Response To The "No Eurobond" Announcement - "The Theme Of The Market Being "Broken" Continues To Play Out"

Tyler Durden's picture

From Peter Tchir of TF Market Advisors

Europe is shaking off yesterday's seemingly disappointing Merkel/Sarkozy press conference.  I can't find anyone who is particularly bullish about it, but the moves in the hedge products have to be respected.  XOVER is 26 tighter, back to 584.  Main is 7 tighter at 139, and even SOVX is 5 tighter with Spain and Italy leading the charge.  That is in spite of relatively neutral moves in the bond markets.  It seems like Europe must have had bigger and larger hedges than I realized.  The pain in trading books there is palpable today.  Bonds are getting marked marginally tighter, index shorts are getting marked a LOT tighter.  Investors are scrambling to get on side, and are using to the move in indices as an excuse to shift to "risk on" mode.  

The theme of the market being "broken" continues to play out.  This time market is gapping tighter on what if anything, seemed like a disappointing announcement - No Eurobond, No new increase in EFSF, and Yes a new tax.  BAC CDS is already at least 20 bps tighter this morning.  Anothing shining example of a crowded (and possibly longer term correct) trade getting squeezed. 

Gold is doing well again.  It is not getting dragged down in spite of the shift in mentality.  I have to believe that is because everyone is becoming more convinced the only way out of this crisis is to print money. 

Nothing has particularly changed in the past few days, if anything, data has been weak and Europe is running out of bailout willpower, but this move is too strong to ignore.  With limited data due out today or even tomorrow, the rally could continue.  The market has also now grown scared of missing the Jackson Hole rally.  It seems that we are constantly afraid of missing the next rally, only to be disappointed, but c'est la vie.  Maybe one more grind higher is what the market needs to suck everyone fully back, to set up for the next downleg.  It is shocking how quickly the market seems to be forgetting the fear of last week when SPX was heading to 1100. 

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hugovanderbubble's picture

Short Spain till intervention

maxmad's picture

And then short it with both hands!

raki_d's picture

dont you guys know that in my country you can only go long..

Oh regional Indian's picture

that is one crazy avatar. I'll admit trying to smack the bug. :-) 


spiral_eyes's picture

no to the eurobond

yes to the eurobong

also yes to sloppy facelicking and kissing between sarkozy and merkel.

yuk yuk yuk. 

raki_d's picture

smack me, bug me, squish me, crush me, kill me, stomp me, break me or shatter me
i'll still be there. My binary reincarnations will keep haunting you.. 

old naughty's picture

i sprayed you with alcholic cleansing fluid, and was just about taking my mini to the repair shop...then I read ORI's comment.

geewez, you haunted me alright.

Thanks for sharing.

RockyRacoon's picture

Is that a eurobug?   Not a bug, but a feature?

ZeroPower's picture

Posted it in the other CDS thread... iTxx Crossover index. 40 various EU corporate CDSs bundled into 1 for extra liquidity when making CDS plays.

speconomist's picture

Yes, I saw it, was going to post here that you already explained it here.

Thanks a lot again, seems that everyday I learn something from you.

RockyRacoon's picture

It's one of those myiad of synthetic ways to make money, unlike actually making something in a productive manner.  Breaking down ZeroPower's explanation into its component parts requires way too many steps to explain for something like that to be a "normal" investing vehicle -- in my lowly opinion.  Financial three card monte.

hackettlad's picture

I had the same question and found the answer elsewhere but thanks also for your succinct explanation. 

Cognitive Dissonance's picture

Popping market zits can be extremely satisfying.

jus_lite_reading's picture

POPPING the markets higher on no volume can be extremely lucrative for Whore Street!!!!


The Limerick King's picture

The markets are starting to crack

And Europe is leading the pack

To placate the Whore

We need to print more

It's time for a false-flag attack!

Cognitive Dissonance's picture

I love the Limerick King.

Would you be interested in doing a longer piece for me? Or maybe a bunch of short ones with a theme? Have your people call my people. :>)

zhcognitivedissonance at gmail dot com

mick_richfield's picture

:-)   What?  You want him to write longer limericks?

I propose a series of well-known epic poems, re-cast as limericks.


The Limerick of the Ancient Mariner

A Mariner, ancient and hoary,
Stops one guest as he reaches the party,
"Old man, give it a rest!"
Said the frustrated guest,
"Why the heck are you trying to stop me?"

Cognitive Dissonance's picture


I think the man deserves a wider audience. He's much more talented than I so why not use and abuse him, then spit him out the back.

I get my inspiration from Goldman Sucks. :>) 

RockyRacoon's picture

There was a young man from Racine....

Oh, you were looking for something else.

The Limerick King's picture

It would be my pleasure sir...

I've sent you an email with the prefix I mentioned.


cartonero's picture

I've gotta say I consider you one of the major talents here on ZH.  Just yesterday I was wishing for a compilation of your prolific output.

Cognitive Dissonance's picture

Back off Buckaroo. I saw him (her?) first. :>) And yes, s/he is a major talent that I hope receives a wider audience.

ZH seems to be a celestial star nursery and I really do think we need to encourage the hidden ZH genius to come out of their burrows.

cartonero's picture

Hey, we can share! :D  TLK writes enough to keep us all laughing.


hugovanderbubble's picture

The CDX index consortium also announced that it is introducing a new 35-name index called the Crossover (XOVER) index on the day of the roll. Criteria for the new index will be a triple-B rating from one of S&P or Moody’s and a double-B rating from the other. One credit derivative strategist says: “We expect the crossover index to be very liquid and to become the main focus of index trading, with a five-year spread in the mid-170 basis point range.”

RockyRacoon's picture

Hey!  How come I can't buy a fire insurance policy on the home of my alcoholic neighbor who smokes in bed?   That's criminal not to allow me to buy insurance on his house.   That's not a free market!

Eireann go Brach's picture

Maybe the half woman, half goat Merkel, and the French midget Sarkozy already scheduled their next emergencny meeting!

machineh's picture

Beware of the dreaded '9:45 flameout.'

Long is wrong.

Dick Darlington's picture

Well, ECB is again buying the Italian and Spanish toxic waste today so there's your explanation why SOVX is tighter.

falak pema's picture

'Sterlised' Italiana and Spanish 'toxic' debt. As opposed to FED play of 'monetized' toxic debt with its own PDs. The ECB plays with tens of billions on sterilized basis, the FED on hundreds of billions basis in monetized printing. Nuance.

The only question is if push comes to shove and the bond vigilantes of US based HFs start making big moves in EU zone, can the ECB keep this up? 

We all know the answer! The EU banking debt exposure is huge! On both sides of the pond...explosive molotov cocktail!

falak pema's picture

The 'no Euroband' status is interim play. The EU has no political mecanism to put a Eurobond of size in place. It needs revision of treaty. A long way to go. That is if the EU people want to go federal...Only the crunch of coming events will decide that! If EU goes federal it will take time and... a lot of more pain to learn lesson.

Everybodys All American's picture

The market is no longer free. In fact it's more or less a system now managed by the central planners.

oogs66's picture

yeah, this move feels completely contrived

Smiddywesson's picture

It hasn't been a market for quite some time.  I think the major precedent for intervention and manipulation occurred after the 1987 crash.  Since that time, manipulation has been the norm.  Since March 9, 2009, it has been an everyday event.  Now it has degraded to the point that most market action is a battle between the natural tendency to crash, and the manipulators stepping into low volume to clean up and replace the broken china in the cabinets.  Anyone who says the market has to crash or has to ramp is ignoring three years of evidence that it crashes when it must, and it ramps each and every time when it can.  That is not a coincidence. 

Everything makes perfect sense if we accept that everything that is being done is to buy time.  The sole thing not being done to buy time is central bank purchases of gold.  Therefore, the gold purchases are part of their long range planning. 

When ribbed for abandoning stocks, where he was regarded as an expert, for commodities, John J. Murphy said, "Sorry kid, I just went where the money was."   Unless you are day trading volatility, stocks are not where the money is.

ZippyDooDah's picture

I'm really appreciating your perspective, Smid.  Thank you.

WonderDawg's picture

Perhaps a tepid rally over the next few days/week to test the H&S neckline before the next shocking plunge.

Or not.

search's picture

At the risk of sounding cheap, the misallocation of global resources rolls on bitchez. I can't help but fear that pride is blind, and Euro, US and China have maximum pride to conserve. It isn't planned centrally in my view, its a pervasive sickness that will be split under pressure.

Caviar Emptor's picture

Nouriel Roubini firing shots across the bow this morning, Tyler:

Thus bond mkt prices coming disinflation as UK double dips ": U.K. 10-Year Yield Lowest Since Bloomberg Records Begin in 1989"


Too bad he got it wrong: biflation will consume the low yields into oblivion. Disinflation is a Greenspan wet dream 

speconomist's picture

Let's wait until it blows up in his face.

JW n FL's picture

Germany And France Announce Plans For Single European Government As Solution To Debt Crisis


1 World Government on the way!!

Oh regional Indian's picture

EuroBOND? joke, eh? No bonding in the EU. A forced marriage, splitting at the seams.

Here is a thought though. If we consider some history, who is likely to come out of this smiling, at the very end?

Europe with a few thousand year history or the US (which is a puppet state of course), with it's measly couple of hundred years?

I'd bet on Europe, or more specifically Germany/France/GB/Russia.


Smiddywesson's picture

Here is a thought though. If we consider some history, who is likely to come out of this smiling, at the very end?

The people with gold, nobody else

Europe with a few thousand year history or the US (which is a puppet state of course), with it's measly couple of hundred years?

Nonsense.  They are cooperating in kicking the can and they are all buying gold.  How then can you think that these coordinated worldwide efforts will not meet the same end?  This will end with them utterly failing together or succeeding in amassing enough gold to institute a healthy monetary system.  They are not acting in lock step without a reason. 

Oh regional Indian's picture

I'll just say this much. They are acting in lock-step under strict guidance.

No, make that orders. Marching orders. Play by play.

I'd study up on the club of rome, all of the CFR/TC/Bbergers.......

Our belief systems are probably polar opposites, which is all right by me.


tip e. canoe's picture

ORI, before i challenge you to a friendly duel, are we talking national/cultural/tribal history here or history of the land itself and that of its peoples?

disabledvet's picture

Fight the tape but fixed income ain't flighty equity. Besides an overwhelming institutional bias the
market itself is of staggering size. IOW it can't be manipulated and those on the wrong side are just plain wrong. It also forces economists to take note: malfunction in the works. Call it the Magical Mystery Tour if u want to find out what it is.

Smiddywesson's picture

Besides an overwhelming institutional bias the
market itself is of staggering size. IOW it can't be manipulated and those on the wrong side are just plain wrong.

Utterly, hopelessly, wrong.

All markets are manipulated, in all time frames, all of the time.  If anyone believes, after the price action of the last several years, that the markets are not manipulated, they'll never get it.  They want you to believe the markets are not manipulated.  The game is to make you think it is a market and not just a game.  The game is to lure the innocent little kids into one side of the trade and then to grab the rope and haul them through the mud.  So sorry little kids, you lost the tug of war, want to try again?  How about some other market "truths?"

Markets are rational

You can't time the market

Buy and hold is the only legitimate way to invest

Stocks for the long run

This time is different


search's picture

1 world govt, when each individual country is torn apart by dual global and local mandates? Tough ask.

latentdissident's picture

The prez yesterday opened the door for Eurobonds if you listened closely. Merkozy both said it, "...if necessary". What did you expect? Announcement in one day, implementation the next day? Not realistic.

Merkozy cannot say they are for it all of a sudden. Too much friction internally, especially with German coalition partner FDP. They will come around. 

Plus, if eurobonds were out of the question, EFSF/ESM would have been increased. Plus, if there hadn't been any news yesterday, markets would have crashed today.