Wednesday, December 07, 2011

Europe and the Bomb

European Commision (EC) - What is this? It looks like a bomb!

ECB - But it cannot be a bomb! Our analysts tell us that it cannot be! The data does not support it! It is clearly a figment of all of our collective imaginations or more likely a bowl of roses.

Markets - [in diminishing voices as they leave the scene] "RUUUuunn...".

France - OK, well say it IS a bomb then what do we do? Is there a protocol for this?

All - [Reading from the Holy Book of EU policy] We tell the world it is not a bomb and then it will not be a bomb!!!

France - It's still ticking! And the numbers are getting smaller on the display.

Italy - (faints).

EC - Well stop the display!!!

[EU bans short selling and covers the display with a towel]

EC - Do you think the bomb knows that it has to stop its countdown now that the display is invisible?

France - I'll have a peek... Oh Zut! The numbers! They are getting smaller they are at 00.01.10 now!

ECB - Well, if, and only if it is a bomb and if and only if we had to stop it. how would we do it?

EC - Well, we should have a meeting to discuss the options. Can I suggest we hold one in, say, one minute's time?

All - Good idea!

[1 minute and 1 second later.]

EC - So that is agreed then. We will all work together showing commitment and a single-minded determination to defuse this bomb that we now agree may indeed exist.

EC - As we have told the bomb that we are going to defuse it, it should therefore have realised that its purpose no longer exists and defused itself. But just check...

ECB - WHAT?!?! It is still counting down! And it is now at 00.00.01!!!

EC- Argghh... Quick! Do something! And probably best for transparency, broadcast our thoughts and suggestions live to the world so they can witness our resolute decisive oneness and be in awe of the way we deftly solve this problem.

[Global media linked up live to proceedings]

France - OK, stand back, I am going to cut the red wire, pass me the wire cutters.

ECB - I'm not allowed to.

France - Come on!

ECB - Yes, it clearly says in my mandate that I cannot pass you the wire cutters as wire-cutters will never be needed.

Germany -Yes, he is right, he cannot pass you the wire-cutters. We specifically made sure that he never could.

France - Oh, Sacre Bleu...! Come onnn! I'll do it myself then.

Germany - I'm sorry we cannot allow you to do that , it is against our principles. But we could talk about alternatives - Like the blue wire.

France - If I let you cut the blue wire will you let me cut the red wire at the same time?

Germany - No, the red wire is non-negotiable.

EC - What about that wire down at the bottom? The yellow wire?

ECB - There may be a way I could do it using the green wire as long as no-one sees that I am involved.

IMF - Don't look at me!

Germany - You can forget the green wire too. I can see what you are trying to do behind my back! Enough! I don't care what you all want, I am going to cut the Blue wire and if any of you try to stop me I will cut ALL the wires.

EC - I can see we have made some real progress here, folks, but perhaps we should see if we can reclassify the bomb under a new agreement? Maybe as an Apple? Perhaps we could have a meeting to decide....

[Ka ...............................BOOOOOM!!!!]


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Secret--Sauce said...

Merk: The heavens declare the glory of the Bomb, and the firmament showeth His handiwork.

PIIGS chorus: I reveal my Inmost Self unto my God.

Merk: Glory be to the Bomb, and to the Holy Fallout. As it was in the beginning, is now, and ever shall be. World without end. Amen.

PIIGS chorus: Amen.

Merk: May the Blessings of the Bomb Almighty, and the Fellowship of the Holy Fallout, descend upon us all. This day and forever more.

PIIGS chorus: Amen.

Anonymous said...

C says'
time to trot out my favourite german joke....the title is apt as is the communication barrier.

CurmudgeonlyTroll said...

or for that matter Dr. Strangelove

Amplitudeinthehouse said...

Atomic bomb, how appropriate, specifically design to explode before hitting the ground......mmmmmmmm

Anonymous said...

I can hear M screaming in London,
"Where the hell is Bond?!"

Anonymous said...

In spite of overwhelming evidence that Frankfurt is harbouring the bomb makers right under their noses, the first response will likely be an attempted invasion of canary wharf, quickly followed by a visit to an almost empty cave on baker street and a joint Eurozone terrorist/witch hunt through the tunnels of green park. EU Sanctions for harbouring the terrorists will quickly follow.

Anonymous said...

Thanks for the laugh. Phil Collins "In the air tonight" ringing in my head all morning


CV said...

Well, the first break is always false and all that, but that Santa rally is looking pretty dim and distant today. Somehow I feel though that the "market" fails to understand just what it means that the ECB is now offering 3y liquidity to the banks.

That is essentially free money and an opportunity to swap deposits at the ECB (or perhaps some new sovereigns) for below par turd assets for 3 years! Not to mention that the collateral goes to the ECB at par.

Anyway, knock knock LB, room for one more in the tank?


Anonymous said...

Reftback roughing out roud? Can't hear you.

Anonymous said...

C says'
Today is neither here nor there.The markets rallied into this meeting and actually I'm fairly surprised there has not been more profit taking on the eve of the event itself.
In essence people who wanted to buy nto this event prior to the outcome probably got there awhile ago and it's hard to see much money coming in at the 11th hour as nothing has changed. Meanwhile some coin off the table would be quite natural for some.

I agree re the ECB 3 year policy move.If nothingelse without some other game changer whose going to be brave enough to sell financials from here?
I can see the banks going all post tech boom on us...flat as a pancake for years until they've transitioned to what will be a different business model.
Against that though I have this feeling that if the Eurocrats get a grip on debt it will be the signal for the push to transfer to the Eurodollar proper and the correlation on that and equity would tend to be bearish.

Tradebot said...

Brilliant! contender for the posting of the year! BANG on indeed.

re : ECB 3Y refi sounds all good, but given Basel 3 and capital rules the pool of available assets to play is limited and it has lousy carry. I think one of the biggest obstacles to growth is the insance capital rules from Basel 3/ Solvency 2, you have this bizarre situation where central banks are urging banks to take risk while regulators want to shut anything risky down. Politicians want the both risk and less risk in the banking system. Paradox indeed.

CV said...

But didn't the ECB lower the collateral quality for which assets that can be posted against liquidity. Given that the ECB now looks set to be rolling over the EZ banking's system for the next 3 years, surely this will help them "de risk" their balance sheet.


Tradebot said...

Hi CV,

given the yield curve is LOW and flat like pancake, you can't boost your earnings by carry trading your way out of this. Only way for banks is to derisk is by selling assets.

lowering the quality for ECB repo just affects bank funding so those guys who are have to fund a lot of crap at wholesale mkts should get better rates. it should in theory ease some pressure on deleveraging from funding side, but with Basel 3 ratios to be hit and raising bank equity at these levels is out of question , the only option is still to delever. Hence the measures will not have huge impact.

Anonymous said...

TREMENDOUS!!! but what about those who bought "insurance" on the bomb going off?

Anonymous said...

Tradebot is spot on.

Leftback said...

Told you lot to stay in the tank, didn't I?

leftback said...

It's Doctor Marten's A-P-O-C-A-L-Y-P-S-E....

A Bomb in Wardour Street

Leftback said...

and another one:

"In the city, there's a thousand things I want to say to you....."

In The City

Anonymous said...

C says'
"Told you lot to stay in the tank, didn't I?"
If I needed a "tank" for every little blip like that I'd be paying through the nose for it on transaction costs. Save the tank for when it is really needed.

Anonymous said...

C says,
weekend awaits,but on alast note if we didn't have people going for the "tank" in terms of trying to hedge or get short risk then we'd struggle to get the covering help we need to force a market higher after it's already moved so well so I tend to welcome moves like yesterday when they come in conjunction with a so called news event.

Anonymous said...

and now the economist has taken this for its weekly cartoon. ladies and gentlemen, you saw it here first.

Leftback said...

Frau Merkel emerged from the EU summit with the following words: "I have in my hand a sheet of paper...."

Hmm.. Stay in the tank, lads. The problem is that the ECB rate cuts are coming too late and all these austerity programs mean that an EU recession is now baked in the cake, and may not be fully priced in, except in the bank stocks.

The bond market may stabilize to some degree, but the damage has already been done. I expect a 2009 style buyers strike opening to the year in 2012, especially in Europe, while the US bumbles along and probably stays out of recession. Japan bumbles along and stays in recession. The wild card in 2012 is going to be China - soft v hard landing.

Leftback said...

Another great day to take off another little bite of risk as we go into the end of the year. Not super-bearish as a rule, but I really don't fancy Q1. Not until we get down to lower commodity prices and BB can do the QE3. Stronger dollar isn't bullish for risk. Not to say we won't have some seasonal silly rallies, but they will all be mini-squeezes....

If you don't believe me, here are the data, in terms of German and French exports. We are probably already there, in other words. The Spring spike in Brent crude may have been the initial trigger for a slowdown. An oil spike has been the culprit many times in the US.

German, French Exports Drop

US Treasury auctions next week for 3y, 10y and 30y, and guess who will be buying? Yup, that's right. European banks. Putting to work some of that three years worth of free money to attempt to effect a silent stealth recapitalization and mend their disabled balance sheets, just as the US banks did.

Helloooo, liquidity trap.... Euro ZIRP, anyone?

Anonymous said...

TMM, thoughts on Cdn banks? The dividends look good. Royal $@## anyone?

Tradebot said...

Leftback said...
Helloooo, liquidity trap.... Euro ZIRP, anyone?

Spot on. If liquidity was going to bail the European banks ass out from this trouble, this would have happened agest ago. Central banks still do not understand how perilious it is to mess around with the long end of yield curve...they only managed to break the carry trade and prolong the crisis, like in Japan. More harm than help.

It is deja vu all over again.

Oh, and you gotta laugh at the clueless journalists and political chattering classes missing point re : latest EU treaty and the UK veto. Entire thing was staged to cover for the summit failure as Germany did not budge and let ECB rip.

Amplitudeinthehouse said...

The convergence trade in Oil wouldn't be helping much neither.

USA seems to be breaking new ground ..takeaway the score of comparative wages with China and the production efficiency, and I dare say , must be at an all time high.That, with no real growth can only leave it on fragile ground...(throwing in a global slowdown).

My gut feel is when this cycle peaks its not going to be labeled " it just LESS BAD"..more like hitting a brick wall with no indentation left on the face of it.

Amplitudeinthehouse said...


"no real growth"

Well no real growth that can be labeled...

ESCAPE VELOCITY..whatever happen to that was forgotten as was the NEW NORMAL for a while...costing an oldtimer big biscuits :)

ntwsc said...

Neal West summed it up best of all yesterday ... "as Sir Humphrey would say, all we knew was there is something we don’t know and we want to know but we don’t know what because we don’t know!"

CrisisMaven said...

You see, Britain's are the only sane ones and the only ones left standing ... far away enough from the bomb (if indeed it was one) - and only burned their whiskers, kept their balls.

Leftback said...

Some musings on the US recession from the dome-headed Boss of ECRI. We offer this without comment.

Deep Thoughts from Achuthan

Well OK, we will make a comment. He says we will not muddle through because "we never muddle through". Wow, that's deep, readers of MM will be impressed and remember the uselessness of ECRI's calls in 2007-8. I mean, you can be right, or wrong, but don't pretend you are always right when you are actually distinctly average, and not all that bright.

Lakshman really needs to study Japan. Once you enter ZIRP/QE environments, the normal business cycle really no longer exists, and the swings in the economy are likely to be significantly damped. Hard to lose many jobs when we didn't generate any in the recovery. So maybe we do muddle through with low growth, after all...

O day and night, but this is wondrous strange!

And therefore as a stranger give it welcome.
There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy.

Leftback said...

The Smellygraph provides some weekend TEOTWAWKI:

EZ Banking System: Edge of Collapse

Polemic said...

PS .. Apparently it was the Brits fault for the bomb going off as they refused to call it an apple unless they were given some sweets.

ntwsc said...

Doncha mean une pomme?

Anonymous said...

C says'
"Once you enter ZIRP/QE environments, the normal business cycle really no longer exists, and the swings in the economy are likely to be significantly damped"

Exactly!Nothing is predetermined ,it evolves dependent upon the way in which policy is applied and actually the Fed has done a pretty good job so far od dampening down the more extreme outcomes on offer.My money is they will continue to have that effect.A confidence that I don't have when it comes to Europe and if there was no other raison d'etre that would on its' own have been enough for Cameron to say,non.
Whereever the shitpile is heading it is in the UK's interests to make sure it is not being guided by any hand attached to a German/Euro body.Even if they avoid the pileup envisaged by many it still only smacks of a slow grind into stagnation for many Eurozone countries because there are no signs of a policy designed to help them grow via investment.
Disaffected youth will be haerd from more than ever as we move on and rightly so. Policies designed by old men, for old men and their sacred cows, will be at odds with the hopes and aspirations of young people frozen out and consigned to a germanic scrapheap.A tinderbox in the making.

Bloomberg said...

Bloomberg: The hedge-fund community is abuzz this week after recent activity at macro hedge fund TMM LLC, sources with knowledge of the fund said that a recent weekend meeting of their top trading desk, better known as Delta 1, were discussing possible outcomes after the recent EU summit.

The noted sources , that wished to remain anonymous, spoke of how recent open discussions around this volatile period of EU summits hasn't really been taken with any vigor from those that make the risky bets related to any possible outcome by the policy makers.The hedgefund tracker HFRC latest data stated that TMM LLC discussion index peaked in the middle of August meltdown , and has a strong correlation to any drop in the top indicies in 2011.

Leftback said...

EU recession is coming, if not already here in most countries. The outlook for countries executing the proposed austerity budgets is prolonged recession. Cor, fancy that, guv'nor!

For those still in any doubt:

EU GDP Forecasts

In other news, the French don't like the British. Quelle horreur !!

Anonymous said...

Anonymous said...

► 3:33► 3:33

Anonymous said...

C says'
I doubt if it is perhaps entirley rational past the immediate,but as it stands it appears to me we might be in for a spot of decoupling ,or my preferred term ,differentiation. In this case that means, US risk tick,Asian risk tick for Chinese easing to offset declining growth,Uk tick mainly because we are not Europe, and in the other camp ,anything European providing the moneyflow for all of the aforementioned.Sounds like a plan to me until the dots get joined up anyway!