This page has been archived and commenting is disabled.
"Risk-On" Can't Lose?
Via Peter Tchir of TF Market Advisors
For the moment we appear to be in limbo, where stocks and other risk assets will rally no matter what? The view seems to be that if European sovereign debt improves, then risk will do well. There is little fear right now, as the assumption is that if sovereign debt does poorly, Germany will relent and the ECB will officially begin printing money (I say officially, because it is getting harder and harder to believe they are truly "sterilizing" their purchase in a true market neutral fashion).
So that seems to be the idea out there, be long risk because if Europe improves, you will win, and if Europe gets worse, it will print, and you will win. That just doesn't make sense to me, as I think Germany is further from capitulating on printing than the market seems to have priced in.
ECB rate cuts should be expected. It wouldn't surprise me to see another surprise announcement. The issue is that the last one had absolutely no effect. It didn't even translate to improvements to Spain or Italy for a full 24 hours, and France didn't get the benefit for even 48 hours. The rate cut is likely to happen, stocks may bounce on it, but who benefits? The banks that are funding at the ECB would benefit, I guess, but that would make the entire system even more reliant, and would be weird that they can fund better than the sovereigns. I would think that France, at these yields would move with ECB rate cuts, but it really didn't last time - which is concerning. French 10 years now trade at bunds + 163 (that is almost 2x bund yields). Belgium, the other Dexia supporter is now yielding about 4.5% for 10 years which is the highest level of the year - another sign of weakness.
The market has been rebounding on talks about "political union". Maybe that is coming, and as much as the market might want Germany to take the other countries under their umbrella, I'm not so confused the other countries want that.
The ECB or Germany could easily have come into this week with some announcements to drive the markets a lot better. They didn't, and I believe that is because there is real disagreement on what is the best way forward. Germany is extremely nervous about printing money and creating inflation. Some of that is purely "historical" fear and might be overcome, but they must see how every time they have bent the rules recently, it hasn't worked. The problem is getting worse, and a big part of the reason it is getting worse and spreading, is because of their attempted fixes.
I think in the end, Germany is likely to capitulate (unless one of the PIIGS decides that it is in their own best interest to exit the Euro) but not until there is a lot more pressure in the markets and other alternatives - ECB rate cuts, some form of actual EFSF launch, etc., have been tried.
The last time everyone was so confident a trade couldn't lose was when gold was approaching 1900 for the first time, and every possible scenario was for gold to go up. It didn't. On the other hand, gold is now back to almost 1800 and is doing it quietly with little fanfare. The everything is good for stocks scenario seems too dangerous and unrealistic, at least up here at 1255 on SPX. The ECB and Germany may accommodate what the market wants, and economic data may be supportive, but I think there will be another round of real fear before we get there. The more people start discussing Portugal and Spain in addition to Greece and Italy, the sooner we will see that fear materialize.
»
- 7027 reads
- Printer-friendly version
- Send to friend
- advertisements -
"Risk On Can't Lose"
I'm imagining you behind a fold-up table with three face-down cards on it. Step right up.
Collapse will stop the rallies.
Does anyone think Mario will fix it? The leader of the Berlusconi majority party just said, We’re gonna help form a coalition government, but in Mario’s cabinet there can be no opposition party people. Already, it’s the politics of politicians serving their special interests. They’re going to take care of the people who put them there or they don’t have a job… Ditto Mario.
It’s the strings of the devil. Maybe St. Paul could have handled it if they’d let him out of the Roman prisons long enough, but I don’t know who else. They won’t take somebody like St. Paul, of course. They’ll take some Mario Goldman adviser (pawn) instead. Right?
Oh yeah, watch stocks SOAR when global credit locks up........ NOT
... On a long enough timeline the survival rate for the risk on investors drops to zero...
Good article. Market seems to believe that the bazooka is being readied. It does seem quite likely that Europe will not be allowed to fall apart and the ECB will turn to full monetization sooner rather than later.
There won't be any printing until the sheeple beg the central banks to print. They will only beg if they lose their deposits as the banks crumble. Major risk off to take place, then the printing will begin
People might want to check out what the ECB has actually been saying lately...
http://seekingalpha.com/article/307575-ecb-set-to-disappoint-the-world-stock-collapse-will-result
It's just window dressing season. It's also the best place to put the printed stuff to make everyone look good.
"It's not how you feel. It's how you look."
They had to put all that stolen money from MFGlobal somewhere.
The latest from BrotherJohnF: Silver Update 11/13/11 - MF Global
Excellent analysis - longish but covers a lot of ground - a must see.
http://www.youtube.com/watch?v=Pj1NwVE2h4U&feature=channel_video_title
Wordy and pointless. Very similar to a RobotTrader post in that it tells me stuff I already know.
I'm also tired of the clowns who tell me that money printing solves problems.
how did the S&P rally 100% off its March 2009 low? On Obama's Hope n' Change?
Thanks Peter, great article again... Lets hope there is at least one CB that's somewhat prudent and not print to paper over the issues. I am staying bearish till I see otherwise.
The EFSF is a quasimodo indeed... ECB buying untill EFSF comes online... which is most likely never?
Not bearish enough Tyler. Have you been watching too much CNBC?
http://www.bloomberg.com/news/2011-11-14/permanent-eu-bailout-fund-off-l...
Nice rigged casino system we have here. Money printing UK and USA getting rewarded with way less than inflation bond yields while old school austerity imposing countries get as punishment way above inflation yields. Nothing to do of course with the fact the banksters are in New York and London...
Spell Check FAIL: "I'm not so confused the other countries want that."
IRONY!!
political union is irrelevant - it is fiscal union or mutualisation of the piigs debt that matters
I'm not so confused the other countries want that.
I think you meant "convinced"
The financial markets is trying to force the EZ, and by extension Germany, into a binary choice. But zee Germans are a f-ucking smart lot. They are planning the return of the DeutscheMark in 2012 to open up options.
The Euro is dead. Long live the Deutsche Mark. Vaterland ex nihilo.
This article is basically a summary of the moral hazard issue. At some point moral hazard will end. Likely sooner rather than later given all the social unrest over it. I don't see QE3 unless markets go under 10,500. The only US stimulus I can see is the repatriation tax holiday. How do you guys think that will affect the market? Obviously a short-term pop, but it will likely pose another P/E ruse to buy time (for politicians/banks). Gold speaks for itself...China, Russia, and India are all loading up on it. People who don't own a couple ounces probably don't sleep well at night.
If the markets want more easing, they better stop buying and instead starting manufacturing chaos.
"Europe improves" LOL
"Europe gets Worse" you're a nominal gazillionaire (tallest midget blue ribbon awarded!)
unless u are flipping a 2 head sided coin, how can both future opposite scenarios have the same result
I agree. I'm not a doom/gloomer, but I only see massive retraction (whether you call it depression or not) from this, no matter which path they choose. The real options are quick versus slow.
The big story in all this is that fiat has finally been exposed. Even if they somehow orchestrate their way through all this, I don't see people dropping their PMs or other commodities. By manufacturing easy money, the Federal Reserve has essentially telegraphed what they think of the currency.
I don't think most here think printing worthless dollars helps. Not to many Krugman's on this site. As much as I would love to short this market there are just too many headline risks. So, gold, silver and miners works for me along with some confetti.
Now BAC, I know you can give us a 5 handle, you are well worth it.
And then one day you find ten years have got behind you. No one told you when to run, you missed the starting gun.
This is why you couldn't hack it as a CDs trader, Pete - overthinking and trying to have reasonable thinking behind the trade - forget trying to figure out the wiggies dood, take ur 01 and move on to the next trade.
Germany will not print. There is no need for Germany to declare their intentions any clearer than they presently have. The ECB is buying time for member countries to clean up their mess. I suspect the illegal activities related to unsterilized ECB purchases will be put back on those member countries whose bonds were supported.
The simple fact is that no one wants clarity at this time.
German exports are likely the most price insensitive exports of any country in Europe or Asia. In a downturn, I suspect they will be able to maintain market share though the markets likely will shrink. At that point they have options that would result in the expansion of their marketshare and increased influence in those pressed markets.
In the longterm, whether the euro is abandoned for the Deutschmark, or becomes the new Deutschmark, is of little consequence to the Germans and Northern Europeans. As the old saying goes... once fooled, shame on you. Twice fooled shame on me...
I agree. The Germans will not print. They are constantly reminded of the past, e.g. what led to the rise of Hitler. The Germans (in Germany) I know are very tired of this and would like nothing more than to move on. Printing would be disastrous to everyone but TPTB.
I would look for printing from the Fed via the usual backdoor channels. The Germans are a lot more wise to the BS than the stupid American sheep.
If Germany does not print.. then Germany will be the fat pig everyone wants a piece of when the other Countries get hungry.
Wanting and getting are two different things.
People will want my PMs, but get various types of lead projectiles at various speeds and distances.
From a PM stand point.. Germany's Gold is already in New York! LULZ!!
you are too optimistic on Germany..who will buy overpriced german exports in that scenario??
... The Goldman Sachs fraternity...
http://www.reformation.org/wall-st-fdr-ch3.html
oh, boy!
another wall of fear!
what TPTB really fear is what their real new worth is when we M2M
most of the rest of us fear that it will never happen
i am thinking of starting a prayer ETF
Zero chance Germany will allow money printing. Germans are way too smart and see economic and social effects from printing. Last weekend, 8000 Germans marched in Berlin against the government, 10,000 in Frankfurt against the financial sector. Nope, no printing. 80% haircuts should suffice. Or maybe 90%. Major power and debt restructuring coming down the tracks. Banks will soon look more like utilities.
Yes, FlimFlam. Man has a memory. Germans will never forget, nor should they, the "nightmare of deficit spending... and hyperinflation." In 1923, there was a great transfer of wealth from saver to debtor, there were pensioners whose retirement proceeds when collected in full bought one cup of coffee, landlords whose properties had to be maintained with hyper-inflated costs while rents collected were under government rent controls, grand pianos became a currency… It’s all in Adam Fergusson’s book,
When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. Here is the Amazon review:
“When Money Dies is the classic history of what happens when a nation’s currency depreciates beyond recovery. In 1923, with its currency effectively worthless (the exchange rate in December of that year was one dollar to 4,200,000,000,000 marks), the German republic was all but reduced to a barter economy. Expensive cigars, artworks, and jewels were routinely exchanged for staples such as bread; a cinema ticket could be bought for a lump of coal; and a bottle of paraffin for a silk shirt. People watched helplessly as their life savings disappeared and their loved ones starved. Germany’s finances descended into chaos, with severe social unrest in its wake.
“Money may no longer be physically printed and distributed in the voluminous quantities of 1923. However, ‘quantitative easing,’ that modern euphemism for surreptitious deficit financing in an electronic era, can no less become an assault on monetary discipline. Whatever the reason for a country’s deficit—necessity or profligacy, unwillingness to tax or blindness to expenditure—it is beguiling to suppose that if the day of reckoning is postponed economic recovery will come in time to prevent higher unemployment or deeper recession. What if it does not? Germany in 1923 provides a vivid, compelling, sobering moral tale.”
Presuming the Germans are in control of their own destiny has not been a winner historically speaking.
It's going to be annoying when the market closes up today.
Germany will allow printing - of the new Deutsche Mark
So bottom line no one has any idea what's going to happen. We know that politicians can be held hostage by the Banker's plaything... the stock market (Look what happened in in under 60 seconds when they didn't pass TARP) We know that the FED's mandate has changed from sound currency and full employment to keeping this same stock market from crashing at all costs. So why do I still feel the need to be short this rigged casino? No idea.
Agreed, despite the considerable efforts of 'the system' to keep itself from collapsing, it is rotten to the core and needs a complete reboot. I too feel a strong need to sell it, but in a similar vein, buying gold is another (and safer I believe) way of betting against a system bound to fail.. at some point.
Looking at this article in a mirror yields:
People want to short stocks because the incompetence and manipulation are so disgusting, but we are unable to short because every time a strong short position is established, more printing is promised, leading to a "rising" market simultaneous with a collapse in real production.
This isn't about people being confident in the market going up. It's about TPTB having achieved one goal: they have indeed scared the shorts. As the Tylers have said many many times, that's going to come back and bite them in the ass when a selloff starts with no short-covering cushion to stop it. The law of unintended consequences in real time.
Printing will soon be political suicide. I don't think it will last much longer. Also, Central Banks see people cashing in their savings accounts for gold, and I doubt they want to encourage more of that...there will probably be one more round of printing if things get bad, and it'll probably be closer to the elections.
TMFA wrote:
So that seems to be the idea out there, be long risk because if Europe improves, you will win, and if Europe gets worse, it will print, and you will win. That just doesn't make sense to me, as I think Germany is further from capitulating on printing than the market seems to have priced in.
--------------------------------
Germany maybe further from capitulating, but the politicians aren't.
The euro politicos will do what ever is necessary to keep their jobs and stay in power.
And German euro politcos are no different from any other ones.
Good article Peter. Despite the cultural reluctance to print money, thereby creating the threat of future hyper-inflation I do think that the Germans will, ultimately, capitulate and allow the printing of money. While it is unlikely to result in a resumption of economic growth, it would literaly buy more time for a failed financial system; furthermore I am slowly coming to the conclusion that the vast amounts of capital which are being created from nothing are likely to stay tied up in the banking system, i.e. simply bolster overleveraged balance sheets, and it may take considerable time for it to eventually move to the consumer and cause real inflation havok. Certainly, in my view, deflation is the key threat over the next year or so, not inflation - at least in the western world. If this is the case, as deflationary/risk events emerge, central banks will continue to move to defuse this by lowering interest rates and/or printing. It will be interesting to see how investors allocate capital in future.. will they continue buy US/Germand bonds or will confidence in these instruments slowly deflate... gold's move over the past month is quite instructive as you suggest.
and this is why it is going to hurt soooooo much more than if people had seen it coming!
everything is going to be fine.. the markets knew europe was getting ready for a down grade to junk.. P.I.G.S. to the fornt and flanked by the old Russian Eastern Europena Countries! Germany will do fine.. no need to Print! when those People get hungry enough they will just feed on Germany! Lets hope Germany keeps starving them! More Austerity! like here in America with the long term un-employment benefits running out! we may have some fires burning by Christmas! mind you, they will just be used to keep the poor, starving, cold people warm.. any other benefit(s).. say like it is Wall Street on fire.. will be completely due to New Yorks Finest being roasted for finger food!
LET THE GAMES BEGIN!
The Time for "SPIN" has almost past!
NOW! we are coming to a Time of ACTION!
the poor should be warming to the idea of violence more and more.. and the more the poor kills each other.. the less clean-up the rich will have to do when it is all over with!
Dont Forget!! People in the ghetto did in FACT cause people in the Trailer Park Harm!! and vice versa!
ammo is on sale at wallmart! American Made! buy American to Kill American!!
some of you are laughing.. good, it was supposed to be funny.. but dont over look the fact that there needs to be a certain amount of truth in a joke for it to be funny.
if the plan fails (name the plan) the central bankers will inflate their way out of it, which will be good for stocks. this is why the worse things get the more the market goes up.
I'm not sure that would be the case. Broad-based inflation should certainly create inflated earnings but I suspect that valuations would fall, P/E, EV/EBITDA etc... as the quality of earnings declnies and investor confidence in future earnings comes under greater strain. The key problem is inflation volatility, as that increases there is a very strong likelihood equity performance would suffer in my opinion.
Germany printing money? hmmmm.... that's very good for USA, becausE "Berni Bernike AND Timothy geityhenetnetr" doesn't have any more fuel for the CHOPPER, SO...hummm I think (personally) germans are not SO STUPID TO GIVE MONEY FOR DEBT PURPOSES TO BERLUSKKO'S TYPE COUNTRIES. They must start think in one European Union, with about 5 countries inside, the MOST POWERFUL.
FED & ECB ARE SUPPORTING THE MARKET, BUT NOTHING IN THIS LIFE IS FOREVER, THERE IS A BEGINNING, AND THERE IS AN END... EVEN JAPAN IS NOT MORE IN THE GAME...
can any one tell me what is wrong with my logic
if the ECB prints aggrisvely (as this article predicts eventually shall happen), then that will make the euro vs. usd weaker.
then why is that good for markets and commodoties? i would think the other way