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Charting The Futility Of ECB (Non) Sterilized Interventions
We have vociferously discussed the secondary bond buying by the ECB, specifically highlighting when a lack of intervention allows the real-world risk appetite to sneak through. Bloomberg's Businessweek ties a rather nice bow in the total futility of this effort as since August 12th, the ECB has spent almost EUR 255bn on Italian, Spanish, and French debt (with perhaps a sprinkling of Belgian, Austrian, and Portuguese for good measure) and achieved nothing as every one of those nations yields (or costs of funds) is now higher - some dramatically.
Of course, the counter-factual will always come into play - what would have been if they hadn't spent all that money (or not sterilized as we pointed out so obviously this morning) - but that argument becomes moot when we consider the EU Summit from 10/26 where the EFSF was designed to do exactly this in order to ring-fence yields at much narrower levels already. With the EFSF itself over 200bps wide of Bunds, Bunds underperforming TSYs dramatically, German CDS over 100bps again, and 7% yields de rigeur - we prefer EPIC FAIL to describe the Sisyphean task as buy-side managers hat-tip the ECB for giving them better exit points, as opposed to providing coat-tails for them to ride on.
While yields (cost of funds) are the real reason to ring-fence this contagion and control those nasty buy-side speculators choosing to reduce their exposure to an entirely over-levered and non-functioning dis-utopia, a quick look at actual capital gains (loses) should tell us more with Italian and Spanish 10Y bond prices down 6-7% since the EU Summit where the world was saved and even French 10Y OATs are down almost 3%.
Bloomberg Businessweek:The ECB's Wall Against Contagion
The European Central Bank added another layer to the wall it’s building to stem contagion from the euro debt crisis. The bank added to its purchases of government bonds last week, settling another €7.99 billion in the five days to Nov. 18. That brings the total amount of securities held “for monetary policy purposes” to €254.4 billion—almost half of which has been accumulated since the ECB began scooping up Spanish and Italian bonds in August to prevent a spike in yields.
The aim of the purchases is to stop the cost of government borrowing from going too high. The central bank says it’s a temporary exercise. EU governments plan for the European Financial Stability Facility to take over the purchases once the fund is up and running. Without the EFSF the ECB would be stuck in a role that is unsustainable—expanding the ECB’s balance sheet indefinitely would lead to disaster.
But how successful has this strategy of bond purchases been? After all, it is part of the program the EFSF will follow when it takes over. The constant increase in the amount of bonds held by the ECB may have slowed the rise in yields for Spain and Italy, but it hasn’t stopped them going up: the spread between German debt and that of Spain and Italy is widening.
If the EFSF is no more effective than this, other measures will be required. Only stronger austerity measures from the two countries’ new governments will definitively halt the rot.
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its all abstract
The ESFS is a con-artist trick that the world figured out almost immediately. Europe needs to build another, better con-artist trick quickly or it is end-game. Europeans have far less guns, gold and beans than Americans. That means: they have less of a chance of survival. Solution: print baby print. Germany must surrender its fiscal-sadistic desires. Soft money EURO is needed.
Dude why the fuck are you still here? Do us all a favour and stop stinking up these boards and go and your peddle your bullshit elsewhere.
It's the same concept as pawning stuff to buy lotto tickets. And works about as well.
There's much to pawn.
Even our children, or is that "indentured?"
Our stupid, greedy, sheople electorate voted for politicians who promised to make the future pay five percent of its GDP in perpetuity so those ignorant pathetic greedy fucks called "voters" could get what they wanted without having to pay for it themselves.
How dare anybody advocate fiscal deficits. That is like running up a credit card and expecting your children to pay the interest after you die.
It is unethical, immoral, and this debt will be repudiated..
Just wait til the "credit card issuers" (read vigilantes) raise the interest rate to 22%
Someone please elaborate..... what is meant by the term "sterilize" ?
Monetize.
It means you don´t raise the money supply by buying the bonds.
You don't raise it but you're freeing that money into the market. Probably into speculation in the commodities which will cause more inflation than money creation.
http://www.zerohedge.com/news/one-massive-circle-jerk-presenting-scam-ec...
What part of 'circle jerk' is confusing you? Putting semantics aside, are Germans OK with sterilization while against monetization? Think hard if you choose to answer...
Someone get this man a DeLorean and set the time to 9AM this morning.
Just look up open market operations on wikipedia and follow all the appropriate links.
You got one wrong answer and one incomplete answer.
JFGI.
If the SMP holds 254bEuro in securities in the SMP, then it has more securities in nominal terms than funds in the EFSF. And since the German parliament maxed out the German contribution to the EFSF to 211bEuro (cash and pledges) I think it's safe to say...... Frankfurt, we have a problem:)
No, the ECB did actually achieve something : it prevented the idiots who were loaded up the the hilt on these utterly worthless (or maybe 20cents on the dollar) securities to getting absolutely clobbered. The selloff would surely have crashed those prices way below where they are now.
So actually for the operation puppetmaster getting out of dodge, it may have worked fairly well : 255 Billions was transferred to somebody (market players) by paying higher than market prices...
It is the trade at the margin that determines price...at every moment. It doesn't matter how many shares of GMCR I buy at 100 today. New information tomorrow (EPS miss, whatever) dictates a new marginal trade at a lower price. This is Econ 101. Okay, maybe not 101, but not grad level.
the only real losers that are going to get scorched are the 0.0001% that own the world's wealth - this is the greatest merry-go-round of all,... the ill-gotten deeds of a handful are about to get their 'up-n-comin's'
"The central bank says it’s a temporary exercise. EU governments plan for the European Financial Stability Facility to take over the purchases once the fund is up and running"
And that's the beauty of the scheme... this is going to be temporary indefinitly, since the EFSF will never come on line with yields this high.
ECB should play hardball and force EFSF to buy this crap, levered up or not. If there is not enough $in the EFSF, governements should tax their citizens more. They will understand because they all love to be in the eurozone.
Insanity - doing the same thing over and over again and expecting different results
Yeah but he also said nothing goes faster than lightspeed.... Untill we tracked nanoparticles.....
LET'S GO FOR THE 0,000001%rounding error and make it our goal!!!
I think politics perplexed him more than physics....
but on that vien here's another "What are light quanta? Of course every rascal knows the answer, but he is deluding himself..."
This IS pure insanity. US and Europe will just start easing/printing untill we get the MOTHER OF ALL ASSET BUBBLES. Or we get massive deflation.
Lower GDP growth, Euro melting down, ... Treasury Direct: $35 billion 5yr at 0-7/8% – Fed Talks More Easing
http://confoundedinterest.wordpress.com
Because of central banking, contagion exists and no amount of central banking will stem it. Having a reserve currency predicated on the decisions of those who least understand economics and only serve their crony capitalists are the root of this problem.
All this semantic banking jargon goes to show that no matter how many times you try to solve debt with more debt it won't work-- even if they were to portray an apocalyptic scenario and play it out through a market crash, there is no proper solution these genocidal manics can come up with that will restore a proper functioning system.
Remove the cancer, end central banking, and bring the financial institutions to justice.
A seriously stupid algorithm just got it handed to it about 15 minutes ago on shares of BLK @ $155. Sell it. The IMF rumor just postponed breakdown day.
Larry Fink...assume the position.
Now with 3t AUM are they TBTF or TBTB or FUBAR or... nm
Classic example of just how "fixed" our market is. In the last hour, some moron algo was caught quote stuffing on the bid side of BLK shares @ 155. Orders of about 20 k were filled at that price. The algo did not want the shares...just wanted to goose the book.
The algo then went nuts, and the following 45 minutes saw LIQUIDATION SELLING on BLK...that caused the shares to RISE $1. Unreal.
And then the bell rings...and the BlowHorn [CNBC] releases FED NEWS about stress tests requiring modeling for an 8% plunge in US GDP.
For all those who, like me a year or so ago, think the equity market is a market....LOL!
That being said, sell ANY lift in shares of BLK until such time as Larry "make them buy equities" Fink assumes the position and pukes his Euro debt and reduces earnings projections.
What a fucking joke.
Reminds me of the tech bubble....lots of smart people raging on about how crazy it is, while the crooks continue with the ponzi and the sheeple are fleeced. It always fails if it does not make any sense...eventually.
This failure of sovereign debt will have much more serious consequences than the other ponzi's, so the crooks will work hard to delay the collapse.
Half assed theft is futile. The Europeans need to take a lesson from Timmy and Ben. They are full assed theives who understand that a Ponzi backed up with a printing press and properly managed can last forever. Obviously the ECB has not printed enough. Effective manipulation of these markets will take trillions, not billions.
Someone MUST bail out Europe, and soon. Or their bloated carcass will blot out the sun.
@Captain Kirk - obviously when i mean market price i mean REAL MARKET PRICE which is how you should understand my comments referring to the FAIR VALUE of an asset. Unless you believe the market is efficient and Market price=FAIR MARKET PRICE (which by the way it is not) . So when an entity comes in with a huge Bid to prevent an asset from selling off, it does support the price and allows for players to exit at that BID. If not for that BID the remaining players would probably bid much lower knowing that it is not some entity which does not apply economic reasoning but rather market players. Obviously the market is bigger than these entities so it eventually overwhelms them but it does make the market price HIGHER than it would have been withouth intervention in the short term .
This one is for " Merkozy". Speaking of sterilization, and love children. { Greece, Portugal, Spain, Italy}>
The baby food is getting expensive. http://www.youtube.com/watch?v=_UXtort76gY