Double down

Trent:   Double down

Mike:  What? 

Trent: You got an 11.  You always double down on an 11

Mike:  I know, but it's $200.   It's blood money

Trent:  Mike, you gotta double down

Mike: I can't double down

Trent: Mike, if you don't look like you know what you're doing...

(Mike loses the hand)

Trent: I'm telling you baby, you always double down on an 11

Mike: Well, obviously not always

Trent: Always, baby

Mike: I'm just saying not in this particular case

- Swingers

 
So, Alex Tspiras has executed the most stunning collapse in resolve since Brazil capitulated against (who else?) the Germans in the semifinals of last year's World Cup.  Tspiras, playing the part of Brazil's ineffective front man Fred, has agreed to rush through a series of exactly the type of austerity measures, micro-managing reforms, and sovereignty-losing asset sales that Syriza was voted in to oppose.  #Thisisacoup, indeed.

From Europe's perspective, this looks like yet another attempt at a Martingale strategy for Greece, throwing more money at a huge hole, doubling down yet again in the hopes of getting back to flat.  Whether they honestly believe that Greece can work its way out of its mountainous debt (which suggests the Eurogroup is either incredibly naive or incredibly stupid), or figure that it will be a problem left to their elected successors  is an open question.

As, indeed, is the issue of whether this program will pass in the Greek parliament.  The "OXI" vote seems like a long time ago, and one can understand that many of the most enthusiastic Greek opponents of the Eurogroup will feel betrayed by the Tspiras government.  The text of the statement is scolding in nature, and it strains credulity that it drills down to things like reforming the bakery sector.  Who knew that baklava was to blame for Greece's dire economic circumstances?

Notably absent from the statement, of course, was any mention of debt relief/writedowns/restructuring.  Again, how Europe can think that this bailout will draw a line under the crisis is, frankly, baffling, particularly given the experience of the last several years.  The Einstein quote on insanity comes to mind.

Still, should the program squeak through Parliament and the ECB plays ball with the ELA, the storm will have passed....if only temporarily.   It's seems quite certain, however, that Greece will be in trouble again well before the expiry of the program....and that's a bet you should always double down on.
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Anonymous
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July 13, 2015 at 1:55 PM ×


Tks as ever.

I think the summary note has a veiled mention of debt relief after 1st positive review of programme ("soft version" changing NPV rather than haircut on nominal), nonetheless this is still clearly a massive defeat for Tsipras. They will never hit 50bn assset sales in 3yrs (they did 2.6bn in 3yrs from 11 to 13). Germany et al know this. Seems they were just trying to force the Grexit? Maybe they are just shocked that Tsipras accepted? Or Tsipras is thinking the money is Greek domiciled so I'll default later and keep it? Short MIB and Ibex vol in the meantime.

p.s. why does Fred always carry the bag... Only in Brazil could you lose 7-1 and blame the striker...

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Gnome of Zurich
admin
July 13, 2015 at 2:05 PM ×

Yeah, this looks like an offer you can't take - and Tsipras takes it... He could have had a much better deal 6 months ago before the Greek economy and banking system was ruined again. Has he just now realized that the Germans are never bluffing? Will he now throw himself from the Akropolis? I don't get the man.

It really looks as if EUR is disappointed about the No-Grexit-News. Well, there's another chance in the Greek parliament.

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Macro Man
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July 13, 2015 at 2:05 PM ×

In fairness, I was anti-Fred before the Germany match...

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Leftback
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July 13, 2015 at 2:11 PM ×

It's all too bizarre, indeed, but the instinct that can-kicking would prevail has proved correct once again. Nevertheless, LB will be eager to unload some of his options punts into the market open. After sleeping with the crazy Greek girl over the weekend, it's usually a good idea to say goodbye early on Monday morning. One never knows what she might do by lunchtime.

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washedup
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July 13, 2015 at 2:27 PM ×

interesting sell the news reaction by the euro - fundamentally justified somewhat, of course, somewhat in that they have all but guaranteed a repeat fiasco fairly soon, not to mention that the euro inched closer to equating a lira than to turning into a duetsche mark, or something like that.
New lows for the long bond - the equity risk aficionados sure have a way of celebrating some very strange things.
What are the odds Yellen's testimony is dovish after what she said Friday?

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Leftback
admin
July 13, 2015 at 2:42 PM ×

Long Bond may be carving out a tradable bottom here, but one's instinct suggests we see one more capitulation day before we see buying in size. Lately every panic rally in Treasuries has been greeted as a selling opportunity. The 2.50% area in 10s has attracted buyers several times, however. We are getting closer.

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Nico G
admin
July 13, 2015 at 3:29 PM ×

noone - in Germany, France or Greece - wants to be blamed for destroying the Euro(pean Union). So let's do more of the same that don't work, indeed. Political short termism at its worse. Proverbial lack of courage. so as MM hinted, the 'elected successors' of that sad bunch will have to deal with the destruction of Europe with the excuse that hey, it is ONLY the consequence of the predecessors' incompetence

there should really be a Nobel prize of POLITICS, for lifetime achievement or at least best achievement under a maximum given term. Something has to be invented so that political vision transcend the electoral cycle. Single mandate everyone? I had so much hope that Tsipras would be different, fuck that, he made a clown of himself. Folks here (in Greece) are relieved that the tourist season is not savaged. But at what price. Again, short termism everywhere

i hope you made a lot of buck throughout the comedy. now back to the hammock

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Dan
admin
July 13, 2015 at 4:20 PM ×

Man for all the complaining white-hate groups do about Native American land-theft by the US Government, the Treaty of New Echota certainly offered the Cherokees far better terms than this Greek deal!

LOL

"To promote this disposition to ex-change lands, which they have to spare and
we want, for necessaries, which we have to spare and they want, we shall push our
trading uses, and be glad to see the good and influential individuals among them run in
debt, because we ob-serve that when these debts get beyond what the individuals can pay,
they become willing to lop them off by a cession of lands. At our trading houses, too, we
mean to sell so low as merely to repay us cost and charges, so as neither to lessen or
enlarge our capital. This is what private traders cannot do, for they must gain; they will
consequently retire from the competition, and we shall thus get clear of this pest without
giving offence or umbrage to the Indians."

- Thomas Jefferson writing to Governor William Henry Harrison, 1803

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Anonymous
admin
July 13, 2015 at 4:43 PM ×

Leftback,

What is your take on REIT? When the time comes, which do you prefer, long bond or REIT?

Thanks

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wcw
admin
July 13, 2015 at 5:21 PM ×

Default? The two sweetest words in the English language.

- H.J. Simpson

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Anonymous
admin
July 13, 2015 at 6:35 PM ×

http://www.abc.net.au/radionational/programs/latenightlive/greek-bailout-deal-a-new-versailles-treaty-yanis-varoufakis/6616532

Varoufakis warned that austerity will further embolden the country’s far right:

"In parliament I have to sit looking at the right hand side of the auditorium, where 10 Nazis sit, representing Golden Dawn. If our party, Syriza, that has cultivated so much hope in Greece ... if we betray this hope and bow our heads to this new form of postmodern occupation, then I cannot see any other possible outcome than the further strengthening of Golden Dawn. They will inherit the mantle of the anti-austerity drive, tragically. The project of a European democracy, of a united European democratic union, has just suffered a major catastrophe."

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hipper
admin
July 13, 2015 at 8:09 PM ×

Nice one as always. Indeed no debt relief equals that we will frequently and non-frequently start getting an increasing amount of oversized, unsustainable and uncontrollable debt snowballs rolling around creating even more potential -xit scenarios. That's the point when it's pretty much gonna be game over.

For now, even this "training excercise" doesn't look to be over just yet. ECB didn't play ball with ELA, the Eurogroup (as I understand) couldn't yet even sufficiently agree to present this deal officially to Greece despite the €50bln "private asset" collateral fund condition and Greeks back home certainly don't look forward to having anything to do with it.

Equities look happy clappy as always, perhaps the algo news filters were tweaked for positive bias only? Bonds initially looked like they were letting of some steam until they cautiously closed the valve again. Meanwhile FX doesn't look to be buying the deal at all, if one had to guess probably because the appalling likelyhood of acception at the Greek end.

I'm really looking forward to the next serious global recession, ensuing -xits, and subsequently, what the new type of economic Blitzkrieg Mk II doctrine is going to look like, which will eventually be attempted to use to subjugate France and perhaps Italy/Spain. Greece is a test bench, a bit like Poland in '39.

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Mr. T
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July 13, 2015 at 8:32 PM ×

I don't know what to make of this. If someone had told me Greek outcome on Friday I would have expected pretty much the opposite moves in near every market. Maybe this is all about positioning - CFTC eminis is the most net-short since 2012. Barely any moves in euro bonds, or fixed income in general. EUR seems to be having an identity crisis - am I a lira or a deutschemark? DAX+8% in 4 sessions - SX5E up 10%. These are SHCOMP moves.

Okay so the lesson here (from current headlines) is debts are hard and if you overstep your ability to pay your creditors will seize your assets and you will lose a lot. While this might be precisely the message Schauble wants to send, its downright bearish for Keynesian spending and thus by extension a huge slug of the EU states.

When nothing makes sense, I reduce exposure.

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Anonymous
admin
July 13, 2015 at 9:11 PM ×

Equities are just back to when the referedum was called.

ECB Q&A hopefully interesting Thurs.

There's another twist in this pantomine before politicians can go on holiday.

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washedup
admin
July 13, 2015 at 9:24 PM ×

T - I will just refer you to MM's recent comment that the first reaction to a big event is rarely the final one, let alone the right one - I do think currencies did more or less what they were supposed to.
And anon 9:11 yes many more twists and turns to come - its a great time to own variance swaps at where vix is currently trading - whoever predicted that the s&p would end 2015 grotesquely, horribly and violently flat may have been on to something.

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hipper
admin
July 13, 2015 at 9:32 PM ×

Mr. T just my take on EUR for all it's nickels worth, IIRC EUR has most of the time (during this panto session when it's covered in approx 90% of headlines) been reacting upwards to positive news of a supposed deal. I think no deal is regarded as having an imminent "destabilizing" effect weakening EUR and vice versa. I think eventually it will get to the Lira vs DM phase but it might not be there just yet, the more imminent issue might be to get a deal to stabilize the imminent EZ future again. That's just gut lacking theory and any scientific evidence though. Then bonds down and equities up on deal but thats nothing more than gut too.

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Leftback
admin
July 14, 2015 at 5:42 AM ×

Mr T is right. Back to the hammock, as things have stopped making sense.

Psycho Killer (Stop Making Sense)

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Ramesh Kumar
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July 14, 2015 at 11:06 AM ×

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Leftback
admin
July 14, 2015 at 4:24 PM ×

Anon @4:33 asked about REITs v Long Bonds. You have to decide your own asset allocation based on risk tolerance, as REITs can go bust, are subject to management, hedging strategies and other idiosyncrasies. Portfolio risk is largely priced in, we think. One share class to consider is REIT preferreds. AGNC and NLY preferreds have paid me 7-8% for years and show little volatility, so that's a nice way of controlling risk. Remember you can trade in and out of the Long Bond but you'll want to hold any REITs you buy, especially the preferreds, which aren't very liquid, and of course you can trade the common stock.

It's possible that the REITs have already bottomed out for the year. We suspect there may be one more waterfall selling event as we approach the September FOMC meeting, triggered by a modest sell-off at the front end of the Treasury curve. (If the Fed is going to hike, T-bills are behind the curve and there will be a rate bump out to the 5y at least). The usual pattern in bad years with deep sell-offs (e.g. Taper Tantrum) is they will form a bottom before the Long Bond.

What you can consider is the following strategy, which we have already adopted, and used during the Tantrum. Raise some cash if you need to (we did this in May). Set up some buy orders for what would seem to be a ridiculous event, say a 10-15% sell off in common, a 5-10% drop in preferreds, and just wait. There was a very illiquid day or two in August 2013 when funds sold large blocks of REIT shares, triggering stops of unwary retail investors and creating some ridiculous bargains for eager knife catchers. A repeat of that event is not implausible. If you can buy these cheap, then you will get paid to wait until the fear of Fed hikes ebbs away from the fixed income markets, sit back and enjoy the fruits of dividend investing.

Happy knife catching and don't forget the Kevlar.

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Mr. T
admin
July 14, 2015 at 5:36 PM ×

If we are talking REIT's, FPI is a name that came across my desk the other day. I don't own it (yet) but it has a compelling story.

Healthcare/Biotech leading the charge here, again. While the newsflow is dominated by company specific stories the background driving valuations higher has more to do with what looks like unlimited pricing power. No position now, but I continue to look for catalysts to bet against this. The impact of medicare part D on the unlimited pricing power cannot be understated. While maybe too early for a real catalyst, its worth noting that the top 2 democratic candidates for 2016 (Clinton and Sanders) are both on the record as wanting to overturn the part-D mandate that prevents the government from negotiating pricing for drugs.

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hipper
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July 14, 2015 at 8:21 PM ×

I'm adding TLT along as it goes down and meanwhile holding a considerable portion of cash short EURUSD. The outcome I expect is a max of 1 hikes for 2015 and probably 0 for 2016 based on plausible expectations of a worse global economy next year. As FOMC vortex approaches and worse commodity prices feed through to earnings (and hedging profits taper off) for everyone to see, looking for some more capitulation and buy opportunities in commodities/EM sector later during this Autumn, BBL and RIO to mention a few that should stand the test of time and possessing a yield that's something not to be overlooked. If China data shows more slowdown parallelly that might escalate it somewhat.

Spoos sales seem to be stalling currently for one thing and the EPS/net income growth shouldn't be able to last too long without top line support. The Shanghai collapse for another thing, one might be surprised if it really had no feed through effect to the domestic Chinese real economy, considering how large portion of the market was based on retail investors who had basically based future lifestyle plans off of 20% annual returns for the next several years or even perpetuity in some case. Change of plan and a while ago there was some report of expected declining auto sales based on the sudden change in equity market not "delivering" those return expectations for common folks. Just an example.

Morgan Stanley and increased risks from Chinese slowdown for global economy:
http://www.bloomberg.com/news/articles/2015-07-13/china-may-tip-world-into-recession-morgan-stanley-s-sharma-says

I think what's meant here is that since China accounts for almost 40% of global growth, a one point or two points off the Chinese growth doesn't necessarily mean that China itself will plunge into a recession but rather that it might just be enough to tip RoW relying on China into a recession. That should if materialized, for one thing prove an interesting obstacle course/proving ground for the Eurozone, which almost was already ripped apart over the destiny of one of its smallest economies. Future stresses might prove to be a bit larger in that regard.

Choppy reaction for oil following Iran but I think this is a fundamental negative game changer for oil. Whatever the previous price cap for oil based on fundamentals was it should be lower with the new ones as the supply tsunami begins evidently coming online in the following months.

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river
admin
July 14, 2015 at 8:29 PM ×

http://blog.kimblechartingsolutions.com/2015/07/life-could-get-cheaper-if-these-break-support/

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Anonymous
admin
July 15, 2015 at 2:55 AM ×

The IMF seem to want to ban can kicking......

to the greek people


Meet the new boss
Same as the old boss

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