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It's The FX Repatriation, Stupid
Two weeks ago we were the first to explain that the mysterious Euro levitation observed, as newsflow out of Europe had just turned very ugly, was due solely to another iteration of a very disturbing phenomenon: EUR repatriation, as domestic banks were forced to shore up capital ahead of what they perceived as major liquidity needs such as bond auctions, and the other usual fare - insolvent banks, deposit outflow replacement, etc. As a reminder, the last time such aggressive repatriation was observed was back in October, just before the Fed was forced to ease the terms of its FX swaps, the ECB was forced to announced the LTROs and China was forced to announce an interest rate hike - in other words, the central planner were in bailout mode. Today, the first to address directly our "explanation" is Citi and specifically Stephen Englander, who notes the repatriation is likely a key driver to such inexplicable moves in the EURUSD. Of course, since Englander understands all too well the true implication of such a move (very, very negative as it means liquidity is once again becoming non-existent), he tries to mitigate it: "we find that in the recent past the repatriation theory has some support but that foreign portfolio flows are probably the dominant EUR driver": alas, that is what he said last time too. And it ended up being the other way around, in the process almost resulting in Europe's getting destroyed. Hopefully this time it is different.
From Citi:
EUR support from repatriation
Next to Judge Crater’s disappearance, the euro’s robustness is one of the great mysteries of modern times. There is considerable speculation that the EUR is being supported by euro zone financial firms cutting balance sheets and repatriating assets back to the euro zone. We find some evidence to support this view, although it does not seem to be the full story.
Figures 1 and 2 present portfolio purchases of debt asset by euro zone residents and foreigners. The balance of payments convention is that an inflow (ie net buying of EUR) is a positive. In Figure 1 a positive value mean that EUR residents are net sellers of foreign assets (and buyers of EUR) and in Figure 2 a positive value means that foreigners are net buyers of EUR debt.
Figure 1 shows that euro zone residents were net sellers of foreign assets through most of H2 2011, after having been buyers most of H1. So the view that EUR weakness may have been mitigated in late 2011 by repatriation has been some support from these data.
Figure 1. EURUSD and EUR Net Buying of Foreign Assets
Figure 2. EURUSD and Foreign Buying of EUR Debt
However, that is not the full story. Figure 2 shows that there has been a rough correlation between the EUR and foreign buying of euro zone debt, and the magnitudes are larger. The EUR’s Q4 weakness has a counterpart in foreign selling of EUR debt assets. We see a similar run-up in foreign buying in the H1 2011 that corresponds to the EUR strength over that period. So it looks as if the conventional correlation exists on the liability side. Moreover, broadly speaking, it looks as if the EUR correspondence with foreign buying and selling is stronger than the correspondence with EUR resident buying and selling. On balance these portfolio flows provided some net support for the EUR in September and October, but were very negative late in the year.
We do not yet know what has happened in March and April. Overall we find that in the recent past the repatriation theory has some support but that foreign portfolio flows are probably the dominant EUR driver.
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As Thomas Jefferson so succinctly put it: "Resistance to tyranny is obedience to God", as Charlie Daniels so succinctly put it: "Let's ride boys...we need a thousand Paul Reveres".
See, this is a problem. If you cloak the very real problems we face in Biblical cant, in the popular mind they'll be associated... and as most people now are extremely skeptical that the bible is anything more than a mixed bag of history, theology, propaganda, mysogeny, and some good housekeeping advice along with utter nonsense, they'll assume people trying to inform them of the banking menace are somehow also religious fruitcakes.
You don't need to use the 'authority' of St John's moving imagery to explain what's going on in the world, and doing so threatens to dilute your message.
Couldn't agree more! Injecting spiritual guidance as an underlying motivation is dilutionary and just plain silly, although it seems there are a lot of people that need that to hear the message at all. Its a shame, but at this point whatever it takes to wake people up...
There are so many great videos out already that more than adequately sum up the situation, how we got here and what are the likely outcomes. I think it is going to take a physical revolution, people taking to the streets everywhere, in local communities, big cities, and ultimately Washington itself. I'm in. I think we'll see this happen sometime in the summer because I don't think they can hold the financial forces bearing down at bay much longer. They'll not be able to control the timing once things really get going, which is pretty much any day now from my point of view.
The EURUSD pair is where all the manipulation happens, but this manipulation is as in other markets spring loading things to the opposite side of the manipulation. As I said, once things get going they'll be no stopping the meltdown as it will go global in hours-days! We've all seen this before in terms of the previous bubbles like the internet and housing, at some point before the crash we knew that there would be one - there had to be one and sure enough there was.
Americans and Europeans know that something huge is coming, its amazing how everybody can feel that something is very wrong in society and the world. As the critical mass of people awakened by the crises expands we are likely to hit the hundredth monkey sooner than later. Once that happens I expect the entire world to rise up against the Governments - everywhere including China and Russia as they are as spring loaded as everythign else that has been manipulated over the last couple decades.
I'm excited in a weird way, my expectation is to watch 3-5 empires dissolve right before our eyes: America, Europe, Japan, China and Russia. This will lead to incredible changes, changes that cannot be forecasted or predicted with any certainty but are likely to change maps, currencies, markets, power distribution and even world population.
It will be a war between the oligarchs of the world and the people, I'm putting my money on the people. A global revolution is probably the best way to define what is coming. Viv la revolution...
i don't understand; there was no mention of the Lizard People? who's behind the NWO then?
You have to watch David Icke for that.
All I know is that since October the market has gone in a straight line up, until recently.
I wouldn't be surprised if all the EUR strength is directly due to the FEDS currency swap pipes. Currency intervention by Central Bankers is in the long run a losing game.
And it ended up being the other way around, in the process almost resulting in Europe's getting destroyed. Hopefully this time it is different.
as in, hopefully this time Europe is getting destroyed? Now there's some change we can believe in!
Many more "repatrations" to come. The arrogant "elite" know what is best for everyone, but especially themselves. If you are in a community, county, or state that has a budget shortfall you better get the vasoline warmed up or get out of town now. Remember Bush senior - read his lips "no new taxes". How did that work out again? We all know what is coming, two words, tax shelters.
They will nationalize industries and then come after the citizens for 50% of your wages. By that time, 60+% of the population won't have wages so it won't be a problem for the majority. Hail Ceaser.
Looks like the data was so bad the QE trade is on again bigtime
QE back on people. good news is good, and bad news is even better time!
Repatriation just went into woody mode. EUR/USD 1.321 + .43% S&P +.53% as stats are released - 7.1% home sale drop and consumer confidence fall.
Something doesn't make sense.
It does if you look at it one of two ways. 1)People are betting on QE or 2)Algos are responding to EURUSD movement, and interpreting it as a QE on trade.
see the two posts above yours
All I can say about this market is Jesus fucking Christ. Dax loses over 3% and gains .5% the next day. We lose .6% and gain it all back the next day. Unbelievable!
+1 for the comment, -1 for the implications.
There are going to be a lot of people caught on the wrong side of this.
For me, it's a volume signature. It's the repat play. Again..
Judging from pure price action of EUR/USD mark-up, it looks more like the intervention by the central planners than the repatriation by the EU banks -- repatriation would not have such a forceful mark-up and always starting around ~9 AM ET (when the central planners at NY Fed and goldmanites start their day).
Judging by figure 1, it appears that net buying of foreign debt, (i.e. ours), is at the lowest level in two years.
Figure 2 shows net buying of foreign debt (i.e. theirs, by us) has crossed the zero line again. It also appears to have caused the dark blue line in fig 2 to turn upwards in direction.
This is how you know there is no liquidity in the EZ, aside from recieving the memo stating as such.
relax, buy EUR
I think it's more likely last ditch buying by the SNB to keep the euro at a level that stops panic selling in GB's.
They've been buying aussie, cable and euro for ages now, god knows what else. They said themselves they'll buy currencies in unlimited amounts to support their endeavour. Where they are sourcing their funds is another interesting question.
However I feel it's all coming to an end very, very shortly.
nah ... I'll go with Fed swaps.
thks ZH .... interesting catch & asessment
if foreign entities are scrambling to buy up euro zone assets at low prices, doesn't the Euro have to appreciate?