UBS On "How Bad Might It Get" And Why "Sooner Or Later Intense Instability Will Resume"

Tyler Durden's picture

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jeff montanye's picture

imo the "strident steps" toward fiscal integration is an apt if unintentional phrase.  harsh, obtrusive, discordant.

tom a taxpayer's picture

Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.

Jumbotron's picture

Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.

A poem possibly in honor of the fall of the original Holy Roman Empire....the forerunner of the E.U.

+1000 Humpty Pieces !


markelshark's picture

You know what is f'ed up? ZH, in pointing out how fragile the system is, actually helps out the keynesians' cause by providing the evidence needed for QE3 4 5 6 etc.

Capire's picture

I'd rather have the truth. For everyone else, ignorance is bliss, I guess.

Elwood P Suggins's picture

The Euro Zone sat on a wall

The Euro Zone had a great fall

All of Ben's horses and the German cunt

Couldn't teach that dog to hunt

MarkTwain00's picture

so basically, everyone go short because we are about to pump this biach back up to the moon and look like geniuses

zhandax's picture

A bit myopic?  Keep in mind that the key concept here is to keep everyone scared shitless that an EU collapse will trigger TEOTWAWKI so as to keep maximum pressure on the Europeans to support signing over their sovereignty to the banker's bureaucrats (EC).  It's that fuckin simple.  Hell, they are coming right out and saying it.

DrunkenMonkey's picture


The manufacturing of consensus regarding the necessity of GDP growth is another BS diversionary tactic, since that really only represents the growing wealth at the top of the scale whilst wages are in constant decline (in real terms) for the vast majority.

s2man's picture

"Most official bodies (including the IMF) typically regard a global growth rate of less than 2% as being consistent with a recession phase."

I thought a recession was negative growth.  How can <2% growth be a recession?  Geez, they are messed up. We need a decade of recession to get back on an even keel, but they won't allow it.  Someone, please, hit the reset button.

the tower's picture

because with a growth rate of <2% you cannot service your debt therefore you are in recession


it should actually be <3%

Overflow-admin's picture

And pension funds that need 8%yld.

you enjoy myself's picture

Someone, please, hit the reset button.

too late.  this is now a case of skiing completely out of control down a cliff face.  you either make it against all odds, and look like a hero, or crash and die.  you can't stop and climb back up.

the ECB must and will print.  not doing so means certain death, while doing so means a 90% chance of death.  only the course of action with a 90% chance of death allows politicians to temporarily avoid hanging from a lamp post.



XitSam's picture

No it is not too late. The question is not 'how bad it will get', but how long the bad will last and will there be a better system on the other side. As any dying organization will do, the ECB/Euro/EU will fight to stay alive even if it means decades of poverty for its people. Even if it means that disolving would only cause a couple years of harm. 

Metaphor is always suspect. There is another option to your skiing scenario, slow down and slam into a nearby tree, some broken bones but you live. Politicians will never wilingly choose that course though, they must be forced.

deKevelioc's picture

Population growth of 1.2 percent per year in addition to optimistic inflation rates reported by nearly ever economy of the planet makes people a little nervous when they see 2 percent growth.  Can we use the US and China as glaring examples?  And speaking of "tail risk," UBS's forecast is full of tail risk, too, like an oil shock or futher weakness of the dollar, et cetera.  It's all crap.

old naughty's picture

Tom a,

...and soon the kings will be un-covered...

this too is pre-ordained.

Tuffmug's picture

I ran my personal super duper Megaeconometric Global Quantitative Hypermodal Multiplex Macro Micro Model Program (number 427) on a Hewlett Packard computerized Chinese Abacus and obtained the following extremely accurate prediction and strategy:

Massive SHITSTORM approaching, brown, gooey, and extremely smelly! Wear a full length raincoat, goggles, gas mask, and hip boots. Also wear ear plugs to keep the shit out of ears spewed out from CNBC commentators and sell side shills!

non_anon's picture

"Things do not happen. Things are made to happen."

John F. Kennedy

rufusbird's picture

cryptic comment...that statement wasn't made posthumously was it?

rufusbird's picture

Thanks for the link. Valuable website, I saved it in my personal file. I had no doubt of it's authenticity.

I meant my comment as a poke at the coverup of events surrounding his death.

 HIs death, and the death of L. Oswald, real time on TV, is one of the most vivid and etched memories from my teen years.

fx_dilemma's picture

I am wondering why such a respectable bank is not writing anything about the fact that a permanent increase of debt through cheap euro funding became the (only) business model of the euro periphery and they simply can not survive if they stay in the euro area and are not allowed to borrow as much as they used to before the crisis started.In other words: they either have to get enough euros for their needs or they have to leave the euro zone.There is simply no other way to run this , the economies of these countries will collapse if they stay on austerity without having their own currency.Even if ECB starts buying bonds on the primary market the austerity will not disappear , germany will not allow the periphery to borrow as much as they did in the past , they will have to borrow and spend SIGNIFICANTLY less

RobotTrader's picture

Futures are pushing to new highs for the move

As the "gloom" stories continue to spew forth

Tuffmug's picture

Yes, markets go up-until they go down and every fool, bull or bear, has his day!

hardcleareye's picture

Robo, does your Mom know you are up this late playing on the computer?

swissbene's picture

what point(s) are you making?  futures (assume equity futures here?) to new highs -- okay what instruments and time parameters?  are they higher than year 2000?  in real terms? 2007?

just not clear which highs are meant in your statement.

by putting 'gloom' in quotations with a verb like spew it seems you mean in this context that the 'stories' do not mesh with the ambiguous highs mentioned above.

getting to the point if there is one:  (a) are the futures rational or (b) the 'gloom' stories rational?  any investment thesis here or is this simply the play by play?

if amenable: please pick archetypical gloom story from the set you have identified and give the high level criticism.

interested to hear some diversity of opinion here but substance is needed.  sorry if i missed an obvious & useful point in your post. 

disabledvet's picture

you've called the "danger rally"--what do you think of the intervention though? Obviously it's a surprise to (almost-since the market rallied big on Monday) everyone. Never hurts to have the perception that you "get what you want" does it! I did take note however that there are a lot of farmers without any money right now courtesy MF Global and a Senate sub-committee hearing. And that New Jersey thinks we'd better start bombing Iran. Something very "programmed" about it all however. Like a great fear is suddenly hovering over all our freedoms and even the most powerful are being made to feel "they don't have a choice."

Newager23's picture

This analysis that misses an important point: growth has stopped, or is stopping, because of too much debt and high energy prices. These two contraints will prevent economic growth going forward. It's difficult to envision this scenario when we have never faced it before. Energy prices are the life blood of the economy and energy prices have tripled since 2004.

If energy prices were still at 2000 prices ($20 oil), then we would still be growing at 3% globally. Cheap energy allowed growth from 1850 until 2000. Now we no longer have cheap energy and we are screwed. To offset cheap energy we have tried to use debt to hasten growth (which has helped China and India grow). That worked for a few years, but now the debt has exploded and has hit a wall.

We are trying to use more debt to add liquidity to keep the economy growing. So far this has prevented a meltdown, but this can only work for so long. In the end, without cheap energy, the economy can't grow. And cheap energy is not coming back. In fact, by 2015, we will be in the midst of an energy crisis due to the oil decline rate.

For those of you who do not understand the decline rate, here is a short explanation. At ALL existing fields they will decline in production this year globally at a combined 5% rate. Thus, we have to produce 4 million barrels (per day) of new oil this year just to spin in place. And by 2015, we will be lucky if we add 2.5 million barrels of new oil (because there aren't very many projects planned due to the darth of disoveries since 2000).

You can look at consumer spending, investment spending, gdp growth expectations, etc., but the bottom line is energy prices are killing growth (and creating price inflation). And without growth there is no increase in salaries to pay more taxes and to pay down debt. And as we have seen, we keep adding debt, even if incomes are stagnant. To make matters worse, the western governments in Europe and the US, continue to expand the size of government and government programs.

It has gotten so bad, that govt is now the number one employer (employing 17% of the workforce in the US), yet govt workers create zero wealth and must be paid for by the remaining workforce. When you add this drain on the economy with high energy prices and a high debt load, its over. We should have limited govt jobs to 10% of the workforce, but its too late to go back. All we can do now is watch the economy implode from all of the detritus pulling it down.

End of rant




unirealist's picture

The damage done by high gas prices ise ignored by almost everybody.  I keep saying over and over, "This country can't run on $4 a gallon gasoline."  But nobody listens.

Even if everything else was all right (which it's clearly not) the oil price alone would drag us into a depression.



Dr Zaius's picture

UBS found it key to take the threat warnings to the next level.

When I read that, for some reason it reminded me of this.

luna_man's picture



No matter how rosy the markets look, how many players are truly confident enough to leave a sizeable position on overnight?

Most know, things are bad and getting worse.



Ropingdown's picture

Who among us is not fatigued by the same play performed day after day? "It is desparate!  You must print!  Or else!" Or else German, Dutch, and other industry roll along.  The consumption economy and growth stall for a time.  Governments are forced to shrink and lay off cronies and cronies' children.  The elites will have to face the fact that they actually don't know how to run the world (but there are medications which can help them through this) and many banks will have ruined their shareholders and bondholders which is obviously what they've been trying so very hard to do for decades, with hitherto lesser success.  There already is chaos in the world, though it's mostly experienced by single mothers trying to hold two insecure jobs and raise the children.  The pathetic groanings of the rich about the certainty of collapsing pension funds doesn't ring much of a bell for those who don't have one coming beyond the state minimum.  Enough of the fear-mongering.  Most of us will suffer no matter what direction the large banks and their central-conspirators choose.  God I hope Merkel stays strong...

The Big Ching-aso's picture


Let me see if I understand all this correctly...................


"Lend us funds so that we don't collapse suddenly and drag you down with us"

"But we're also collapsing ourselves as is"

"Yes we understand that, but again if you don't create more money to lend to us we will collapse and drag you down even further"

"Ok, but what happens if we create all this money, you don't pay us back, and you still collapse?"

"Then you collapse with us just like if you hadn't printed the money to lend to us but you don't collapse with us suddenly.  It's just drawn out some.  Just like your collapse in slow motion.  We want to collapse just like you"

"Ok, but why don't you just print all the funds you need, sell a bunch of your sovereign assets like you expect Greece to do, implement draconian austerity measures like you expect Greece to do, and just leave us out of this foreign debt-debacle funding picture which frankly at this moment we can't afford during our own financial crisis whether it's in slow motion or not?    Afterall we've already done our part and then some saving you in WW2"

"WW2 is passe and we paid you back by allowing your military bases here to make our economies grow which then funneled back into your economies.     Well not to digress any further of what John has done for Jane and vice versa,  the bottomline nutshell here is we can't.    The global economy runs on dollars as the reserve currency which you and only you create and no one else wants to buy our Euros unless we convert them through various swap mechanisms and other sophisticated obfuscations"

"So what you're really telling us is that even though everybody else knows you're really insolvent and on the brink of complete and utter collapse that just because we flood you with converted obfuscated dollars everything will be fine now"

"Yes, everybody knows what you've just said but we have to play this game so that we don't look bad too quickly and cause unecessary global upheaval.  All that plus the main fact that Bernanke wants the dollar to weaken a lot more anyway so it's a win-win for everybody at least until the next go around" 

"Next go around?   What next go around?"

"Yes, the next go around.   We're going to have to do this more than once but in the end there's a one-world currency reset anyway so who cares"

"Ok, yeah just want to confirm we're on that same end page.   It's a deal.   Where do we sign?"

"Right here.   Please, use our pen"






Tic tock's picture

...'demographic'!?, like Pensions, because going forward who,apart from the truly idiotic, will trust private finance? That is just one aspect of the structural problems thrown up by this emergency response- Printing is a short-term emergency measure ! Of course, it is very profitable for money-market actors, it creates buoyancy and euphoria that outweigh any fear caused by a single handful of apples. This is a Systemic Crisis, there are only two options - a total damn-near global reset, or a new method of sovereign financing. 

If I were a director at one of the larger merchant banks, I would give a week's deadline before I moved for a cancellation of all extant contracts with no recompense. the world wouldn't crash, no-one could afford to not do exactly the same - the next day, some would be poorer, some richer, but it really wouldn't change any perceptions.

In that week, if we could work out how to fund governments in a fiscally prudent manner at low long-term i% through accounts held by banks that are regulated by a globally-transparent, accountable body, then we could move onto the matter of how short-term the internal Eurozone inequalities are, and whether the market will price inflation lower than real-growth in incomes. Highly unlikey.   

Tic tock's picture

come to think of it, these are strange times, Hildebrande has single-handedly dismantled the only 'store of value' in Europe - and the reputation of Swiss Banking - that would have provided stability to European capital and helped rebuild: he's committed Europe to Debt financed investment. Not only has he slashed the incomes of the swiss, he's quite possibly set up some poor rates on the mortgage of a 650-million wide economy....I mean who pegs the strongest currency in the world to a currency in-the-midst-of-a-crash ?? -brains money can't buy-

swissbene's picture

strange indeed -- nothing lasts forever though some things never change.  gold is a store of value in europe of course.  i was surprised by SNB as most others.  i think the story is not quite over for CHF.  Germany is the largest trading partner.  We could see a DM peg or stronger more German EUR in future.

unirealist's picture

That's it??  And all this time I've been expecting Mad Max to ride across an apocalyptic wasteland.

Turns out I'm a paranoid, like everybody said.


Scalaris's picture

Doubtlessly, the economy has constricted and growth has stagnated, but while I've been expecting a market collapse since March, it is becoming increasingly clear that it will simply not be allowed, especially after seeing with what level of dexterity they have managed to pump everything upwards using nothing but air.



  • FTSE, DAX, CAC : 1.6% +


No Comment


ucsbcanuck's picture

Market collapse will not be allowed - Obama saw what happened to the Repubs last time out. Same goes for Merkel, Sarkozy etc. There's too much at stake politically now as well.

I'm looking to get out of a lot of my plays. I have puts on the banks - maybe make a small return then GTFO.

Tic tock's picture

'level of dexterity' -oh yes indeed. That's like saying computer programmers have been worth their weight in gold.

slaughterer's picture

Scalaris, the European market reaction to the recent policy statements has me completely puzzled as well.    

I read the UBS report (very nuanced, and complex) as supportive of the Merkel step-by-step fiscal integration, as long as it is accompanied by ECB acitvism.  UBS fails however to list the catalysts that might thwart ithe progress of the step-by-step, long-distance  fiscal integration project, and they seem many. 

Final question: when will the bond vigalantes return, or are they now so stuffed with low-interest cash, that they would rather arb the spread between sovereign bond yields and overnight interest costs for a while?  That can go on for a long time.  

Scalaris's picture



when will the bond vigalantes return, or are they now so stuffed with low-interest cash, that they would rather arb the spread between sovereign bond yields and overnight interest costs for a while?  That can go on for a long time.


I sincerely have no idea, I do however still have my doubts about this market reaction since it came at the right time, which managed to mask any yet to surface negative news regarding the collapse of a bank as it was posted here yesterday.

Also China's PMI Manufacturing Index declined to of 47.7 from the November's 48 and October's 51, which signaled a solid deterioration in manufacturing sector performance and which was the was the largest monthly decline in three years and indicated the contraction caused by marked reductions in both production and incoming new business.

I don't know how much it would affect the markets, but since the world economy looks up to China to absorb any future production, relying on its increasing economic expansion, I'd say that on a "normal" day it would make for a different reaction.

One thing's for sure, cheap cash trumps any negativity for the time being and I'd say that for at least the next week things are going to head sideways at best, until two days before the Euro meeting, when the Eurozone's debt level becomes the news-cycle du jour and financial pundits remember that a treaty or two need to be changed.


Element's picture

ummm ... so, greenshoots version 2.0 is out of the question?

What's up with that?

Don't know what prices are doing but US online durables demand does not look too bad.

This is demand that's upstream of retailers by about 4 months ... so this looks to me like an increasing rate of inventory build.

So where are the systemically necessary buyers/consumers?

Looks good for another cycle of deflation if the consumer does not show up.

And here's a more interesting alternative view of "the data" : BEA "Real" GDP -vs- BLS Deflated "Nominal" GDP, Past 4 Years:

With this the more Realistic view: BEA "Real" GDP -vs- BLS Deflated Per-Capita Proprietor Income, Past 4 Years


i.e. you're in a statistically hidden recession ... offically hidden.

Rogue Trooper's picture

That's reassuring. The NiESR’s (the UK’s National Institute of Economic and Social Research) global econometric model to the rescue.

And if they are out by 0.00000000000056788765 % then the CDS kick in and all is well .... 


electronpaul's picture

The Fed is involved because they can not have a default of any size, why else would they give a s)(* about a small country like Greece?  The banking elites would be wiped out by a CDS trigger, they have written hundreds of times of notional, collecting the premiums the whole time, thinking that a government default is impossible. And now, here we are. The thing is government defaults happen quite often, just look at history, geez, Russia defaulted just a couple years back. CDS should be abolished and/or regulated. Goldman should be allowed to fail, FU*) them and any other institution stupid/greedy enough to put us on this path.

midgetrannyporn's picture

UBS later added: And if this strongly worded warning doesn't work we plan to hold our breath until we get what we want...

sudzee's picture

Bullshit. Iceland fucked criminal bankers and politico and are doing very well. This should be the example used in what would happen if countries jubilee. The debt was created from nothing, passed directly to TPTB, so the masses should not have to pay a dime. TPTB use debt to control the world, the only way to stop them is to turn to "money" that can't be created out of thin air.

blindman's picture

@ .." Monetary initiatives designed to shore up confidence can give politicians more time to enact the necessary policies. But absent those policies and sooner or later intense instability will resume."
poiticians to enact the necessary policies. that is a good one.
instability, one man's instability is another's foundation.