Wednesday, September 28, 2011

Tape Bombs

As Tom Jones would sing ..
"Tape Bomb, Tape Bomb , you're my Tape Bomb.
You can give it to me when I have just gone long"

Today it's pretty quiet in the minefield of the market, which is somewhat deflated by a turn in the RORO (risk on risk off) mood spoiling the bears' party. The cries of "well, it went up on nothing changing, so it is not valid" is just as easily countered with "well, it went down on nothing changing last week too, so plus ca change". However, the market is now attuned to "no news is bad news". We are running into quarter-end now and have the new "month-end flows" excuse to throw into the blame game of short term losses. Especially handy if it goes against whatever trade you have on (it's not my fault! it's all a conspiracy!).

We have out-analysed ourselves yesterday, so are sitting back today staring at the potential tape bombs as they weave by through the minefields of the news screens.

ECB ALLOTS 500 MLN DOLLARS IN 7-DAY OPERATION - one bank only again. Not much different to last week and not indicative of any USD funding crisis - Fuse nearly fully retracted soon to be labelled "safe"


FX .. Land of the (tax) Free. Well, the numbers don't stack up to start with. With nominal GDP of €12trn: 0.5% GDP = €60bn COST of tax plan vs €57bn revenue. Nice one, boys! This is just making us feel like buying cheap Libyan property and setting up a Singapore equivalent in European timezone, as there are more reasons for financial markets and multi national corporate treasuries to leave. "We don't need 'em anyway", - cry the baying mob whipped up by Alessio Imatwati's interview. We will see.

*EU SAYS TROIKA TO RETURN TO ATHENS - Must be modelled on a UK schools exam, where you are allowed to redo the modules until you get a pass. "D minus, please redo". Which has TMM going one stage further and recommending that the TROIKA fully adopt the hallowed Oxford and Cambridge exam regulations, whereby if you die during the exams you are deemed to have passed. Interesting. They would also be allowed to demand "cakes and ale" during the examinations, but must remember to be wearing their swords at the time or else will be liable for fines. These sorts of rules must be right up Germany's Strasse.

THE EURECA PLAN - Now this is interesting.

1. Bundling the assets into a holding company and selling it to the EU for €125bn would represent a fiscal transfer of around €100bn, given that Greece is struggling to raise €25bn through privatizations, and will probably only get around €15bn, given it is a distressed seller.
2. The paper is optimistic about the potential for these assets to recover value, but we would guess this would be the main sticking point for France/Germany. That said, it is a very similar model to the one that was applied for East Germany. Some opposition to the sales is bound to occur in Greece, but it seems like the EU would be massively overpaying in our view. Papandreou/Venizelos should be able to sell this to PASOK relatively easily ("Guys, this is a lay up... Let's sell them this stuff and then when we can just build a new welfare state afterwards", etc...). Moreover, in light of the EU being a buyer (rather than Alessio Imatwati-type evil capitalist speculators), it should be significantly easier for the Greeks to swallow.
3. It contains an 8% GDP stimulus over 3yrs, which will make this a lot easier to sell in Greece and will also support the economy. This growth strategy is important in breaking the debt-deflation trap.
4. CDS spreads would collapse and burn speculators, reducing the probability of further contagion to Spain/Italy and creating a model for what a sustainable package might look like.
5. It will be difficult to sell this to the Germans, but it is promising that Roland Berger have credibility on their side, given their involvement, if we recall correctly, in the East German transformation.
6. Risks would involve the Greeks selling their national assets to their new German overlords only to re-nationalise them once they are over the stress (would have to be governed by strong international law, not Greek)
7. And, last but not least, would the British Museum have to arrange transport of items to Luxembourg?

Of course Europe is on the F-Plan Diet. A new F'in plan every day designed to reduce debt corpulence; works really well for a month but you've put it all back on by Xmas.

Back to sleep.


ntwsc said...

And whilst the F'in Planners continue to ratchet up flatulence scores, so increases their propensity to internal combustion.

Skippy said...

Thanks Polemic - I also thought the EURECA plan was interesting. Some clever lateral thinking is probably better than the SP(I)V idea from little Timmy.

Charles Butler said...

Did you notice, PP, how quick that pink blog was in coming out and outright mocking the Berger plan? Forget about the shorts. Something of this scope ever gets through, the noise-o-sphere would be begging for content on street corners.

We can only hope.

Anonymous said...

Seems to me that the ones likely to come out of this best are the current Greek bondholders.

Privatization means heavy cost cutting, means substantial job losses -in other words this plan is a recipe for huge social unrest further down the line for Greek citizens while the bond holders who invested unwisely are let off the hook.
Surprised ?

Nic said...

That tape bomb song is a good one!

The Eureca plan is interesting, I'm wondering if the Greeks would prefer to hand over 125bln of state assets rather than default tho? If they did they would be the first really integrated EU state but I find it hard to see them swallowing it.

Leftback said...

The big move up in yields is interesting, and it is suggesting to LB that we might want to fill our boots with some fixed income as perceptions of the latest European safety percolate. We like this and some other dollar rally ideas, for a trade only, perhaps over the next week or two as October looms.

We are more than a little worried by US hedge fund redemption and liquidation chatter, to be honest. That part of this is scenario is a little bit 2008, and there are no easy fixes, other than a QE3 which isn't on the cards. October might start out ugly (especially in HF-owned sectors like energy, miners and materials) before earnings season arrives and proves less than apocalyptic.

Anonymous said...

C says'
I'm devastated.
I had not thought LB would scccumb until the 10 was for 1 .What am I going to do now for the ultimate risk buy signal !

Leftback said...

Relax, it's just a trade. Rosh Hashanah-Yom Kippur trade has some statistical weight to it, and it rolls over the start of the quarter this time. We also didn't like the fact that SPX failed to push on up to 1200, and the action yesterday afternoon was kind of bearish.

We would suggest you can find many better contrary indicators out there in the noise-o-sphere.

Anonymous said...

How does one get "Greek state assets worth 125B?" Either they are generating, what 8-10B in net cash flow that is now going out of the Greek fisc, or we're talking about offices and so forth that the holding co will rent back to the Greek state, for a new 8-10B in cash cost. Are they talking the Greek islands or something like that?

Leftback said...

Crude keeps making lower lows and lower highs. Gold, silver likewise. This commodity bear has a way to run.

abee crombie said...

Not liking that LIBOR OIS is steadily creeping up but i still think we get a bigger bounce... everyone is still to negative and Europe stoxx / bund price action is positive so far

good post though

happy new year to those of the tribe

Leftback said...

Mr Bond is likely to have Goldfinger at a disadvantage for a few days at least here. The dollar bears are still unwinding. There is just no way for the Euro to get anything positive going and without a daily QE from Bernanke, there is nothing to drive the dollar lower. Even the latest Eurofudge plans can be interpreted as EUR negative, and there is a very real chance of ECB rate cuts.

Anonymous said...

C says'
Unlike the man from Del Monte Schaeuble seems determined to keep on saying NO.NO.NO.

What's it going to be.Vote yes on 2 ,but no on larger size and ? on haircut size.
How's Mr Market going to fell about that combination?