Sometimes "No" Means Exactly That

Tyler Durden's picture

From Mark Grant, author of Out of the Box

Sometimes "No" Means Exactly That

I was interviewed last night on BBC radio. The questions were good and the newsman was knowledgeable. The concentration was on Greece and Spain and as I detailed the real debt to GDP ratios for the two countries which included all of their liabilities and not just the ones that Europe wants to count the whoosh of breath could be heard across the Atlantic. I am afraid I startled the poor fellow as I explained that this was not my opinion nor was it a particularly complex matter past finding the data which requires some hours of digging around in Eurostat and the Bank for International Settlements data bases. Then it is just simple addition and the division by the official GDP for each country and you arrive at the conclusion. What is so eye opening then is the real number and this is why, of course, that these nations are in trouble as various liabilities turn from contingent to current as the economic crisis deepens. It should come as no surprise to the knowledgeable but to those that have long believed the official debt to GDP ratios put out by the European Union; the actual explanation and the dawning of what it means always seems to provoke a certain gasping of breath.

I do want to address one thing this morning that has been on my mind. I am not nor have I ever called for Armageddon or the end of the world. I find these kind of statements, by anyone, to be quite irresponsible and mostly self-aggrandizing. The world will pick itself up one way or the another and solutions will be found albeit quite painful ones for Europe I am afraid but there will ultimately be solutions. Over my many years on Wall Street I have seen one soothsayer after another rise and fall and then try to repeat the experience with the next Big Call. This is not what I do nor do I find any appeal in this kind of behavior at all. My commentary is certainly unique as it is almost totally directed at keeping you out of trouble and it is the rare moment when I suggest something of interest. I learned long, long ago the great and terrible secret that if you can avoid losing money that you are way ahead of the Great Game and better placed than your competitors.   This is why Grant’s first ten Rules are the first one reiterated another nine times, “Preservation of Capital” which comes first and foremost and is a gift that just keeps giving if you get it right.

Difficult Times

As it dawns upon the world that Ms. Merkel means exactly what she says and is not going to back down you may expect a quite negative reaction in the equity markets and a widening of spreads for some risk assets along with a strengthening of the Dollar. I am talking about the “Trend” here and not some trading strategy for today’s business. Germany is not going to flinch and cannot both due to local politics and to the now obvious fact that Germany has just about reached the limits of what she is financially able to do with a $3.2 trillion economy. To put it quite simply; they have run out of excess cash and more European contributions are only going to weaken the balance sheet of the nation and seriously imperil Germany’s financial condition. I say, one more time, Germany is not going to roll over and all of the pan European schemes brought forward by the bureaucrats and the poorer nations are not going to go anywhere. There is one novel possibility here and that is that the Germans, like the British, may opt out. Germany, Austria, the Netherlands, Finland et al may just say, “Fine, go ahead if you wish to have Eurobonds and the like but we will not guarantee them.” All plans do not need to have an either/or solution and this may well be Germany’s position in the end which would place the periphery nations and France in quite an interesting, if unenviable, place.

“So do we pass the ghosts that haunt us later in our lives; they sit undramatically by the roadside like poor beggars, and we see them only from the corners of our eyes, if we see them at all. The idea that they have been waiting there for us rarely if ever crosses our minds. Yet they do wait, and when we have passed, they gather up their bundles of memory and fall in behind, treading in our footsteps and catching up, little by little.”


                       -Stephen King

Investing in Difficult Times

First you want to have a healthy position in Treasuries as the safe haven bet for the world as things begin to run askew and get worse. The Emerging Markets will get seriously hurt as the European banks funded these countries and these banks are now drawing in their horns and returning to their own home turf not just as a result of Basel III but as a result of their balance sheets, so full of fluff and tomfoolery, run up against the reality of their asset bases and cumulative loans no matter how Europe allows them to be categorized. Loans that aren’t paying and Real Estate securitizations that aren’t paying take the same bite whether you call them roses or daffodils or you claim their mark-to-market worth is some fantasy number concocted by the banks and approved by the central bank of any given nation. Many of the European banks have hit the wall now and are standing there staring at the tiles. With the few exceptions I would not want to be the holder of European bank obligations at this time.  Neither do I advise to be the owner of most of the European sovereigns; first as connected to their banks which are three times the size of the sovereign countries of the EU-17 but also because their real debt to GDP ratios are so far into the red that whatever solutions are found, and printing money will not help as there is plenty of liquidity in the world and the real issue is solvency, so that any grand liquidity play will not do much good past the shortest of terms. In fact, the liquidity play has run out in my estimation and now the hard choices, the unpleasant choices, are all that remain and they will be painful; any of them.

To capture any sort of yield is now a painful affair. The corporate debt that is deemed worthy and safe is trading within basis points of Treasuries and the spread is so insignificant that these names have become proxies for Treasuries and hold now, in my opinion, very little value. There is a tendency in the markets to regard the financials with one viewpoint as categorized in one basket. I do not share this view. The major European banks and the major American banks are now two totally separate categorizations in my view. It can be said that they are all banks but the leverage, the financial accountability and the basis for investment is the separation of the Earth from Mars now. For yield I would look at the senior debt and perhaps some hybrids/trups of the major American banks because they are not going anywhere and the United States does have the wherewithal to make quite sure of that. We are in a financial crisis no doubt and I expect a world-wide recession by the fourth quarter as caused by the antics of Europe and long experience dictates that you want to be at the top of the capital structure, not in equities or preferreds during this kind of cycle but if yield is high on your agenda then I would take a look at senior debt of the American financials which would be both the banks and some of the insurance companies. Choose carefully, be cautious, but at current spreads there is value in this sector in my opinion. Remember that dividends can come and go and that the dividends for Preferreds can be waved by the gesture of hands at some Board meeting but senior debt defines whether a company is still in existence and is far safer than other securities further down in the capital structure. In general the marks-to-market may decline but the senior financial debt will pay and there are not many good choices to get any sort of yield now.

In the Next Days

Germany will not back-up. This summit will prove to be quite contentious as the beggars want to be the choosers and that is not the way the world works. Hopes will get dashed and reality will invoke its presence and the platitudes of the last thirteen years since the EU was formed will run head on into the unavailability of funds and shockwaves will reverberate across the Continent. That is my prediction. Then Greece will beg and plead and perform its ritual dance but this time, after the Troika has looked at the progress of Greece and found it severely wanting; there will be no more money and it is even dubious that there will be any meaningful extensions. Spain will also dance the dance of the alms seekers and money will be given, virtually exhausting the availability of the EFSF funds which were pledged and are about to become a matter of payment $425 billion which will now be on the table for Greece, Portugal, Ireland and now Spain so that pledged liabilities become current liabilities and cash on the barrelhead is quite a different matter than promises to pay; as we all know.

Patience, patience; we are getting down to it and while the road has been long and the twists have been many and varied in the final analysis it will be the actual amount of the available capital that will answer the long awaited question of when this all ends. I submit that this Summit will offer all of us a “Moment” and that will be when Germany and the rest just say “No;” and then the tide turns, the water begins to pour out and realization, like the morning sun, dawns.

“I feel them steal softly upon my thoughts, pattering gently like drops of rain against my window of thought. And so I lay, wandering the long halls of my thoughts, allowing the shades of memory to slip quietly through my mind, remembering starlight and shadows, days of refulgent glory and nights of moonless pitch, and I allow the needle of the tiny compass inside me to swing wildly… First towards the bright dawn of the morrow…then towards the long night behind me: and I think, and I wonder… When Fate comes to collect one of her sons… which way will the compass lie?”


                              -Joshua Azevedo

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GetZeeGold's picture



Oh come on know how much I luv you!!!!


Sudden Debt's picture

I'll tell my wife we're going to divorce next month. Promise....


Treeplanter's picture

But, sweetie, you partied down with the rent money and you called me a Nazi when I said the kids need shoes.

Stock Tips Investment's picture

Thanks for the post, which I think is very good and timely. The general opinion in Germany is that this country should not expose its economy to high levels of risk. Obviously the economy is the most solid alemna Europe. But it is also true that shares the same problems as the rest of their neighbors. It is a highly indebted country with a large fiscal imbalance and poor economic growth. The international community still does not want to look at this situation. But the Germans are aware that their economic situation is fragile. From now on we will see the alemnes saying "NO" to everything they can.

cossack55's picture

Maybe the PIIGS and a couple of others are the 57 states Obummer was talkin' about.

Treeplanter's picture

Don't forget Cyprus and Slovenia, where they speak Austrian.

Abraxas's picture

Shush, lower your voice. They know it, but they are sensitive about it

q99x2's picture

England took up finance and Germany technology. The Brits need to get rid of Queeny and go poof as well when Germany takes a hike.

Treeplanter's picture

Britannia cannot rule the waves without the Queen or Abu Charles.  Even Maxwell Smart likes the Queen.

Sandmann's picture

Only because of Margaret Thatcher who destroyed manufacturing simply to destroy Unions

falak pema's picture

Not so, she believed deeeeeeeeeply in Oligarchy rule in Europe, and despised the welfare state: "like my dear friend Ronny we hate those socialists and LOVE Pinochet!"

Lebensphilosoph's picture

We need to get rid of the current parliament and reinstate true constitutional monarchy founded in Magan Carta and the Bill of RIghts as we had in the past, electing a proper king on the throne who is true to his oath of office and having a House of Lords that is actually one of lords, and not of hysterical females and ennobled monkeys.

Lebensphilosoph's picture

And what is inherently more correct in your own crypto-Marxian twaddle you peddle here from day to day besides your own subjective inclinations, eh, that you would scoff at me? Sod off, you emasculated frog.

falak pema's picture

more stale porridge; lay it on thick! Dieu et mon droit; honni soit qui mal y pense. Cassoulet et bouillabaise learnt from the french. Maybe the frogs can trade you the Count of Paris for victoria beckham and the spice girls.

Lebensphilosoph's picture

I see I've picked up a stalker in the racial bastard who has gotten it into his head that he is a European - hence his fanatical desire for his multicultural European state, lacking any real identity, that is identity of the blood - biological identity - of his own.

falak pema's picture

when you post racism you will find your antithesis here. No skin off my nose. If your bile stays as vile as your stenchy breath. I don't stalk I walk in the open, and I talk straight.

Lebensphilosoph's picture

That is only to be expected; that with your being a racial bastard you must resort to the dominant moral discourse on the 'evil' of 'racism' to establish your own worth to yourself, as though you weren't quite sure of it; much like the Christian engages in apologetics.

falak pema's picture

while you're at it why don't you condone the Holocaust and we'll shake on a "seig heil" from your aryan perspective of knights of the shitty garter that lost their marbles at the table of human rights. You must love that Norwegian marvel called Anders Breivik and his last Templar stand. Come on say it out loud and we'll know you don't just spout John Bull stout, you also believe in all-out racial rout. My worth is timeless as its anchored in greek legend and logic; it knows no country, race or creed. Just good chardonnay.

Lebensphilosoph's picture

My worth is timeless as its anchored in greek legend and logic; it knows no country, race or creed.

What blathering bullshit. You contradict your absurd assertion with the very word with which you qualify legend and logic: Greek.

falak pema's picture

Nope the Iliad was not logic it was legend but a beautiful tale like the Odyssey, with many moral messages. Logic came later. So don't bend reality to fit your mindset. We learnt as much if not more from legend than from logic. That's Greek history and its mythlogical construct.

Lebensphilosoph's picture

while you're at it why don't you condone the Holocaust and we'll shake on a "seig heil"

Godwin's law is verified once more.

from your aryan perspective of knights of the shitty garter that lost their marbles at the table of human rights.

Human rights being an intellectual invention, I fail to see how rejecting them in ones own moral paradigm implies some kind of mental illness.

You must love that Norwegian marvel called Anders Breivik and his last Templar stand.

Is this what passes for psychological insight in your mind?

Come on say it out loud and we'll know you don't just spout John Bull stout, you also believe in all-out racial rout.

Are your rhymes supposed to be cute? You're projecting again. You're the one who is calling for genocide, and setting the stage for ethnic conflict, in your cries for a multicultural Europe, which will end in the same morass of indistinct, cultureless, historyless brown Fellahin as has every other empire before it. Vienna and Florence will become as Giza and Memphis: the Europe of tomorrow is the Egypt of today.



falak pema's picture

say what you have to say, don't walk sideways you're playing that bogeyman game and its sham from square one. Stand up man and don't box at shadows. 

Multicultural europe is a reality and I didn't create it. Now you have to live with it or its ethnic cleansing time. Stand up! Don't act the Nazis who blamed the Jews and Crystal night. 

slewie the pi-rat's picture

NADA = goldilocksCrisisTM "resolution"

i put that up yesterday

nice to see markG is paying attention

for a change

aaaand it looks like risk0ff as moDebt may be shying away from 2moochDebt at the coltillion

in unrelated news, if anyone wishes to read an excellent piece about the politics of fundamentalist v liberal Islam The Democratic Party Decides Not to Take Part in Libya's Forthcoming Elections

slewie the pi-rat's picture


somebody upset we didn't get QEIII again, yesterday?  L0L!!!

here's another interesting piece for the zH anti-intellectuals who follow mark's sophomoric ploddings

Libya: Armed Forces, ICRC Sign Agreement

the RedCross nannies are goin in and teach the libyan military how to be proper goonies!

disabledvet's picture

What's the "or else" again? "opting out"? "copping out." "copping a plea." "pleading the fifth"? I mean SO WHAT?

morning_glory's picture

Willst du bis zum Tod, der scheide
sie lieben auch in schlechten Tagen


bdc63's picture

Tyler's I have a special request:  could you please start putting Mark Grant's name in the title of his articles so that I don't have to waste my time clicking on them anymore? ... It would probably inprove his ratings as well 'cause everytime I see his name it's an automatic '1 star' from me.

KNiCKER's picture

As a Dutch citizen, I genuinly hope that we opt out together with the Germans and a few others... Let them fix their shit in the coming 10 to 15 years and then we'll talk again (or go to war earlier for that matter, and that's my biggest fear. It's like the 30's all over again)

debtor of last resort's picture

Another Dutch citizen is hoping for a banking collapse. The freak show must end.

GetZeeGold's picture



....and they're laughing their asses off in Iceland.


Is that another banker I see? Throw his ass in jail too!


KNiCKER's picture

We should take Iceland for an example as those Eurocrat Fascists indeed!

OttoMBMP's picture

So NL and GER with aligned interests this time. Cool.

machineh's picture

Yes, an autarkic trend is apparent, and not just in Europe.

In South America, Unasur (with about the same population as the EU) is committed to a common passport and a common currency for its dozen members by 2019. 

With the lesson learned from the euro (a common currency doesn't work without fiscal integration), Unasur members must realize that a common South American currency is a pipe dream.

JustObserving's picture

That seems to be a logical solution - let the stronger countries form a super-Euro and the remaining countries can stay in the Euro and issue alll the euro bonds they want.  Otherwise, Germany and Holland will go broke carrying debts of the profligate nations.

Abraxas's picture

Hey Duch boy, your ass ain't pristine either. Just sayin'

XitSam's picture

Please describe the war scenario that you fear? Which countries?

fonzannoon's picture

worst article ever.

GetZeeGold's picture



The Bankers Local Union 201 approves this message.


bdc63's picture

plus one for using the word "banker" and "union" in the same sentence ...

JohnKozac's picture

Collapse of Currency a 'Very Likely Scenario'

Investment experts at Deutsche Bank now feel that a collapse of the common currency is "a very likely scenario." German companies are preparing themselves for the possibility that their business contacts in Madrid and Barcelona could soon be paying with pesetas again. And in Italy, former Prime Minister Silvio Berlusconi is thinking of running a new election campaign, possibly this year, on a return-to-the-lira platform.

Nothing seems impossible anymore, not even a scenario in which all members of the currency zone dust off their old coins and bills -- bidding farewell to the euro, and instead welcoming back the guilder, deutsche mark and drachma.

Treeplanter's picture

Slowly, then suddenly.  Stock up on tobacco and rolling papers.

eclectic syncretist's picture

The bankers want to issue bonds that are guaranteed by German taxpayers, which is bullshit.  If the bankers really wanted to issue bonds bad enough, they would issue them with no guarantees of repayment, but solely based on mutual trust.  And that my friend, they will never do. 

Merkel should grow a pair and put the ball right back in their court.  Why should the German taxpayers backstop the banksters ongoing game of raping them.  The idea is ludicrous.

Troy Ounce's picture



Well...we're talking about politicians in a FIAT currency system. They ALWAYS find the money, somewhere..unexplicably..mysteriously

slewie the pi-rat's picture


they'll find "the money" to keep the checks in the mail and kick the can

real drama eh?

meanwhile the "markets" will continue to remain relatively full of "money invested" and there will continue be little near-random "waves" across the surface of the money pond or pool

systemic stability has been achieved for the time being and they ain't gonna pull the rug out from under their own fuking bankstering system again this week as perhaps a zombie or two gets something besides moMoney for its pig-man

trust me

Ol Man's picture

"First you want to have a healthy position in Treasuries as the safe haven bet for the world as things begin to run askew and get worse...."

Because the Treasury BuBBLe  can only get bigger!!! Right?!?!?


"What is so eye opening then is the real number and this is why, of course, that these nations are in trouble as various liabilities turn from contingent to current as the economic crisis deepens..."

And they will all come back to reality except the biggest one (the US), Right?!?!?



LawsofPhysics's picture

That is what I was thinking.  However, given the fact that any previous attempts to predict anything in the "markets" have been dead wrong (and why I just play the spreads the tylers point out or do my own homework on solid innovative dividend paying companies and buy PMs when they are cheap - like the mid 90's 2001, and 2009) you might be suprised.  Saying the treasury bubble can't get any bigger is like saying that the "average" person can not possibly get any more stupid.  I would definitely take the other side of that trade. 

Ol Man's picture

Oh I think it can get a little bigger, though with real yields swinging into the negative territory there isn't much room, but sooner (maybe) or later (can't be avoided forever) it is gonna burst...

The graveyards are filled with indispensible people... and economists...