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European Stress Tests: "All Is Not Well" - ECB Likely To Delay Liquidity Unwinds Until Next Year Causing EUR Lift Off
How many more European trips will it take for Tim Geithner to explain just how the "stress tests" work to those damn ECB bureaucrats? Apparently they still haven't realized that the whole point of this sham is to make it seems that all is well, and pump billions of dollars into failing banks, all the while pretending that it is really the "smart money" doing the buying. To quote Market News: "Even as European Central Bank officials lobby for full disclosure of bank stress tests, they worry privately that publication of the details could show many banks in significant trouble, particularly in the periphery of the Eurozone, well-placed sources told Market News International." This should certainly help explain the parabolic, confidence "inducing" move in the EURUSD.
"Our surveys and research show that several banks in Europe have not taken the required steps towards restructuring and as a result they remain unsound," said one of the senior Eurosystem sources. "A lot of banks continue to depend heavily on ECB borrowing, and while it has been set up as a temporary measure, the banks have not taken the necessary steps to gradually stop relying on the ECB. This development creates problems as to the timing of the exit strategy," he said. "We continue to evaluate the ECB decisions constantly, but I do not expect any decision for an exit before 2011."
And this is supposed to inspire even completely sham confidence? Timmy must be pulling his hair out - he took all the European bankers over the script line by line, even offered to provide them some of our ubiquitous teleprompters, and they still don't get how this charade is supposed to work? Unbelievable.
We also learn that the "temporary" QE intervention is quite promptly becoming permanent.
A second senior Eurosystem official agreed that the exit "will not happen before 2011." The central bank, he noted, believes that "the crisis is not fully behind us. Therefore the ECB will be there to announce measures if needed ... so that there will be no distortion in the financial system. It is too early to tell when the exit strategy will be put into effect."
This official said that "all options remain on the table about different kinds of purchases, including commercial paper."
At the same time, he also said that the ECB -- possibly this coming Thursday -- "will send a clear message to the markets that they should start putting into the back of their minds that the [central] bank will take back the measures it has implemented. The measures are not permanent, they are exceptional and temporary."
Some Council members already want to take back the ECB's sovereign debt purchasing program.
"The German bloc within the Council is pushing for an end date for the purchases, which [they believe] should be within 2010," the first senior official observed. "There is strong division within the Council as regards the extent of government bond purchasing by the ECB. Since the decision, which was not unanimous, there has been active debate as to whether the ECB should put a limit on those purchases," he added.
"However, the majority believes that it is too early to say when to stop or even put a ceiling on the purchases," the official said. This is because there is still no clear sign of a sustainable, even recovery and because officials want to see results of the stress tests in order to judge the state of European banks before taking any such decisions.
"There is no commitment to run [the bond-buying program] eternally," said another well-placed central bank official. "It will
end, but there is not a particular date."He added: "It will end when it is not needed any more -- when there is a natural return to market equilibrium for these instruments -- buying and selling in the normal way." However, "we are still seeing distortions in the pricing of these bonds. And when you have that spread divergence and price distortion, it affects monetary policy transmission and justifies intervention."
All in all, just more euro "positive" news. Which in retrospect explains the bizarro parabolic move in the EURUSD.
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where is my "gradual transition" i was promised? better get the government in there to provide a "soft landing." blah bla blah bla blalh bullshit.
Bring out yer dead!!
http://www.youtube.com/watch?v=grbSQ6O6kbs
At this point, it would probably be easier to bring out the living. Few bodies to haul and all.
"the banks have not taken the necessary steps to gradually stop relying on the ECB"
Obviously these are a couple of rogue banks which have not played well with others and are getting a public lashing inorder to play by the rules. The whole point of the ECB is to protect the large private banks. That is why the ECB was created, regardless of any stress test results.
why would you do what you should when you know the central bankers will always respond with another bailout. the incentive is once more do the wrong thing.
Agreed. The ECB is just giving a public lashing but there is no inflected real pain and the banks know it. Its for public display only.
I get it....it's opposite day. Bad news such as unstable banks and declining ISM (manuf and non-manuf) thus all is well and stocks should go up right?
I'm not sure I have ever seen such insanity as present day markets. It truely is a massive sham...bilking the little left from the ever contracting workforces 401K's.
how can it be that this global coincidental systemic collapse was not coordinated?
does not otherwise compute
Check out Delroy Wilson singing " Riding for a Fall" to see how it ends
geez. a proper criminal knows you have one result in the back room (book A: private) and one result in the front room (book B: public).
Who among the banksters doesn't have need to know? Why aren't they towing the party line? C'mon, let's get some proper respectible crims in place, people we can be proud of because they are doing a competent job stealing and sodomizing. Oh Franklin (Delano) Rosenfeld (puppet), where art thou?
The Delanos made their fortune in the Opium for Tea trade in China, btw.
Not even a Hahvahd Ph.D. lies convincingly nowadays. They paid all that money and no on taught them how to lie well? They got ripped off. College schmollege, graduate school is where you learn how to lie.
The date is set:
France's Lagarde: Bank stress test results out 23 Julyhttp://euobserver.com/9/30417
It's the ECB's fault. Implementing programs like this and then letting them run for this long only means that banks adjusted as though the program would never end. It happens in all sorts of businesses, if you allow a certain behavior long enough it becomes a part of the system. Besides the fact that it never should have been there at the very least it never should have run on for this long. Now it will take forever to get it shut down.
It's like getting the Fed to really extract all the extra liquidity in the market. They may say they're going to do it and make artificial gestures that they'll do it but in the end they know they can't do it. It's the new forth leg under the rickety stool.
I just don't believe they understand the consequence of their actions
Would you guys please humor me and explain how the markets will react when/if Ben Bernake follows thru on his threat to expand/increase quantitative easing.....also, explain why this intervention is supposed to increase aggregate demand?
The reason I ask is that this seems to me the most likely reaction by Fed to continued weakening of our economy.
So...is the logic as follows: The Fed purchases securities to reduce interest rates to lower the cost of borrowing thereby stimulating demand? Is it that simple? So, the Fed takes securities and gives cash deposits at banks, right? How do these cash deposits at banks find there way to you and me if we are too levered and have no desire to borrow? It seems that the ultimate objective of Quantitative Easing is to lower interest rates to lower the cost of capital and borrowing to private sector.....but interest rates are already low as hell and credit is contracting....is there more to this that I am not seeing?
Also, why do you guys feel that you will have a USD selloff with QE? I know we had this in Europe when ECB did its QE....but I dont quite follow the logic.
thanks in advance for any new insights
Kinda not in the realm of humor, but you got it absolutely right. The money, if no loans are extended don't make its way to you, but shows up in the borrow buckets for free and invest in treasuries, positive carry produces wonders and if done in big enough size, Humgalloid bonus pools.
Hence, trickle down economics, just like tax cuts, except only the biggest of the biggest and most powerful bankers, who also happen to be friends of the people in DC who designed the system, get to play. Makes me shrivel up all over.
No wonder they're thought to be financial terrorists. You gimme the bonus or I'll blow up the financial system whilst doing your bidding. And if they loot a little along the way, cost of doing business.
Thanks, Knukles. So QE is basically the Fed giving Banks HUGE amounts of money and trusting them to do the right thing.
How do you think the stock, bond, fx mkts will react to another huge QE? the Fed obviously thinks the stock market will go up; bonds will go up; dollar ?? heck if it goes down, they like that.....so QE is WIN WN WIN for fed..!
Is there a chance the USD tanks enough to spook bond market..? I guess that is the question
At some point, the printing of too much money should cause;
The $US to fall against other currencies (relative to their supply/growth rates, absent flights to saftey)
Raise inflation expectations (anticipating an uptick in V, velocity as in MV=PT)
Rise in inflation (post V rebound)
Rise in commodity prices
Rise in interest rates (falling bond prices)
Rise in precious metals (as currency debasement hedge/surrogate currency)
Equities indeterminate (as per past history, sometimes do well, others poorly in high inflation environments)
Using the 70's as the model for market responses to excess money creation, all the above represented "normal" financial responses.
However, the period was also characterized by an absence of governmental expansion into the economy...regulation, taxation, etc. Large and expanding budget deficit, function of tax decreases and anticipation of permanence thereof led to robust fiscal/economic response. (oversimplified, but directionally reasonable)
For increasing tax, regulatory environment, I default in the analysis to the British post WWII model. Much the same outcome, but noticable stagflation accompanied by very poor equity performance, high persistent levels of unemployment. (Lived in UK through much of that latter period.) Persistent governmental theme of spending and higher taxation, sounding similar to general tone of US today.
Either way, the excess monetary expansion (in collusion with a significant deterioration in quality of Fed balance sheet, the Zimbabwenization effect, another story, another time) will likely, IMO, ultimately lead to significantly higher inflation. Over near term, may experience significantly juxtaposed environment as V remains depressed for any of variety (and viciously debatable) reasons.
Europe hasn't produced anything for years. They just lie around and party. Do you really think they are going to give that up just because they are insolvent? Whatever!
It's not all bad in Europe, apparently...
"ROME (Reuters) - It wasn't exactly pennies from heaven but it was perhaps the next best thing: a truck carrying 2.5 million euros in coins overturned on a highway in southern Italy and motorists picked up the money like mushrooms."
http://finance.yahoo.com/news/Motorists-hit-jackpot-with-rb-3556468692.html;_ylt=Akcdv9ldLv2lpa6XkLXyuAW7YWsA;_ylu=X3oDMTE1b2lvajc4BHBvcwM4BHNlYwN0b3BTdG9yaWVzBHNsawNvZGRuZXdzbW90b3I-?x=0&sec=topStories&pos=6&asset=&ccode=
Hmmm, an accident? Methinks a "stealth stimulus" - I hope that shit happens to me on the way home from work - I need some quarters for laundry
Alas, the coins were spent on wine and phone calls to mother.
This is why I only travel with my wife and 67 kids in a city bus. You never know when you need to load up.
People familiar with the situation that do not want to be named because the information is private are telling us that French banks are massively short EUR / USD and deserve a lesson or two regarding their anti EURO forecasts. Especially BNP Paribas´ Hans-Juergen Redeker and team need more constraint. So, the international counsel of dark pool participants decided to let them sweat a bit. Hum, anyone here observing currency vola swaps ?
Marc Fabar recently predicted that the Europeans would talk austerity but would print like crazy.
ADHD is treatable.
Timmy's on a mission - His Playbook is Back to the Future.
Score one for Gen X
It's amazing to see the dichotomy between "Europe" and "China" vis a vis the dollar. One is the biggest sham peg in history and the other is the biggest sham "competitive market." It just amazes me that you can have both these "events" going on simultaneously. I will say this: "I'll take the Chinese approach." I don't see how anyone can believe anything between "the euro" and "the dollar" because the value changes so massively in such short periods of time. Apparently they have the dollar equivalent of penis envy because it seems like the only currency the eurolanders care about seeing themselves compared to is the greenback--which obviously makes no sense and makes what's going on between the Yen and "the world" even MORE crazy. I mean whatever happened to just "plain old stability"?
Temporary liftoff would describe it better because we are about to witness the landing soon enough. This eur/usd move spooked a lot of people and that will show in the next couple of days.
... whistling past the graveyard
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