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Citigroup Analyzes The Failure Of The LTRO, Muses On The Upcoming French Downgrade
Now that the LTRO flop has been digested, one of the more curious explanations for the failure comes from Citi's Steven Englander, who suggests that, surprise, surprise, Italian banks were lying yesterday when they said that they were ready and willing to buy Italian debt with LTRO proceeds. To wit: " One dose of cold water were comments from the Italian Bank Association that EBA rules won’t permit Italian banks to buy sovereign debt – this is a complete reversal from reports yesterday that indicated that Italian bank collateral would benefit from government guarantees in going to the ECB and lead to incremental Italian bank buying of sovereign debt." Gee: someone lying? NAR who could possibly conceive of that... And more to the point, Englander has an interesting observations on the market reaction to the upcoming French downgrade: "the S&P downgrade of euro zone sovereigns is hanging over the market but there is no definite timing – every day brings one rumor or another of an imminent moves. More concretely there is a chorus of French and euro zone officials managing expectations downward. S&P probably wants to manage the announcement so as to have the least market impact, but it is unclear whether that means doing it when most investors are inactive but liquidity is low or the opposite. At this point a French downgrade is no surprise. A one-step downgrade would be a positive surprise, but downgrading core-core Europe – Germany, the Netherlands, Finland – would still be a negative. Today’s LTRO may be a (reverse) template for the reaction to a downgrade: kneejerk selling followed by a rebound." Well, only one way to know for sure what happens post the downgrade - bring it on.
From Citigroup:
The LTRO was greeted with initial enthusiasm by markets but then fizzled out. The EUR is down small so far on the day, a reversal from its big gains in the immediate aftermath of the LTRO announcement, taking other European currencies (GBP excluded) with it. The EUR 489bn was in the EUR400-500bn range that our economists were expecting but somewhat stronger than published consensus that was more in EUR300-400bn. That said, the fat tail was clearly to the right and there were indications that many expected a much larger number than the consensus.
The next question is what is done with the money. The Summit has had a fair amount of bad press and euro zone policymakers wanted to show that substantive progress had been made. Hence comments from Draghi over the weekend and other euro zone officials could be seen as encouraging a strong take-up. Whether the money will be used to buy sovereign debt (the secret wish), or be lend out to businesses (the stated wish) is unclear. There is plenty of liquidity in the system not doing much of anything, so the auctions at the beginning of 2012 will be scrutinized carefully to see if the carry trade is being reignited.
We would still interpret the initial move as driven by short covering. Our CitiFX Access indices of FX returns shows that investors as a group made money last week when risk-correlated currencies were selling off, and have it this Monday-Tuesday week as risk appetite rebounded. To be clear overall positioning is modest, but the biggest positions appear to be with CTAs who are relative quick to exit positions that are moving in the wrong direction. Hence even when the euro was being bought, it was as a short squeeze in an illiquid market, rather than a wave of two-fisted buying. Some argue that the euro sell-off was driven by investors who had gone long on LTRO fever, but none of the indicators we look at show significant euro longs in the market.
The remaining mystery is why the sell-off is so severe. One dose of cold water were comments from the Italian Bank Association that EBA rules won’t permit Italian banks to buy sovereign debt – this is a complete reversal from reports yesterday that indicated that Italian bank collateral would benefit from government guarantees in going to the ECB and lead to incremental Italian bank buying of sovereign debt. We still consider the LTRO outcome to have been a moderate success, if only because the ECB balance sheet exposure suggests that they will be much happier with a debt crisis resolution than with a disaster, but in illiquid markets the noise to signal ration is extremely high.
We see the swings as being liquidity determined, exaggerating both the response to the buying/short covering in the immediate aftermath of the auction and similarly amplifying any selling. The LTRO is the last 2011 ‘event’ calendared in the market and both 2011 winners and losers are probably closing books.
That said, the S&P downgrade of euro zone sovereigns is hanging over the market but there is no definite timing – every day brings one rumor or another of an imminent moves. More concretely there is a chorus of French and euro zone officials managing expectations downward. S&P probably wants to manage the announcement so as to have the least market impact, but it is unclear whether that means doing it when most investors are inactive but liquidity is low or the opposite. At this point a French downgrade is no surprise. A one-step downgrade would be a positive surprise, but downgrading core-core Europe – Germany, the Netherlands, Finland – would still be a negative. Today’s LTRO may be a (reverse) template for the reaction to a downgrade: kneejerk selling followed by a rebound.
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Citi of all people should be able to identify liars!
Don't forget failure, too.
Citi is quite good at failing, in addition to lying.
William Buiter Rocks¡ is D-MAN-
Buiter knows stuff....
Great guys in C (macro and strategy team)
you're going out on a date with them?
"car date"
i hope they pay him...
nice bustenhalter
Say it ain't so! 400 billion due in 2012! Nobodoy even talks about Greece anymore. Are they like the ugly step child under the stairs now?
European banks quickly took 500 billion in cheap loans over last few days. Market rally yesterday and DAX +3% cost how much?
Italy can take money but can't buy bonds
the LTRO flop wasn't a surprise to ZH
Banks lie?
No no. That's the same like saying "Guns kill".
"Guns don't kill people, people kill people"
With a straight face
Much like my exhusband.
Men are good at some things, women are good at others.............
http://www.youtube.com/watch?v=AYjG0PqtUzk
Come on S&P ruin Sarkozy's Christmas already!! I'm getting fed up of waiting.
I t/p on my aud/jpy shorts too early.
(Reuters) - The number of new home foreclosures jumped by more than 21 percent in the third quarter as banks moved more aggressively
http://www.reuters.com/article/2011/12/21/us-financial-regulation-occ-id...
Banks foreclose and bulldoze the place rather than making loan mods to adjust prinicpal amount reflective of new home value and giving the BAILOUT they received to the home owner who is stuck with the high loan that the banks PEDDLED to the home buyer up to 2007.
Heads will roll eventually. Blood will be flowing.
What is the matter with them? They know the eventual consequences from history. Do they all believe it will be the other guy who finds himself hanging from a lamp post when the SHTF and that they are smart enough to get out in time with their loot? Some of them will, of course, but I bet not most of them. The Supreme Court has ruled that corporations are people, but if they are, they are sociopathic and unable to learn from their mistakes.
They believe that they can use the military with its advanced weaponry and the paramilitary police, TSA, marshalls, etc. along with the FEMA camps to crush any dissent. Maybe they are right, at least for quite a while. Depends on whether the military as a whole can be motivated to suppress American citizen dissent. If the American military and paramilitary proves "unreliable," they will use mercs, primarily from other countries. In any event, it won't be pretty.
That is no different from the past. They still end up strapped down looking into a basket of heads until the blade comes down.
S&P will downgrade on Friday after hours.
They could have last Friday, but if not for their servers. Do you have this on decent intelligence reports.. or is this a guess?
Like tZie Flrench say: We only accept upgrades sir!
Quick, French leaders, better lies are needed.
i forget what was the story they ran the markets up on yesterday?
Tuesday
OT:
http://www.infowars.com/louisiana-state-officials-call-for-troops-on-streets/
Ah, of course, there's always something that MUST be positive. Seriously, this ridiculous and desperate spin that something, anything, is positive, is truly reaching new highs every day.
Its finally getting old isn't it?
While others were screaming about qe2 leading to inflation around last spring I mentioned the deflation monster was the biggest issue. I also suggested the thirty year might carry a 2 1/2 percent interest rate.
Germany will never allow enough monetization to change things. Only enough to manage the decline and pay for bank nationalizations when or if necessary.
Can you hear the monster roaring now?
Anyone with a basic understanding of physics will understand why screaming, mind-destroying deflation is set to devour the world.
For the rest of you: Deflation is the handmaiden to entropy. We are scrambling on a slippery slope that plunges into a massive energy well from which humankind will likely never emerge.
29th dec Bradley Turning Day..
Perfect for SUPER BLACK SWAN
At this point even if France is downgraded...does anyone really believe the EFSF won't just change the rules to allow any AA contributions...this is how this thing is rigged...keep moving the goal posts to keep the game running
The stars seem to be in alignment if you are paying attention.
in general this is not my style, but I would like to warn all traders about ubs broker dealers. this is a copy of a letter I sent them. they can be reached at comments@ubs.com. Now imagine you are attempting to hedge a large commodities portfolio your commodites are down for the day, but you hedge that goes up in value sells 2% below the opening and you busted.
to whom it may concern, I owned a stock called cmda last evening and the stop loss was set below the close of yesterday. the security in question opened higher this am, but due top your trading platform the security was sold with a stop loss. my stop was for 57.26 it closed last night at 57.71. it opened at 57.89. today the stock sold at 57.00. this is unacceptable. the security in question opens up from yesterdays low, doesn't trigger, but trades this am. if you are going to randomly alter the bid ask spread to make sure you capture trades and profits on a random basis you should not be offering to be a broker dealer of the security. While it is only 10 shares the principle is the same regardless. In the past vanguard has gotten the security back for me, but in this instance they are saying nothing can be done. 1) I would like to make a formal complaint, it appears you alter the spread capturing the trading revenue and I think this practice should be illegal. Sincerely, in addition if have a great deal of difficulty thinking a corporate client or hedge fund that uses your services would accept this. Is it only the retail customer that you steal this from? You can be certain that this episode will find it's way to large number of financial web sites/ blogsin general this is not my style, but I would like to warn all traders about ubs broker dealers. this is a copy of a letter I sent them. they can be reached at comments@ubs.com. Now imagine you are attempting to hedge a large commodities portfolio your commodites are down for the day, but you hedge that goes up in value sells 2% below the opening and you busted.
to whom it may concern, I owned a stock called cmda last evening and the stop loss was set below the close of yesterday. the security in question opened higher this am, but due top your trading platform the security was sold with a stop loss. my stop was for 57.26 it closed last night at 57.71. it opened at 57.89. today the stock sold at 57.00. this is unacceptable. the security in question opens up from yesterdays low, doesn't trigger, but trades this am. if you are going to randomly alter the bid ask spread to make sure you capture trades and profits on a random basis you should not be offering to be a broker dealer of the security. While it is only 10 shares the principle is the same regardless. In the past vanguard has gotten the security back for me, but in this instance they are saying nothing can be done. 1) I would like to make a formal complaint, it appears you alter the spread capturing the trading revenue and I think this practice should be illegal. Sincerely, in addition if have a great deal of difficulty thinking a corporate client or hedge fund that uses your services would accept this. Is it only the retail customer that you steal this from? You can be certain that this episode will find it's way to large number of financial web sites/ blogsnone of the finiMinis and other clown car residents want to take the fall for sticking a fork in the EU and declaring it "done"
so, they have handed the fork to S&P
so, FORK THEM, already, BiCheZ!
http://confoundedinterest.wordpress.com
Can kicked and missed. Massive fail on the PIGS bonds
Can't wait for 2012
NAR me. I doubt anyone else here would think that either. NAR, on the contrary I have 100% confidence in all these NARbers.
What ever happened to the " GUilloTine "?
"When it becomes serious, you have to lie” - Jean Claude Juncker, chairman of the Eurozone finance ministers.
France is going to be downgraded for sure. They simply took on too many bad economic liabilities all for the sake of the euro.