 |
|
| Author |
European Central Bank Replies |
rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16445
Location: Sunny California
|
 Posted: Fri Dec 23, 2011 10:09 am Post subject: |
 |
|
That's sooo october.... Speaking of time, two years of europe-bashing has put quite a lot of momentum in this momentum trade.
So the argument is now back to "underlying problems" when for the past six months it's funding....and then the next auction. That this amorphus long-term "rot" argument rolls so blithely off the tongue at the same time that outright, treaty changes are being initiated yet still, apparently, are seen as such an impossiblity as to be ignored boggles the mind. What happened to market's function as, if not anticipating change, handicapping it?! Well maybe that's back working too.
As far as the money, remember before this stealth QE (and it will function as QE for the very reason markets hate european banks--as arms of the state) there was a lot of money on the table:
- EFSF: About EUR 250bn left in its unleveraged form (and call it 750bn if they can leverage it 3x).
- ESM: Now to be operational from July 2012, size EUR 500bn.
- ECB: Currently purchasing around EUR 5bn/week which adds up to about 250bn/year.- EU/IMF Bilateral loans: The Summit-announced EUR 200bn of bilateral loans to the IMF to increase its firepower.
- IMF: Current space capacity sits at about EUR 300bn.
Now remember too, how little of this "toxic sludge" is anywhere close to subprime-mortgage. Indeed, one of the killers here, is not the 50% marks on '06-'08 CDOs but the tar-baby litigation left on the doorstep. What is toxic in europe? So far, Greek sovereign debt at 50%. Who will "litigate" the end of Italy??? So really it's catastrophe or nothing for this trade. And like the Second Coming , that date seems to be in its own "recession"--but that won't work, for catastrophe's the Time must be Nigh! (see TIME: http://www.marketthoughts.com/forum/time-t11457.html).
What did they do? What did they really do? They moved the LTRO out three years. In market time that's an eternity.
I don't know what Strafor means when it says that banks can't ride the sovereign debt curve because their return will not match their capital requirements. 5-7% net return on Italian debt even at 20% ratios generates 20%+ returns on just a little over half the money..... And these are assets for which stress-tests have already been marked!. No, there is just the "knowledge" that banks can't shed Italian debt and buy it at the same time. That's right, but, guess what? now they can. And there won't be a stigma as, being "european banks" they can all do it together. That's exactly what happened with Spanish banks last week. Look for more to come.
Keep it complicated stupid--that's how Europe.... works!
_________________
Today is the Tomorrow you worried about Yesterday! |
|
| Back to top |
|
 |
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
|
| Posted: Thu Dec 22, 2011 3:28 pm Post subject: |
|
|
Stratfor's latest. "Buying time" is sufficient to turn me more bullish for 2012--all we need to do now is to get European banks to purchase more local debt--which seems like would happen eventually.
| Quote: | The ECB today issued about half a trillion euro in three-year loans to banks at an ultra-low 1 percent interest rate in order to address severe and growing strains in the European banking sector. Some of the loans were used to merely refinance other loans, but on the whole, the ECB is providing more than 200 billion euro in new credit to banks. This will go a long way toward shoring up banks’ balance sheets, but it doesn’t address the conditions that caused the crisis in the first place. There’s no question that this move helps the banks, but it only helps temporarily.
The ECB has drastically lowered its standards for the collateral it accepts for these loans, so banks get to offload some very risky assets. The cash they’ll receive will generate a superficial improvement for banks — cash is considered the least risky asset to hold. But to move beyond a temporary solution banks have to lend the cash out in order to generate earnings. The cash itself would not earn enough interest to repay the 1 percent rate on the loans.
One of the most talked-about options for generating profits would be buying more European government bonds. European politicians and other advocates of this plan paint it as a win-win scenario. Banks generate earnings by purchasing higher yielding sovereign debt, such as Spain’s or Italy’s, with the cheap loans and the member countries are thrown a lifeline as they battle their debt crisis.
The idea may seem counterintuitive since European banks are reducing their exposure to higher-yielding government debt, not taking on more, but it’s tough to completely dismiss the idea of buying up eurozone government bonds. European governments and their respective banking sectors have historically kept close ties and governments likely will pressure banks to resume buying government bonds. And after the ECB signaled Dec. 9 that it could purchase up to 20 billion euro of sovereign debt per week, there is a huge buyer in the market putting something of a floor under bond prices.
But keep in mind the ECB is not interested in being a steady, predictable buyer of government debt. The central bank is walking a tightrope between preventing sovereign defaults in the eurozone and letting market pressure drive eurozone members toward deep and painful reforms. As negotiations over economic sovereignty unfold, market volatility could severely impact the value of banks’ sovereign debt holdings.
Even if banks could be persuaded to jump back into this trade, the best profit they stand to earn on it comes nowhere near the amount of capital that regulators say they need in order to meet minimum standards.
In fact, it’s not clear where these earnings might come from. Europe’s highly regulated, high wage, low growth environment limits opportunity for domestic investment. Lending in foreign markets can offer attractive returns, but heightens risk rather than lowering it. Banks are left with a range of bad options and may choose instead to do nothing — essentially paying the ECB 1 percent for the ability to hold cash and shore up their balance sheets.
And completely aside from the sovereign debt part of the banking crisis, many banks — notably those in Italy, Austria, Greece — hold questionable assets in Central and Eastern Europe. Many Western banks are still loaded up with toxic asset-backed securities and regional banks like the Spanish Cajas have been used for political and social objectives for years and must now address mounting non-performing loans.
Hundreds of billions of euro in ultra-cheap loans from the ECB will definitely buy Europe some time, but European banks are still badly damaged and in need of a massive recapitalization. The problem is that Europe is completely unequipped to handle this recapitalization. |
|
|
| Back to top |
|
|
rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16445
Location: Sunny California
|
| Posted: Wed Dec 21, 2011 10:28 am Post subject: |
|
|
Bailout just happened today: e1/2T to let the banks ride the yield curve. This is the end-run round the ECB...round the IMF endrun.... Why so successful take-up? Market stigma goes away when the market have already abdoned the banks to the state.
Now throw Swiss spigots and BOE/ECB routine purchases and we're getting closer to the 19%GDP purchase rates that market thinks it really wants. Now we move on to the financial transactions tax....and......
Be careful what you wish for.
_________________
Today is the Tomorrow you worried about Yesterday! |
|
| Back to top |
|
|
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
|
|
| Back to top |
|
|
rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16445
Location: Sunny California
|
| Posted: Wed Nov 09, 2011 7:45 pm Post subject: |
|
|
Not that this is "necessarily" going to happen, but ECB has spent maybe 2-3 percent of europe GDP--a good $Trillion-plus less than the FED in its QE.
_________________
Today is the Tomorrow you worried about Yesterday! |
|
| Back to top |
|
|
rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16445
Location: Sunny California
|
| Posted: Tue Nov 08, 2011 8:42 am Post subject: |
|
|
...and keeps going...and going...and going. Because they can, with or without the Germans. Meanwhile the flipside of this trend, now that the world's third largest debtor is involved, is rollover money pouring into the banks. That's 10-1 leverage IN REVERSE! Banks are funny like that.
_________________
Today is the Tomorrow you worried about Yesterday! |
|
| Back to top |
|
|
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
|
| Posted: Tue Nov 08, 2011 2:02 am Post subject: |
|
|
Bridgewater on how ECB is funding the "gap" for Spain and Italy:
| Quote: | ECB is Still Stuck Filling the Gap
The debt deleveraging in Euroland’s periphery continues to require more credit than is being supplied by the private capital markets, leaving the public sector to either fill the gap or allow borrowing costs to rise and defaults to occur. The EU summit and G20 meetings did little to provide clarity or funding. As a result, the ECB continues to be stuck providing the lion’s share of the money and credit needed to prevent a collapse. After modestly increasing its bond purchases over the prior two weeks without seeing a meaningful improvement in sovereign debt prices, the ECB was forced to push harder last week as conditions worsened, purchasing €10bn (or €520bn annualized) of Italian and Spanish debt. Yet even with this amount of support, spreads on Italian debt widened by 92bps for the week, implying a funding gap that, at least last week, was even bigger. |
|
|
| Back to top |
|
|
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
|
| Posted: Thu Nov 03, 2011 9:02 pm Post subject: |
|
|
Bridgewater on the ECB's 25 bps easing earlier today.
| Quote: | The ECB Easing Makes Sense But is Being Overwhelmed by the Tightening Impacts of the Deleveraging
The ECB’s 25 basis point rate cut was a small move that won’t have much impact, but is certainly appropriate now that growth has slowed in the core. The move also helps a bit in justifying the ECB’s bond purchase programs as a form of monetary easing since the two policies are now consistent with one another. The impact of the easing will be more significant to the strong core of Europe which has more normal bank funding conditions, but in the periphery and to some extent France, deleveraging-related capital flows are having a dominant impact on interest rates which is easily overwhelming the rate cut, both on the short and long end of these countries’ yield curves. These capital flows have driven rates up, producing a substantial net tightening which is depressing their economies. Given the lack of a flexible exchange rate, this rise in interest rates is of course the market mechanism which can ultimately reduce their need for foreign lending by collapsing domestic demand and imports. The ECB is mitigating some of this pain and spreading out the adjustment process by purchasing their bonds. These purchases of sovereign bonds are only offsetting a portion of the market-driven tightening. Over the past three months, the ECB bought €101bn in Spanish and Italian bonds, an annualized pace of 4.5% of Euroland GDP. These purchases have been enough to roughly stabilize Spanish interest rates but not to reduce them, while Italian rates have risen significantly even with the ECB’s purchases. The chart below shows the total size of the ECB’s balance sheet in duration-adjusted terms. After adjusting for duration, the ECB balance sheet is the largest it has even been and has soared as a result of the ECB’s significant sovereign bond purchases. |
|
|
| Back to top |
|
|
rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16445
Location: Sunny California
|
| Posted: Thu Nov 03, 2011 8:52 am Post subject: |
|
|
| HenryTo wrote: | Bridgewater on the ECB's monetary policy for the rest of the year:
| Quote: | The ECB and the Periphery
The widening divergence in economic conditions between the periphery of Euroland and the core is putting the ECB in the position of running a monetary policy that may be appropriate for the entirety of Euroland, but is largely inappropriate for its parts. The markets are now discounting that the ECB will raise rates steadily over the next couple of years, and based on ECB comments, this doesn't seem too far afield from what officials themselves expect to do. If the currently discounted rise in interest rates actually happens, we think the impact on the periphery will be devastating. As you know, we suspect that even with interest rates at their current levels, the peripheral countries are insolvent, but with a tightening central bank the pressures will be that much worse and come to a head faster. |
|
Which is why I say then, "which is why that won't happen." Anything to sow the seeds of panic.
_________________
Today is the Tomorrow you worried about Yesterday! |
|
| Back to top |
|
|
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
|
| Posted: Thu Oct 06, 2011 10:47 pm Post subject: |
|
|
Bridgewater on the ECB's decision earlier today:
| Quote: | ECB Announces Modest Additional Support for European Banks and No Change in Rates
Given the lack of a credible Plan B in place from European policy makers, the ECB continues to play a critical role in providing liquidity to European banks and sovereigns. Thursday, the ECB announced marginal new steps to support European bank funding: it will purchase €40bn in covered bank bonds over the next year and offer banks the opportunity to borrow at one-year maturities (the longest-term loans currently available are three months). Despite the rapid deterioration in conditions, the ECB has some room to lower rates and did not do so. Additionally, the ECB will be buying one third fewer covered bonds than it did during its 2009-2010 covered bond purchase program, when bank funding costs were less elevated than today. Due to the continued tightening in financial conditions and slowing foreign demand, growth in nearly all countries in the Eurozone is now weak, making the ECB’s choices much easier since there is less conflict between the monetary policy that is appropriate for the core relative to the periphery. Up-to-date growth appears to be near 0% for the Eurozone as a whole, inflation is moderating, and significant capacity remains in place. The measures announced Thursday won’t be adequate to stimulate the economy or to address the continued deterioration in funding conditions for European banks, which is flowing through to rising rates, tightening credit conditions for borrowers and slowing growth. The most impactful ECB action continues to be its purchases of sovereign bonds, as over the past two months alone, it bought €90bn in Spanish and Italian bonds, a €540bn annualized pace (5.7% of Euroland GDP). This has been enough to roughly stabilize spreads but not to reduce them. |
|
|
| Back to top |
|
|
rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16445
Location: Sunny California
|
| Posted: Thu Oct 06, 2011 1:16 pm Post subject: |
|
|
The conclusion of the conclusion:
| Quote: | | Eight years ago the concept of a press conference immediately after the meeting of the Governing Council was still considered a bold innovation. Today it is part of the global state of the art. And the Vice-President and I also have to thank you for that. |
We'd be better without that artistic flourish. 
_________________
Today is the Tomorrow you worried about Yesterday! |
|
| Back to top |
|
|
rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16445
Location: Sunny California
|
| Posted: Thu Oct 06, 2011 9:54 am Post subject: |
|
|
C
€40bn, from November to end Oct 2012
L P
CBPP2
L P
A new acronym is born.
L P
Or just version two.
L P
Or is it CBPP.2
JC
CBPP2 will also buy on primary and secondary markets (like CBPP1)
JC
RTRS-ECB’S TRICHET-GROWTH EXPECTED TO BE VERY MODERATE IN H2
_________________
Today is the Tomorrow you worried about Yesterday! |
|
| Back to top |
|
|
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
|
| Posted: Thu Sep 22, 2011 9:51 am Post subject: |
|
|
Stark's parting shot at the ECB and the EMU:
-----------------------------------------------------------------------------------
ECB's Stark study says debt crisis threatens euro
(Reuters) - The whole euro currency project is in danger due to member states' runaway spending and subsequent sovereign debt crises, a European Central Bank study co-authored by Executive Board member Juergen Stark said.
The study, perhaps the most strongly-worded warning about the future of the euro by a central banker, serves as Stark's parting shot and weakened the currency, which extended falls against the dollar, dropping to a seven-month low of $1.3465.
The ECB said earlier this month Stark would leave the central bank for personal reasons. Sources have told Reuters that his unhappiness over the ECB's decision to reactivate its bond-buying programme was his reason for leaving.
"Greatly increased fiscal imbalances in the euro area as a whole and the dire situation in individual member countries risk undermining stability, growth and employment, as well as the sustainability of EMU (European Monetary Union) itself," the study said.
Stark has a long track record of pressing politicians to enforce stricter rules for the common currency area.
"That is exactly what they should be doing in this environment," RBS economist Silvio Peruzzo said. "Effectively they have been the only anchor of stability."
The research paper, which was published by the ECB but not expressly endorsed by it, also said countries which do not abide by the agreements on debt should surrender their economic powers to the European Union.
Countries' unwillingness to surrender powers to a common authority was counterproductive, the study said. It doubted whether the latest suggested reforms would be sufficient.
It called for strengthening fiscal governance by, among other measures, "financial receivership where adjustment programs do not remain on track."
National budget deficits should be approved at the European level if they exceed "safe levels," there should be an automatic correction of slippages and countries with budget deficits in excess of three percent of gross domestic product (GDP) should face automatic fines, Stark and his co-authors said.
So far, three euro zone countries -- Greece, Ireland and Portugal -- have had to resort to EU/IMF rescue bailouts after their debt servicing costs rose to unsustainable levels.
In addition, the ECB has spent more than 150 billion euros buying government bonds off troubled states, including Italy and Spain, to stop crisis contagion.
In addition to Stark, who remains in charge of the ECB's economics portfolio until a successor is named, the study was authored by Ludger Schuknecht, Philippe Moutot and Philipp Rother.
Stark was one of the architects of the rules governing the euro and has fought demands to relax them. |
|
| Back to top |
|
|
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
|
|
| Back to top |
|
|
HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11260
Location: Los Angeles, California
|
|
| Back to top |
|
|
Please log in to view without the ad banners |
|
|
|
You cannot post new topics in this forum
You cannot reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum
|
Powered by phpBB
|
FAQ
Search
Memberlist
Usergroups
Statistics
Register
Profile
Log in to check your private messages
Log in
