SocGen Sums It Up: "The Time For Patching It Up Is Over"

Tyler Durden's picture

While next to impossible, now may be a good time to ignore the constant barrage of meaningless noise and flashing red headlines, which not only are contradictory but prove that Europe is literally making it all up as it goes along. Today is a great case in point of a tangential detour which does nothing to change the reality that Germany no longer wants Greece in the Eurozone (remember, oh, yesterday), and that the ECB is merely playing possum with PSI creditors who will block the deal with even greater vigor than before (anyone recall the FT story about the PSI deal being on the verge of collapse not due to the ECB but due to private creditors?) as the ECB's even bigger subordination will simply make the amount of hold outs even greater. So while algos take the required 12-48 hours to figure out what just happened today, here is SocGen's Suki Mann stepping back from the endless daily din, and summarizing what is really happening in Europe.

Form SocGen

The time for patching it up is over; Greece looks as if it can no longer stop the seams from falling apart. Restructuring (an economy) in a low (negative) growth environment simply does not work. The prescribed medicine (austerity) has failed; debt forgiveness (PSI) can't be agreed; and we are heading for debt default. The iterative process which defines the political response on these occasions has been unsuccessful, but the time for reflection will come later. It's been a tumultuous two years. The immediate investment case now focuses  on contagion and its containment. Now we ask whether we're really better placed to handle a default - whatever form it takes? Orderly/disorderly, much of the corporate credit universe should come through relatively unscathed, but risk asset pricing will be impacted nonetheless. Technicals of sidelined cash and an opening New Year frenzy have got us here, boosted by ECB manipulation of peripheral risk (sovereign and bank) through the LTRO. However, nearing the end game of the Greek situation now sees us with a different reality. Spreads are moving wider, the periphery is suffering the most, while turnover and secondary market liquidity have fallen off a cliff as evidenced through widening bid-offer spreads. It’s not quite the November phenomenon, because then we had massive selling of French risk in particular, so as long as investors stay with it, the widening should be contained. As ever, we’ll be fighting against the market’s mantra over the past two years, which has been to shoot first and ask questions later.

And nowhere is this mantra more visible than in today's... actually make that everyday's EURUSD, and thus ES (thank you 100% recoupling between Euro and US risk) chart.

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Ancona's picture

They ran out of spackling compound a couple of years ago.

LawsofPhysics's picture

Yes, you are correct.  1971 would be a fairly accurate date.  When paper promises where just getting started.

The Watchman's picture

For Greece, you only have to go back to when they went to the Euro. No way to patch it inside the Euro. Exit and you will heal.

DaveyJones's picture

Of course the Goldman criminals helped by hiding their true state. It's good deeds like that that makes our country trust them to run things.

Waffen's picture

1971 you say?  That kind of rhetoric makes you a suspected terrorist.


battle axe's picture

Greece Default and show those bastards.....

ilion's picture

Since gold, other commodities and SP500 have had quite a nice run over the last two years I've started to wonder maybe I should unload some of my long positions and put my money for example into real estate in some western European countries. If I look at the relative value of gold compared to German real estate then we've run too far with this bull market, there should be some convergence between gold and real estate prices. Any thoughts on this one?

lincolnsteffens's picture

Don't be in a hurry. WAIT! Read, learn keep your eye on ZH and donate.

Transformer's picture

I think you're right, now would be a good time to sell, especially gold and silver, and its derivatives, and buy real estate.  Once the Greek default happens, then this runup in the metals will be over and real estate will be turning around.

SheepDog-One's picture

'Real estate  investment' is the worst thing you could do, its not even an investment. Real estate is never an investment, you never own it. Horrible idea. If you want to buy a house, go ahead, but dont expect that bubble to come back.

Gohn Galt's picture

Exactly, you never really own it.  Just like the farm tenants in England.  There is an article on how they were going to do it in the magazine American Banker back around 1870, yes openly coordinating in the article.  The wanted the to crash the market, buy all the farmland west of the Mississippi for pennies on the dollar and then American farmer's would be tenants just like under the King.

Tyranny Tax

ilion's picture

I would suggest you read Barton Biggs "Wealth, War and Wisdom".

Real estate is an investment, especially if it pays rent.

PersonalResponsibility's picture

Property upkeep and taxes make it a losing deal for me.  I'd love to pick some up in the USA with these incredibly low interest rates but when municipalities/states have their bond situation go belly up (among other things like decreasing tax collections), those taxes may go through the roof.  My current property tax has continuously risen.  By the time I pay off my mortgage, the taxes will probably equal my current mortgage payment.  Fucking ridiculous.

narapoiddyslexia's picture

Buy rental properties in jurusdictions that have property tax caps.

Panafrican Funktron Robot's picture

It's not a crazy idea, depending on the regulatory environment you're working in.  I hate commericial RE, but apartment complexes (esp. if supported by gov. subsidies) are at a pretty good price right now and financing is cheap as hell if you're qualified.  Apartments tend not to get hit terribly hard in recessions.  The main risk I see is property tax jumps to combat local/state/national revenue gaps, but even in that scenario, marginal ramps in rents tend to be pretty easily absorbed.  

trip kitchen's picture

Wait for the Dow:Gold ratio to get near the 1:1 area, then roll your assets over into as much farmland as you can afford.  Seems as good a plan as any.

Raisuli's picture

Spackling always shrinks until it doesn't.

When freshly applied, it looks good. Give it a few years, and the cracks still show.

The trend is your friend's picture

All these firms are calling for a greece failure yet the Troika seem to keep the risk on mode again and again.  By the time the music stops the dow will be at 15000 and the s&p at 1500 on 100 million a day volume. 

AbelCatalyst's picture

This feels like that US show Lost - as you watch you think all the episodes fit togehter in some way, you read into it all these nuances and plot lines, but in the end you realize it was all being made up as they went along...  there was not grand plan, no method, no underlying plot, no meaning, no purpose, no guiding principles, no dots connected...  It was just a bunch of writers sitting in a room throwing pasta on a wall and seeing what sticks...  

This is no different - EU and US leaders get together and write new scripts every week and nothing ties together - it's just what seems like a good story for this week...    

Dr. Engali's picture

The time for patching this pig up was two years ago. 

pemdas's picture


Raisuli's picture

The time for this pig to default was two years ago.

SheepDog-One's picture

'Patching up'? Hell Greece was used as a money laundromat for many years, its FRAUD, not handyman work gone wrong.

GernB's picture

Theu Euro is way way up, quick buy before it goes up even more!

ekm's picture

The longer it lasts the deeper the fall. I thought the clean up would finish at S&P 950. But, since thay have invented all those LLTROOLLRRTTTOO that absolutely nobody understands, I'm thinking 850 or lower quite soon.

spastic_colon's picture

Unfortunately not before S&P 1370-1400 or the expiration of twist in June whichever comes first (if 1370-1400 comes first I reserve the right to change my mind several times before June)

SheepDog-One's picture

Working quite well....theyve almost got EVERYONE completely convinced DOW 15,000 is already a done deal....I'm betting it all on the typical scam that is we're already at the top now and will revisit 6,500 again soon. BTW, everyone holding for this certain 2,000 more DOW points will never get a chance to sell, because there are no real buyers, theyll all be totaly ruined.

Market Efficiency Romantic's picture

Exactly! It seems counterintuitive, but equity is subject to inflation, hence it will rather exponentially increase in nominal value as does money supply (compare historic chart analogy). Even in this scenario, the real value of equity decerases, as earnings net inflation have topped out and the speculative value of equity decreases, as investments shift to asset classes offering an expectation of increasing profitability. IMHO, the explosive increase in money supply will drive commodities (input prices) and on average higher-yield debt (compared to current avg yields). Remaining corporate profits will be siphoned off by commodity prices and the seniority of debt (still wonder about the broad trend in large caps to store cash reserves? Central bank printing will make sure that last straw of hope to avoid serfdom will burn instantaneously. Just imagine the super seniority of debt and the largely unregulated and manipulated price setting in discrete global commodity markets. Equity and property rights will be the first victim to move from constituting element of an economy to sidenote in history books. Labour law will be next in line, followed by all kinds of national regulation. Where will control over this evolutionary process, control over social standards, pseudo-democratic representation and most importantly Darwin-like selection and population control reside? With the FED! The instruments are currently being issued, LTRO etc,, quasi-indefinite credit lines, distributed through a regulated dealer network (banks aka unified function of political representation and de-facto board of recipient entities). Marginal changes to rate and guaranteed duration are the effective tools to exercise power and control through the intermediaries - the banks. The trick: multi-trillion windows as future round LTRO etc. create a new de-facto monetary system, as the existing system is devalued through relative size of the new instruments denominated in the same base currency. The difference between the old and the new system: freedom, sovereignty, property, and incentives in the old system compared to serfdom, subordination, utility, punishment and central planning in the new system.

Two important consequences entirely oppostite to current perception: A bank's nominal request for LTRO etc. won't be a malus, it will determine the relative size and meaning in the new system and once the inevitable logic death spiral of equity will hit the market, the market's typical acceleration into endgame mode without lengthy process will pretty directly eliminate equity and the entire systematic logic behind it.

This plan and the intent of its creators is so invisible to the public due to two attributes distinguishing them from everyone else: They created this system and can think beyond, the public was socialized within the system and cannot think beyond. They perceive property as relative share of full control over all exsiting assets, whereas the public perceives property legal entitlement to associated cash flows, which in turn lets extinction of property rights appear as logically unplausible for any individuum ( of the public).

It is damn scary to watch events unfold, logically already dooming most of what matters to the public as they unfold and the public focuses on the arranged spectacular economic stunt shows arranged to divert public attention.

Market Efficiency Romantic's picture

The specific systematic changes in main stream philosophy, ethics, science and both intellectual and physical resource misallocation and their hampering effect on relevant innovation as sole driver for growth and implicitely cornerstone for the superiority of the current system to me are pretty conclusive evidence for a drift, well-designed by a group of people to achieve superiority of their preferred system.

I have personally been confronted with this as rigor vs relevance debate in science, you have all heard of unethical innovation, brilliant but unfunded invention while wasting resources on metoo venture funding of senseless retorts. But above all, it's the philosophical legitimization of artificially stalled progress through such concepts as mean reversion and equillibrium.

Panafrican Funktron Robot's picture

Explain why you think the stock market support is ever going to stop.

Yen Cross's picture

Those same Banksters on the " CFTC list",? Those European Banksters have long fingers!

bobola's picture

The trick for the EU is to avoid handing Greece any more money while keeping the damage control to a minimum.


Raisuli's picture

That is precisely what  will occur. Greece will get no more euros. Greek's external financials will be handled. What is the mystery about this?

mayhem_korner's picture



It's bad when the French are looking down on you.

Yen Cross's picture

The Sarcasm smells of " gouda cheese", but you are correct.

SheepDog-One's picture

Lindberg? Man he was a pretty good pilot, give him a break.

mayhem_korner's picture



maybe he was thinkin' limburger and fat-fingered...

Yen Cross's picture

SHE? I love Bermuda Triangles.

Hulk's picture

Don't get lost in there...

Phil Free's picture

That's what she said.


DaveyJones's picture

oops, someone mentioned Lindberg on another post, guess it stuck. Damn, and I was hoping to write for Obama some day  

kato's picture

"Best thing for him, really. His therapy was going nowhere."

daxtonbrown's picture

What if they'd just skipped the game of charades and defaulted the Greek debt two years ago, like everyone knew they would? The Greeks would be better off, maybe like Iceland.

Heaven help us when our debt comes due in the US. That will be after Greece, Italy, Spain and Japan have hit the wall. Splat. Maybe someone can tell me what happens when the reserve currency shatters? The central bankers have proven that they can kick the can a lot longer than anyone thought, but gravity has consequences. None of the numbers add up, not unemployment, not GDP growth. About the only hope for the little guy is to figure out how to Go Galt.

dracos_ghost's picture

They need the crisis to push for the master agenda. Let's not forget this is really a social engineering excercise with little to do about markets -- corporations are still loaded, equities vaulting back towards all-time highs. Megamansion crazes all over the place. Except for the poor sovereign schmucks. They need to suck it up.

It's global fiat, why the hell are there any debt covenants? Greece should print an equivalent amount of Drachma(call it a Euro peg with China as a precedent) and say "PAID IN FULL" and move on. No need to default.  Nope, TPTB want their pound of flesh.

This will all be magically resolved within the next 30 days with the destruction of the individual in the process. The human being will be officially categorized as debt collateral.


GeneMarchbanks's picture

Is this the same SocGen that thinks it's hedged in case of the Greek default?

Greece has already defaulted, now how about ShockGen? I'm sure they've been 'firewalled'.

Yen Cross's picture

 Tyler was succinct. When " They" Tyler mentioned " English Law" , we all knew the inevitable.

   Cast a line and buy a ship, from the Baltic DRIP index. Onassis style!