From Peter Tchir of TF Market Advisors
A Couple Of Questions To Start The Day...
On Sunday we had Occupy MetLife Stadium where the 99% happily watched the 1% on the field and in the stands. Last night we had a decent college football championship and are sure to see several of the players play on Sunday, which leads to the first question.
What is higher, the percentage of NFL starting quarterbacks that attended college, or the percentage of Goldman Sachs partners that attended college?
What are the odds that almost every player in one of the most demanding physical jobs on the planet was smart enough to go to college? This doesn’t have anything really to do with the markets, other than maybe showing a willingness of the people to perpetuate a myth (that college football isn’t professional) when it suits them.
How many times last year were stocks higher in the morning while Italian bonds were weaker?
Judging by the number of rants I sent last year on the subject, the answer is quite a few. It was not uncommon for stocks to diverge from the “problem” asset of the moment. The more important question is how many times were stocks still higher 2 days later? That, is a far smaller number.
Money continues to come into the market based on “decoupling” and the “muddle through” scenario. I do not believe that “muddle through” is an option. The entire system in Europe has become so interconnected that “muddling through” doesn’t seem realistic. The situation in Italy remains bleak (bond yields are higher again in spite of massive amounts of central bank support). The situation in Greece is reaching a peak. A voluntary resolution seems less likely by the day, but that leaves open the ECB’s positions, and also opens up the question of what to do with all the Greek Government Guaranteed Bank Bonds (affectionately known as ponzi bonds) that the ECB is financing to keep Greek banks alive? The ECB will have to change their rules yet again to let formerly guaranteed debt still be pledged as collateral? I think that issue is just as important as the CDS settlements and changes in collateral requirements that are likely to result from a Greek default.
So far the liquid hedges are performing well on the back of overnight strength. It remains to be seen how well it translates into actual corporate bond demand, but with Spanish and Italian 10 year bonds lower on the day, this is likely just another chance to fade the remnants of the start of year rally.