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Did LTRO's Carry Trade Engine Run Out Of Fuel?
The continual restatement by endless talking heads of the compression in Italian bond spreads/yields as some indicator of success and recovery in Europe is becoming nonsensical. Short-end rates have become anchored, and as UBS notes today, the huge liquidity injections have caused structural breaks between curve slop and spread levels (curve now at its steepest since EUR inception). However, what makes the nonsense-speak greatest is the disappointment in terms of market reaction post LTRO2. After the previous two major liquidity injections (LTRO1 and the Reserve Requirement shift) we saw a considerable spread compression very soon after. However, in the two weeks since LTRO2, Italian spreads have gone nowhere (and have in fact seen notably larger volatility and intraday decompression in the last few days post-Greece). With the economics of the carry trade diminished, and the market fully priced in LTRO's impact, expectations of further improvement in Italy's bond curve seem entirely dependent on more surprise liquidity (unlikely short-term) as the carry-trade engine appears to have run out of fuel (or collateral maybe?).
Chart: Bloomberg (via UBS)
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Theres disappointment in a market somewhere? Well we cant have that... thats easy to fix, just swap it all into the NASDAPPLE.
Buy gold and come back in 10 years when euro, dollar, franc, yen and others will all be gone in current form. Robert Mish can't be wrong: http://www.armadamarkets.com/market-info/videos/
Fuck off, Ingmar! Your crappy armadamarkets site is a fraud and you know it.
Or is there a problem in Italy that we do not know about? Some off the books debt, a la Greece/Goldman Sachs?
A known unknown if ever there was one.
They buy EFSF bills and bonds for margin calls instead
http://www.bloomberg.com/news/2012-03-12/euro-finance-chiefs-give-politi...
Central banks in complete control of ponzi.....move on....AAPl to 600 then 700 etc. etc...
Coming soon to a sovereign near you...
snAAPL bonds.
More cowbell:)
Someone skim off the top? The Godfather wont like that.
We're grasping at straws here to find a problem ...
US dollar strong, commodities under control, interest rates on US debt at rock bottom, and stocks on automatic pilot going up 0.5%-1% per day, every day, without a hint of a drop.
Central planning is working! What could ever go wrong?
I think I'm going to be sick. But I thought that yesterday, and the day before, and the day before that. I'm still here. Is this what purgatory is like? Because it really seems like hell ...
And it was only a week ago that the DOW dropped the most in months.
http://www.zerohedge.com/news/biggest-dow-drop-3-months
Yes, but luckily they fixed it all up by floating a rumor about more QE. It's quite miraculous when you think about it, how all it takes nowadays to improve the 'economy' is a couple of words suggesting more free money will soon be available. I remember back in the old days when improving the economy actually required doing things like 'investing in production'. We've sure advanced a lot since then.
It's called progress. We all work for the Fed/ECB/(Your central banker of choice) now.
Just out of curiosity what do you consider the old days?
I was thinking early '80s, although even then we were making progress towards ridding ourselves of the need for 'making stuff' and getting into a more progressive 'buying stuff with debt' model of economic growth. Probably have to go back to the '60s to actually find a real old fashioned 'grow by making things of value' economy.
50's maybe. The 60's were already distorting with government spending through the military and social safety net programs. Just my opnion though.
We've seen all of this before many times, and every time it hasn't ended well. But this time is different right??? Somehow economists keep believing the world belongs at the lofty bubble valuation.
We just have to get it right at the top this time, not push it too far. It's perfectly ok for a single company to be worth more than the entire sector it sells to. Why not? In the end there should only be one company selling to consumers and that company better be owned by the government. Then everything is easy, right?
I'm not grasping for straws. Another three people I know lost good paying jobs last week. They don't know what to do. One person that lost their job three months ago picked up two part time jobs in the same sector that get her half what she made before.
you'll know when you're in hell, when you stand amongst bankers, presidents, and cohorts!
You could go back 1 year ago today and find the same comments. June 30, 2011 the S&P closed the first half of the year up 5.00% to 2 decimal places. Within a few weeks, the bottom fell out.
The S&P closed down last year. That was just 9 weeks ago. The year is young. Relax.
Isn't the chart more reason for central bank manipulation, er intervention with another program?
Answer to the question is: NO
the same scenario as last month's days before Option Expiration is "happening" - perhaps pushing down VIX is done with some LTRO money... so they probably didn't run out of gunpowder yet, the carry trading continues full throttle, with one goal: burn everyone on the opposite side of trades
Including CDS bagholders.
Italy managed to kick the can a bit further down the road as they collected 4.5 billion Euro with a successfull BOT auction today.
I woul dsay that just depends on Italy or anyone else doing something with the money. Fixed income Markets can;t keep buying and selling the same bonds without a change for the better in funcdamentals, like the Italians gaining back inflation in 2011 compared to Swiss and French which makes them better bets for some investors if only someone could do barbells or help convince me this 5% is good for my fund.,
Amit
http://advantages.us
liquidity is not helping risk on.
http://www.cnhedge.com/
http://www.jinrongbaike.com/