Rounding Error, Short Squeeze, And Cost Of Recap

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors

Job report definitely better than expected, but if 50k comes from the striking Verizon employees coming back to work it is less impressive.  Underemployment continues to be weak.  It also seems strange that strength in hiring came in services; whereas, employment in the ISM Services report was weak.  Anyways, not a bad report, but nothing overly exciting in a country this large.  I was trying to find out how many cities over 20,000 people the country has?  How many people per city got jobs?  I think if we reported the number on that basis, 100k would still bring tears to the eyes in a country that has seen jobs ravaged.  It's not even worth talking about the quality of the jobs or what they pay.  I have heard that this number takes the double dip talk off the table.  I am not sure why it would do that.  It indicates we haven't double dipped yet, but certainly doesn't take it off the table.

The rally has been strong across many products, but once again has all the signs of a short squeeze rally.  The weakest and most beaten up sectors and names have performed the best.  Anything that was a "hedge" tool, has also outperformed.  In credit, IG17 is trading at 138 which is about 8 bps rich to intrinsics.  That means that the index is outperforming the single names in CDS by a lot.  At this stage either single names will snap tighter or the index will revert as the "arbs" come in to close this gap.  Since the underlying bond market remains tentative (LQD is tighter on a spread basis, but lower in price, and stable on shares outstanding), I think it is likely that the indices will underperform single names.  Now is a good time to reset shorts in index.  The fact that price action has been one of the biggest factors in the price action is not a great sign.  That rationale can turn quickly and leaves a lot of weak longs in credit.

Dexia.....Dexia was going to be saved.  Then it was going to be good bank/bad bank.  All banks are going to get recapitalized.  Lots of rumors, lots of noise, and little action.  Why so little action?  Because little Dexia that was largely off the radar screen, has 570 BILLION EURO of assets.  It isn't that little and the risk some country or countries have to assume is not de minimus.  In fact the risk is large and figuring out who should bear what risk and who should take losses is not simple.  What we have seen over time, is that Europe is great at making announcements, but poor at following through.  And I'm not blaming them, what politician really wants to throw away a couple hundred billion of taxpayer money?  In reality, the only fact that we know for sure is that Dexia stock has been halted for almost 24 hours and its last price was 0.85 euro per share.  As bank shares have rallied on the recapitalization stories, has anyone bothered to ask what price the shares will be at after the recapitalization?  How much dilution with the governments want for their money?  Will it be punitive?  Before getting to excited about the prospect of government infusions for banks, investors should spend a few minutes figuring out if governments and citizens will want to take their pound of flesh as the cost for more infusions?  The governments may want to protect creditors of banks and prevent banks from failing, but it doesn't mean that they want bankers to be rich.  Maybe they will use AIG as an example of what a bailout should cost shareholders.

Anyways, this rally seems overdone.  European stocks and credit are sluggish today.  The data, while not bad, seems priced in already, and being long because "Europe gets it" is risky, because even if they finally get it, do they still have the resources to fix it, or a system that is simple enough to let them agree on how to fix it?  I am dubious, and at 1080 was willing to give some benefit of the doubt to the EU, but at 1170, I am happy to bet against them.

HY seems more attractive than stocks for a long in any case.  HYG experience a solid flush earlier this week and may be more resilient if we get another leg down.  Though for all the talk about low default rates, Friendly's filed for bankruptcy and the market seemed very willing to believe that EK and AMR were both on the verge of filing.  When default rumours aren't dismissed easily, there is probably a real nagging concern just below the surface.

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Careless Whisper's picture

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skohiu's picture

Harry Markopolos Likely Whistleblower Behind Bank OF NY Fraud Charges

Not likely, he was a guest on CNBS last month and asked what the next big issue would be....he specifically mentioned BNY Mellon and currency transactions.

Careless Whisper's picture

“Bank of New York is going to go down, Eric.  Between Bank of New York Mellon and State Street, these two institutions have stolen between $6 to $10 billion from tens of millions of Americans retirement savings accounts.  It’s been a hell of a crime spree for the bank, but now they are being brought to justice.” ... Harry Markopolos

Strong language, don't you think?


TradingJoe's picture

Me Think Short Is Right Side Of Trade...For Now!

SheepDog-One's picture

The 'big short' out there is the FED, using your money to squeeze stocks higher.

Have to ask yourself 'why' though. Trap the last of the bulls piling in higher for a big plunge, is what I come up with. When theyre lying to get people to pile in for a euphoria panic rally leaving the station, I'd be VERY leery.

CPL's picture





Don't count on facebook, twitter or FOREX ordering systems btw.

Randall Cabot's picture

Wishful thinking on Beck's part, he just wants gold to go up.

gringo28's picture

au contraire, it's this type of attitude and resistance that will continue to drive this upward, perhaps all the way to SP500 1230/1250 area before a pause....the shorts got a nice little pop but they seem to forget that they literally lost their shorts until August. pigs get fat...

SheepDog-One's picture

Nah, no way do I believe theres a bunch of shorts with endless cash willing to hand it all over every day to pump the markets higher. Its the FED.

SheepDog-One's picture

The pigs right now are the Hindu bulls...doesnt take much to get them believing markets just rise forever from here. Probably all this gain will be gone over the next few trading days.

bill1102inf's picture

Hope you traded the es spike and sell off pre market today.  

slaughterer's picture

Peter, everything you say is correct, but with earnings season coming, and the media not reporting on negative developments in Europe (there seems to be a media blackout over the last two days on the EZ distinegration except for the BBC interview posted last night on ZH), the ES will take a good week or two or even a month to double bottom to 1070--and that only if the weak-handed shorts can manage to hold on till then.    With MMs and HFTs on "short kill" setting, time for shorts to be nimble. 

SheepDog-One's picture

I dont believe any of it, this is a momentary desperation pop courtesy of the FED to keep BULLS placated and not selling until next week when theyre completely wiped out.

Beck Has 'Verified ... An Attack On Wall Street Next Week' Tells Listeners To Have Cash And Food Rea - YouTube

anynonmous's picture

pete from what I can see unless you have the perfect track record of one Dennis Gartman, looks to me like you should be sporting some pretty nasty whipsaw burns on your trading fingers

edmondantes's picture

Belgium GDP in 2010 = €350 bn

say 40% of Dexia's assets are worthless ... say €228 bn... 65% of Belgian GDP in one hit (fortunately might be shared with France ... still 32.5% of GDP)

and let's not forget KBC... €320bn of assets

oh ... and ING... er, €1.3 trillion in assets ... (shared with Netherlands)

and Belgium's debt to GDP is already well north of 100%

and let's do the numbers for Italy, Spain, France, Germany... in each case banks in aggregate are far far larger than the sovereign

how do a bankrupt set of sovereign countries that are smaller than the banks recapitalise said banks using resoucres which, erm, they themselves cannot borrow in the market...

their only way out is to print trillions of EUR...


qussl3's picture

How much of those assets are loans to Asia?

NOBODY is accounting for the hit on those assets if EZ blows.

Ponzi collapse if anyone defaults.

SheepDog-One's picture

And printing trillions of Euros is no way out at all.

oogs66's picture

yeah, it has to be to print, nothing else can come close to working

HedgeAccordingly's picture

at this rate... 1270 by next wedneday LOL. come the fuck on

SheepDog-One's picture

Or this by next Wednesday- Beck Has 'Verified ... An Attack On Wall Street Next Week' Tells Listeners To Have Cash And Food Rea - YouTube

Which way ya bettin....manic euphoria rules from here on out in a depression? Or do they got a nice false flag attack coming that makes 9-11 look tiny and removes every bit of market wealth out there to banker control?

fuu's picture

Is this like the attack on Iran that never happened?

SheepDog-One's picture

Nothing ever happens, till it happens.

fuu's picture

Timing is everything.

DeadFred's picture

Between 1270 and 1100 by next Wednesday I go with 1100

Steel_Preacher's picture

Europe has seen hyperinflation before. If they go ink crazy it would be ugly. I can't see them trying to print their way out. Any euro experts?

qussl3's picture

I'm no expert but i think many here are missing a key component in hyperinflation of the classical sort we are so familiar with.

Print and spend.

Zim, Weimar....etc all had govts who printed currency and disbursed it to the populace to spend.

There is nothing of the sort in EZ now, Germany is squeezing the PIIGS into primary surpluses - ie cutting govt spending, so that tranmission mechanism for velocity simply doesnt exist today.

My guess is the bailout will come and in the form of ECB QE, but only when the various govts have commited to NOT spending more than they take in reciepts and are supervised.

The flaw in that scheme is if somehow the QE liquidity leaks into the pricing mechanism in another form like commodities speculation.

I think they can keep this ponzi up, but they wont be able to stop the commodities spiking, with periodic crashes, the key will be the insiders piling physical.

The bankers themselves will blow up the PM markets via their buying of physical.

Just my 2c.

mess nonster's picture

I think this is the first coherent comment yet...deflation is inevitable. Go look at your closest Peal Oil chart.

But not tomorrow, or next week...

So far aggregate gold values equal total global currency at "around" 5-7 trillion...

Besides gold as defacto backstop to all currency, if bankers buy and hoard physical, this drives the price of PMs up, thus funding cotinued QE by artificial shortage.

Right now the goal is to shore up zombie banks everywhere. Who cares if they won't loan? The little people can just eat cake... ...or gov't cheese. If sovereign and continental (EZ) QE falters, then QE moves to some sort of global mechanism... IMF? SDRs?

It can't last forever, but as long as it lasts for today...

Watch for any big increase in physical  gold supply- this is the big dump, and a sign it is all over.

SheepDog-One's picture

right quss13 Ive been pointing out for a long time THIS is nothing like the printing of Weimar or those cases, the people HAD the printed money to spend!

Today only the banks have all these printed trillions and theyre just sitting on it all. 

praps's picture

That was no short squeeze yesterday. Looks much more like a leaked NFP. Selling off now to take profits on trade is the evidence.

SheepDog-One's picture

Sell the news, trap euphoric bulls calling for S&P 1,250 by Monday.

DeadFred's picture

What yesterday looked like to me was a short squeeze that was struggling as the smart money sold into the rally.

ronincap's picture

explain why gbp is up after announcing qe2


qussl3's picture

GBP collapse 13 big figs already, this round of QE was probably the most telegraphed in history.


kito's picture

how is that cyber attack on nyse going? 

SheepDog-One's picture

Well they were specific, Oct 10th at 3:15. Who knows?

yabs's picture

these rallies make me nervous

maybe they have saved the Ponzi scheme?

just as we startt heading to new lows it bounces back with a stick save

lets hope this sucker goes down soon

riley martini's picture

Since the Exchange starts the rally at 10:00 every day it looks like PPT price pump.

yabs's picture


good points

thats my way of thinking that with eacdh QE it doesn't get into the hands of citizens but ONLY goes into speculation done by the TBTFs

However once commodities such as oil rise to a certain level, it causes a crash

this will continue indefinately until you said it the bankers themselves see thewriting on the wall and use the money to buy physical

mess nonster's picture

You got it qssl3. Watch any glitch that could spike oil... Mid -east violence, gloomy production reports, etc. This is the wild card, and it WILL be played, HAS to be played, because it's the one hand not card-sharked by TPTB global banksters.

As soon as oil spikes and po'folks collapse under austerity AND skyrocketing oil prices, the the collapse begins at home. When that happens, zombie banks can give each other all the monopoly money they want, but it won't matter. 

In deflation Cash Is King. Gold, at best par with cash. Watch for the big PM dump and the gold free-fall.

dvsteenk's picture

i think we're going down again, as we fell out of the short squeeze trading range that broughtus from 1170 to 1270 in the last three days

but i'm still holding my breath

Randall Cabot's picture

Well, you know that as soon as the short squeeze has run its course, the shorts will be shorting again-with a vengeance!

disabledvet's picture

the move up has been sudden. could need a respite with the good numbers.

TheBreaks's picture

I'm not sure I agree that you were willing to give the benefit of the doubt to them at any time, even at 1080 - from what I read it seemed you pretty much constantly said they were screwing it up at all times.  You called the short squeeze after it started, but you were all bear and pretty scathing of the Europeans at the bottom of it.

Short at 1170 - a clear call.  Interesting to see how it unfolds over the next few sessions, and if you make an equally clear call on when you'd unwind that.

yabs's picture

lets jhope so dvsteenk

can you imagine if the matrix survives ?

I cannot take that

paul_Liu's picture

Tyler, any chance the Germany and France could agree something or at least say they agree something? This happend in the IMF weekend. 

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