could end up owning much of the outstanding stock of periphery EA debt to achieve a relatively limited amount of new funding by the periphery sovereigns. 


It could be the EFSF, which can operate in the primary issue market, even without the EFSF being granted eligible counterparty or ‘bank’ status allowing it to borrow from the Eurosystem against collateral. That would, however, restrict the volume of such purchases to the uncommitted part  of the EFSF’s own resources. To have a bigger standby bazooka, either the EFSF, or some special purpose vehicle created by the EFSF (possibly in conjunction with the European Investment Bank, which has eligible counterparty status with the Eurosystem) would have to be granted eligible counterparty status for collateralised borrowing from the Eurosystem. The remaining resources of the EFSF could be used to provide capital for this ‘Bazooka Bank’, and/or to guarantee the loans from the ECB to the Bazooka Bank, which would in any case be secured with the sovereign debt purchased in the primary market by the Bazooka Bank.

Third, and last, is the abovementioned shortfall in the first-loss tranche, which will need to be substantially increased, potentially doubled, to provide bidder with a safety of mind that even in a worst case, read 60% recovery scenario, they will not suffer catastrophic losses.

We therefore are sceptical that, if there is a reasonable expectation that the recovery rate following a sovereign default in the Euro Area could be as little as 60 percent or 50 percent, that the markets would be happy to fund these sovereigns at sustainable interest rates to the sovereigns, with just a 20 percent first-loss rate, even if this insurance were granted free of charge. A 40 or even 50 percent first-loss rate might well be required. And that would reduce the amount of new issuance that could be funded with an EFSF insurance pot of, say, €300 bn at most to just €750bn or even €600bn. That would likely not fund the Spanish and Italian sovereigns until the end of 2012. It would not be a big bazooka but a small pea shooter.

As we said: once the market (forget the polticiians: they would want nothing more than for nobody to see this analysis) is made comfortable with this actual math, it will realize that the EFSF as an Allianz rescue facility, pardon, insurance fund, is Dead on Arrival. After all, and logically, if this formulation was the best and safest one, it would have been proposed months, if not years earlier, not been used as the last ditch Deus Ex Machina, with just 5 days until the European Summit.

We can't wait until this latest episode of cognitive bias (EFSF will work) clashes with the hard reality of math and numbers.


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Wed, 10/26/2011 - 22:38 | 1815561 Newsboy
Newsboy's picture

It's hopeless. How much time will this buy? Swaps will be triggered, this won't save the banks or the sovereigns, and Greece needs 100% default.

Wed, 10/26/2011 - 22:47 | 1815619 Manthong
Manthong's picture

ES still at 1250.

I wonder how long it will take for them all to figure out that this is the haircut process:

Wed, 10/26/2011 - 23:05 | 1815642 kengland
kengland's picture

CNBCW reporting that the efsf will be levered up 3 to 4 times. No explanation for how this will be done

Thu, 10/27/2011 - 00:13 | 1815965 strannick
strannick's picture

Bloomberg baiting. A response to the reguritation of press releases passing for news from Bloomberg, to its writers and editor...

Now here's reporting...Whaddya think? Impressive, eh? Kinda makes everything else seem like Time Magazine
1. Here Is How The 50% Greek Haircut Is Actually Just 28%

2. Barclays Explains Why A 50% Greek Haircut "Would Be Considered A Credit Event, Consequently Triggering CDS Contracts"

3. Repost: Why A €1 Trillion EFSF Is Not A "Bazooka" But A "Peashooter", And Is Woefully Inadequate

Wed, 10/26/2011 - 22:56 | 1815651 markmotive
markmotive's picture

Anyone buy gold on the dip? In my opinion, the EFSF is ultimately going to get monetized when the world discovers it borrowed money to guarantee it's debt.


Isn't that called a ponzi scheme?

Wed, 10/26/2011 - 23:48 | 1815888 dark pools of soros
dark pools of soros's picture

there are no rules.. just favors

Thu, 10/27/2011 - 00:25 | 1815991 lunaticfringe
lunaticfringe's picture

two measley ounces. i am out of powder

Thu, 10/27/2011 - 01:01 | 1816076 Johnny Utah
Johnny Utah's picture

Johnny Utah bought the F'ing dip...Olivia Newton John Baby...Plus you got to have some Sprott PSLV/PHYS for the best case scenario.

Disclosure: Special Agent Utah is long PSLV, PHYS and SLW...I don't have any physical metals as they were lost in a boating accident :)

Thu, 10/27/2011 - 04:20 | 1816315 Rakshas
Rakshas's picture

The "boating accident", nice,  I've decided on a more or less hide in plain site approach and converted a bunch of my oz's into average looking household items so as -hopefully - to fool the confiscation type entities (cops/robbers); but, if they insist I guess I'll have to turn my Ag over 180grains at a time...... smile, look here and wait for the flash...

Fri, 10/28/2011 - 02:34 | 1819985 Johnny Utah
Johnny Utah's picture


Thu, 10/27/2011 - 01:28 | 1816119 Sequitur
Sequitur's picture

Yes have been buying gold. For a while I was thinking strongly about deflation. But looking at this Euro episode, and the disgusting self-interest of central banks and bankers, it's once again shaken my faith in paper. Will continue to accumulate gold.

Thu, 10/27/2011 - 04:57 | 1816334 bullonparade
bullonparade's picture

Why do people think gold cant inflate? though i must agree it is better than owning any kind of paper apart from perhaps dollar long 2 months ago.

Thu, 10/27/2011 - 06:16 | 1816378 Gief Gold Plox
Gief Gold Plox's picture

I've been saving up on cash for just such a dip, but have decided, in order to spread my risk, purchase half of the intended quantity before and the remainder after the Eurocrats did their pointless crap or self-centred posturing. As luck would have it I've pretty much hit the lowest price I could during my dealers working hours. Now I'm just waiting for the news to settle in before I decide how to proceed. I wouldn't worry too mush if you missed this dip, another one is sure to come.

Thu, 10/27/2011 - 00:12 | 1815962 i root for that...
i root for that fat jersey governor's picture

no matter how stupid these acts are, the market will jump on the news. well, i pay my due - first day on my short position (after over a week long), it looks like I will be stopped out tomorrow. damn!

Thu, 10/27/2011 - 02:54 | 1816227 WVO Biker
WVO Biker's picture

It was bullish for Gold when they shouted so loud last weekend that they could be heard on the floor.

And the breach of law regarding the CDS is bullish for Gold.

Plain and simple fundamental analysis. KISS 

Wed, 10/26/2011 - 23:00 | 1815687 kito
kito's picture

how can swaps be triggered if they arent "triggered" by the newly revamped isda definition of a "trigger"?? if the 50 pct cut on greece doesnt qualify as a "default", then why will anything else? 

Wed, 10/26/2011 - 23:22 | 1815784 rocker
rocker's picture

You do not know who Ben Bernanke is? Interesting. Otherwise, it would be a stupid question.

Wed, 10/26/2011 - 23:12 | 1815733 Al Gorerhythm
Al Gorerhythm's picture

!00% default. Go Icelandic!

Thu, 10/27/2011 - 00:40 | 1816029 jdelano
jdelano's picture

Since you guys love to bash Paulson so much I should probably be the one to tell you that he recently bought a bunch of euro sovereign CDs. Man--maybe you're right, he must be in karmic debt for the Goldman CDs trades. That guy can't catch a fucking break.

Thu, 10/27/2011 - 04:54 | 1816333 bullonparade
bullonparade's picture

Its not a haircut, greece is getting extensions. Must say im very dissapointed by a 1 trillion EFSF, it seems everyone has forgotten 2008 and what the "marginal" support of our banks did. I wish someone in public office would read ZH, but i guess their too busy eating donuts and getting reelected. Wish we would have true republicans here in Europe, with unfouded biggotry and corporate favoratism we would have been alot farther along that these "talks".

Wed, 10/26/2011 - 22:40 | 1815572 Rusty.Shackleford
Wed, 10/26/2011 - 22:39 | 1815573 erg
erg's picture

Must consume mass quantities.

Wed, 10/26/2011 - 22:43 | 1815592 philipat
philipat's picture

Even if Greece takes a 100% default, it still needs to borrow money again the next day because it is still spending more than it takes in. It needs to leave the Euro and borrow one of Ben's printing presses but with the "D" for Drachma not Dollars. I'm looking forward to those cheap Greek vacations again.

Wed, 10/26/2011 - 22:42 | 1815593 Mutatto
Mutatto's picture

If the CDS's are worthless then the value of the debt will have to be re-priced. 

I would expect rates to jump immediately.


Wed, 10/26/2011 - 22:46 | 1815612 LawsofPhysics
LawsofPhysics's picture

Yep, game over for all debtor nations, hence we will stall a bit longer, at least June.

Thu, 10/27/2011 - 02:06 | 1816179 Incubus
Incubus's picture

Game's been over:  the "players" are just grabbing their pieces and're making for the exit. 

Wed, 10/26/2011 - 22:43 | 1815595 Mark123
Mark123's picture

I'll believe there has been a real solution when gold rockets higher....until then I think this is mostly funny math posturing to defer the problem as long as possible.

Wed, 10/26/2011 - 22:43 | 1815597 LawsofPhysics
LawsofPhysics's picture

Does this mean I can leverage $300,000 into $1,500,000? Because I will take that deal tomorrow.

Wed, 10/26/2011 - 22:46 | 1815614 Mactheknife
Mactheknife's picture

Zero minus one trillion equals negative one trillion as any faithful ZH reader already knows unless of course you work for the EU and then you think that you're talking about real money. "Just their imagination, once again, running away with them."

Wed, 10/26/2011 - 22:48 | 1815621 eigenvalue
eigenvalue's picture

Stock markets will soar on Thursday. Bears on Zerohedge will have to capitulate once again.

Wed, 10/26/2011 - 23:00 | 1815681 mt paul
mt paul's picture

don't capituale ..

till you see

the glint

of their gold

Wed, 10/26/2011 - 23:08 | 1815720 Motley Fool
Motley Fool's picture

Change your moniker. Since basic math( such as that in this post) is beyond you, eigenvalues definitely are.

Thu, 10/27/2011 - 00:16 | 1815972 Goldman Hufs
Goldman Hufs's picture

On ZH opinions are expressed as to how things should behave in markets that are not being directly manipulated by the government to the extreme level that they are today.  If you honestly think that anyone with half a brain is applying "what should happen" or what historical charts would indicate is on the horizon with significant money in this environment then you haven't been here long.  If you're going to keep playing the "market" - that's fine.  I just wouldn't bet my life savings on a game that changes the rules in the middle of play.  The only thing you need to be thinking about is how these guys think and what they need to do to survive because nothing else matters.  They need to print because it is the only way to semi-manage our insurmountable debt. However, inflation is too high and unemployment is off the charts.  Be patient - let TPTB massage these numbers down a bit and then get short because it will be followed by a massive market selloff so that the sheeple are begging to having their purchasing power destroyed via another large scale round of QE which allows them to maintain the illusion that their 401k is still worth something.  Everything else is static.

Thu, 10/27/2011 - 01:54 | 1816163 Incubus
Incubus's picture

Everything else is static.


"Nothing is static.  Even the Mona Lisa is falling apart."



Thu, 10/27/2011 - 01:30 | 1816123 melanie
melanie's picture

"Never compromise, never surrender" - Winston Churchill

Thu, 10/27/2011 - 02:00 | 1816170 Incubus
Incubus's picture

"To infinity, and beyond!" - B.S. Bernanke

Wed, 10/26/2011 - 22:48 | 1815623 HD
HD's picture

I'm just numb. No matter how bad or manipulated the reality may be - the S&P seems to float higher. I'm 40% in gold now - I may just forget the Dow go "all in" gold and be done with it. I think I'll sleep better.

Wed, 10/26/2011 - 22:48 | 1815624 Yardstick of Ci...
Yardstick of Civilization's picture

it might not be enough to save europe but is enough to kill anyone short es overnight.

Wed, 10/26/2011 - 23:05 | 1815710 ACP
ACP's picture

Especially since everyone with half a brain will be dumping Italian, Portugese, Spanish and Irish debt.

Wed, 10/26/2011 - 23:26 | 1815802 rocker
rocker's picture

Time to become a bleacher watcher. No Shorts. No longs.
Let Goldman Sachs suck the blood from their own children.
They should have put Lloyd under arrest today. They keep getting closer but always miss.

Wed, 10/26/2011 - 23:49 | 1815890 jdelano
jdelano's picture

Why on earth would I give up my shorts over this? Are you kidding me? I'm freaking creaming my pants here--sure there might be a knee-jerk reaction but do you realize how quickly Italy's yields are going to blow past 7%? it could happen fucking tomorrow! These stupid assholes just signed their death warrants---Europe spirals into depression dragging down the states and sparking a hard landing in china. It is fucKing GAME OVER for the global bull ponzi. Hahaha aha aha : )

Thu, 10/27/2011 - 00:20 | 1815976 Manthong
Manthong's picture

I hope you're right, but I think I"m going to go on a bender until Monday.

When I sober up maybe the market will be doing the same.

Thu, 10/27/2011 - 01:02 | 1816077 chump666
chump666's picture

  Just saw a wire report saying how EVERYONE is watching the bund to PIIGS yields.  Sh*t won't change, it will get worst, Germany/France both could go into a recession very soon.

And Italy could exit the EU...on it's own.  That will send the whole thing into the toilet very quickly.

Italy bond aution on Friday, ECB will be sidelined.  It will flop, hopefully you'll get your trade.

Then we have the CDS zero value trade, there is 100% an event there.

Thu, 10/27/2011 - 02:03 | 1816175 Fibz
Fibz's picture

Probably also going to lose a lot of tourists who are sick to death of hearing about Europe. I have traveled around Europe, but at this point if I never hear about or see Europe again it will be too soon.

Thu, 10/27/2011 - 06:45 | 1816244 HD
HD's picture

I agree with everything you said mate...I'm just losing faith that reality will actually take hold anytime soon. The volume is so thin that the HFT bots have no problem just pushing the market where ever they want (or need) it to go...

If it does implode however - I will make out like a bandit - so here's hoping.


Wed, 10/26/2011 - 22:51 | 1815631 Mark123
Mark123's picture

I thought they had already established that 50% was the absolute minimum write, how does this have any impact?  Also, what does this solve?  I think the only thing it does is to open the door to lots of unknowns.



Wed, 10/26/2011 - 22:51 | 1815633 ACP
ACP's picture

With all sovereign CDS now worthless, who in their right mind would own Italian bonds?

Wed, 10/26/2011 - 22:53 | 1815641 chump666
chump666's picture

Wow, what a post!  Very good!



Wed, 10/26/2011 - 23:12 | 1815643 Youri Carma
Youri Carma's picture

A “Peashooter” to ralley the market for a while under the false impression of things are getting fixed while in reality they are lightyears removed from getting anything fixed at all.

On the contrary ‘bare down the hatches!‘. Or ‘run for shelter!

Manufacturers offer a bleak outlook – Cutting profit targets and running for shelter

To all the bankster and politician nincompoops out there I like to say: “Well! That’s Another Nice Mess You’ve Gotten Me Into!”


Wed, 10/26/2011 - 22:58 | 1815673 Uber Vandal
Uber Vandal's picture

When they fire the bazooka, this will most likely be the result at the 28 second mark:



Wed, 10/26/2011 - 23:04 | 1815703 chindit13
chindit13's picture

The Euros are managing expectations masterfully. Now it is a 50% haircut. When Greece still cannot pay the remaining 50% of its outstanding debt, the next deal will cut that remaining debt by only 49%, which the market---and Steve Liesman---will claim is an improvement. “Last time, if you’ll remember, they had to take a 50% haircut.  This is good news”. Asymptotically, Greek debt will approach zero. On a long enough timeline…..

Wed, 10/26/2011 - 23:06 | 1815716 stateside
stateside's picture

Most are forgetting perception trumps reality. If the market thinks things are fixed, they are fixed (albeit only temporarily).


Thu, 10/27/2011 - 03:20 | 1816251 HD
HD's picture

Some of that Steve Jobs "magical thinking" at work...

Wed, 10/26/2011 - 23:06 | 1815717 Mark123
Mark123's picture

So let me get this lent Greece money and now it turns out they can only afford to pay back 50% (probably far less).  So realizing they have to settle for what they can get the banks agree to a 50% haircut. we can move ahead and forget that messy business!


But wait....we still have the other legacy debt of the other PIIGS, and they all still need to borrow even more money going forward.


So somebody is going to be content to lend more money to them because they get a fuzzy 20% guarantee from a consortium of mostly bankrupt and unhappy European governments.


Yup, that'll work really well.

Wed, 10/26/2011 - 23:09 | 1815726 Freebird
Freebird's picture

Thanks for cutting through the crap as always TDs

Wed, 10/26/2011 - 23:17 | 1815749 High Plains Drifter
High Plains Drifter's picture

well does mean 50 dollar silver and 2000 gold this year?  just sayin.................

Wed, 10/26/2011 - 23:18 | 1815763 AndrewJackson
AndrewJackson's picture

Thank you so much TD. Without Zerohedge, I don't know how I would be able to understand the toxic sludge cdo's that is efsf and sovereign bailouts.

Thu, 10/27/2011 - 05:43 | 1816359 Howdan
Howdan's picture

Amen to that Sir!

Likewise, without ZeroHedge I'd be totally lost in the wilderness of the outright bullshit lies, rumours, innuendos, fake promises, manipuilation and insane HFT bots that are somehow controlling these non-sensical financial markets.

ZeroHedge should replace CNBS and Bloom(ing BS)berg as THE definitive financial news provider.

Thank you again Mr Durden!

Wed, 10/26/2011 - 23:21 | 1815779 ACP
ACP's picture

Maybe Tyler will have to re-evaluate his projections to include how much it will cost to execute the bailout(s), AS WELL AS purchase all the garbage debt that will be tossed as "collateral damage." Of course, monetizing all this crap at par will be great for commodities.

Wed, 10/26/2011 - 23:24 | 1815796 jason403
jason403's picture

So basically, media will spin this as a great thing, and Europe's problems being solved. Traders will push up the markets, all while at the same time Investment Banks' prop trading departments will start shorting like crazy as uninformed investors start shovelling money back into the broad markets.

New false valuation bubble will be created, and when Europe's other nations (and Greece itself) defualt within 5 years, people will then finally be shown what the real problem was, such as the analysis in the post above....after it is too late.

About right?

Wed, 10/26/2011 - 23:30 | 1815821 PulauHantu29
PulauHantu29's picture

Wait until they include the massive bank loan losses for Eastern Europe....


Wed, 10/26/2011 - 23:30 | 1815825 Hobo
Hobo's picture

yes yes....but if this is so obvious why are the markets going up? unfortunately the markets can stay irrational longer than I can stay solvent.

maybe we will have another the rumour, sell the fact. 

Thu, 10/27/2011 - 01:07 | 1816084 Fibz
Fibz's picture

How many times have you seen the market drop on news only to reverse later? Works both ways.

Wed, 10/26/2011 - 23:40 | 1815833 undercover brother
undercover brother's picture

all this talk is nice, but it doesn't matter. the market is going higher. loads of cash on sidelines, cash = fuel= bullish. blue chips beating earnings and making all time highs = bullish. dollar under pressure = bullish stocks. committment of traders shows favorable market composition = bullish, market sentiment is neutral and nowhere near indicating a top. gold 1800 why not? , silver rally will continue, why not? you can lay out the scenario for the end of the world, but if you couple the aforementioned with bernanke's dollar printing presses running at ballistic speed as they have been for teh last few weeks, equity markets are going higher

Wed, 10/26/2011 - 23:34 | 1815834 sellstop
sellstop's picture

If anyone out there expects to make money in the markets by listening to this blather on ZH they are mistaken. ZH is a one trick pony. We could all be drinking free Bubble-up and eating Rainbow stew, and ZH would be reporting that it was actually "the Kool-Aid". You can't make money trading if you take this crap to heart.

Wed, 10/26/2011 - 23:40 | 1815860 tekhneek
tekhneek's picture

Hey look an emotional trader.

Please disclose all of your long equity positions w/ options immediately.

Wed, 10/26/2011 - 23:41 | 1815867 Hobo
Hobo's picture

Whenever I trade based on ZH's macro analysis rather than short term technicals I lose money. I don't think ZH are disingenuous, they just have a longer time horizon than most of us.

Thu, 10/27/2011 - 00:11 | 1815958 Sequitur
Sequitur's picture

Well that's not fair. If you truly took this "crap" to heart, you'd have had a healthy position in gold, as ZH has. And THAT has been one of the best investment classes the last two years, period. While I'm worried about the price of gold in a deflationary environment, theirs is a very solid case the central banks will continue to debase currencies.

Also, there are any number of guest posts advocating short-term bullish plays. How about Middleton and his long-Google thesis which has been featured here. Many examples.

Finally, when you look at the quality of the analysis and some of the predictions, it's been better than many, many other "financial news" sites, most of which regurgitate press releases and pro-forma numbers. I'll take the "blather" here, rather than the bullshit on CNBC, every time.

Thu, 10/27/2011 - 00:27 | 1815995 lizzy36
lizzy36's picture

I think that ZH gives one information. Good information with correct math.

How you monetize that "crap" is your business.

Interesting reading Boomerang, how there was always someone who was scapegoated in 2004, 2006, in Ireland in 2008-2010 for going against the tide. For doing the math and pointing out that the numbers don't add up. 

I for one appreciate you referring to Tylers work as crap. It is evidence that the masses are still stupid enough to believe. 

Everytime I think that if only people were rational,  if only they knew the truth, they would demand change, i will think of you, a sheep who should be bent over and fleeced for all he/she is worth.

Wed, 10/26/2011 - 23:38 | 1815853 PulauHantu29
PulauHantu29's picture

The "Q" is, where did these Billions of Euros go?

Where did Greece spend several hundred Billion dollars them?

Can someone please address this issue?

Thu, 10/27/2011 - 00:15 | 1815971 lizzy36
lizzy36's picture

Why to make bond payments to the Euro zone banks....DUh.

Wed, 10/26/2011 - 23:49 | 1815891 bankruptcylawyer
bankruptcylawyer's picture

well, we'll see if there is QE3 next week. i was thinking that if europe melts down, we get qe4 and that supports the prices to an extent, but the that if euro passes the bailout properly, qe4 doesn't happen and the euro high wears off and prices slide down . 


either way prices will slide down. just a matter of time till qe4. you can bet that if it doesn't come next week, the market will be pissed. 


euro or no euro, we have markets prices that are dependent on a continuous stream of money injections by the fed.

Wed, 10/26/2011 - 23:54 | 1815915 Hobo
Hobo's picture

I agree, and who has more money? you or the FED+ECB?

Wed, 10/26/2011 - 23:59 | 1815932 Timmay
Timmay's picture

When the "bailout" reaches these porportions, isn't the logical thing to do here is realize that the system you had before DIDN'T WORK?

Thu, 10/27/2011 - 00:05 | 1815945 Uchtdorf
Uchtdorf's picture

And qualifying for the most assinine comment after the meeting...

"These are exceptional measures for exceptional times. Europe must never find itself in this situation again," European Commission President Jose Manuel Barroso said after the meetings.

Thu, 10/27/2011 - 00:15 | 1815970 Kina
Kina's picture

So he thinks problem is fixed? Their ignorance is astounding.

Thu, 10/27/2011 - 00:23 | 1815987 UP Forester
UP Forester's picture

Yep. 'Tis fixed. For a coupla hours, anyhoo....

Thu, 10/27/2011 - 00:11 | 1815960 Kina
Kina's picture

ZH can tell you about the environment but up to you to factor reality into your own thinking making your own decisions.

Cant believe some expect ZH to hold their hand and do their thinking for them.

Thu, 10/27/2011 - 00:14 | 1815968 Bansters-in-my-...
Bansters-in-my- feces's picture

The words Ponzi,and Delusional come to mind.

Thu, 10/27/2011 - 00:39 | 1816027 Wolf in the Wilds
Wolf in the Wilds's picture

Its not just that. Its a lot worse. The headlines in Reuters and Bloomberg do not give the correct picture. You have to read the statement to see how ludicrous the headlines are:

and here is my take:

Thu, 10/27/2011 - 00:43 | 1816033 howswave5workin...
howswave5workingforyou's picture

The problem with this analysis is it assumes the EFSF/ESM is the only buyer of Italian govt bonds in coming years. That is nonsense. Sure you need to wave the bazooka to provide confidence. Now blackrock have $3.5 trillion under management. They were on bloomberg saying they are buyers of Italian debt. Remember the country runs a surplus. One of the few in the west. Now let's say blackrock buys 1%. that is $35bn. The Italian market is 1.5 trillion market. That is one marginal buyer. Let's not forget that pension funds in pan Europe are at 350bn deficit. How they going to make that back? Buying bunds? Come on. Furthermore, if the banks take a voluntary haircut ISDA treat differently. No default. You are going to see a significant rally in Italian govt bonds with austerity measures coming through and yes, the euro and low multiple banks in Italy will motor on to everyone's disbelief. Well, not mine.

Thu, 10/27/2011 - 00:50 | 1816049 El Gordo
El Gordo's picture

We know it won't work, and they know it won't work.  But, if they can convince a few people that it might work, and that doing something is better than doing nothing, they might be able to get re-elected - which of course is the goal anyway.

Thu, 10/27/2011 - 01:26 | 1816111 UP Forester
UP Forester's picture

They'd gladly pay you Tuesday, for a hamburger today, eh?

Thu, 10/27/2011 - 00:51 | 1816054 devo
devo's picture

Why are futures up?

Thu, 10/27/2011 - 01:27 | 1816113 UP Forester
UP Forester's picture

Positivity, brought to you by Electronz!

Thu, 10/27/2011 - 00:53 | 1816058 howswave5workin...
howswave5workingforyou's picture

Exactly. Sure we've got years of low growth. But massive relief rally building that will kill people on positioning. Big thing will be interbank spreads as well. They've been stubborn.

Thu, 10/27/2011 - 00:55 | 1816064 Kina
Kina's picture

Markets rallying because...?

Thu, 10/27/2011 - 01:14 | 1816092 Fibz
Fibz's picture

polishing up that junk car to make you want to buy it.

Thu, 10/27/2011 - 01:01 | 1816075 howswave5workin...
howswave5workingforyou's picture

Boj. Greek haircut. Chinese easing expectations.

Thu, 10/27/2011 - 01:07 | 1816085 howswave5workin...
howswave5workingforyou's picture

Wolf in the wilds. The net positioning of Greek CDS versus cash bonds is minimum. I think less than 10% of cash nominal. It is political. They are fed up with this CDS market at a regulatory level. The banks need the govt on side they can regulate away their share prices, their bonuses and their ROEs. If Deuthsche bank plays ball, everyone does. DB marks on bonds is -56%.

Thu, 10/27/2011 - 01:28 | 1816115 saulysw
saulysw's picture

I would be happy, for the rest of my life, with just ONE gold coin. Seriously. There is only one condition - that it's this one....

And yes, it is for realz.

Thu, 10/27/2011 - 03:39 | 1816270 swiss chick
swiss chick's picture

Cool, I want one too

Thu, 10/27/2011 - 01:40 | 1816139 paarsons
paarsons's picture

You guys can say what you want.

But Angie Merkel is a ballsy bitch.

A 50 percent haircut is still a 50 percent haircut.

It might be insufficent.  But it's a start.

Thu, 10/27/2011 - 01:45 | 1816142 quacker
quacker's picture

So I take it CNBC and CNBW are owned by the same parent company.

So how is it that late night, the anchor on CNBW is furiously raising a whole number of doubts and logical fallacies regarding this so called deal. then we'll tune in Thursday morning and be up to our eyeballs in T&A, green shoots, euphoria, stock pumping and general shilling and shameless whoredom of all known manners and more T&A?

Seems like they save the anchors who actually know something for 1 am. 

Thu, 10/27/2011 - 02:27 | 1816190 hambone
hambone's picture

How does the world react to the end of hard money everywhere and irresponsible governance for all?  W/ HFT algo lead applause.

Take a deep breath and focus on what is good...not the indignities we have and will suffer...they will steal all they can.  We are not the first, will likely suffer the least, and not be the last.  Life is short and even slaves had to make the most of their shity lot and bide their time...proud peoples have lost their ways many times in history but those w/ strength have reconnected to their core values and rebuilt.

Thu, 10/27/2011 - 02:51 | 1816219 knicks3005
knicks3005's picture

Am i the only one who is really bummed about thsi? I wanted this whole thing to blow up right in their faces. In Merkels face, Sarkozy, all the bankers. 

With this stupid deal, they still get to the play in the sand while everone else drowns in the ocean. 


Thu, 10/27/2011 - 02:52 | 1816223 steveo
steveo's picture

Right or wrong, Europe or no Europe, could Bucky fall to the orange zone? sure.     But in a confluence of B-Chan, and falling wedge, I need to change my bets to Bucky Up, everything else down.


Most other indicator are "up" for equities, bur Bucky is a big deal.

Thu, 10/27/2011 - 03:25 | 1816256 fenner
fenner's picture

deadly drag -> drag to death

Thu, 10/27/2011 - 03:30 | 1816261 Bazza McKenzie
Bazza McKenzie's picture

So they are playing this game that the Greek default is "voluntary", so CDS taken out as insurance on Greek bonds can't be invoked.  Which of course renders all use of CDS in future totally worthless, save your money.

At the same time, this wonderful EFSF is supposed to work by offering insurance on loans to insolvent sovereigns.  So, having just annulled existing insurance on defaulting sovereigns, they seriously expect lenders to assume they won't annul the EFSF insurance when it is needed.

This is now a world without reliable insurance on any sovereign and probably bank debt.  That will be built into the rate from the outset, that's if they can get lenders on any basis.

Of course, if some holder of CDS on defaulting Greek bonds finds a US judge willing to declare the whole scheme a fraud, as is patently obvious, and the CDS issuer has to pay up, the whole scheme blows up immediately.

Thu, 10/27/2011 - 03:31 | 1816262 Watson
Watson's picture

The only important player is Germany, and the only important point is that Merkel was unable to get the German parliament to increase the German guarantees.

All that happened last night was a tentative agreement as to how those guarantees will be used (which means spent).
It's all a terrible waste, but, when the German money has gone, Merkel will try to get more, and her party will decide a change of leader/policy is politically cheaper.

Since, historically, German reactions can be vigorous the change of policy may not stop at 'no more money', but go further to disassociate from a central bank that buys dud bonds - so we might see the return of the good old DEM.


Thu, 10/27/2011 - 03:49 | 1816275 nathan1234
nathan1234's picture

The insurer ends up being the taxpayer. How can insolvent countries, insolvent banks and insolvent insurance companies offer insurance?

Worst - how can the media prop up such lies!!!!!

There must be laws for taking action and against false/misleading statements by Governments, their spokesmen, the media and so on.

These governments take action against their people for peacefull protests while they are not accountable for their  frauds .



Thu, 10/27/2011 - 04:13 | 1816304 DCon
DCon's picture

I would like people to watch the below Irish show from last night for 3 reasons.


1. The lady from Reuters is HOT


2. To hear the sense spoke by Constantine about the "bazooka" and about the Irish economy. It is funny to watch him laugh at the politician (who is best ignored).


3. The other lady on the panel obviously reads Zerohedge


Thu, 10/27/2011 - 04:13 | 1816307 dynamictrader
dynamictrader's picture

Maybe another up 3.5% more for europe, before it turns and breaks previous lows, if this is 1998 Asian Financial Crisis comparision, Malaysia, Singapore and Many others, lost upto 70% of their values from HIGHS.  That day could be much sooner for Europe, the way its behaving, it may turn around and break lows soon, that day could be within the next three days, maybe extended slowly upto december, but markets going up 1-3% a day, are highly unstable , By Jan FTSE will be below 4500.

Or it could be 45000 if M2 is increasing with unlimited supply. 

So, If i had to take a trade today, what would it be. I think a short, with a 3.5-5% stop. 

Anyone here agree with me?


Thu, 10/27/2011 - 04:41 | 1816324 reload
reload's picture

As a short in the FTSE - I hope you are right, but, here we are on Thursday morning up a casual 2.5%. Even oil has caught a bid today which un nerves me a little, of late it has not been behaving as if it expects full on printing.

The Uk trade figs yesterday were ugly - even with an ultra loose fiscal/monetary policy and weak currency we can not export on a meaningful scale. We are a nation of consumers not producers. The bull case is just hope of endless printing, and it could be right. The decent corporate profits are not happening due to sales or margin increases - but due to one time benefits from cost cutting.

Of course with negative real rates things can behave oddly for a long time, my stops are not far from here.

One close above the 200day MA and 1/2 comes off - the second 1/2 on the second close above. Will leave me bloodied but up small for the year. Fortunately I do not rely on this for living income!

Thu, 10/27/2011 - 04:51 | 1816330 paco
paco's picture

..for my first post i have to say that something is missing... it s all goingo to zero... many people are using this phrase... as a vol trader, as a speculator, as a market partecipant i have to say that to me it all looks like a reverse bubble... in late 90s there were few people talking about shorting the mkt and many of them going for the long side..  Nowdays it s all the opposite..anything that works, too many people are religiously professing the short side of the market... it s called "nemesis"...  the market is human and market is does not matter the measures undertaken it matter the perception that we as mkt partecipants have about it..if u bet always on 1 side one day you will catch it but you have to have money that day to ..where will u buy the market, and honestly answer to yourself without the ego or without the barrier that since the pull back started you still short...

Thu, 10/27/2011 - 04:55 | 1816331 dynamictrader
dynamictrader's picture

Maybe its time to buy some calls, and hopefully, once above, sell futures into them. Unwinding the calls would be easier once some decent lows are in place. Personally, its like the gold move before the bull run, first move in december 1999, up to 238, then giving back, before the second larger move that ran for ten years.

I dont think, we will come back up here again, if we do go down, all this needs time to play out deleveraging affects, Asian markets came back after almost a decade, in some parts our property values have yet to reach previous peaks of 1994. Example, malaysia, Indonesia, even India. In values in gold, they have underperformed.

Highs came only in 2007, and note these guys had fully implemented the IMF measures, for those who took them, i.e. Increase Interest Rates, No Bailouts, - These were the IMF doctrine and also opening up local markets. The Asians went thru all this HARD and are now back in play, with a good local economy, albeit bad today, but much better than the west, i think so.

So, if we are topping, We do not think we will come back to these levels for a while, now if these guys, do continue printing, you can still be sure of this, the tops made, wont be visited ever again, cause all printing has ended in a massive bust. 


Thu, 10/27/2011 - 05:00 | 1816337 dynamictrader
dynamictrader's picture

If you are asking me, I bought at and near the 2009 lows. I got out early, but still 300% gain, and watching it go 500%. I didnt enter the 2009 downmove at all, and came back earlier this year to sell that move top, and got higher levels in the process.

Yes i have to admit, I get scared buying stocks, knowing full well the creative accounting and paying so much for someone elses vision, mission and ego, its hard to get any value for investment, if i want to buy, i trade the index, easier to unwind.  

Would you buy stocks, knowing full well, the level of accounting creativity that is going on?

Thu, 10/27/2011 - 06:12 | 1816372 Racer
Racer's picture

Bail out the banksters by the people yet again. And the people are told to tighten their belts and pay more taxes/suffer more austerity measures to do so

Thu, 10/27/2011 - 06:14 | 1816375 paco
paco's picture

looking at europe, the mkt is down on average 42% since 2008, looking at indexes not talking about single stocks,  if we were looking the financial world with the same eyes of "the intelligent investor" noone would have google on his portfolio.. just to say that the market got two faces and sometimes to me looks like many people think at being right other than making money.. ie europe is doing something not so good for your mind (ok) but still you could have realized a 4% overnight... while i m just looking at people aggressively always saying that it s all bad it s all defaulted whatever solution is not the the end i let the more cleaver calling top or bottom.. i m just trying to share my view.. and the "irrational exuberance"^-1

Thu, 10/27/2011 - 06:34 | 1816389 wang (not verified)
wang's picture

agreed that it is not sufficient if in fact they can find the $1t but assuming they can what they have done is to open up the balance sheet such that if they are willing to sell their collective miserable souls to Hu Jintao then expanding it to  $2.4t is not out of the question

Thu, 10/27/2011 - 09:45 | 1816934 Tipster
Tipster's picture

Someone should tell S&M that they're about 4 years behind the game... I'm waiting for the theory that they'll raise money by selling Lehman CDS to unsuspecting Chinese shoppers on Les Champs Elysees...

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