European Central Bank
This has been an unusual year for the global economy, characterized by a series of unanticipated economic, geopolitical, and market shifts – and the final quarter is likely to be no different. How these shifts ultimately play out will have a major impact on the effectiveness of government policies – and much more. In the next few months, the buoyant optimism pervading financial markets may prove to be justified. Unfortunately, it is more likely that investors’ outlook is excessively rosy.
- House votes to arm Syrian rebels (Reuters).... aka ISIS
- Fed Plots Cautious Course on Rate Rises (Hilsenrath)
- Scots vote in independence referendum to seal the United Kingdom's fate (Reuters)
- Yes or No, the Winner of the Referendum Is Brand Scotland (BBG)
- Draghi Loan Plan Missing Estimates Hampers ECB Stimulus (BBG) - get with the spin, it simply means "Moar QE"
- Obama Plans to Tightly Control Strikes on Syria (WSJ)
- IMF warns of risks from 'excessive' financial market bets (Reuters)
- Russia Praises Ukraine's Autonomy Law for Rebel Areas (WSJ)
ECB's First TLTRO A "Failure": European Banks Take Less "Free" ECB Loans Than Worst Case ExpectationSubmitted by Tyler Durden on 09/18/2014 07:01 -0400
As part of Draghi's attempt to reflate the ECB's balance sheet by €1 trillion, a key variable was the extension of the LTRO (1&2) program, in the form of the Targeted LTRO, or TLTRO aka LTRO 3 & 4, whose initial take up results were announced earlier today. It was, in a world, a flop. Because while the consensus was for European banks to take anywhere between €100 and €300 billion in nearly zero-cost credit from the ECB (at 0.15%) to engage in carry trades in today's first round TLTRO operation (ahead of the second TLTRO in December), moments ago the ECB announced that banks, which head already been actively paying down the first two LTRO carry programs, of which only €385 billion had been left of over a €1 trillion total at inception, were allotted a tiny €82.6 billion across 255 counterparties.
"It’s not hard to reach the conclusion that so many investors feel good not because things are good but because investors have been seduced into feeling good - otherwise known as “the wealth effect.” We really are far along in re-creating the markets of 2007, which felt great but were deeply unstable when shocks started to pile up. Even Janet Yellen sees “pockets of increasing risk-taking” in the markets, yet she has made clear that she won’t raise rates to fight incipient bubbles. For all of our sakes, we really wish she would."
This is where our economies are perverted. It’s the final excesses and steps of a broke society. It’s madness to the power of infinity. The only thing that’s certain is that in the end, your money will all be gone. That’s how Mario Draghi ‘saves’ the EU for a few more weeks, and that’s how the big boys of finance squeeze more from what little you have left (which is already much less than you think). A world headed for nowhere.
- Thank you market Chief Risk Officer Bernanke/Yellen: Calpers to Exit Hedge Funds, Divest $4 Billion Stake (BBG)
- World stocks hit one-month low, caution ahead of Fed (Reuters)
- U.S. Efforts to Build Coalition Against Islamic State in Iraq, Syria Are Hampered by Sectarian Divide (WSJ)
- Time to throw away some more good money: Sears Borrows $400 Million From Lampert’s ESL Investments (BBG)
- Wildfires rage in California drought, hundreds forced to flee (Reuters)
- United Offers $100,000 Buyouts to Flight Attendants (BBG)
- Biggest Banks Said to Overhaul FX Trading After Scandals (BBG)
- You mean you have to pay? Administration threatens to cut off ObamaCare subsidies to 360,000 (The Hill)
- RBS Said to Dismiss Most of Team Overseeing Central Europe Debt (BBG) they will be hired by the ECB
Just like the US and the EU, Switzerland at the federal level is ruled by a group of elites who are more concerned with their own status, well-being, and international reputation than with the good of the country. The gold referendum, if it is successful, will be a slap in the face to those elites. The Swiss people appreciate the work their forefathers put into building up large gold reserves, a respected currency, and a strong, independent banking system. They do not want to see centuries of struggle squandered by a central bank. The results of the November referendum may be a bellwether, indicating just how strong popular movements can be in establishing central bank accountability and returning gold to a monetary role.
Even the most avid Bulls should grasp that market corrections of 10% to 20% are statistical features of all markets. Cranking markets full of financial cocaine so they never correct simply sets up the crash-and-burn destruction of the addict.
Desperate governments call for desperate measures. Unfortunately for us, citizens often end up paying for the mistakes of their governments. That’s not how it should be but, sometimes, that’s how it is. If and a when a government is no longer able to meet its obligations, capital controls, broad wealth confiscation measures, and other extreme burdens are often considered. Spanish bond yields just fell to their lowest levels in history but does that mean that your money is safe there? Absolutely not. It means that investors are complacent, not that Spain’s political risk has diminished. Portugal is in the same boat. While its borrowing costs continue to fall, its prospects for economic growth and its financial position continue to worsen. If you’ve got assets in Portugal then now would be a good time to contemplate how safe they really are. Unless you like bail-ins, that is.
A paradigm shift for the Eurozone...
Virtually every country in the world spends more money than they collect in taxes, but no group of countries has done a better job at this than those that formed the Euro-zone. This collective group has so much debt, that a recent study by the BIS concluded it would take 20 consecutive years of surpluses to simply bring debt loads back to levels previously reached prior to the current crisis. Considering that this has never happened before, we have little confidence that this type of spending constraint can be accepted and implemented by any of the respective governments. Every market has a release valve, and for Europe it will be the bond market. The beginning of the end, so to speak, really starts when social unrest reaches a new level. It’s at that point confidence rapidly declines and so too will the European bond market.
Inflation, defined as an expansion of the supply of unbacked money, is an elementary evil, always and everywhere that it occurs. It is the ignored and core cause of numerous problems in the economy and in society...
While Italian and Spanish political (and business) leaders are lauding Mario Draghi's plan to buy more assets and print more money, it appears not everyone is so excited. As Reuters reports, Christian Social Union chairman and Bavaria state premier Horst Seehofer (who is well known as an ally of Angela Merkel), blasted the ECB's plan: "It's only going to frighten a lot of people when ECB chief Mario Draghi opens up the central bank's money tap and at the same time buys junk paper," somewhat breaking the political taboo of criticizing the potential independence of the central bank.
Simply put, the reason why Mario Draghi's impressively-pitched ABS 'stimulus' QE-lite plan won't help can be summed up in 2 words "unencumbered assets." There is simply a lack of the right quality collateral, that has not already been swapped with the ECB (or delevered off balance sheets), for this to make a difference. However, as Bloomberg reports, the plan will not even get that far.. because the market for these assets is incapable of supporting this size of buying. As one major ABS asset manager notes, it takes him about three months to buy 1 billion euros of these securities, "the number that's circulating the market is 500 billion euros, but where is he going to get it from?" Add to that the report from Die Welt that The ECB lacks sufficient expertise for ABS purchases, and as another major European ABS manager concludes, "I don't see either a capital relief for banks or the banks giving more credit to the real economy." Still, it's fun to believe Draghi's promises, right?
It's lights-out for the world-renowned Dennis Gartman...