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Rotten Contagion To Make Landfall In Denmark: CDS Set To Soar As Hedge Funds Target Country
Misquoting Shakespeare before the market open may seem like blasphemy but in a follow-up confirmation of a thesis we proposed back in July, Luxor Capital expands on the idea that something rotten is ahead for the state of Denmark. As with many of these crises, the heart of the Danish problems lie in a commercial and residential real estate boom and looming bust and with the capital/equity remaining so low in the Danish banking system (and a pitiful funding profile), it seems increasingly evident that public balance sheet support will become necessary (and perhaps not sufficient). How ironic that we pointed out, back in July, the probability that Germany will need two insolvency funds, a South-facing and now a North-facing one. Having traded in the mid 20s during H1 2011, CDS now stands at 106bps (off its September peak of 158bps) and given the interest we are seeing from hedge funds in this relatively lower cost short, we suspect this week's modest decompression will accelerate.

After dedicating 20 of the 21 pages of its Q3 Letter (courtesy of ValueWalk), Luxor's conclusion in its Death to Denmark thesis is as follows:
In summary, we believe a housing crisis is looming in Denmark. Whether Danes grow into current home prices over an extended period of time (as the Danish central bank predicts) or home prices violently correct downward will determine the fate of the banking sector and with it the market’s estimation of the sovereign’s solvency. Our experience with levered assets is they tend to re-price on the downside much quicker than they appreciated on the upside.
Denmark could be particularly susceptible to this in the wake of the upcoming contraction in private credit in Europe. We find the senior bonds in the Danish banks to be among our best risk-adjusted shorts in the portfolio. The Danish regulators have already exercised their authority to impose losses on senior bank creditors in the recent bank failures; we would expect them to do the same in the future should a banking crisis emerge. In our estimation, the senior bonds are the de facto equity in the Danish banking system and they are trading at 3-4% yields.
Given the paltry equity in the Danish banking system and the reckless funding profile of the banks, we fear the government will eventually be saddled with much of the banking systems’ liabilities in the event of a full blown housing crisis. Given the size of the bank liabilities to the sovereign and the acceleration the sovereign would be facing in its own leverage saddled with such an economy, this outcome would lead to considerably wider credit spreads, if not an ultimate default on the sovereign.
While we would stress that none of these negative outcomes are probable, we believe they should be of reasonable concern to bondholders of sovereign and bank debt in Denmark. For this reason alone, we find the current trading levels of these securities materially over-priced.
As a reminder, back in July we made a special prediction about precisely a day like today:
S&P said that "In our base-case assumption, we estimate the gross loss due to additional bank failures to be Danish krona (DKK) 6 billion-DKK12 billion over a given three-year period. If the losses are larger than we expect, we would have to reassess our ratings on individual Danish banks, based on the impact of the fallout on each. Eleven banks have failed in Denmark since 2008. Although the banks were small by international standards, it is nevertheless an unusually high number for a developed market where bank defaults are generally rare events and extraordinary government support mostly averts losses to senior creditors. While the Danish regulatory authorities accept the concept of systemically important institutions, they have so far given no formal indication of which institutions fall under this definition. In our opinion, the banks we rate would be considered systemically important and therefore may receive extraordinary government support, beyond that defined in the country's established bank resolution scheme." So according to the rating agency any country that dares to avoid the Paulson-Summers TBTF doctrine is in prompt need of annihilation if we read this right. Either way, this latest black swan means that the crisis is creeping ever closer to Germany, which now has to fund two insolvency fronts: a southern and a north one. And when S&P finally puts France on downgrade review, the time to panic will have come and gone.
France is now on downgrade review... and the market refuses to accept reality.
Denmark sovereign CDS remain notably rich to their recent wides and well below peers from a cost of carry perspective offering a relatively low cost long vol position that is yet to be crowded out.
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why buy CDS? by definition, there are no defaults anymore in Europe.
To manipulate a country into relinquishing its sovereignty and forcing them to adopt your agenda.
Denmark is a country with a firm middle class and rights...
Firm for the picking.
'Denmark is a country with a firm middle class and rights...'
In other words: sheeple.
The only solution to this crisis is to BAN all speculation on sovereign debt. This way, countries are not at the mercy of heartless Hedge Funds and their derivatives. Governments will then be able to borrow what they need without nasty market participants ruining everything.
I see what you did there.
"Germany will need two insolvency funds, a South-facing and now a North-facing one..."
The irony...in essence, a fiscal Schlieffen Plan. A century later: two world wars lost -- with a crushing hyperinflationary depression in the interlude -- and Germany is still in the thick of it. Resilience, thy name is Deutschland.
Do you work for Blackrock?
"While record earnings (SPX) and an improving economy should be pushing the Dow toward its October 2007 record of 14,164.53, they’re not because Europe is overshadowing the good news, said Kevin Rendino, a money manager at New York-based BlackRock Inc. "
http://www.bloomberg.com/news/2011-12-07/djia-14-000-depends-on-u-s-saying-we-re-all-in-this-together-with-europe.html
"Out, damn'd spot"
Wrong play.
Jaysus, Hmm..., thanks a zillion for stating what should be rather obvious to EVERYONE (!!!!) by this time.
It's like all those clowns who are forever questioning why they are trying to extradite Wikileaks' Assange to Goteborg in Sweden, instead of extraditing him from the UK ---- anybody bothering notice how much property damage expense has been incurred by all the protester riots which have taken place in the UK over the past year??????
The sole purpose of the naked swap (which is why the US Treasury Dept -- currently owned by Goldman Sachs -- loves and worships it sooooo much, and why Christine LaGarde, when she was with the Sarkozy administration and voiced opposition to it was immediately ordered to back down and shut up, then later rewarded with the IMF job) is for financial manipulation ---- end of story!
Thanks, again, big guy
this can only be interpreted as bullish!!
you might need them for your avatar
Something's rotten... yada yada...
whether 'tis nobler in the mind to suffer the slings and arrows of outrageous monetary policy...
yada yada indeud
how dreadfully melancholy!
The financial locusts continue to use CDS to bring governments down on their knees.
I'm sure I'll antagonize many free marketeers, but these products are likely giving us less information than we think... instead they are the play things of the financail elite, used in a way to undermine the sovereignty of various nations.
They should be banned. We don't need CDS to give us price signals that a Sovereign nation is doing poorly... there are other ways of knowing as well such as... uh... National Bond Yields.
the only way I see CDS as imparting useful information is to find out where the pigmen locusts are salivating to topple next.
Jim Rickards on Goldman Sachs, IMF/EU bailout - http://www.youtube.com/watch?v=kg_dcZ2P80w
"Today to BREAK A COUNTRY you don't need money, you need synthetic euro shorts CDS. You have ONE trillion euro dollar bailout but Goldman can create TEN trillion euro dollar shorts.So it just dominates what the governments can do. The market wins but it's not the market, it's the casino."
Exactamundo, PaperBear, exactly!
The three magic number of ultra-leveraged financial manipulation:
(1) Unlimited number of CDSes written against a financial entity;
(2) Unlimited number of commodity futures contracts sold against a financial entity or commodity category; and,
(3) Unlimited number of investors allowed into a single hedge fund.
By design, my good people, by design.......
I have been saying this for months now. If CDS's and other DERIVATIVES were banned, governments would be able to borrow in perpetuity, and we wouldn't have to worry about these frightening issues. There is NO reason for governments to default, since future generations of unborn children will be happy to pay.
#OccupyWallStreet
oh really? did you ask them? something tells me they'd tell you to f%^k off
bite me.
if there were no sovereign CDS we could still evaluate the credit worthiness of sovereign nations the same way we did before the damn things were invented. NEWSLFASH: Sovereign CDS are relatively new to the scene.
I would say we did as good or better of a job of assessing sovereign risk BEFORE the advent of CDS... proving they are not essential.
Besides, there is this great way of finding out the credit worthiness of a sovereign nation... it's called SOVEREIGN BOND PRICES. You know... when people buy Treasuries and Bunds and Jbonds their price goes up and Yield goes down... and when they sell their price goes down and yield goes up.
Imagine that... it's ALMOST as though you could tell the creditworthiness of a country by looking at it's bond prices and yields.
nah... lest's instead invent an opaque market controlled by a lot of hedgies and TBTF bankers and central banks to give us this message. More opacity = More transparency in MDB's world.
Occupy my ass.
signed, a real OWS supporter who is tired of your bullshit.
No, I agree. The fact that governments are collateralizing future unborn generations is perfectly moral and should be overlooked. Credit default swaps and other insurance products on the other hand just make my blood boil.
nice misdirection.
I've said nothing about allowing govt expenditures at all. I've only said we don't need, and shouldn't want CDS to be the moniker for how much govt borrowing is too much.
It's like this: Today outside it is shit cold where I live.
I guess I COULD develop a CDS market for it to tell me how cold it is... or maybe I'll just use a thermometer.
Nah... because if I advocate for a thermometer instead of a CDS indication of cold then I'm clearly advocating that we should freeze all unborn infants.
please continue to occupy my ass.
"I've said nothing about allowing govt expenditures at all"
Precisely. And rightly so. This is not worth even a fraction of the time we should spend worrying about credit default swaps. This voluntary over-the-counter market is the root of all evil, and dwarfs any form of government coercion, which is reflected in the time dedicated to each issue by the OWS movement.
when the Voluntary over-the counter market without collateral or accountability and transparency achieves the size of the synthetic bubble you have to ask yourself : is the government pimple the cause of cancer or the bloated kidney that won't function anymore, unless it gets its daily dose of neat vodka; and we are talking bottle crates of it.
And as Louis Brandeis said way back when (Other People's Money and How the Bankers Use It), no rating agency should be allowed to rate government bonds nor any other type of bonds......
kind of... bond prices were a reflection of both credit risk and interest risk.
getting more granular risk ie credit default from fx or inflation makes sense,
as it allows for more efficient narrowing of risks to hedge against or play on.
CDS also trigger for all sorts of credit events that bonds didn't account for.
the problem is the CDS and bond and derivatives are otc instead of listed.
this and that CDS have very lax leveraged trading rules (ie naked shorts).
That asshole Leisman has been on all morning screaming about how great it is that consumers are now spending something like 30% more this holiday season than last year. He has not mentioned where they are getting the money or if it is a good thing he seems to be just speaking very loudly and excitedly like a confused rhinocerous. It's a little disconcerting.
I think consumer credit numbers are tomorrow..12 billion is my guess
today at 3
The biggest jump in consumer spending is on firearms. I think thats great!
Denmark isn't in the Eurozone.
Not that anyone said it was but why would Germany have to bailout Denmark ?
I echo this question. I thought Denmark was a little more isolated from this, and better off for it. This is surprising.
Yea, just like Austrailia and New Zealand are.
About the only land priced correclty is Antarctica......and soon Vegas property
Yep, that's what I was thinking, I think it is strange no one even mentioned it.
And it becomes even stranger when you realise this is all about a housing crisis, how about the Dutch housing crisis.
I cannot imagine the Danish one to be bigger, no way. The Dutch have the biggest morgage debt of the world.
So, as far as I am concerned this rumor is another attempt to put pressure on the printing presses in the eurozone.
The danish Krone is pegged to the euro?
like a hand job to a knob. Like a joker to a punch line. Like a hooker to her bait line.
Why not?
In for a penny, in for a pound.
Anyone else need a bailout - we got all the printed money you need....
Denmark is running a currency peg. The central bank is keeping the DKK exchange rate fixed in relation to the EUR. Now, as everybody knows, linking a small currency to a much larger one worked so well for the South Americas that we just had to do the same thing. Interest rates on the 1-year F1 mortgage is now at 1%, moving everybody into short-term mortgages. It was also noted during the "financial crisis" that the government bailed the F1 mortgages, killing the gain other people, like me, had on the 30-years fixed rate mortgage, so now everyone is going F1, because Fuck It, They can bail me too. It's my taxes after all!!
Denmark is sneaking under the radar because it is not in the Eurozone, but it is exactly as leveraged and over-banked as all of the PIIGS added together!
Sensible Danes have already moved their savings to SEK and SCF, raking in an 40% gain on the SEK (or avoiding a 40% loss on holding DKK/EUR).
I would buy the PUT's on Danske Bank, Danske being easily the most retarded of the large banks. It has been bailed several times before thus concentrating, nursing and preserving the stupidity. ;-)
Dont forget the Swiss Franc
True, but Denmark is highly financially interlocked with the Eurozone, and that's the major point here.
Didn't the Europeans call this "smart growth"?
Receivership is out of the question (again) I suppose. :roll:
Why isnt the free printed up fiat being spewed forth like Manna from heaven?
Bernank's chopper confiscated by the squid in the last POMO?
France is now on downgrade review... and the market refuses to accept reality.
Fuck the credit angencies. They probably still have an AAA rating on the MBS based on the RE under Fukushima.
I won't listen to their "Ratings" even if it does confirm my world view. Jeez!
Listening to Credit Agencies and massively distorted CDS market "signals"?
Christ, what's next? Will we listen to a report co-authored by Barny Frank, Obama, Geithner, and Bernanke saying that all the Big Banks are solvent, and yes they really are not TBTF??????
Fuck reality! I want my piles of free printed up fiat!
You misunderstand.
I'm not saying that we need to fuck reality.
I'm saying that I'm not going to listen to a busted ass broke source of (dis)information just becasue I agree with their statement.
I don't listen to them when they rate MillionDollarBonuses ass as AAA (he is not AAA), and I don't listen to them when they downgrade France. (yes they deserve a downgrade)
Fuck them.
Listening to them keeps them in power.
Their comments should be laughed out of town and they should all be put in prison.
Whats next?
Gold is backed by nothing....opss sorry thats happened already
...unlike fiat currencies, which are largely backed by... OTHER fiat currencies.
Foul deeds will rise,
for thy name is cockroach bankster.
Let's go Iceland Bitchez!! The only thing we have to fear is fear itself.
I was scared you'd say that! ;-)
"Either way, this latest black swan means that the crisis is creeping ever closer to Germany, which now has to fund two insolvency fronts: a southern and a north one".
Wasn't it Von Clausewitz who always warned against Germany facing a war on two fronts?
Wow Germany gets DP'd and we all get f**ked....nasty!
that was before they invented porn and made double penetration an uber alles class risk asset; now to be in the wind you have to say you fly double trouble class, or you are NOT taken seriously. Von Clausewitz will have to revise his golden rule whereby it will become : I DONT prefer my neighbour from the right to my neighbour from the left, as i need them both. Mittel Europa lives again!
This shit is going to get out of control and eventually someone is going to get hurt....................going to my favorite silverstore today and the gunshow here in San Diego an Dec.17th for more .308. Thanks too the ZH reader who mentioned the website comparesilverprices the other day. Saved me some money on my last order!
Keep up the great work TD
For ammo, try ammotogo.com, good prices on large quantities, and no $10 gun show cover charge.
Dont forget your shooting dummy, they have three models. One is for zombie banks, the seconds suicide bankers and the third is EU and FED officials - choose accodingly
http://www.ammunitiontogo.com/index.php?manufacturers_id=104
slack
gold, guns and a getaway plan.....pity i'm in london - I've only got the first, can't get the second.......and the family is in New Zealand
If I can be of any help, I volunteer to bail out one or two Danish broads
And remember to give one for the team ;-)
This shit is for real...
Letter from the FED ... You got it all wrong people :
WE ARE THE GOOD GUYS and we have been smeared! We would never lie to ya.
http://www.federalreserve.gov/generalinfo/foia/emergency-lending-financial-crisis-20111206.pdf
Love,
Gentle Ben
Sorry Ben! We're not as stupid as you pretend we are! We know youre transfering all wealth to the top .001%, just a fact!
Save it for the jury Benny....
Welcome to yesterday. Still on the first page even. http://www.zerohedge.com/news/bloomberg-fires-back-bernankes-blustering-rebutall
'I was just following orders....'
Didn't work then Ben, works less now.....see you at the court in The Hague
WHERE mah Santa rally? Who gonna feed my 15 keeds!!
Woman With 15 Kids: "Somebody needs to be held accountable, and they need to pay." - YouTube
Damn right.
btw I feed my cats baby fingers...does that make me a bad person?
I'm so tired of that stupid Rooseveltian quote ! The 1929 crash was just a little harmless fear plasma ? WWII was an irrational outbreak of exuberant fear ? It even admits that fear should be feared ? I mean if fear is the only thing we should fear.....it must be a real MF....hush my mouf.....jes talkin' 'bout MFGlobal....fear ? Fear is the real deal....."The Fear Deal".....has a nice ring to it ? A good slogan for the Obama 2012 campaign ! Monedas 2011 Comedy Jihad Fear Of No Laughter And Applause !
Not my Viking brethren!... If the banks piss them off by foreclosing they might go all 10th century on Europe again and start kicking some peasant ass in the Eurozone!
I am tired of hearing Socialism is bad and Capitalism is better. Look Scandinavian countries are the wealthiest countries in the world and these countries are SOCIALISTS. So stop the propaganda please. It is not that I am socialist but I don't think Communism\Capitalism debate is the right basis for discussion, it is more like Transparency\Corruption or even cultural values.
Yea nice try but try again....I go to Denmark, my son and his wife live there shes Danish, its a hellhole.
I was not talking particularly of Denmark but Sweden and Norway. I mean for me USA or UK look like Africa compared to these countries. Do you disagree with that?
yeah, it really is a treat to live in the most surveilled country in the world where, for every 1 private sector employee there is 4 people on welfare, where the suicide rates among young people/adoloscents are higher than china, divorce-rates >50% and the most feminist educational system ever.
Don't get confused by these capitalist low life - socialism is the way to go!
Yes I do disagree with that, there are severe underlying problems in these little Nordic Nirvanas you hold up so high.
Scandinavian countries (particularly the Nordic ones) have small populations and sit on vast reserves of natural resources which they sell to the rest of Europe. The oil Sheiks in the Middle East have a similar set up. Maybe that is why so many Muslims end up in Scandinavia?
We told them. They didn't listen.
We told them again. They said we were pessimists.
We told them a third time. They told us to f**k off!!!
When it all fails. They will first blame us and then march on each other.
Prepare accordingly.
slack
So...will they put Greenland up for sale??
It's even a 2 for 1 deal. Buy Greenland, GET ICELAND FOR FREE!
There's no private property in Scandinavia ? No stock market ? No private cars....just Chinese bicycles ? Cuba and North Korea are Socialist ! Monedas 2011 Comedy Jihad Benevolent Socialist Dictator !
I think you are a bit confused with communism and dictatorships. I would say socialism nowadays is a form of strongly Regulated Capitalism.
"I think what we have here is a failure to capitulate !"....Monedas 2011 Comedy Jihad Socialism Sucks !
LOL Monedas, I capitulate! Actually i wasn't very convinced about what I said... I was just trying to understand why these socialists countries are successful.
Probably because they don't have 6 millions uneductaed mexicans to care about...
The residential real estate boom is so funny. We're constantly being told that land is becomming so scarce that prices can only go up....
but when I drive home every day from work... I pass miles and miles of plots of land with nothing on it... only once in a while a see a few cows on it...
and yet, prices for 1 m² are now at 275 euro. yep... land is becomming so scarce....
Denmark...bicycles, beer, babes...more beer and babes! Other than that, it is a real hellhole! :)
No jobs, poverty, govt check subsistence...yea real nice.
Yeah - Real Nicer than Detroit which looks like Mali with skyscrapers ... complete with Mali life expectancy stats. But we will get there too, no fear. We copy everything the USA does as faithfully as possible. So some parts of Denmark already looks like Gaza, complete with shootings and torching of cars.
Certainty-New Dark Age.
Uncertainty-the multiplicity of paths available to arrive at the New Dark Age.
Tyler, keep posting these Europe's-going-down updates, it will be an interesting record of the events. But right now, my eyes are glazing over. I'll be in my bunker, let me know when it's safe to come out.