This page has been archived and commenting is disabled.
ECB To Withdraw €16.5 Billion In Liquidity Injected Last Week Even As Pritchard Says Only QE Can Save Euro
In yet another attempt to blur the fine line between sterilization and quantitative easing, the ECB has announced it will carry out a one week variable rate liquidity operation on Tuesday to absorb the €16.5 billion in cash that was spent on bond purchases (don't you dare suggest this is QE) until last Friday. This will be followed with another liquidity extraction procedure the following week. From the press release: "As decided by the Governing Council on 10 May, the ECB will conduct specific operations in order to re-absorb the liquidity injected through the Securities Market Programme." The amount of the extraction takes "into account transactions with settlement at or before Friday 14 May." The logic of immediately extracting rescue liquidity for a continent that is still on the verge of a liquidity crisis eludes us. Market News solidifies the point: "The ECB has not disclosed the total volume it intends to spend on the programme but had promised repeatedly before today that it would drain all additional liquidity injected." Zero Hedge contributor Bruce Krasting points out "To me this an AWACs. The ECB is not playing ball. They are doing some lip service on tv but no fx intervention and no QE tells me they want a much lower Euro and an ultimate blow up that lets them kick out a few members and create a two tiered Euro. Deutschland Uber Alas." We do not disagree. And across the Atlantic Evans-Pritchard agrees that only full blown QE can, paradoxically, do anything to restore confidence in the euro.
From the Telegraph:
There is a way out of this crisis, but it is not the policy of wage deflation imposed on Ireland, Greece, Portugal, and Spain, with Italy now also mulling an austerity package. This can only lead to a debt-deflation spiral. The IMF admits that Greece’s public debt will rise to 150pc of GDP even after its squeeze, and that Spain’s budget deficit will still be 7.7pc of GDP in 2015.
The only viable policies – short of breaking up EMU or imposing capital controls – is to offset fiscal cuts with monetary stimulus for as long it takes. Will it happen, given the conflicting ideologies of Germany and Club Med? Probably not. The ECB denies that it is engaged in Fed-style quantitative easing, vowing to sterilise its bond purchases “euro for euro”. If they mean it, they must doom southern Europe to depression. No democracy will immolate itself on the altar of monetary union for long.
Which means that the EURUSD is likely going not only to parity, but much lower. Unless, of course, Bernanke finally comes up with some mechanism to put the final stake throough the heart of the dollar. Because, as Doug Kass points out, "the eurozone accounts for about 15% of S&P profits. A declining euro could lead to negative foreign-exchange translation and lower imports. The lower euro should shave about 3% to 3.5% off of this year's and about 4% off of next year's S&P profits." 3% off the estimated ~$80 in 2010 EPS is equivalent to 45 points in the S&P at a 15x multiple. Our estimate is that this will be a wildy optimistic estimate as the underlying 80 EPS in the S&P will very likely be a one time pick and once the stimulus, both monetary and fiscal, benefits run out, S&P earnings will plunge by about 40%.
Place your bets.
»
- 5564 reads
- Printer-friendly version
- Send to friend
- advertisements -
Like putting toothpaste back in the tube.
All these eggheads preach more liquidity and more stimulus when economies are fragile, but none of them suggest the opposite when economies are strong. Even Keynesians are not good Keynesians.
So the only one buying the EURO is Bernanke. The logic is glittering.
Rock, meet hard place. Illusions can be illusory for only so long when the wind is blowing violently in all directions.
Its not that difficult...liquidity can dry up in different places. Now it was Sovereign/Corp Bonds from Club Med. That doesn't mean the Finns need more for their credit cards.
The Euro is dead, because the U.S. needs it to be dead.
let's go to a more interesting question.
Can't concentrate now.
Too busy staring at Mandy...
what did she say?
You mean she talks? Don't care what she says.
Its the accent and cleavage that I'm paying attention to.
Is she inflatable?
So they too have the ability, no, no,no,no, the gift of doing something horribly wrong and improve on the error?
Outfuckingstanding Private Gump
Shake em down for the QE boys. A true bankster never loses a bet
It seems to me parity could be on balance, good. Europe would become more competitive. Bernanke would have no pressure to raise fed fund rates. China would have no pressure to raise the yuan. Banks would still get free money to buy Treasuries, continuing to shore up their balance sheets getting their cut as middle man. Treasury sales would have no fear of failure. Main St would have longer to take advantage of the low rates, if we ever see private credit creation again. But, that is a big IF as long as public credit creation is running full steam ahead. Yet, the markets do seem eager to find other markets other than sovereign. The multi-nationals have had a relative field day over the last year, maybe now it is Main St’s turn. Yes, companies like Coke would take a hit, but can adjust. Companies like Caterpillar, „only slightly.“
„As the dollar strengthens, sales in foreign countries tend to taper off as products get relatively more expensive. Because of that, investors should be worried about a strengthening dollar, but only slightly, since the majority of the impact was taken out of the equation through the use of derivative contracts.“
http://www.thestreet.com/story/10712425/caterpillar-coke-one-currency-tw...
http://finance.yahoo.com/tech-ticker/%22we-are-lending%22-huntington-ban...,^bkx,xlf,skf,^ixic,faz,KEY&sec=topStories&pos=9&asset=&ccode=
Managing European Distribution for a US company, I can tell you that parity would be a disaster.
to plongka10:my comment yesterday:
In this round of the game:
1. Remaining U.S. manufacturers of tradables are decimated (no..not the defense contractors, Pharma, energy producers or agribusness) as Euro exports boom, and U.S. cannot compete..even Chinese goods will be more expensive in Europe
2. U.S. bankers get much richer and the NY base consolidates control of the increasingly dollar-based GFS.
The rounds of the game are getting geometrically shorter in duration of time...and also more exciting in many respects:
The next BIG QUESTION?????-
Probably--
How can the U.S. appropriate the wealth of Emerging Market countries (without a "hot war") to reduce its debt and support a standard of living for its plebes/prols sufficient to maintain control of U.S. domestic regime by the reigning elite? I never have bought the argument that the U.S. can declare China to be terrorists and nuke them, but I admit that since we are rapidly building bases next door in Afghanistan the chore is becoming easier.
It seems like every day the U.S. governing elite proves that not only are they greediest and most corrupt, they are also the most effective and efficient.
Do you currently not have derivatives in place or are you priced out going forward? Tomorrow or within a couple of months, could you borrow 10 years of your gross profit in Euros? Curious and thank you.
I appreciate the breathless quotes from Evans-Pritchard as much as anyone - he is a excellent writer.
But he does work for the Telegraph - his reporting may be coloured by certain London interests..
My understanding of this crisis is that its origins Lie in the monetarist megalomania of Milton and others - the Anglo saxon world has pursued this ideology with zeal and its policies have also infected continental Western Europe.
Britain has always fought a good fight with very little resources but once upon a time it had some muscle - now it has nothing but the power of the pen.
The Holy Roman empire empire has never really disappeared and in its present manifestation will resist even more the siren call of the illusionists in London and New York.
Britain is now a Hollow shell with no capacity to produce anything but houses - its industrial traditions have been abandoned for the more amorous charms of pirate prostitutes who fuck everyone for a price.
London might win this battle again but it will be a pyrrhic victory as there is no more worlds to conquer.
So when does China sell some USD to raise EURUSD and protect the competitiveness of its USD pegged Yuan?
@Jack....thats a good question...The trade between the US/China and EU/china is about the same size (China export)...but China import is little bit bigger from EU. It will come...I am sure
I think you just descibed about as good a Barometer to watch for than any other I've heard. A good idea to look at the Import/Export Flow between China & EU versus China & US. I would also add a positive bent to the EU simply because the current Balance is not as wide as that of the US, and when the EU Buys they don't add to the Deficit to the degree the US does.
There is one other Point I believe we should all remember, You should all recall how during the past 8 years or so, circa 2001 and Forward, much of the seen Strength in the EURO was more a reflection of the Weakness in the USD --- not really a Fundamental play on the EURO.
The EURO was seen as the DEFAULT Currency, the only other Paper Currency with the necessary Liquidity to consider as a replacement for the USD as the Reserve Currency of the World, the next in line [I'm sure you all remember that and probably used this term yourself, or remember how often it was used]. Like OIL, for example; anytime a "diferent" currency was considered, or used, as the Payment currency for OIL it was the EURO. Next will be the IMF's SDR's and how the formula will be altered. I believe its this year, 2010, when the current weighting conmes up for an adjustment....the USD, GBP<< UK, EURO, and YEN, are all heavily Paperized. A funny thing I was thinking about...I'll explain. I was trying to think of what would be the Safest way to hold Cash Totals. Well, though this would be very hard to do, and the "funny" part, I thought that putting All your Cash in US Pennies and Nickels would be one way to preserve Purchasing Power. But not very Feasible is it. How the heck can someone do that w/o needing the storage needed, not to mention just how you would go about using this "Money"...but, think about it, these Pennies & Nickels do contain the Copper, Zinc and Nickel that may just turn out to be the best protection versus FRN's, feasibilty set aside.
Just wait until the Rmb is set free....there you have it
liquidity? huh? - i thought this was solvency? how do you get solvency - AUSTERITY!! how do you provide for long run future growth, rather than a short run monetary printing orgasim - is through being solvent. they are willing to implement true austerity for the long run growth, yes?
True, but the concept of perpetual growth may be a fatal flaw itself. I think that until we become a type I civilization, we have to realize that we cannot grow indefinitely, forever, and without restraint (or consequences). It is my belief that at least some of the problems we are facing today lie in fact that, due to the structure of the system, we are only prospering when we are growing. We can prosper and thrive in a state of mere balance without constant growth (that is, we have the potential to do so), we just need to think of ways we can do that. We need to eliminate the waste and drag on the system. We need a new paradigm that accounts for the fact that we are living on a finite planet with finite resources that contain within them natural limits to the capacity of each individual system and the system as a whole.
DownRodeo:
US grows as the leech, the tick grow..or the vampire squid--sucking life from others
this country was founded on the basis of/has thrived by appropriating the property of "others" by whatever means necessary...
no different form other major empires in history.
now we use the financial mechanism
quite right! I absolutely agree.
Is it possible for us to evolve beyond governments and systems?
It is my view that it's not only possible, it is imperitive...
Evolution is our only escape pod this time, IMHO.
Free Markets and sound money, there's your balance. Let the price mechanism do its thing to make increasingly scarce resources increasingly expensive, curbing their consumption.
Pare government down to the maintenance of law and order and the need for exponential growth in the monetary base and perpetual growth in the economy vanishes.
The so-called sterilizing deposits can immediately be turned around as ECB loan collateral. No sterilizing here, really. Smoke and mirrors.
Look at commodities....
forget gold...
deflationary impact of IMF's Euro package is crushing prices across the board
fractional liquidity
If anyone would care to explain how this liquidity extraction is meant to work I would appreciate it. Seriously, simple explanation anyone?
I don't get it. Why buy PIIGS debt - at a cost to the Eurosystem's own soundness, a cost which is increased by sterilising the purchases - if the intention is to push the PIIGS to default? And that €16.5bn is nowhere near being the beginning, or the end, of the ECB's largesse to the PIIGS. For that matter, isn't a weaker Euro likely to benefit the PIIGS? And what about those commercial banks in the Eurozone core which can't withstand a PIIGS-initiated wave of defaults? The FT quotes someone as saying
but even this time last year it seems that the Eurosystem was in a … poor position to take a PIIGS haircut without a fat cheque from the Eurogroup - or some gonzo monetarisation. Deutschland how are yeh!
To:
Drapier:
This is all a smokescreen for the competitve devaluation to boost Euro economy..
"beggar thy neighbor" deflation...like a slightly new twist on the '30's tariffs
US industry will be killed..but anybody manufacturing in the US is a fool and we have no sympathy for fools.
dollar will reign supreme for foreseeable future.
@pros:...or the Europeans (maybe together with the Chinese) are calling Bernankes bluff?
Take your attitude at your own peril...its your money
I can certainly buy the idea that the ECB wants (or maybe is resigned to) a lower Euro. What I can't see is how it's scheming to bring about the departure of Greece or other peripheral Euro members.
@Drapier.....Because they don't
at a 90 cent Euro Greece will be loaded with tourists and exports will fly out the doors of all Euro countries-a boom economy scenario
happens every time a pegged currency devalues.
Yeah right, so Ambrose is on the button when there are STILL people arguing over whether we are in an inflationary or deflationary environment.
DavidC