Is There A Table Limit?

Tyler Durden's picture

Via Peter Tchor of TF Market Advisors

Europe is in the midst of doubling down again.  In May 2010, Europe was going to save Greece to prevent the "problems" from spreading into Ireland and Portugal.  In August 2010, Europe decided to save Ireland, Portugal, and provide more to Greece to stop the problem from spreading.  In early 2011, Europe starting buying Italian and Spanish bonds in addition to Portuguese, Irish, and Greek bonds to stop the spread of the "problem" into Italy and Spain.  In July, they increased the effort to save Italy, Spain, Portugal, Ireland, and Greece so the "problem" wouldn't spread to the banks.  Now, in October, they are going to save Dexia and the banks and Italy, Spain, Ireland, and Greece, to save the world.

Europe has doubled down every chance they have had, and lost every time.  The length of time before they are opening their wallet to put some more money on the table is decreasing.  They are calling the pit boss over to see how much credit the casino will give them for their watch and car (they know they will win this time, so it's okay).  They know their luck has to turn and this time they will win.  Heck, they might even hit blackjack will everything on the line.  Either that or they are at the table limit, they have run out of room to double down and are about to have to slink back to their room trying to figure out how to explain where their savings went and why they no longer have a watch and a car.

We are at that moment where the dealer is shuffling and we are waiting to see what hand Europe will be dealt.  Maybe this time it will finally work.  I doubt it, since the "problem" isn't dumb markets, it's an inability to pay back what is owed.  No one is addressing the fact that too much debt has been incurred.

So let's assume for a minute that this latest strategy works.  Europe spends some money and buys chunks of banks (I'm not sure why bank shares aren't acting as though they will be diluted, but c'est la vie).  Let's assume EFSF gets fully funded, that it borrows some money to buy even more European debt and equity stakes and at same time ECB lends money to the bank based on any asset the bank wants to fund.  Whew.  Stocks are up and everything is "fixed".  Frankly nothing is fixed, but Skilling will get some lawyers to sue the EU for copying his business practices.

But what happens if we get another round of weakness.  It certainly seems plausible to me since the problems of ultimately paying back the debt haven't been solved.  That next round of weakness, if we get it, will likely be caused by a global recession.  Yes, at times it is easy to forget that allegedly the world economy is still growing right now.  Europe seems to be going out of its way to create a black swan situation.  If we get back into crisis mode, it will be because of weak economies (and there are signs even the mighty Germany is struggling) and this round of money shifting will make it even harder (or impossible) to bet one more time.

It is not too late for Europe to stop the madness.  Let Greece default.  Let Portugal and Ireland negotiate real haircuts on their debt.  Let some weak banks (even large weak banks) fail. Then provide support.  Support the best of the rest.  Provide infusions.  Create new institutions where necessary.  Stocks will be lower, but a floor can be provided.  Future growth potential can be created.  By trying to avoid near term pain, they are ensuring that the next time, the market will be a lot lower before it bottoms and they will have fewer tools.  Maybe the rating agencies will save Germany and France from themselves and downgrade them before they do irreparable damage to their own ability to borrow money.

Once again, I would be more excited about what Europe was trying to do if TARP had worked as well as people seem to say it did.  Stocks did not bottom until long after after TARP was put in place.  We also bottomed at a much lower level.  Stocks were actually up a couple of days after Lehman defaulted.  I often wonder how much of the bottoming process was just time and price and "fundamentals" rather than specific policies?  I know that is contrary to everything our own Fed chairman believes, but I still believe that waiting until you see the white's of their eyes" makes policy far more effective and leaves a lot more ammunition in reserve.

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GeneMarchbanks's picture

Fuel meet already raging blaze...

gojam's picture

The fact that Europe isn't taking the route you suggest indicates that you don't fully understand the consequences.

SheepDog-One's picture

Yes there are consequences, and theyre INNEVITABLE, which means the innevitable only gets worse each time they shuffle the chairs and do nothing but bail out billionaires over and over again. This is now fooling no one, and people are getting angrier by the day!


gojam's picture

But Peter is putting forward a "solution" which is not a solution.

There is no point in attempting to ringfence contagion. The contagion has already spread.

SheepDog-One's picture

'The contagion is confined to sub-prime'....we've heard this shit a thousand times!

gojam's picture

There is no "best of the rest" Ireland takes a haircut the UK goes under. Italy takes a haircut France goes under.

I'm not saying no to Greek default, I'm not saying that what follows isn't innevitable but I am saying what is being proposed will not have a happy ending.

gmrpeabody's picture

Perhaps they are delaying to increase the ringfence to a global level. That way, for sure, the contagion will be limited to Earth.

Smiddywesson's picture

Peter is kidding himself.  The inevitable is inevitable.  TPTB have put all their efforts into delaying the inevitable so that they are best positioned to profit from the inevitable.  In other words, they are telling everyone the  ship isn't sinking and grabing up all the liferafts.  That's it.  That's why they won't let the markets crash.  That's why gold is trading in a range.  All they care about is buying time, for them.

Popo's picture

It's not the consequences one needs to understand.  It's the beneficiaries.

SheepDog-One's picture

They dont care about MONEY, fiat currency is BS, theyre removing all the wealth from the people its all about making US broke...theyll always be OK they own all the RESOURCES!

Milestones's picture

Until several 12 Gauges with 00 shot  says they don't own shit. And that will be the bottom line.      Milestones

Nascent_Variable's picture

Europe displays Keynesian cognitive dissonance at its finest.

If the government/bankster cartel just keeps pumping money into the system, it will "stimulate" the economy out of the recession.  When that doesn't happen... it must mean that you didn't give it enough time to work, or that you didn't pump enough fiat into the tubes.  Let's gas up the helicopter for round 87.

Even the ones who aren't blindly, mechanically repeating prior ineffective actions must be waiting for a new bubble to pull the west out of bankruptcy, but it should be clear by now that that's not going to happen.

It's time for the west to take its medicine.  Short term pain for long term sustainability.

mccoyspace's picture

Gojam has something of a point here, but not in the way he says. I just finished reading the Vanity Fair piece on California's finances referenced in the 'Frontrunning Oct 6' post. One conclusion of the article is that the broken status quo benefits everyone. Of course it benefits them very unequally and in a completely unsustainable way. So yes, the billionaires get a bail out, but other constituents get to keep their own small slice of 'something for nothing' going for a while longer. I agree with Peter's ideas. They are obvious. But they are not happening at all. Instead, the politicians are responding to the will of the people to just keep things the same. The fact that this ultimately cannot work is beside the point. People don't want it to change. So it's not so much the consequences that aren't understood, it's the motivation that isn't understood. Greeks are protesting to Keep Things the Same. California has structured itself to Keep Things the Same. This will continue until it breaks. What is the quote? 'The market can stay irrational longer than you can stay solvent.'

Keep your head down, trade tactically, don't hold your breath, and prepare, prepare, prepare.

gojam's picture

Hi McCoy,

We all seem to be agreed that the system is broken. I agree that it will innevitably fall to pieces.

The motivations for delay are twin. a) Blame. Everyone wants a scapegoat, no one wants to be the scapegoat and b) Position. Each country recognises the thing is going to break, understands the catastrophic consequences and is trying to position themselves for the future after the Fall.

The Eurozone would prefer the USA to take the blame. The USA would prefer the Eurozone to take the blame. The UK is keeping it's head down and hoping no one will notice it.

Hopefully, we'll all agree to blame China, afterall, it's their currency manipulation which have been a major cause of this even if no one is saying it out loud yet.

richard in norway's picture

let all the banks fail. its the only way

Village Smithy's picture

This is called a Martingale Strategy, and.. if your pockets are deep enough it eventually works. In this case Europes' pockets are called The Federal Reserve, also known as the American Tax Payer. So, yeah they're pretty deep.

SheepDog-One's picture

How so? WHAT 'american taxpayer'??

Village Smithy's picture

Sorry Dog I meant that "Taxpayer having deep pockets" thing sarcastically.

Long-John-Silver's picture

American tax payers pockets are not deep, you only think they are. The stitches in the bottom of the pockets unravelled and everything in them is long gone.

papaswamp's picture

Apparently there are 400,000 fewer of those this week.

cossack55's picture

Why would one impose a table limit when one owns a printing press?

alien-IQ's picture

It seems to me that the goal is not to "fix" the problem but rather to "prolong" it...As if by stretching it out people will forget it exist. I believe the term for this is "denial"...or simple madness.

SheepDog-One's picture


Esso's picture

That's the goal. The ewe noo whoos have set in stone that their goal is to reduce humanity to 500 million.

SheepDog-One's picture

Yep like I wrote below its OBVIOUSLY the goal, theyre trying to make the people snap so they can point and say WE caused it.

Esso's picture

Drone strikes - They're just not for towelheads anymore.

You suppose there was a reason the goob got the exact GPS coordinates of your front door during the last census?

Bartanist's picture

I am thinking that competition in virtually every field is good for job growth and the free market that keeps things honest/fair (not equal). Fair is good. Equal is impossible and counterproductive.

The trend toward monopolization of everything (banking, government, business) is not a positive step. It removes the requirement that people grow and learn. It locks us into a steady state, no more evolution ... and maybe that is the goal in the world of psychopath, megalomaniac oligarchs: in their withered deviant minds, there is no room for anyone else, just them.

It must be a pretty sad existence, always living in the negative, always worried about how to maintain power and kill more people more quickly and cleverly so as to be able to retain power.

Esso's picture

Everybody seems to be laboring under the delusion that the PTB want things "fixed." These people aren't creators, but destroyers. What is happening is exactly what they want to happen.

The banksters will continue the destruction until common sense & guillotines come back into fashion. Until that happens, the looting will continue unabated.

SheepDog-One's picture

They want us broke, thats what this has been all about since 2008, theyre ready to implode the system and are trying to make the people weak and hopeless for it. Soon.

Smiddywesson's picture

They want our std of living to be more equal to our trading partners so their precious little global trade system (which of course keeps them in power) survives despite that the dollar/debt/growth system has failed.  The aging of the world's population means that the growth based economy is finished.

Dr. Acula's picture

>They want our std of living to be more equal to our trading partners so their precious little global trade system... survives

No, Ricardo's Law of Comparative Advantage works regardless of differing living standards. What we're witnessing is just political gamesmanship and looting.


Racer's picture

No, no limit for them, it is not their money and they don't feel the pain

SheepDog-One's picture

I can only conclude that TPTB are purposely trying to make the people go bananas and start breaking things and rioting in a big way!

They have nothing left, and now want to 'blame the people' for what happens next...capiche?

dcb's picture

this is the exact reason why violence against the system is justified. they will never stop, and never make the bankers loose money. those wo gained weatlh, power, prestige, at the hands of the status quo will always spend unlimited amounts of others money to preserve teh status quo. it is one of the facts of life, like gravity, it's why we never have real reform, etc.

buzzsaw99's picture

the maggots do not fear the people at all. in fact, they mock them. until that changes nothing will.

SheepDog-One's picture

I think they DO fear the people, or else they wouldnt be surrounded with mercenary guards and have multi-million dollar bulletproof and bomb proof vehicles built for themselves.

buzzsaw99's picture

if that stuff makes them feel safe then we are back to them not fearing the people.

traderjoe's picture

Why do sovereign countries borrow money in the first place?

I'd like a system reset please.

SheepDog-One's picture

Look how pathetic we are, still claiming to be 'Free in the land of the brave' while we're in hock to our eyeballs to the biggest communist country in the world China! All BS!

Umh's picture

If you don't borrow money. You don't have debt.


dcb's picture

paper over the problem until th bankers there now can get out with their money, or those elected can get their payoffs. that's how it works. to fix the problem means to acknowledge it, to do that means to change ideology. strict following of the ideiology is what got them to where they are, you don't rise to the top of the church being a jew!!

SheepDog-One's picture

They dont care about money, they want to make sure we're all broke so we cant do anything about it, they own all the resources they dont care about paper fiat.

ElvisDog's picture

Who is this "they" you keep referring to? TPTB want above all things political stability and predictability so they can continue with their steady asset strip-mining operations.

HD's picture

"Self-censoring" Cramer told me to the market just has to go up. Reality and fundamentals be damned.

DonutBoy's picture

I think this is a rational proposal that cannot be reached through the political process that exists inside the EU.  I used to believe the likely outcome was that the PIIGS exit the Euro from the bottom.  I have changed my tune, because the PIIGS exiting the bottom means a dozen Lehman size banks go poof and it's not possible for the parties to agree to that.  Look at Dexia, Belgium has no government, but they still protect the bank.  It's not always so easy being a citizen, but its good to be a bank.

Since the PIIGS won't fall-out the bottom and force reality onto bank balance sheets, the strong are coming out the top.  Finland first I think, then Germany once another country has taken the sword for being the one to break the Euro.  That will put incredible downward pressure on the Euro and - as a side note - leave the SNB in quite a bind.  The Euro denominated debt gets written-off the old-fashioned way, currency devaluation.

These bailouts, Greece, Ireland, Portugal - the Germans aren't bailing out these countries.  They're giving them money to pay interest on their bonds to give back to German banks.  If no one outside Greece owned Greek bonds - none of this helpful neighbor bullshit would be taking place.  Once the Germans pop-off the top of the Euro they can skip the charade of laundering their bank subsidies through the PIIGS.

LawsofPhysics's picture

Laughable,  speaking of table limits, America is in no better shape.  Europeans want America to get it's own house in order, "stop the madness", or force the "haircuts" and America is saying "you first".

Got physical?

Smiddywesson's picture

It is not too late for Europe to stop the madness.  Let Greece default.  Let Portugal and Ireland negotiate real haircuts on their debt.  Let some weak banks (even large weak banks) fail. Then provide support.  Support the best of the rest.  Provide infusions. 

Ah Peter, such optimism.  No, it IS too late.  We are past the point of no return.  You said it yourself in the very same article, there's too much debt to ever be paid back.

I doubt it, since the "problem" isn't dumb markets, it's an inability to pay back what is owed.  No one is addressing the fact that too much debt has been incurred.

TPTB are equal measures of misguided, dishonest, and desperate, but they are not stupid.  They know the system cannot be repaired.  That's why they were willing to throw $16 trillion away, even giving some to foreign banks, to buy time.  They are not fixing a single damn thing, but they are doing one coordinated and sneaky act (besides stalling), they are buying gold.

Thanks for trying to cheer us up, but there is zero chance the right things will be done to repair the old system.