Friday, June 22, 2012

You've Lost that Europe Feeling

"You've lost that Europe Feeling" - About the self-righteous bastards.

You never follow through anymore with your promises.
And there's no hope for us, as you just keep taking the piss.  
You're trying hard not to show it, (baby).
But baby, baby we know it...

You've lost that Europe feeling,
'Cause everyone else is leaving
You've lost that Europe feeling,
Faith has gone...gone...gone...wooooooh.

Now there're no Eurobonds, no Eltro from the damned EU.  
Instead you're trying to, tax me on every trade I do!
It makes me just feel like crying, (baby).
'Cause baby, my losses are terrifying.

I've got that Euro feeling,
Whoa, that Euro feeling,
I've got  that Euro feeling,
And I'm  long ...and ...wrong ..woooooah

Baby, baby, I was cut down at the knees by you.

If you would only listen like you never do, yeah.

You had a dream ...a dream ...a dream that never worked anyway.

And you''''ve let it slip away.

Save me  (save me), save me (save me),
I beg of you please...please,
We need your gov (some bloody gov),
Some Governance (just Governance)!  
So bring it on back (and don't be slack), Or get the sack (should get  the sack).

Bring back that Euro feeling,
'Cause everyone else is leaving.
Bring back that Euro feeling,
'Cause it's gone...gone...gone,
and it can't go on,

Bring back that Euro  feeling,
As everyone else is leaving.
Bring back that Euro' feeling,
'Cause it's gone...gone...


TMM are once again travelling next week so will be back in July, if July hasn't been cancelled, taxed, morally decried or closed due to austerity cuts by our illustrious leaders.


Anonymous said...

C says'

Or,as we are in that era looking let's try ;

I feel unhappy
I feel so sad
I lost the best friend
That I ever had

She was my Euro
I loved her so
But it's too late now
I've let her go

I'm going through changes
I'm going through changes

We shared the years
We shared each day
In currency together
We found a way

But soon the world
Had its evil way
My debt was pounded
Lenders went astray

I'm going through changes
I'm going through changes

It took so long
To realize
That I can still hear
Her last goodbyes

Now all my days
Are filled with tears
Wish I could go back
And change these years

I'm going through changes
I'm going through changes

Polemic said...

Sometimes think we should hand the keys over to you C, you are on better form than us at the moment..

Black Sabbath huh?.. hmm we ll add that to the profile we're building of you!

But What do I Know? said...

Righteous parody, dude :>)

Leftback said...

Sometimes the only thing that needs to happen in the capital markets is.... nothing.

Spanish 10y yields down below 6.5%. Hedgies will be complaining: "'ere, where's my apocalypse, then?".

Spanish 10y Yields Falling

Leftback said...

Almost time to start preparing for the 2012 Second Half Non-Predictions, TMM?

Prognostication* has been so widespread this year that LB is sure that a barrel full of them are Not, in fact, Going To Happen.

[* Be careful not to prognosticate too often, some people say it can make you go blind...]

Leftback said...

Btw, TMM, LB has been pondering the whole idea of Tier 1 capital requirements now that John-John ratings agencies have been downgrading everything that moves to well below AAA. If and when there is no AAA credit remaining anywhere, where does that leave the Basel 3 requirements?

Care to comment? This seems like a very important issue as we have all speculated that the strength in bunds and Treasuries is in part a result of the scarcity of quality collateral...

Anonymous said...

I understand your concerns - these headlines are quite concerning:



Leftback said...

Germany has its own issues. They will agree to print:

German Pension Costs

Anonymous said...

The collateral issue is probably the most under reported issue facing the markets , relative to it's importance. I can see a mini boom in the re-emergence of structured credit , particularly bonds backed by high quality bonds to manufacture collateral.

Amplitudeinthehouse said...

The cable trade is off to a good start, I was thinking,f#$%it...time to cash in and leave you guys posted.

I"M off to Beijing to sit on the panda desk for a couple years , after that, buy myself a nice beachfront house on some secluded Thailand beach in honor a couple weeks effort, and with the rest going towards a celebrity badge so I get the girls.

see you losers around!

eveningstar said...

Loving the song lyrics here, but we should all be singing "The Final Countdown" by the band 'Europe' :

We're leaving together
But still it's farewell
And maybe we'll come back,
To earth, who can tell?

I guess there is no one to blame
We're leaving ground (leaving ground)
Will things ever be the same again?
It's the final countdown.

Aethel Hard said...

i read it,
that is very nice post,

Herbal Stores
Order Herbal Viagra
Herbal Supplements

abee crombie said...

hmmm interesting about the AAA rated capital and basel 3... good insight LB.

That really is the reason for the whole Euro mess (and subprime) in the first place.

the solution is of course to only allow banks to be run by complete pussies, like canadians and swiss

Leftback said...

Things are looking fairly dire again in Europe after today's auction of Spanish T bills. Time to repeat the JFDI post?

US investors seem to be gradually realizing that 3% growth isn't in the cards. Another washout like Monday and it might be time to finally go BOLIVIAN.

Leftback said...

Markets no longer trading rationally but responding to rumors of what Mangler had for breakfast, only to be quickly turned around by revelations that, NEIN, she has refused to have breakfast in sympathy with the citizenry of Southern Europe undergoing austerity...

This summer is a different kind of Silly Season.

Anonymous said...

C says'
I disagree.This summer is oh too similar to what has gone before and as for markets working rationally,if you are implying they are politically rumour driven then all I can say is what's new.We've been in that place for so long I have forgotten what 'normal' markets are actually like.
Spain is no more dire now than it was a few weeks ago,just more of the same old same old.
We all know we are in a situation in Europe that cannot last in it's current status quo ,but as yet there are no real signs that the various parties can find that elusive pthway that would allow them to move the situation forward in anyway that is meaningful to the market.
Frankly,this is a time to keep a closer eye on the earnings season and only a peripheral eye on the political clowns.

Leftback said...

Yes, that's not bad advice about earnings. Clearly the apocalyptic earnings disappointments are priced in across Europe, but US not showing the same level of concern about its very own incipient mini-recession. We suspect that both continents will report that there is in fact still profitability in many businesses....

Back to the politicians for a second... with TMM on hols again, someone has to fill the void, so here goes:

LB is starting to hear a lot of chatter from US based hedgie geniuses that Germany doesn't have to help Southern Europe, won't agree to print and isn't going to. This remarkable piece of macroeconomic analysis deserves to be challenged and dissected.

Our friends between the hedges apparently think that this is true because Germany is some kind of special planet that manufactures gold bars out of thin air and trades with other solar systems. In this model, Germany never goes into recession and their bankers never do naughty things with their balance sheets because Germans are perfect.

Since said hedgie genii often talk out of their rectal area without any actual data, we thought readers might enjoy some analysis of the consequences of a Euro currency breakup for the German economy, here provided by our friends at the Pink Blog.

Costs to Germany of Euro Break Up

So, you clever clever Tail Risk chaps, riddle me this: If the costs to Germany of a return to the DM are in fact a 10% drop in GDP, not to mention carnage in peripheral debt markets, what do you think that does to Deutsche Bank (BOOM), let alone the Ländesbanken (see Spanish cajas), or the bloody Länder themselves, which would soon be as broke as the Spanish regions are today?

Germany is not immune from the laws of economics. Germany will agree to bail, to cut rates and to print. Not for Spain, but for Germany. Failure to do so would be a sign of the utmost stupidity.

Germany is currently re-enacting the striking idiocy of Trichet in 2008, who hiked into the teeth of the Global Crisis. The ECB has learned from its mistakes, so why haven't you? JFDI, Mangler.

Leftback said...

LB also recommends the following light reading on Chinese USD positions, which is quite thought provoking. The recent USD strength resulting from German inactivity is causing pain in the People's Republic in any number of ways.

China's USD Positions and Dollar Shortages?

Anonymous said...

C says'
Re Earnngs I suspect this is going to be the first where we get to see the true effect of dollar strength on global foreign currency sales and profitability.
Standard Chartered may be the likely opening signal for what i think will be a trend this season.
Also worth noting that globally markets are in a lossening cycle now so unless BB trumps that in a major way that undercuts the dollar then the drag should remain this year.

Anonymous said...

(long time lurker , infrequent poster) ... says

LB , I agree entirely, a few thoughts

-Soros' interview in der spiegel from yesterday is very interesting in terms of where it is (in a German paper) and his strong assertion that Germany is being very short sighted with its protestations. His reference to the Marshall plan is very clever in the guilt it seeks to invoke

Secondly. I cannot help but think that Merkel's shouting opposition at 100db is just a little too loud and designed primarily to improve her political standing at home. The less informed voter must be relishing every soundbite.

The bottom line though is that Merkel and the Bundesbank are not idiots. They must surely realise the downside risks. I suspect they are just looking for the LEAST transparent way to print. Banking license for the ESM perhaps ? EuroTarp?

Anonymous said...


It seems to me to that absolutely everyone believes that there is a bailout lurking around the corner. But it not likely because the cost of the next bailout for Germany is debt/GDP of over 100% and loss of AAA rating. There always comes a point where there is no more bailouts because the numbers do not add up. Germany does not want 10% GDP drop, but then it does not want to spend 30% of GDP to be mired in endless recession along with Spain and Greece just to be nice to banks for a couple of quarters of bonuses so it crashes next year but not now.

As for the US hedgies, well Ray Dalio is one of the smartest guys around so place your bets carefully.

Anonymous said...

Anon 12.09
To say "absolutely everyone believes that there is a bailout lurking around the corner", is patently incorrect. Indeed there is veritable mountain of moneyflow information that suggests that at the very least many many people and organisations simply do not trust sufficiently in such a resolution and have moved their funds and continue to do so.

There are certainly some people who do think there will be a bailout of some form ,or other and LB appears to be one such ,but I see no informed value tradeable in saying that either side of this belief continuum have it right.

Dalio is right in my view to suggest there is a credible chance that any resolution may actually be simply too slow and drawn out to work and in that sense a disorderly outcome is worthy of consideration.You could suggest that polarising relationships leading up to this point do make that a possibility because there is no evidence as it stands that Merkel will gove the 'others' what they want as quickly as they want it. She is clearly looking for an incremental process of swapping financial help with changes to sovereign controls and that's not going to happen quickly.
Again, I have no idea how anyone would go about quantifying such an outcome.
Personally, I'm inclined to go with the stuff which is a lot more observable and I'll leave this rather intangible stuff to those who think they can really see the future.

Leftback said...


Yes, agreed - especially on Dalio, who has been right on many aspects of the great deleveraging process. which is one of the reasons we decided to write the above. Even the smartest guys are wrong some of the time.

We are inclined to agree with lurker's comment that Mangler's denials are intended for her lederhosen wearing fans in Bayern and other more conservative factions in the homeland. Germany's own obligations (pensions etc. in an aging society) are much larger than people think, and they will have to agree to monetary easing for their own benefit as much as the rest of Europe.

Tradebot said...

Capital cost depend on trading vs banking book treatment, but banking book is relevant as 90% of periphery sovereigns are parked there. Using standard 8% capital charge...

Basel 2 weights on sovereigns :
standarised AAA to AA- 0%
A+ to A- 20%
BBB+to BBB- 50%
BB + to B- 100%
B- 150%

IRB/A-IRB modelled banks will have PD/LGD based framework, but BIS kinda estimated PDs to be around 0.03% for AAA to ~10% for B. This would give me risk weights from 7.5% to 180%.

My view is that problem is not really a question of RWA cost but what constitutes for capital... Basel 3 will get rid of Tier2 upper/lower and Tier 3 instruments.... and the European bank capital looks much crappier when you look at sole Tier 1...

Dee Dee Humberside said...

Tradebot dont forget that there are plenty of provisions for national regulators to override those standard risk weights and apply the 0% RW settings, which I am pretty sure are heavily used. Know for a fact that this is common practice for banms of the same country as the sovereign, regulators simply ignore the downgrades.

abee crombie said...

Tradebot, why does Tier 1 capital look so bad on its own? Bc it is basically a marked to market equity book of the bank?

I do not think that the EU countries will come any sensible all encompassing agreement in the near future but I dont see how one can assume a disorderly breakdown of more than a few days without the ECB stepping in with a big print bazooka. They could certainly solve the deflationary pressures and high yields in the peripheral with unlimited liquidity

I cant imagine they let the whole EU disintegrate without trying to do that at some point if push came to shove but then again Im not european

Anonymous said...

C says'
Do we have any rough rule of thumb calc for provisions in the UK banking sector re the Libor issue?
By that can we put it into a sense of perspective,minimal impact,or greater?

Tradebot said...

true, true Dee Dee... from BIS :

Paragraph 54 of Basel II (comprehensive version published in June 2006) also mentions that, “At national discretion, a lower risk-weight may be applied to banks’ exposures to their sovereign (or central bank) of incorporation denominated in domestic currency and funded in that currency.” Many jurisdictions have applied zero risk weight to such exposures.

Spanish banks using 0% risk weighting on Spanish bonds... :)

Leftback said...

LB thinks that a Cold War type scenario has been playing out in Europe, and that Merkel is playing the role of Nikita Kruschev, moving austerity missiles into position all around the continent. However, the Germans know that failure to ease monetary policy in the Eurozone will result in Mutually Assured Destruction, as austerity missiles would eventually land in Frankfurt and Berlin. They will blink.

Tomorrow's Eurozone CPI number should be cooler and this will give the ECB doves additional ammunition for their position. The PBoC also have their fingers hovering over the easing button, and we can expect other central bankers to join the action before long.

Dee Dee Humberside said...

And bot 1.19, don't forget the new requirements around liquidity as well (LCR), whereby banks have to hold on to mandatory amounts of "highly liquid" securities ... and surprise surprise, the eligible list of such securities is heavily weighted toward govvies (with little to no differentiation among those).

Combine all these incentives together ... Nudge nudge wink wink say no more

Anonymous said...

I suspect that much of what LB has been looking at for weeks will start to come right now in the quarter ahead.
Primarily this will switch from US strength where economic surprises are still too high a hurdle to Europe and Asia for outperformance basically because the world won't end,money has to go somewhere and sentiment etc are still too lopsided by a mile.
I don't think this even requires the Eurocrats to come with 'a solution' per se. All they have to do is 'enough' followed by the BOE and ECB one of which we really know about and the other we can guesstimate about with Asia/emerging centrals certainly staying the right side of loose.

I've hopscothed and picked my way through this summer ,but when the June expiry and the year mid point is passed I'm prepared to get a bit more broadly directional as the above implies for the quarter ahead.

Leftback said...

Here's how LB is feeling today:

Super Mario

Leftback said...

Not much austerity in the German defence yesterday, it could have been 5-0.

Watch the way Cassano turns the centre back on the first goal, I mean he does him like a kipper... and on the long ball for the second, Balls-On-Telly has to wait for the ball to arrive and then still burns the bloke off after he collects it. Sublime first half from Italy.

So generally speaking, Southern Europe seems to be alive and kicking today.

CV said...

Agreed LB,

What a clusterf'ck of the shorts on Friday. Energy stocks look juicy in the US.

Macrosurprises are currently very poor in the US, but be careful out there. If Tuesday's ISM is in the basement, it could all get very cold out there again.

Generally though I an in the TWINE camp, for now. Most punters are dead scared of a 2011 where the market crashes over the summer. You know what, it might just not ...


Amplitudeinthehouse said...

Merkel's trip down Mullholand Drive

At the pre-summit meetings between Merkel and her colleagues , the voluble line of no Eurobonds was established to be put front and center of the Chancellers intentions leading into the EU summit of financial ministers.

After Merkel had landed in Brussel International Airport, she declined any interviews as she made her way to an awaiting car to take the German Chanceller to her favourite Hotel, the Brussel Marriot Hotel.

Once there and in her room, she threw her luggage on the bed in despair and whispered to herself " here we again"..."NEIN NIEN NIEN"!..."don't these clowns ever learn"....
During the first day of the two day summit, Merkel met with Italian finance minister Monti, at this meeting Monti expressed his concern for Spain and their banks recapitalization process , he put forward that unless Germany acceded empowerment of the upcoming ESM to channel recaps directly through to banks thereby lifting the Sovereigns balance sheets of more liabilities and higher risks premiums in the market place , that he may have to backslide on future fiscal tightening and publicly feel out for a possible bailout to recap the banks, as had Spain.

Late that afternoon the German Chancellor had the last of her many meetings that day with Spain's deputy finance minister Latorre. This meeting didn't produce any surprises, even when Latorre told Merkel that he expected another bailout at year end due to the cajas crippling insolvency issues.

Now that the day was over and the Chancellor was able to resume back at the Marriot she didn't hesitate to retire early that night , as the day of reckoning was approaching at breakneck speed in regard to "Print or NOT to Print"...

Late into the night, the German Chancellor slipped into a dreamy trance,that at one stage lead her to believe she may have return to her youthful flower days, until Monti face appeared and, that of a man she had spoken to earlier that day in between meetings, Monti seemed to be running across street in fear of this man that was chasing him , then in a flash the mystery man was hit by a bus...
The dream was over..and she was awoken suddenly by the emanation of light, she quickly rose from her slumber to find appearance at the bottom of her bed of " The Cowboy"...

With ease and authority The Cowboy told Merkel in less than no stern words..." that if she didn't blink the panda put would be pulled"...

At the last day of the summit, Merkel acquiescence to " The Cowboy"...not knowing for sure if she had been trapped in some sort of hallucination , the German Chancellor decided not to give any comments after the meeting ,and headed straight to the nearest Bloomy terminal(charts don't lie)....whereby bringing up the Spoos and Dax charts, she let go sigh of relief in seeing that they had given the shorties the cold steel , and now the markets may think she'd had deliberately played a minimax hand on traders , so in future reference, the traders think shes the master at game theory!

Anonymous said...

long time lurker said,

every Bloomberg jockey in the Asian time zone is telling me to "sell this rally" "not credible" "lacking detail" .... the same people proclaiming that global reflation was alive and well in April.

Particularly in equities the broker incredulation is music to ones ears. The fact that they are seeing "no volume" "the pad is empty" it's "index led" so therefore cannot be "real (on such low volume"

Isn't this how it always starts ?

A lot od people are short equity indices with no equities to protect on the other side. People are longaudjpy vol and now wondering why. "But look at the skew in the S&P !" has been another popular one this last week or so.

I can see the speculative community fading the first pullback in risk assets and going to bed with a warm fuzzy feeling, only to wake up later this week feeling decidedly queazy as many things risk related go on a rip-fest.

Amplitudeinthehouse said...


your right about Au\Yen....(amps was wrong again,folks)

Leftback said...

LB is sticking with his second half thesis of the European and Asian markets outperforming Uncle Sam, who has just woken up in the wet patch.

The strong dollar thesis at this point has so many mainstream proponents that you have to wonder about short Euro being a crowded trade. So we can expect some EUR weakness on ECB rate cuts etc.., but most of that is priced in, now what if the US data continue to weaken and Europe doesn't in fact incinerate, perhaps we should be looking at Europe and emerging Asia?

We think this is a more intelligent approach than playing US equities v fixed income, as the performance of both might be rather insipid while Congress and the White House seem set to continue to debate whose balls are smaller.

Anonymous said...

Where our team macro then? I'm turkeying here!

CV said...

Drinking Retsina on a beach in Greece ... LB is quarterbacking quite well I think though.

I agree on US underperformance in H02-12 ... quite simply more juicy plays out there.

Oh, and it is about time to call an end to the short term rocket ship in softs (Corn, Wheat etc).

Surely, there is a countertrade here?


Amplitudeinthehouse said...

No problem, the countertrade DONE!.