Another Twenty Ifs

1) If you are a European politician you

a) Have graduated from a political school which didn't have any windows onto the outside world
b) Are currently applying to be a traffic warden after a skill scoring test showed you would be better suited for it.
c) Are made for life.

2) If Europe were to learn a lesson from the France/Wales rugby match it would be that

a) Europe could happily play with a man down (Greece) and still put in a very credible performance.
b) The ref will always make sure that France is OK, so why bust a gut trying too hard.
c) There is no match, what are you talking about?

3) If you were to join an "occupy London" protest would you pitch camp in

a) The stock exchange, bearing in mind no one actually does any business there.
b) Mayfair, where the Hedge Funds live but bearing in mind coffees are extortionate.
c) Canary Wharf, bearing in mind that the Jubilee line could go down leaving you stranded, like the occupants, for months.
d) Get confused and end up on the steps of a Cathedral that looks like the front of the Exchange building in the City, which isn't the stock exchange anyway but is full of posh shops, well that's good enough for me.  

4) If you write for a blog, then the current run up in equity prices is due to

a) A natural bounce away from extremes of bearishness, but expect it to roll back lower again.
b) A growing realisation that economic data is not that bad.
c) Concerted intervention by dark forces bent on market manipulation to better their own ends at the expense of democracy and the little people.

5) If you are a US citizen and have $500 available from a loan shark do you

a) Take it and roll over your existing loans to avoid current physical threats on your well being.
b) Refuse it, citing Europe as an example of where borrowing without spending reform can lead to crippling structural problems.
c) Grab it and spend it on an Iphone 4s.

6) If you were working for the UK Met office would you

a) Suggest unsettled weather, but nothing too disseasonal then make a cup of tea
b) Just repeat what the new supercomputer says and look pretty.  
c) Go Rambo and scream that the UK is about to experience "Day after Tomorrow" style freeze apocalypse.

7) If the market is approaching important resistance lines do you

a) Sell or take profit on longs as they are called "resistance lines" for a reason
b) Buy like hell because just imagine what stops must be the other side.
c) Redraw some new lines to suit your position.

8) If you are newly graduated and finding it very hard to find a job do you

a) Explore every possibility, even if it means being flexible on role, income or even overseas location.
b) Sign on and hope it gets better.
c) Sue someone for suggesting that spending money on getting a degree would lead to a job (see FT Lex column last Saturday)

9) If you own a Bentley GT continental and lose your work car park pass down the micro gap in the back of the burr-walnut ashtray do you.

a) Spend 3 hours with a knife and tweezers trying to recover it only to see it drop further away into the depths of walnut heaven.
b) Go to Bentley and pay $$$$$$$$  to have them retrieve it.
c) Stay very quiet and don't tell anyone, but ask for a new pass saying that the old one went down the windscreen air vent on your Prius.

10) If you were a producer of Discovery Channel and had to create a new action adventure documentary would you chose

a) European Road Truckers - Hardened Ice road truckers try and haul a policy change through European Parliament.  
b) Most Dangerous Collateral - See how a French bank tries to refill its empty capital base and get it measured before it goes off (like the last lot).
c) Swamp Loggers - A family of loggers try and recover the reputation of US politicians from the depths of a mire.

11) If you were the UK Secretary of Defence would you

a) Be so stupid
b) Hope no one noticed
c) Be relieved as you never really liked the job anyway, but amazed you had to go so far to lose it.

12) If you were a teenage daughter and wanted something from your parents would you

a) Spend a couple of days diligently trying to please before broaching the request.
b) Build a strong case as to why your need should be supported.
c) Be as rude as sin, consciously do nothing to help and then scream and threaten to leave home should your request be challenged.

13) If you were a vegetarian and fancied a change would you

a) Go to that new restaurant that's opened in Covent Garden
b) Go on holiday.
c) Try the Chocolate and Pigs blood dessert at Bocca di Lupo.

14) If you own a UK energy company do you

a) Guffaw "Mwauhahahahaha" as you raise retail energy prices again.
b) Argue that you can't apply last year's costs to this year's revenue when calculating P+L and try and suppress a "Mwauhahahahaha" as you raise retail energy prices again
c) Point out that the design, PR and installation of a fancy new Danish Electricity Pylon to be used in the UK doesn't come cheap, before opening the window and bellowing  "Mwauhahahahaha" to the world as you raise retail energy prices again.

15) If you were Jean Claude Trichet you would

a) Depart in a dignified manner, keeping to the code as you know your speaking career will be supported by those you don't betray.
b) Spill the beans as you know your speaking career and book sales are directly linked to the dirt you dish.
c) Think who cares about a speaking career when Italy and Spain owe you so much. Another frappe please Silvio.

16) If Italian Industrial Production prints high do you

a) Explain it away with seasonals and any other factor you can find
b) Accept it as a signal that things aren't so bad
c) Ignore it and instead point out that Greek yields have just hit a new high.

17) If the A-Team decide to announce the leveraging of EFSF along the lines of the Allianz "First Loss" plan do you:

a) Argue that anything that looks like a CDO is bad, and therefore conclude it won't work.
b) Think hmm.. actually that's quite clever, isn't it?
c) Point out that Greek yields have hit new highs

18) If earnings yet again beat expectations do you:

a) Ignore it, as they won't have been affected by the summer chaos yet, and next quarter's will miss.
b) Accept that the real economy doesn't give a sh1t about what Sovereign CDS says.
c) Point out that Greek yields have hit new highs

19) If you were Schauble and said this morning  "UPCOMING EU SUMMIT WILL NOT PRESENT FINAL SOLUTION FOR EURO ZONE DEBT CRISIS"  You would

a) Hope it buys you yet another couple of weeks
b) Hope that your expression of realism will curry you more respect from the markets
c) Really regret having used the phrase "final solution "

20) If you were to protest about corporations would you

a) Use a balanced argument about how the world is changing and that greater transparency would be for the good of everyone.
b) Pick and choose which ones you protested about so as not to leave yourself open to charges of hypocrisy.
c) Stand there naked having realised that everything you own is made by a corporation.
d) Protest that Apple isn't a corporation, surely it's a charity that gives to the rest of humanity?


-------------------------------------------------------------------------------

It depends on who you listen to

Yesterday saw towel chucking on FX but equities failed to break or hold their relative range tops so Team Macro Man, thinking that upside momentum can now fade a little, has taken profit on their risk longs and is going to place stop entries to reestablish longs above yesterday's highs. One line of response we are consistently hearing on this run up of risk is that nothing has changed over the last week, the world is still a mess so we must sell all rallies. But TMM think quite a lot HAS changed over the last week

1) US does not look like it is heading for recession anymore. In fact, growth looks trend like.
2) The past few days have contradicted the survey data in Europe... it actually looks like Q3 was a quarter of growth - ie not necessarily in recession.
3) Italy in particular had vigorous IP growth in August, reducing the need for EFSF to be leveraged.
4) Merkozy agreed they need to recapitalise banks and said they will get a plan together to implement it. Acknowledging the need is a significant positive.
5) The ECB didn't need to buy many bonds last week, the private market absorbed supply from Italy.
6) The EU bank bond market has reopened... Deutsche issued 2yr paper and Bank of Ireland 3yr paper.
7) Dexia breakup burned equityholders, but not senior creditors. This was a big worry in the unsecured bond markets. Precedent set along with ECB insistence that bank bondholders do not get hit reduces the prospect of calamity.
8) Asian exports have not collapsed and have surprised to the upside in China/Korea and Taiwan. Stabilisation elsewhere (Phillipinnes isolated).
9) Policy easing in Asia. Bank Indonesia rate cut this morning along with a Chinese province easing property purchase regulations. Add to that Government agency buying Chinese bank shares on the secondary market.

So our core view remains that the background data is better than many would have us believe and that Europe is not going to implode by Christmas, though many are still strongly pushing this "recession", especially in the UK, where it is being overhyped by those with vested interests.

It is sad to say that the once mighty and trustworthy British Broadcasting Corporation is one of those and appears to be doing it's damnedest to whip up fear and financial panic amongst the population, with Radio 4 being a litany of stories focusing on social welfare cuts and public sector employees who are losing their jobs. We have expressed our ire at this before but it was whipped up again yesterday. "World at One", one of the UK's most serious news programs delved into the problem of the young unemployed and interviewed 3 recent graduates who couldn't get jobs and held them up as example of how "job creation" was a must. However the degrees these three had were in Media Communications, Broadcasting Journalism and though the final one had two business degrees he wanted to go into Market Research designing questionnaires. All were horrified that they couldn't get jobs. (click here for interviews 7min 30 onwards)

TMM didn't know whether to laugh or cry at this point. Do the BBC really think that Media Studies and Broadcasting degrees are representative of today's graduates? We'd have been much more impressed and concerned if they had unemployed graduate engineers, physicists or medics being interviewed. Or perhaps this story was coordinated with the 2000 cuts being made in their own organisation? Or perhaps, oh dear its true, the UK really is churning out a load of graduates with degrees in uselessness. The most telling comment was right at the end of the interview by one of the girls referring to a "False hope of a degree leading to a job". TMM have predicted before that the next great mis-selling scandal in the UK will be that of the student debt racked up in exchange for degrees that don't lead anywhere. All of this is most pertinent to Team Macro Man who are seeing their own offspring deciding on future further education choices and, whilst matriarchs might be insisting it's more important to be happy, this patriarch is forcefully explaining that happiness is dependent upon having a job and preferably one that they are proud of. If you doubt that then go back to the interviews above.

And finally from Guido Fawkes' great blog

A newbie MP talking to a young blonde lady. The MP says “it was nice to meet you, but I’ve got to go and show my face at the British Venture Capital Association reception”. The young lady immediately says “wow, that sounds like a very right-wing group.” The MP looks bemused, replying “I wouldn’t say that. It’s business, it’s not left-wing or right-wing. So what do you do?”The lady suddenly looks embarrassed: “I work for the BBC.” “Oh? Doing what exactly?” “I’m public affairs – it’s my job to persuade all of you lot that we’re not a bunch of raving left wingers.” “You’re not doing a very good job so far…” came the reply.

TMM still think they should set up TMM radio.

The Merkozy Line

The two chief Eurostriches had a meeting yesterday. Did we learn anything from their comments?

"We are determined to do what is necessary to guarantee the recapitalization of our banks," So they now know that their banks need re-capitalising even if we've all know it for more than a while, but what is more, they will do "what is necessary". Like re-capitalise them we hope.

"We will make proposals in a comprehensive package that will enable closer cooperation between euro-zone countries that will include changes to treaties." This could encompass many things from changing the rules within the current Euro group to trying to drag in the new members to contribute more. Poland, is that you hiding behind the sofa looking smug? TMM hope it will also include a change to the mandate of the ECB. handing them a full pin cushion of new needles for their compass. Fat chance.

"We think the troika will propose a sustainable solution for Greece," "We are working closely with the troika. Greece is part of the euro zone and we will find solutions to ensure the financial stability of Europe and a long term solution for the Greek problem." The first statement hints that they know what the Troika has up their sleeve but the wording of the second "we will find solutions" implies they haven't yet got any. Sounds like hope, but it is more likely they will back any Troika plan that may work even if it entails national expense.

"It's not the moment to go into details of all questions," Because they don't have the answers? Or an implication that it is so cunning it needs a grander unveiling.

So basically they have decided they could probably get away with another month of procrastinating before they have to pull the rabbit from the hat and are hoping that sounding pretty serious about it will once again buy them a couple of weeks in which to cobble together something more lagomorphic than strong words.

TMM have for a while been suggesting that one of the prerequisites of a successful European bailout plan is to "Keep It Complicated Stupid" to prevent the public asking too many focused questions about what is really going on whilst providing just enough clarity for the markets to regain comfort. We had assumed that said complexity would be built in to a single EFSF/SPV/IMF/Bank recap super weapon that would be wheeled out of the Frankfurt financial armourers shed. However, it is dawning on us that complexity doesn't have to be within a single plan, but can be achieved by implementing many simpler separate plans at the same time. We may be preparing for a tiger when perhaps it is more likely to be an army of ants. Over the past few weeks there have been various plans and ideas mooted that individually have been found to be lacking, but TMM have considered what could happen if many of them are implemented at once and wonder if the Euro solution could actually look more like this.

It certainly looks complex enough:

Lets have a quick look at the different campaigns:

EFSF - The world's financial spies and espionage units have deployed all their agents to try and get their hands on the plans to the secret bailout mechanism that Europe is trying to build as their ultimate terror weapon with which to defeat the enemy. TMM have already suggested their view of how such a plan should work and do see it containing the sub clause that will safety net the banks. But instead of being the solution we see it as just part of a bigger manoeuvre. Provided Spanish & Italian growth hold up (see below...) , the EFSF doesn't really need to be larger.

SMP - Out of sight and generally out of mind, but the SMP program has steadily been buying Italian and Spanish debt preventing yield from further deterioration. If the other actions can hold off any renewed attack then the ECB can keep providing conditional liquidity support ad infinitum. This is an interesting one, because the ECB have provided market discipline - to the Italians in particular - by requiring structural reforms and increased fiscal tightening in exchange for providing liquidity, without the negative side effects that Bond Vigilantes tend to bring with them (i.e. - yields spiraling to the point of turning a liquidity problem into a solvency problem).

Barroso Tax - In launching the Brussels proposal for a financial transaction tax that would most significantly damage London, Barroso has effectively pinned down the UK's forces, leaving Europe to solve its own problems without UK interference. Indeed, the Barosso tax threat may be used as a stick with which to later "encourage" UK participation in the rescue. This is typical of European Commission salami tactics.

Berger Wave 1 - The Roland Berger suggested solution is plausible for Greece, even if it isn't suitable for the Spanish and Italian behemoths. It can be considered as a tactical solution to Greece.

Berger Wave 2 - If Portugal and Ireland completely collapse then the Roland Berger plan can be used as a model to rescue them, should a rescue be needed.

Finnish Feint - The Finns have agreed to the enlargement of the EFSF conditional upon collateral, but the collateral deal they have agreed to is so onerous, involving the proceeds of the sale of existing Greek bonds, that it's unlikely anyone else will push for a similar deal.

GDP - Quietly in the background, Irish and Spanish growth has been doing relatively well. Given enough support, this local resistance movement could make life painful for the bears. This morning's Industrial Production Paratroopers have had significant success in discrediting the recent PMI numbers, particularly in Italy where IP jumped sharply, reducing the risk that Italy falls victim to economic contagion from Greece.

Helios - As with all European "Grand Plans", the diktat from German Finance Minister Schauble several months ago was that Greece's growth model should involve exporting solar power to the rest of Europe. TMM thus found last week's approval of a EUR 27bn solar energy development in Greece particularly notable.

US Growth - It has become particularly apparent that the US data have not collapsed, with ISM refusing to plumb below the 50 level, and the employment report revising away this summer's jobs slowdown. With most indicators now consistent with trend growth for Q3, there is hope that a convoy of better US growth may be coming to assist (as opposed to arriving two years too late).

SWFs - The most critical part of the plan. Everything else is working towards the Sovereign Wealth Funds and other regular investors regaining enough confidence in Italy and Spain (Greece being a lost cause) to start buying again. If they do, then not only are those countries back from the brink but the European banks will see their capital recover as the peripheral debt they hold rallies. The short term objective is to crank up the EFSF or an SPV to a suitable credit rating that will prime the pumps. But ultimately for direct investment.

Bank Red Cross Packages - Beginning with Dexia and the Merkozy agreement to recapitalise Europe's banks in a coordinated fashion so as to reassure markets that senior bank bondholders are not going to be hit, unleashing a wholesale run on the banking system a la 2008.

Anti-Ratings Agency Guns - Shoot them down before they bomb anymore countries.

Now this may not be "the" solution , but TMM do think that we should stop looking for a single solution and instead consider what would happen if all the suggested policies are implemented as part of a of a more complex Masterplan. Let's face it, when has Europe ever been won without the involvement of many armies fighting on different fronts?

That's why the lady is...

Non Farm Lottery day. TMM are all a little weary after late Thursday nights and have used this lull to trim back some risk ahead of today's lottery and are aware of generic "sell Friday" tendencies. We will be just happy enough to make it through 'til home time and some sleep. But as we doze, the lilt of the "Ol' Blue Eyes" classic that was playing in the bar last night is still echoing around our muddled brains...

She gets impatient, over the greek debate
She'll never rescue, lazy people she hates
She loves to tighten, just don't do it late
That's why the lady is a tramp

Won't go to Athens, there's nothing to see
Doesn't like crap games, with the ECB
Won't compromise, with the FDP
That's why the lady is a tramp

She loves the free, free Germany
Export ecstasy
PIIGS broke, but it's "OKE"
Distrusts the French, they're not in her camp
That's why the lady is a tramp

Doesn't like dice games, with the Finns or the Nords
Rides in Mercedes, not Seats or Fords
Will dish the dirt, wont sign the accords
That's why the lady is a tramp

Scrap silver

So the market waits with bated breath for Trichet's last meeting as ECB President. TMM must say they are glad to see the back of him - over the years he has inflicted significant damage to their P&Ls on a consistent basis. While TMM strongly believe that given the weakening in the European PMIs that the ECB must cut - in particular to provide global cover for the BoE and Fed to embark upon a new round of QE - history would dictate that the ECB stubbornly refuse to cut until it is too late. We hope we are wrong here and that the ECB have seen the light, but given the risks, TMM have lightened up with a view to buy a dip in risk.

But now onto one of TMM's favorite subjects - precious metals. While our opinions remain divided on gold, we think our previous comments on platinum and palladium weren't too far off the mark - performance was good in 2H 2010 and the downside was gappy as predicted. Which leaves us with one metal left and that's silver which TMM thinks is still profoundly overpriced even 40% down from the highs of this year.

Much like PGMs silver is a pseudo precious metal. Gold gets a bid from any or all of: central banks, Congolese warlords, Chinese retail, Indian weddings and The Illuminati, with industrial uses not really being that big a part of the picture. Any sort of analysis of demand misses the point as soon as you are above marginal cash costs, which in for gold are now above $1000 for higher cash cost operations.

If you get the GFMS data or the data from the Silver Institute, silver is about 50% industrial demand of which 20% is from photography - a dying business if ever there was one. Similarly silverware appears on the decline and the only thing keeping silver up is demand in ETFs/investment and the like. So far so good - basically it's got horrible fundamentals on the industrial side, but the investment demand is fine, right?


Well, no, it isn't. You see silver, unlike PGMs, does not come from the godforsaken political and labor relations minefield known as South Africa. It is mostly mined in stable places in Latam and Australia and production has been rising steadily - not least of all because silver is a by-product of making other stuff.

So supply has been going bananas and cash costs, thanks to the by-product game, are $5 per ounce - about 15% of the current spot price. By way of comparison many industrial metals aren't that far above cash cost now. If you're looking for something that performs due to cost push pressures, silver is not it.


TMM used a very quick lift of the Silver Institute data to work out how much investment demand is required to balance the market for 2011 and 2012 and compare that to ETF flows and the picture is not pretty. ETFs aren't everything, but 50 million ounces have bled out of the ETF market this year while there is a requirement for 214 million ounces in demand to fill in order to achieve balance in the market.

So with cash costs about 80% down from here and pending collosal oversupply, TMM can't work out why people like this metal. If you want something with cash cost support, buy some PGMs. If you want to trade monetary debasement, buy gold. And if you're not comfortable with all that metals risk, short some silver because this market makes absolutely no sense.

Beware Bears Bearing Maps

Wowza. That was interesting. China CDS apart, the response to our calling for a turn in risk in the markets was most informative. TMM's "comments rule" played out again where bullish posts are either met with no response or a stream of disagreement to the point that we think we proved one of yesterday's observations - "On balance the blogosphere wants a recession so they can say 'told you so'". TMM received similar ribald jibing in their work environments too. Now such biased response certainly does not mean that TMM will be right, and with a 2 horse race of bottom or no bottom. A 50/50 outcome is all we should expect. But if price reflects information and expectations, and expectations as detected by our mockery meters are pretty extreme, then where do we go from here? Who is the seller who is more stupid than you who hasn't been exposed to stories that are so tabloid they are on the back of cornflakes packets?

Many comparisons are drawn between today and 2008. Back then, the discovery of a new land of economic doom had all the financial cartographers mapping the landscape, but such mapping appears to have given today's financial navigators a false confidence that their 2008 GPSs of financial crises are to be followed blindly today. But TMM, just like any good navigator, suggest that the 2008 GPS is an assistance to traditional navigation methods, never to be trusted fully and to be used together with a wily local knowledge and a healthy respect for the uncertainty of what lies ahead. Things are only ever obvious with hindsight. Especially new things.

Our point is that the observation itself has feedback into the price and so the outcome will never be exactly the same again. Most of the price moves of 2008 were on a shock of the new, if you think you have an accurate map then there should be no shock and so price moves will not behave as many expect. Not only does this feedback occur from the punters side but also the policy makers, who, having seen the disaster of 2008 have learned their own lessons. This last point is hard for many to believe and indeed the intransigence and lack of discernable action from Europe would support that disbelief, but TMM really do trust that the lessons of 2008 HAVE been learned and will not be allowed to happen again.

Let's dig a little deeper. As mentioned above, TMM find it particularly interesting that the "default" view as to the natural path of events is "this is 2008". We remember vividly back in the summer of 2007 that many were of the view that "this is 1998" and that rate cuts would fix the problem. TMM would argue that traders minds are usually framed, as far as crises go, on the last crisis they experienced. So "This time is NOT different" is more the norm than not, from an expectations standpoint.

The trouble with this view is that ALL crises ARE different. But they DO share one common element: the inability of markets point in time to distinguish between a liquidity problem and a solvency problem. To wit, once upon a time, shortly following a financial crisis in one part of the world, credit markets began to seize up as a basket case economy with a large amount of debt started to have problems. It entered an IMF programme, but kept missing its targets. Meanwhile, financial conditions globally tightened, PMIs began to fall sharply and ISM printed below 50. Equity markets fell sharply, and speculation grew about US Investment Bank exposures to this country and a certain systemically important financial entity. Then that country defaulted. Markets panicked, and the equity prices of several investment banks fell as much as 70% from their peaks a month before.

How did it end? Ring-fencing of that certain stressed systemically important entity, liquidity provision by the Federal Reserve and a 30% Q4 rally in the S&P500. For those that haven't guessed already, this was 1998. And it turned out to be a liquidity crisis rather than a solvency crisis.

And this is the point TMM are trying to get across. In a crisis, you just DO NOT KNOW whether it is solvency or liquidity. Now, TMM believe that European banks are insolvent *conditional upon* the PIIGS collectively being insolvent. Clearly this is the case for Greece, but for the others, this is unclear - and, particularly in the case of Spain and Italy, a function of the rates at which they can borrow. So while the ECB provides a liquidity backstop, they have the room to adjust. Of course, the missing ingredient is growth, Europe already looks as though it has slid into recession. But nothing is certain.

While we're on the subject of differences with 2008, TMM would note that by July 2008 - a full two months prior to the Lehman default - the World had entered recession. This is clearly not the case now, though growth has indeed slowed, there are signs the US and UK are picking up, just as they began at a similar time in 1998.

So is the *real* Black Swan (a 30% rally in SPX) the outcome in which things start to look like 1998? Greece defaults, the UK & US embark on further QE, the EFSF leverages up alongside the IMF to provide liquidity to the rest of the PIGS, or the ECB continues to cap yields on Spain and Italy on a conditional basis, growth expectations gradually rebound and the next bubble is born...

...Beware Bears bearing maps.

Buy back Tuesday?

We left on Friday with the plan to sell and not buy back until today. So far so good, but do we buy back now? Glancing through the OED, as one does over morning coffee, the page flopped open at the perfect description of this morning's markets.

"A functional disturbance of the nervous system, characterized by such disorders as anaesthesia, hyperaesthesia, convulsions, etc. and usually attended with emotional disturbances and enfeeblement or perversion of the moral and intellectual faculties".  Also called colloquially - Hysterics.

Let's start with the fastest riser up this week's Top Ten chart of hysteria. China. Today we bring you our nomination for the 2011 CDS Darwin Awards. Last year saw those proud owners of BP CDS win in spectacular style, but TMM would like to nominate the recent purchasers of China CDS for this year's CDS Darwin award.

Now, TMM have for some time felt that CDS on debt for countries that can print their own money is a lot like Magic Cards: an obscure game that can be expensively played by 30 year old man-children, who should be doing something else. On that basis we could make fun of most of the sovereign CDS market - US, Australia, Japan, you name it. But TMM feel that those who have pushed China CDS out over the last few months are a special bunch indeed. China has reserves of approximately $3 trillion and a grand total of $1.2bn in external borrowings at the sovereign level. Now, TMM know that China has a lot of NPLs - don't get us wrong - but those are in local currency. Ooooh, but what about SOE borrowings in USD? TMM would like to point you towards creditors to Vinashin, a hopeless Vietnamese shipping company, who appear to be 1) taking a big fat haircut 2) not getting control of the company and 3) now hold busted, useless paper that is not deliverable into sovereign CDS. The bottom line is, if they don't feel like paying you, they won't and your CDS won't pay out. This is EM credit 101: willingness to pay is often far more important than ability to pay. So anyone buying CDS on China is buying something that is collateralized about 2500x with cash and rising. Remember - China doesn't sell its reserves to print money to recap banks, it just expands the monetary base. Just like the Ber-nank.

TMM don't doubt for a moment that China CDS could widen further, much as Pets.com had its day in the sun and BP briefly went deep into the high yield zone. However, as a whole we are calling this trade what it is - deeply, profoundly, ridiculously stupid, poorly conceived and no doubt primarily owned by equity and corporate credit guys who've thought about it for around 2 seconds before putting this trade on, like thick pants, in the vain hope it will stem a haemorrhaging from their posteriors that makes Ebola look like Deep Vein Thrombosis. TMM would like to say to these people's investors that if you want to stop the bleeding caused by a portfolio disease known as tight monetary policy and poor corporate governance, then stop giving your money to credit analysts that can't analyze credit and equities analysts that can't analyze equities - Please! Don't buy China CDS.

Next Dexia -

FRENCH, BELGIAN GOVTS, WITH CEN BANKS WILL TAKE ALL NECESSARY MEASURES TO SAFEGUARD DEXIA SA ACCOUNT HOLDERS, CREDITORS -FRENCH MIN

Note the word CREDITOR in there. The return of bank liability guarantees would be a significant policy response, given that credit markets have been under significant stress in the face of worries about bondholder bail-ins. Markets need an explicit confirmation that governments do not intend to inflict losses on senior bondholders, so this is a positive development. Having said that, this is only one bank, so can't get too excited, but it is a step in the right direction. Of course, this has to increase the probability of France getting downgraded even though, in TMM's eyes, the upside to preventing a bank collapse is significantly better than the downside of a ratings downgrade from less-than-credible agencies.

Back to the mood. The technical picture has yielded cries of  "Bring me a new support, this one is broken" across the city, especially in SPX, with many now ready for the next leg lower. We have even had Battledeathcrosstar Galacticas sighted in various guises. But notable was the way that yesterday's varied positive economic data were pretty much studiously ignored or explained away to such an extent that TMM are beginning to wonder if Alessio Rastani is actually representative of many more than we thought, with all secretly hoping for a recession to serve their own nefarious purposes.

The UK Government wouldn't mind a recession as a justification to its spending cuts (Osborne highlighting the severity of the economic downturn yesterday). Meanwhile the Labour party wouldn't mind a recession to prove how wrong Tory policy is. Every socialist-leaning government in the western world would like a recession as further reason to neuter the banks. On balance most of the blogosphere would like a recession so that they can cheer "told you so". Every holder of Gold ETFs and physical outside of central banks wants a recession to justify their holdings. Sell-side sales folks, rather short-sightedly, seem to want a recession as it means they can scream "not since the last time" a lot and charge wide spreads. Buy side analysts want a recession as they have learnt in 2008 that being contrarian gets you noticed, they just haven't noticed yet that being bearish is now consensus. Is there anyone apart from normal folks with normal jobs, who can't control whether there is a recession or not, who don't want a recession?

Whilst TMM may have been a bit over the top there, the point we are making is that this has to be one of the best flagged and prepared for recessions we have known, accompanied by localised and, in TMM's mind, overhyped short term hysteria. So TMM are indeed going to buy back today, as there is a chance that this may be a beautifully crafted bottom. What one might call a "Pippa Bottom".