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To ECB Or Not To ECB - That Is The Only Question
From Peter Tchir of TF Market Advisors
To ECB Or Not To ECB - That Is The Only Question
Europe started the day poorly, following up on the weak close and its own poor economic data.
Then the ECB got involved and started buying Spanish and Italian debt aggressively. Rumors is that the ECB will have unlimited buying power for Italian debt once the austerity bill is passed.
The current buying spree is completely expected. They can't resist intervention and in spite of a massive inventory of unmarked underwater bonds, still believe it does something.
This intervention didn't do much for a 1 year auction and the price action in the secondary market has become routine. Some quick short covering. Dealers snapping up some paper to offer back to the ECB. A few additional purchased to goose the market higher, tell the ECB how great they are doing and that it is impossible to source paper, sell your inventory at an even higher level, spoof around while trying to figure out when the ECB is done for the day and what targets they have, sell into the last bit of strength and then let the shorts who covered early reset at much higher prices.
Buying on hopes that ECB will have unlimited purchasing power seems risky. Unless Germany has really been convinced that is a smart idea, expect some denials from Germany. Why would Germany agree to that when the inflation picture is unclear, when its partner's economy seems to be deteriorating and without any clear evidence that Italy will stick to any program for more than a week or two. The market is correct that massive ECB buying and printing is the only solution that maintains the Euro, but I find it hard to believe that Germany has been convinced so easily and that Germany isn't starting to think about giving up the existing regime. Germany and France are effectively the ECB and will pay the price for any mistakes.
Also, such a plan would seem far too aggressive for an Italian's first weeks on the job. A rate cut was one thing, but promising unlimited ECB buying of Italian bonds is another.
I would fade the rumors if unlimited ECB buying and European harmony. On the other hand, at these yields and with some real government determination - the Italians might convince investors their bonds are in fact cheap. But why go to that effort when there is a buyer out there whose only price sensitivity is that they want to pay more? Maybe leaving Italy to dangle for a fee more days is exactly what Italy and the EU need; rather than rushing too quickly to the "rescue". A rescue strategy that has failed and failed and failed and failed and failed....
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With the two Marios there is no question ECB monetizes
'With the two Marios there is no question ECB monetizes'
That has nothing to do with it, all you need is one Goldmanite and your fate is sealed.
good point as those two Marios fit the bill
but there is a thrid Mario whom all ZHers should hold in high esteem
Mario Batali Apologizes for Comments Comparing Bankers to Hitler, Stalin“So the ways the bankers have kind of toppled the way money is distributed and taken most of it into their hands is as good as Stalin or Hitler and the evil guys,” Batali said. “They’re not heroes, but they are people that had a really huge effect on the way the world is operating.”
http://www.bloomberg.com/news/2011-11-09/mario-batali-apologizes-for-com...
( http://www.mariobatali.com/restaurants.cfm )
Either way the euro should go down. Debt monitization eur negative debt default eruo very negative.
FK THE EURO
Also a quick follow up. ECB has to hand over all its bond purchases to EFSF which has limited money before going to the German taxpayers for more. ECB can't just buy bonds and keep them on their books well they can but it would be illegal oh shit debt monitization here we come
1. No, the ECB's SMP doesn't have to hand over all its bond purchases to EFSF
details here:
http://fistfulofeuros.net/afoe/currencies/the-ecb-is-still-very-much-in-the-game/
2. the ECB's SMP programme has nothing illegal, perfectly in line with Lisbon treaty, as long as SMP purchases are made via the secondary market and are in line with its prime "price stability mandate"
so far they've done 183 bill. with little / no effect on EURUSD, they can easily do another 500 to 1000 bill. in the next 12 months, EURUSD will go down to 1.10 /1.20 but so what? that can only be good news for eurozone competitiveness and Gold, bad for US equities
How's Antarctica doing these days? It's gonna be summer pretty quick..
ECB will not buy unlimited debt as long as Germany is in the Eurozone.
Has anyone considered that perhaps it isnt the ECB buying the debt, but, the US Fed via a proxy?
/
Consider it!?! I just assume it every time the European debt market buckles.
Draghiflazione is solely bying limited debt, however doesn't tell the market what the upper limit is. My guess ?
Yep, that's my guess, too- a stealth way for the Fed to stabilize the markets, buy another day, and hopes that the ECB can work a miracle before too many people figure out that we can't miss the iceberg......
not unlimited but where is the limit?
so far the ECB has stuffed its bs with 183 bill. worth of PIIGS debt under its SMP programme.
how much more will/can they do? 500 bill.? 1000 bill.? 2000 bill.? where is the limit, does someone know?
Germany will allow the ECB to buy unlimited debt as they prepare their exit from the Eurozone. Every one is missing the big picutre, Germany has been buying time with every single rumor.
Germany will let their banks dump Italian bonds back onto the ECB heavily; therefore when Germany exits they'll be much better off. No one gets this: A bankrupt Italy is a bankrupt Germany. So even if Germany isn' setting up their exit from the EURO, they will allow the ECB to buy buy buy despite their hard public stance.
Politicians are professional liars and debt junkies. Anyone really beileve human nature has stopped at the top of the German chain.....if you think so you're a fucking idiot.
What the hell is Draghi buying all this paper with anyway? The ECB is the most undercapitalized central bank in the history of the world. Pretty fucking quick on the printer trigger or is it chump change from GS?
I am not sure I can see any possible exit strategy. I understand the hopium perspective, but really, you have to be kidding me that anyone thinks this will save the experiment or not end poorly for the EU or Euro.
so... The Euro is just going to dissapear off the face of the earth one morning ?
Unlimited buying power? I like that old chestnut. But if as of Friday, the SMP program was at 184b Euro on the ECB BS, and the Germans will only provide the EFSF with 211b Euro, that would leave 27b Euros free (provided it's physical cash and not just pledges). After all, the EFSF has to take the SMP paper off the hands of the ECB. Yes?
And then the question will become, at what price?
1) Nominal - No F*****G way.
2) Trade Price - ECB will be saved, but EFSF will take a huge hit. And who will pitch in any capital (shareholders or bond holders) if the EFSF is massively in the hole coming out of the box.
3) Market Price - ECB will be massively underwater, as in negative equity underwater. And then the EuroLand Govs will get a capital call. And if they can't even raise the funds to fund the EFSF, how are they going to raise the funds to recapitalize the ECB.
Folks, its just that simple:)
I dont think EFSF will take over SMP paper anytime soon. Perhaps ESM few years down the road, but I wouldnt bet on it either.
The ECB's SMP and the EFSF's secondary market interventions are two different programmes.
There is no arrangement by which "the EFSF has to take SMP paper off the hands of the ECB".
Why has ban on shorting eurobank stocks been continued while shorting Italian bonds still allowed?
Hmmm ...
As we said earlier, all that ECB talk of not buying bonds was total bluff.
Must everything take forever? If we crash now - cut to the bone, we can start rebuilding something real in the next year. Prolonging this only makes the fall bigger and the recovery longer - am I wrong?
Been mumbling that for 4 yrs, nix that since I took my first civics class in the 11th grade 20 yrs ago.. these thieves bowing to the alter of Milton Friedman & Ayn Rand still think its business as usual and just keep robbing everyone out of meaningless fiat paper. Next stop Blade Runner..
You are thinking from the perspective of yourself or other ordinary people. But those with the power in their hands are thinking from their perspective, which is to maintain/increase control over the system. They are unlikely to be as stupid as they appear.
Latest from Clarke and Dawe:
The Way Forward for Europehttp://www.youtube.com/watch?v=V4QpG5QXGB0
If the ECB has "unlimited buying power" they'd better stand ready to purchase about $2 trillion of debt that others will want to dump onto them. No-- I dont see that happening.
I believe that Bernanke's Fed and the ECB will attempt to print their problems away, taking care to recapitalize European banks. I look for this coordinated action to take place within weeks. Italy and Greece will be given the choice of accepting socially dangerous budget cuts or leaving the Euro. I believe both will accept the deal. Lets see if their societies hold together as they both enter deep Depressions and their social programs are sliced like a provolone. Soon enough, Portugal & Spain will share Greece's fate.
http://themeanoldinvestor.blogspot.com/2011/11/ciao-italia.html
Has anybody talked to the Italians about this austerity business yet? Me thinks they will be pissed.
"are being pissed on."
I don't see a need for ECB buying... so much time has been spend on creating the EFSF and the ESM... specifically for this purpose. Member states need to pony up more money for it to show the EZ themselves want to save the EZ. No leveraging, no trickery. Tax your citizens to pay for it all.
If ECB does monetize, that's EURUSD negative... and with the recent correlations with SPX, do we all think the bots are going to see that as a sell signal in that case?
Study current demographics and other factors and you will realize the bills are not payable. Austerity might have helped if initiated 10 years ago. to now try and squeeze it from the system is counterproductive. The exception is getting rid of corruption, but that will not happen by decree of those who are most corrupt (the politicians).
Print, Monetize = Ponzi continues
What else does anyone need to understand here?
I wonder how the ECB printing press bearings will take the beating... hope the damn machine does not fall apart.
N one could have seen this coming. No One. Except me. I got junked heavily when I said there was no way the bond auction wouldn't go over. And it has. No surprise. The melt-up can now continue.
Haha. In the long run, that is the only sure way of destroying the Euro.
Gotta admit the ECB is playing a fine game of Whack-a-Mole.
What mole pops up next?
And when will the US Fed need to start whacking its mole, aka the US?