Credit - Cognitive dissonance

"The difference between stupidity and genius is that genius has its limits." - Albert Einstein

Watching with interest the significant compression of German bund towards the 1% level as deflationary forces à la Japan gather strengths in the European space with disappointing ZEW index pointing to lower growth in conjunction with Russian sanctions hitting hard some European economies, we decided to venture once more towards psychology when it came to choosing this week's analogy for our title (We already touched on the subject of cognitive bias in our "Dunning-Kruger effect" conversation. Cognitive dissonance in psychology which is when people are confronted with information that is inconsistent with their beliefs. For instance, in the case of Europe, the much vaunted "recovery" is no doubt going to be tested by the next GDP prints in the European space with France, no doubt straying towards recession in similar fashion to its Italian neighbor we think (-0.2%). Of course the prophecy of the "recovery" will fail in similar fashion to what was illustrated in Leon Festinger's 1956 book "When Prophecy Fails", which was an early version of cognitive dissonance. A good illustration of "Cognitive dissonance" is in the belief that having a single European banking supervisor will be supportive of lending in peripheral countries as indicated by the ECB and reported in Bloomberg by Maxime Sbaihi in Bloomberg:

"The transfer of power to a single European bank supervisor should be a game changer. The ECB is hoping to do more than simply strengthen financial stability. It also envisions unified authority as a tool to repair the broken channels of monetary policy transmission, prompting banks to make their comeback at the periphery and improve credit conditions there. The central bank timidly expressed this wish in its latest financial integration report, stating that “the banking union is expected to contribute indirectly to the return of crossborder credit flows.” - source Bloomberg

We beg to ask where the demand is going to come from? Yet another illustration of "Cognitive dissonance" from the ECB, or more akin to "wishful thinking" we think, but as always we ramble and rant.

In this week's conversation we will look at "Cognitive dissonance" informations which we think are inconsistent with many pundits' beliefs in the much vaunted "recovery" and cautious signs coming from various indicators for risky assets in the coming months we think.

Like any cognitive behavioral therapist, we tend to watch the process rather than focus solely on the content. Not only as human beings we suffer, from optimism bias, but we suffer as well from "deception" and we also all play "deceit" to some extent. We are all "great pretenders", some way or another.

After all, one only need to look at the German 2 year yield  turning negative again to realize that credit wise Europe is indeed turning Japanese. It's D,  D for deflation. German 2 year notes versus Japan 2 year notes indicative of the deflationary forces at play we have been discussing over and over again - source Bloomberg:

Credit dynamic is based on Growth. No growth or weak growth can lead to defaults and asset deflation which is what we are seeing in Europe and what a 0.4% inflation rate is telling you. It is still the "D" world (Deflation - Deleveraging).

As we indicated in our conversation of November 2013 entitled "Squaring the Circle", when it comes to optimism bias and "Cognitive dissonance" we reminded ourselves of the "wise" words from Olli Rehn:

“I’m sure that we will be able to find a satisfactory solution as regards to how to ensure the fiscal gaps will be filled and the fiscal targets will be met.” - Olli Rehn

We also pointed out at the time:

"As far the "optimism bias is concerned, a majority of analysts believe the German Constitutional court will allow the OMT to stand on the basis that EU treaty allows for purchases in the secondary bond market. We beg to differ. 

Once a debt is a contingent liability, for instance "super senior" there is no turning back, but the ESM being capped and the OMT yet to be firmly backed by Germany, the nuclear option is still an option rather than a reality."

In this previous conversation we also argued that the performance of Sotheby’s, the world’s biggest publicly traded auction house was indeed a good leading indicator and has led many global market crises by three-to-six months. Looking at the fall in Sotheby's stock price on the 8th of August following a second-quarter profit fall of 15% with the share plunging 11% after its earnings miss, we wonder if indeed the S&P 500 is indeed not vulnerable down the line using the aforementioned relationship we discussed - graph source Bloomberg:

Mind the gap...Also note that Sotheby's private sales fall by 50% in first half of 2014 as reported by Philip Boroff in Artnet on the 12th of August in his article entitled "What Sotheby’s Doesn’t Want You To Know About Its Private Sales":

"Sotheby’s private sales have plunged following the auctioneer’s public feud with activist investor Daniel Loeb.

Long a focus of company executives, private sales tumbled 48 percent in the first half of the year, according to an August 8 Securities and Exchange Commission filing. The value of private transactions, in which Sotheby’s discretely brokers art and other collectibles to one prospective purchaser at a time, dived to $294 million in the first half of 2014 from $561 million a year earlier. It was the lowest private sales total since 2010. The drop contributed to a 15 percent decline in quarterly earnings and an 8 percent drop in Sotheby’s stock on Friday. The shares are off 15 percent in the past year, as the benchmark Standard & Poor’s 500 Index rallied 15 percent." - source Artnet.

The role of Sotheby's stock price  as an indicator was as well confirmed by our good friends at Rcube Global Asset Management  back in our November conversation but them using MSCI World as a reference - graph source Bloomberg:

"The Art market has always been an interesting indicator. The only major public auction house is Sotheby's since its floatation in the mid-1980s. It has proved a timely indicator of potential global stock markets reversal.

Whenever its price reached 50 or so with sky high valuations, a reversal was not far away. We can also take notice of the extremely weak jewelry and contemporary art auctions recently."

Another "Cognitive dissonance" sign which has been put forward by our friends at Rcube Global Asset Management  in their latest monthly review is another warning coming from the MSCI World:

"According to various measures, bullishness in the US was back to January's levels and at historical extremes. Leverage also seemed to have increased in June to new highs, while the MSCI World had just reached its 2007 top." - source Rcube Global Asset Management 

While in our last conversation "Nimrod" we discussed the outflows in the High Yield space through the ETFs markets in general and ETF HYG in particular, while recently there was some price recovery, we have to agree with our friends from Rcube Global Macro Asset Management namely that the massive increase in shares repurchase indicates that High Yield spread should be considered too tight.

Massive outflows recently as pointed out by Bank of America Merrill Lynch in their recent Flow Show note from the 7th of August entitled "Credit Capitulation":

"Biggest week of outflows ($11.4bn) from HY bond funds EVER in dollar terms; 4thlargest week of HY outflows as % AUM ever (Chart 1)"

- source Bank of America Merrill Lynch

But recent price "recovery" of ETF HYG and another illustration of "Cognitive Dissonance" - graph source Bloomberg:

HYG and JNK are the two largest High Yield ETFs accounting for 80% of assets.

Nasdaq Buyback achievers vs Standard & Poor's 500 index - graph source Bloomberg:

The Nasdaq gauge consists of companies that repurchased at least 5 percent of their shares in the previous 12 months. The US equities market has been increasingly being boosted by buybacks, yet another artificial jab in the on-going liquidity induced rally. Repurchases are largely designed “to boost earnings per share as revenue growth slows.

For our friends at Rcube Global Asset Management, corporate credit spreads are far too tight on US HY bonds, when we consider the massive increase in shares repurchase activity:

A measure of balance sheet leverage, which compares net equity issuance to corporate cash flows, also shows that HY spreads are too tight.

While spreads have narrowed massively over the last 2.5 years, liquidity has clearly not followed. The liquidity spread shown in the chart below measures changes in the short‐term differences in the bid and ask prices on 3‐Month US Treasuries, which reflects liquidity in financial markets. A widening spread signals illiquidity in the market, which is associated with growing stress.

What is interesting in the current episode is that despite much better fundamentals since the 2008 meltdown, strong inflows and tightening spreads, liquidity clearly has not improved.

- source Rcube Global Asset Management

Another illustration of the "liquidity risk" can be seen in the levels of inventory sitting on US primary Dealers as an illustration as displayed by Bank of America Merrill Lynch in their European Credit Stategist report from the 11th of August entitled "When it turns...":

“When it turns…”

“…it’s gonna be nasty” is the punchline in credit, used to describe today’s world of growing buyside assets and lower street liquidity. Admittedly, street bids have been somewhat of a rarity over the last few trading session, and the move wider – especially in Crossover – has been eye-catching.

But it’s easy to spin the party line on liquidity during a big risk-off moment. Dealer holdings of corporate bonds are clearly way down on where they were in the ’06 and ’07 era (chart 12), but banks are also more nimble in managing their mark-to-market risks, and overall exposures on their securities portfolios." - source Bank of America Merrill Lynch.

Another "Cognitive dissonance" indicator is also coming from the same Bank of America Merrill Lynch, pointing towards a change in the Business cycle in Europe turning South:

“It’s not me, it’s you!”

In our view, the risks for credit over the next few months stem more from continued equity weakness, than from any big changes in credit fundamentals. For spreads to tighten materially again, we think European equities need to stabilize. But as our equity team has been pointing out, stocks are currently undergoing a rotation from high-beta into defensives, due to the business cycle having moved from the Boom to Slowdown phase.

What does a rotation in equities look like? Bring up a chart of European Auto stocks (SXAP) against the Food and Beverage index (SX3P). Autos have underperformed by almost 8% this year, after having outperformed the Food and Beverage sector by 17% last year.

The bad news is that business cycle phases tend to last for some time, with the European cycle having only just rolled over earlier this year (and more recently for the periphery, as chart 3 shows).

While geopolitical risks and sanctions will only serve to dull the growth outlook in Europe further, the good news is that China is strongly surprising to the upside.

We think this has the potential to help lift growth expectations in Europe sooner.

But weak equities aren’t enough for us to suddenly become big bears on credit, though, although we admit the longer equities struggle the tougher it will be to get near to our big spread tightening targets for year-end, especially for high-yield credit." - source Bank of America Merrill Lynch.

On the potential rebound from China which would help lift growth expectations in Europe sooner, we disagree with Bank of America's take. Also, from the latest US Trace information is showing from the High Yield market, investors are selling CCC exposure to move up the rating chain towards single Bs which also can be seen in the resilient flows seen in the investment grade space as investors are playing "defense" in similar fashion to some players in the equities space. In the on-going European "Japonification" process as we pointed out in numerous conversations, credit can indeed outperform equities (see our conversation "Deleveraging - Bad for equities but good for credit assets") when of course management stays conservative and protects its balance sheet rather than "releverage".

On a final note, given Japan’s 10-year government bond yields around 0.51% today after reaching an all-time low of  0.315% in April 2013 and given it hasn’t been above 2 percent since May 2006, and that Switzerland is the only other country whose 10-year yields are below 1 percent, according to data of 25 developed nations tracked by Bloomberg, you can indeed expect Germany to join shortly the below 1% club. Another indicator we have tracking on our side has been the 30 year Swiss yield relative to Japan which is now as well getting close to the 1% level - graph source Bloomberg:

Since the beginning of the year, and in similar fashion to other Core long bonds, Swiss long yields have fallen significantly. For instance Swiss 30 year bonds have fallen by 63 bps relative to Japan 30 year bonds. We expect this divergence to increase.

"A man should look for what is, and not for what he thinks should be." - Albert Einstein

Stay tuned!

Markets update - Credit - The Hungarian dances

"Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning."
Albert Einstein

In a continuation of our previous analogy to the European flutter, as we enter 2012, the recent evolutions of the situation in Hungary which we discussed in our post "Mind the Gap...", warrant us this time around to ramble around how reminiscent the collapse of the Austro-Hungarian dual monarchy and empire (1867–1918) is with our European flutter. Could Hungary be the trigger in 2012? Before we enter yet another long credit conversation, for a change this time around, before our market overview, it is of importance to highlight the current situation in Hungary and contagion to Central Eastern Europe.

Back in October in our post "Long hope - Short faith" we discussed the worrisome Hungarian situation, which was also the main subject of our conversation "Leda and the (Greek) Swan and why Europe matters more for Emerging Markets".

We previously quoted an article by Geoffrey T. Smith from the Wall Street Journal on the subject and as we move into 2012, it will be paramount to monitor the risk of wholesale capital flight with the ongoing buildup of tensions in Hungary - "Austria Has a Déjà Vu Moment":

"the biggest threat to Austrian banks is still what it was in 2009—wholesale capital flight from emerging Europe."

On the 4th of January, Hungary's 5 year sovereign CDS widened by 65 bps, quoted 690-730 bps in the market, with limited liquidity and the CDS curve inverting in the process, meaning short dated protection is becoming more expensive than the 5 year point. We have seen this happening before with Greece, Portugal and others. The situation warrants caution as the Hungarian effect is spreading to other countries according to a market maker, spreading to Poland and Czech sovereign CDS, both trading wider in the process, Poland around 290 bps for the 5 year CDS and around 180 bps for Czech CDS 5 year.

As indicated by Simon Foxman in Business Insider article - Hungary's Currency Hits New Lows Amid More Signs Of Upheaval:
"The Hungarian forint weakened to its lowest value against the euro since last month—near its lowest level ever—at 319.4 amid worries that the political situation there is becoming untenable. Increasing attention is being paid to the small Eastern European country, at the center of Europe's other debt crisis.

The Hungarian government is running short on cash after it passed a law last week that could compromise the independence of its central bank. That law flaunted guidance from the European Union and the International Monetary Fund, who provided the troubled country with €20 billion ($26 billion) a bailout back in 2008. Hungary is paying through the nose to borrow even short-term funding, and the cost of insuring Hungarian debt via credit default swaps hit a new record, at 655 basis points according to Bloomberg. It paid yields of 7.67% to borrow for a three-month term and raise 45 billion forint ($190 million) yesterday.

Domestic turbulence is complicating matters, with protestors taking to the street to protest the government's new constitution (which includes that controversial central bank law). According to the BBC, protests are focusing on three major issues:

·A clause that defends the "intellectual and spiritual unity of the nation," which opponents argue could result in repression of intellectual freedoms

·Inclusion of social issues like the right of the unborn child and the definition of marriage as a union between a man and a woman

·Changes to the electoral system which could empower the leading Fidesz party at the expense of the opposition

Popular support for the Fidesz party hit 18% in a December opinion poll cited by the BBC, although it still leads other parties. If the Hungarian government were unable to pay its bills, it could wreck the Austrian banking system, which has an estimated $226 billion in exposure to Eastern Europe and €1.14 trillion ($1.6 trillion) of assets held in the region. 10-year yields on Austrian government bonds—and indicator of stress on the country—are moving sharply higher this morning. They rose to 3.20%, the highest level since before a central bank stilled their rise earlier in the year."

At the time of our November conversation "Mind the Gap...", we reminded the new legislation which passed by the Hungarian government in relation to the ill-fated currency mortgages which burden Hungarian households:
"Under the new legislation borrowers can repay their mortgage in a single installment at a HUF/CHF rate of 180 or a HUF/EUR rate of 250. Current FX rates are around 239 for HUF/CHF and HUF/EUR is around 297, a 25% and 16% discount according to CreditSights."
In November we commented:
HUF/EUR rate was 297 at the time, and is now much higher (315), meaning losses for European banks and in particular the likes of Austrian Erste Bank exposed to these mortgages will be significantly higher - source Bloomberg. Given HUF/EUR is reaching new highs, Austrian banks exposed to these mortgages face significant additional losses. So yes, contagion to EM, and in particular Central Eastern Europe, which was highlighted as a key risk for 2011, is indeed starting to materialise early in 2012.

But before we delve more into the Hungarian dances (as a reference to the 21 lively Hungarian dance tunes by Johannes Brahms), and discuss some of our previous call for concerns, it is time for a quick market overview.

The 36 months LTRO set up on the 21st of December by the ECB is far from having the expected results in relation to alleviating concerns that banks will use the cheap funding provided to generate generous positive carry by buying peripheral bonds. 455 billion euros are deposited at the ECB earning a paltry 0.50% of interest for now - The liquidity picture in four charts. ECB Overnight Facility, Euro 3 months Libor OIS spread, Itraxx Financial Senior 5 year index, Euro-USD basis swaps level - source Bloomberg:

The Credit Indices Itraxx overview - Source Bloomberg:

Most credit indices remain in the "concern" area, with Itraxx Financial Subordinate 5 year CDS index around 530 bps, still indicating the unsecured subordinated financial market is shut down, while Itraxx Financial Senior 5 year CDS index is rising again towards the 300 bps in a very thin market. As indicated by a market maker, so far both clients and dealers are on the sidelines. The Itraxx SOVx index tied to 15 European Government sovereign CDS is on the rise as well getting closer towards its 385 record set up on the 25th of November. Similar story to what we wrote in January 2010, "European problems not going away in 2011", and not going away in 2012.

The current European bond picture, a story of ongoing volatility, with Spain now rising as well with Italy following recent news of regional funding issues in Spain (Valencia) - source Bloomberg:

So what about our CPDO EFSF? It seems French yields are now rising faster as we start a new year, Investors demanded a yield of 3.29% on the 3.25% OAT due in October 2021, last auction on 1st of December was 3.18% - source Bloomberg:

German 10 year government yield falling (flight to quality) while German 5 years sovereign CDS rising - source Bloomberg:

In relation to the deflation story still playing out in Europe, here is an update on 30 year Swiss bond yields now below 1%, nearly 100 bps lower than Japan 30 year bond yields - source Bloomberg:

But back to our main story, namely the Hungarian situation and contagion to Emerging Markets (EMEA).

During various credit conversations, we argued that the name of the game is survival of the fittest in the race to raise much needed capital. It seems Deutsche Bank is sharing our views as indicated in their Emerging Markets special publications published on the 6th of December entitled amusingly "Survival of the fittest":
EMEA dominates our list of the most vulnerable countries. Five countries (Hungary, Ukraine, Romania, Poland, and Egypt) show up as highly vulnerable, though for different reasons. Egypt’s underlying vulnerabilities, for example, are fiscal first and external second. Ukraine’s risks are mostly external. Hungary’s vulnerability reflects a combination of risks in all four areas."

According to Deutsche Bank, for 2012, EMEA countries will be facing many difficulties and will need IMF support:

"Current account balances have improved in the last few years and central banks have been able to build bigger buffers of foreign reserves. But the large stock of external debt accumulated during the middle of the last decade still leaves the region with large external burden. Much of this borrowing took place in foreign currencies – Swiss franc mortgages in Hungary (20% of GDP) being just one example – the local currency burden of which is now being inflated as those currencies come under pressure. With these debts needing to be serviced on an ongoing basis, many countries still face large external financing needs even as their current account positions have improved. This is particularly true of Hungary and Ukraine, which have gross external financing needs of 30% of GDP or above in 2012 despite a moderate current account deficit in Ukraine and a small surplus in Hungary."

IMF support?

"Three of these countries (Hungary, Ukraine and Egypt) may well need to tap the IMF for financial support next year. Ukraine already has an IMF program (of which USD 12bn or 6.5% of GDP is potentially still available) but is currently looking first to Russia for cheaper gas prices to reduce its external financing needs. Hungary is seeking the reassurance of a precautionary IMF program although negotiation on the policy condition has not yet started and could well be difficult. Egypt had reached agreement in principle on a USD 3bn (1.2% of GDP) arrangement with the IMF but has yet to proceed with the deal for political reasons."

In our conversation "Leda and the (Greek) Swan and why Europe matters more for Emerging Markets", we already discussed at length the Western Europe banking deleveraging impact will have on Emerging Markets and in particular Central Eastern Europe. In their December note, Deutsche Bank also commented:

"The buildup of foreign currency debt was probably largely a reflection of relatively high and volatile inflation in some cases, leading to a large spread between domestic and foreign interest rates. But the availability of foreign currency loans was also facilitated by the rapid expansion of western European banks throughout much of the region. This has left many countries exposed to deleveraging by foreign banks as they seek to meet additional capital requirements imposed by the European Banking Authority. These requirements are largest for Greek, Italian, and Spanish banks, which may be a concern for Romania and Hungary (as well as Croatia, Serbia, and Bulgaria outside our sample) where Greek and Italian banks are most active. But other banks may also be reluctant to maintain their exposures in the region. Germany’s Commerzbank, for example, has indicated that it will temporarily suspend new lending outside of Germany and Poland. Austria’s central bank has also imposed limits on new lending in CEE by the subsidiaries of Austrian banks. And countries without strong parent-subsidiary ownership linkages are also unlikely to be immune. Turkish banks, for example, have substantially increased their short term external borrowing in the last couple of years (from foreign banks) and may face some difficulties in rolling these loans."

As indicated by Deutsche Bank, given Hungary exports to the euro area account for 40% of GDP, Hungary is arguably more exposed to a recession in Europe. The recent failed Hungarian auction and additional pressure on the Forint is definitely not helping.

And my good credit friend to comment on the 5th of January:

"The Hungarian Forint is under pressure again (EurHuf @ 321.50), and the country had problem raising 1 year T-Bills this morning (35 billion HUF instead of the 45 billion planned, the average yield rose to 9.96% versus 7.91% for the same kind of maturity on December 22nd). The cost of insuring Hungary’s debt through CDS reached an all-time high at 750 bps!

Basically, the country is now in a worst situation than Portugal, and without the IMF and EU assistance, the risk of a hard default is rising very quickly. Consequences for European banks exposed to this country are difficult to assess, but Erste Bank, Raiffeisen and some other players should suffer…"

And suffer they already have, not only with the legislation capping the exchange rate on currency mortgages provided to Hungarian households (putting them in a difficult situation) we mentioned above but, also in relation to Goodwill impairments (which we discussed in our conversation "Goodwill Hunting Redux").
As a reminder:

"Erste Bank in fact, wrote down the value of its Hungarian and Romanian units by a combined 939 million euros in October."

"UniCredit wrote down goodwill on assets in its home market, eastern Europe and former Soviet Union countries in its third-quarter earnings report in November (8.7 billion-euro impairment charge)".

It wasn't therefore a big surprise to us and our good credit friend to see a decline of 37% of UniCredit shares in three days following its 7.5 billion right issues priced with a 43% discount (selling shares for 1.943 euros each...).

Back in November in our Goodwill conversation we made the following warning:
"Tip for “banks’ friends”: First came dividends cuts, then bonds haircuts. Next, we will see some massive write-off (Goodwill ?). UniCredit started, others will follow. The path will be very painful for both shareholders and bondholders."


Given we already know that UniCredit made 60 billion USD worth of acquisition between 2005 and 2008, tracking goodwill impairments will indeed be a necessary exercise in 2012 as they can take a real chunk out of bank earnings in the process.

In relation to current bank exposure to Hungary, Deutsche Bank in their latest Hungarian sovereign risk review published on the 6th of December indicated the following:

"During the past days the Hungarian sovereign risk exposure has increased
significantly, taking the development of CDS prices as an indicator. Austrian banks have material exposure to Hungary, both via sovereign bonds and through loans. Erste Group has a total of EUR11bn in assets invested in Hungary (some EUR8bn in loans, some EUR3bn in sovereign exposure) while Raiffeisen Bank International has a total of EUR8bn in Hungarian assets (some EUR6bn in loans, some EUR2bn in sovereign exposure.
According to latest EBA data, as of 30 Sept 2011 the largest European banks have a total sovereign exposure of EUR31bn vis-a-vis Hungary. The data indicates the largest absolute exposures (combined net trading and banking book) are held by KBC with EUR6.9bn (of which EUR2.6bn was due within 3 months, so might have left the balance sheet by now), OTP with EUR4.2bn, Erste Group with EUR3.3bn, BayernLB with EUR2.2bn, Commerzbank with EUR2.0bn, Intesa with EUR1.7bn, ING with EUR1.7bn, RBI with EUR1.6bn. In some cases the maturity profile in the EBA spreadsheet was biased to short-term exposures, in some cases biased towards long-term exposures.
In relation to current market cap, high ratios result for KBC (c.220%), Erste Group (c.70%), RBI (c.40%) and Commerzbank (c.30%). A haircut on Hungarian sovereign exposure therefore would have meaningful implications for these institutions."

Continuing on the same Hungarian theme in Deutsche Bank EMEA Daily Compass published on the 6th of December, we have to agree with their assessment of the situation for Hungary:
"The failure of yesterday’s a12M bill auction has ignited fears that the situation in Hungary may spiral into a solvency crisis triggered by an inability to roll-over upcoming LOCAL debt maturities.
From a medium term perspective, a useful rule of thumb for assessing debt sustainability is to compare the marginal real yield required to roll-over the existing stock of debt and the real growth rate of the economy Over the past 10 years, real growth has averaged 2.4% y/y while yearly inflation stood on average at 5.9%, which suggests that at the current blended (local and external) marginal rate of refinancing (10.5%), a consistent fiscal primary surplus of 2.2% would be required to maintain current public debt levels stable. It is clear to us that such a theoretical outcome is not credible for the market, i.e. paradoxically yields have reached a level that is too high to motivate buyers to participate in the financing of an issuer that is running an unsustainable debt position."

Deutsche Bank to conclude their note making the following point:
"As a conclusion, we expect events to unfold rather quickly in Hungary. It may come down to a choice between a partial loss of sovereignty in economic management or of a debt restructuring, to be made at the highest political level."

And has clearly indicated by Bloomberg's Chart of the day of the 4th of January, we have seen this movie before...

"Hungary’s failure to secure an international bailout has pushed the cost of insuring its debt against default above that of Ireland for the first time since September 2010.
The CHART OF THE DAY shows that credit-default swaps on Hungary rose to 720 basis points in London on the 3rd of January, compared with 709 for Ireland, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Hungary’s default swaps surged to the highest on record on the third of January and the forint weakened to an all-time low versus the euro after Citigroup Inc. said an International Monetary Fund deal is unlikely in the next six months and European Commission spokesman Olivier Bailly said the European Union has no plans to resume aid talks."

"When there's uncertainty they always think there's another shoe to fall. There is no other shoe to fall."
Kenneth Lay - CEO and chairman of Enron from 1985 until his resignation on January 23, 2002.

Stay tuned!