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And This Is Where The LTRO Money Went

Tyler Durden's picture




 

On the day of the 3 Year European LTRO, in a whim of fancy we wondered if contrary to all expectations, the European banks would not instead of using the money for any real releveraging (carry Trade) or deleveraging (switching out of expensive into cheaper debt) purposes, just park it with the ECB's deposit facility, an outcome which would be the worst possible case as it simply recycles ECB cash from on pocket into another without any incremental velocity. As it turns out, we were only half kidding: as of yesterday, the day after the LTRO, European banks parked almost half of the free €210 billion (recall that while gross LTRO proceeds were €489 billion, only €210 billion was net), or €82 billion, with the ECB's deposit facility, which incidentally brought the cumulative total to a new 2011 record of €347 billion, from  €265 the day before. And that is what monetary policy failure is all about.

Daily ECB deposit facility usage change (negative numbers have been removed as they only occur during monthly deposit facility usage resets when banks park cash with various MROs for regulatory purposes):

And total ECB deposit facility usage:

 

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Fri, 12/23/2011 - 09:10 | 2006756 GMadScientist
GMadScientist's picture

The Great Zooro Circle Jerk to Oblivion!

Fri, 12/23/2011 - 09:19 | 2006763 Real Money Wins
Real Money Wins's picture

Another day in the life of Monopoly Money!

 

When's the next Monopoly game coming out...."Rehypothocate Monopoly"

Fri, 12/23/2011 - 09:43 | 2006812 DeadFred
DeadFred's picture

Does the board ignite half way through the game? Up the the fire insurance before you put it under the Christmas tree.

If/when it's seen that the LTRO is another exercise in looting won't those retail and hedgies feel bad about all the cash they just handed over in the latest 'We're all fixed' ramp up? At least hoarding the new money will lessen the inflationary impact of a half trillion euro suddenly dumped into the system. I doubt that the bottom is in for the EURUSD. There may be another short term PM buying opportunity coming up (soon). Rising dollar + ultra low volume = ???

Fri, 12/23/2011 - 10:02 | 2006857 GMadScientist
GMadScientist's picture

It would be fun to see Monopoly extended with credit dynamics.

Maybe leaving these details out of the games we use to learn econ is why many adults screw it up?

Fri, 12/23/2011 - 10:04 | 2006863 Quinvarius
Quinvarius's picture

Is that the one where they replace the "go to jail" space on the board and Chance cards with "collect bonus" and "steal client money"?

Fri, 12/23/2011 - 10:16 | 2006897 DeadFred
DeadFred's picture

With the bonus card of 'Become Secretary of the Treasury'

Fri, 12/23/2011 - 09:17 | 2006764 Atoyota
Atoyota's picture
@PIMCO: Gross: What does #LTRO stand for? 1. A shell game; 2. Cash for trash; 3. Three-card “monti;” or 4. All of the above.
Fri, 12/23/2011 - 09:19 | 2006768 Spooky Polish
Spooky Polish's picture

5. Full House of Monti's 

Fri, 12/23/2011 - 09:33 | 2006787 Zero Govt
Zero Govt's picture

6. buckets of shovel ready cash for the most worthless parasites in society (socialism)

Fri, 12/23/2011 - 09:21 | 2006773 sangell
sangell's picture

Isn't this 'monetary policy transmission blockage' that will require a massive QE enema?

Fri, 12/23/2011 - 10:56 | 2006997 vinayvad
vinayvad's picture

They cant do a QE, thats the whole point without breaching the treaty. This is bank bailout directly. Accepting A- collateral, 3y LTRO loans. Timothy Geithner is behind scenes peeps! And they already know that this excess cash will anyways sit with the ECB (excess reserves at the Fed anybody?).

Fri, 12/23/2011 - 09:38 | 2006774 Zero Govt
Zero Govt's picture

So €490bn was required to bailout the steaming bankrupt Eurozone gambling junkies (the bums of banking) ...didn't they all pass ECB stress tests 1 and 2 with flying colours with Trichet clucking "stability" and "all is well" ???

Half the annual GDP of the UK gets pissed away in under a week on Eurozone turkeys who have no productive use whatsoever and we wonder why the economy is in the toilet... this is some sick joke right?

Sat, 12/24/2011 - 12:14 | 2009174 DavidC
DavidC's picture

Yup!

DavidC

Fri, 12/23/2011 - 09:23 | 2006777 GMadScientist
GMadScientist's picture

Leveraged Trash Reeks of Offal

Fri, 12/23/2011 - 09:31 | 2006783 Captain Kink
Captain Kink's picture

is this not what the US banks also did with all the QE money?  Park it as reserves at the Fed?  It's the playbook to re cap the banks.  In EU, the Sovs are sunk, and they need to make sure bank balance sheets can handle the fallout... good luck with that.

I intend to get long italian, Spanish and French debt CDS, knowing full well that ISDA will pull a Greek bendover, but I figure we can sell as they rally in the interim. 

Fri, 12/23/2011 - 09:44 | 2006815 ucsbcanuck
ucsbcanuck's picture

I'm somewhat unsure about that play - timing it would be a real prick. 

Fri, 12/23/2011 - 12:29 | 2007256 buckethead
buckethead's picture

Bold call... Balls of steel.

 

Good luck.

Fri, 12/23/2011 - 09:37 | 2006801 topcallingtroll
topcallingtroll's picture

Drudge has a link to a Reuters article on Ron Paul.

Ron Paul is over, done. He is out.

Fri, 12/23/2011 - 09:41 | 2006809 Zero Govt
Zero Govt's picture

the masonic sardonic Bilderbuggers have let of their filth campaign and nobbled RP have they?

democracy in action

Stop Paying Your Taxes ...that's real democracy in action: stop feeding the scum

Fri, 12/23/2011 - 13:53 | 2007650 Esculent 69
Esculent 69's picture

Not paying your taxes is a crime. However it is not a crime to not file your tax return because to sign your tax return IS A CRIME.  The FICA that you pay in also has a "match" by your employer, but that "match" is actually paid by you.  So you are being denied income and being taxed 100% on that denial of income so you can not properly file your tax return without committing perjury.  Perjury is a crime and you do have the right not to incriminate yourself. The best part is while doing this take your maximum allowances so you get as much of YOUR MONEY that you can.  That 's patriotism

P.S.- America is a Republic not a democracy and that's the problem. Democracy by itself is mob rule

Fri, 12/23/2011 - 09:47 | 2006817 Alex Kintner
Alex Kintner's picture

The Ron Paul Portfolio
Yes, about 21% of Rep. Paul’s holdings are in real estate and roughly 14% in cash. But he owns no bonds or bond funds and has only 0.1% in stock funds. Furthermore, the stock funds that Rep. Paul does own are all “short,” or make bets against, U.S. stocks. One is a “double inverse” fund that, on a daily basis, goes up twice as much as its stock benchmark goes down.

The remainder of Rep. Paul’s portfolio – fully 64% of his assets – is entirely in gold and silver mining stocks.

http://blogs.wsj.com/totalreturn/2011/12/21/the-ron-paul-portfolio/

Ron Paul appears ready for the SHTF scenario. :-)

Fri, 12/23/2011 - 12:45 | 2007306 buckethead
buckethead's picture

Not so sure about that. Same tired tripe they pulled out last time.

 

If everyone gives up, he will not advance. I don't see that happening.

Fri, 12/23/2011 - 09:43 | 2006814 BandGap
BandGap's picture

Generate debt to pay debt.  At some point the printing has to begin.

Unleash the Kraken!

Fri, 12/23/2011 - 09:49 | 2006820 GMadScientist
GMadScientist's picture

Unleash the DM!

Fri, 12/23/2011 - 10:09 | 2006879 Quinvarius
Quinvarius's picture

I think this is the printing.  The debt part is just how the money wonks justify the printing in their own heads.

Fri, 12/23/2011 - 09:54 | 2006832 A Man without Q...
A Man without Qualities's picture

To be fair, it is nearly the end of the year and banks always look for ways to inflate cash balances.  We need to see how this develops next year.

The other question is if banks simply park the cash at the ECB, does this make QE more or less likely?  In my view, it's negative for QE, because all it does is give the ECB all the downside risk with no monetary benefit to the wider economy if the banks turn round and deposit cash back to them.

 

Fri, 12/23/2011 - 09:55 | 2006833 drivenZ
drivenZ's picture

"And that is what monetary policy failure is all about."

 

because banks didnt put 200 billion euros to work 2 days after the LTRO? really? C'mon ZH. 

Fri, 12/23/2011 - 10:39 | 2006954 walküre
walküre's picture

To work on what? Why did they access the facility in the first place only to park the money?

C'mon! They don't trust each other!

Fri, 12/23/2011 - 12:16 | 2007216 drivenZ
drivenZ's picture

 You cant seriously think they're going to absorb 200 billion and have everything figured out in 2 days or 2 weeks or even 2 months. you're delusional. 

Fri, 12/23/2011 - 10:01 | 2006854 AGoldhamster
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Tyler ... if i had something to say - you deserved the investing community nobel price!

You have done so much for us all ... I wish you and yours a merry and peaceful X-MAS. And may you and your site live for another century!

!!! Unbelieveable great job you do !!!

Fri, 12/23/2011 - 10:03 | 2006861 rayban
rayban's picture

Come on guys. Get real. It's end-of-month, end-of-quarter and year end. What do you expect? A flood of new loans on Dec 31st? The money will be used, but only after january 1st.

Fri, 12/23/2011 - 10:23 | 2006912 PulauHantu29
PulauHantu29's picture

Newly printed Euros---over $600 Billion of them--flodding the banks. (Well, ok, half parked at the ECB so those don't count).

Commodity prices in the EU will rise just as they did when the Fed released its QE Flood. When you dilute the currency in existence with newly printed stuff from thin air, this is what happens, isn't it?

Fri, 12/23/2011 - 10:44 | 2006964 walküre
walküre's picture

The US had Obama at that time. The antitethis of AUSTERITY.

Fri, 12/23/2011 - 15:54 | 2008064 steve from virginia
steve from virginia's picture

 

If somebody gave you (well, lent you) unlimited euros with the common knowledge that a) there will be no euro in a short time, and b) deleveraging is ongoing, what would you do?

Easy answer is buy gold ... however, in the real world this is almost impossible b/c there is so little on the marketplace and the amount of euros in hand is too large ...

See the problem? The positions taken on by banks and other finance institutions are too large to properly manage. It's also hard to manage the accompanying costs which are much larger than the positions and mushrooming.

Putting the money (or some of it) is punting.

It's also a relatively secure place to put it because ECB will last as long as euros themselves ... but not for a day (second) longer.

If the euro vanishes, there is no loss b/c there was ever anything to lose. If for some bit of magic the euro does not evaporate the WORST thing to do with it is trade it for any euro-denominated security, even bunds. B/c the only way for the euro to survive is for all the other euro-denominated securities to be sharply devalued. That means large haircuts and institutional failures.

Best to hang onto that cash, it's good 'as gold'!

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