LTRO "Bazooka" Is Epic Disaster As Banks Scramble To Redeposit "Free Carry" Cash With ECB, Lose Money On "Inverse Carry"

Tyler Durden's picture

When on Friday we penned "And This Is Where The LTRO Money Went" we said that the final nail in the "Carry Trade" theory was that instead of using the LTRO "Bazooka" cash to collect meaningless pennies in front of a steamroller, Europe's banks turned around and deposited it right back with the ECB after the bank's deposit facility soared to a 2011 record €347 billion, €82 billion more than the day before. Today, any residual doubt of where the LTRO cash proceeds went is eliminated, as the ECB has just confirmed that what goes out of one pocket comes back in the other, as the ECB's deposit facility has just exploded to not a 2011 record, but an all time record high €412 billion, a €65 billion increase overnight, and €167 billion higher in the past two days alone, which effectively accounts for practically all of the LTRO's free €210 billion.

And to those who foolishly claim this is a seasonal year end cash parking, we present the full history of the ECB's facility usage since it exploded on the scene in 2008. P;ease go ahead and show us when in 2008, 2009 and 2010 there was a spike in year end facility usage. We have all day. But wait: there's more! In another independent confirmation that all hell is about to break loose, we just saw the 1 Year Bund drop sub zero again. As a reminder, the last time it was there was in the last days of November, just before the global central bank cartel had to come in and provide a global liquidity bailout for Europe's banks. So: back to square minus one ladies and gentlemen of an insolvent Europe?

But the biggest slap in the face of Sarkozy is that instead of banks pocketing the "guaranteed" 2-3% in carry trade between the 1% LTRO rate and the soveriegn bond yield, banks are losing 75 basis point on this inverse carry trade, where they take LTRO cash and deposit it with the ECB where it yields... 0.25%!

ECB Facility Usage (source):

And 1 Year bund yield:

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Chris Jusset's picture

Is it just me, or is the half-life of these emergency bandaid measures getting shorter and shorter?  You blink twice, and the Eurozone finds itself in a worse position than prior to the quick-fix.

TheFourthStooge-ing's picture

In a comment posted two or three months ago, I suggested, as pure hyperbole, that when the effects of the emergency measures didn't even last long enough to issue a press release about them, the can kicking would be augmented by an agreement to roll back the calendar by one year. Keep watching, because the descent by TPTB to full spastic pants-shitting retard will make an official calendar rollback appear sensible.


Temporalist's picture

Krugman was right of course.  (this is a surrogate post for MDB)

Oh regional Indian's picture

Very nice indicator 4th. Another indicator is when people run out of superlatives to describe something ordinary.

In the age of Hyperbole, the understated man is king.



Yancey Ward's picture

I, for one, am looking forward to 2011.

Sudden Debt's picture

I wish I got 0,25% of 400 billion for 1 month... For free...

Non Passaran's picture

Read TFA, bozo.
They are paying 1% and receiving 0.25%.

Vagabond's picture

This doesn't add up, why would they do this?

Sean7k's picture

In a monetary system that lacks a taxing authority, the only way to stick the people with the bill is either through sovereign bond interest or through currency debasement. If the governments are unable to tax enough to pay for the bonds, debasement is the only other method that works. 

The banks can now leverage these deposits and move into other instruments. We can now wait and see what shows up where next...

Fedophile's picture

This doesn't add up, why would they do this?

Because they think their losses would be larger than .75% if they did anything else with it.

larynx's picture

I wish i get 400 billion at 0.25% for a year. That should be enough to corner the silver market unleveredged.

Ned Zeppelin's picture

The objective is to keep things afloat until the bonus checks clear.

Red Raspberry's picture

Excatly as Richard Maybury of the Early Warning Report predicted a couple years ago.

dereksatkinson's picture

Just speculation..

I think the banks are waiting for the last auctions of the year to put this cash to work.  I think the expectation that they are just going to pour funds into securities in this thin of a market is foolish. 

Elwood P Suggins's picture

It's all the fault of George W Bush.

Fips_OnTheSpot's picture

So - they are in so desperate need for more liquidity - they just park it into ECB digital shelters. What a farce.. at least it cannot add up inflation from there - for now.

AUD's picture

Ahh... yes it can, you're assuming the credit of the ECB is a standard of value, rather than bank credit.

DormRoom's picture

Dont' they need to park it because of the upcoming Basel II requirements?  I'm assuming if they park it, they don't have to dilute shares, to meet Basel II, thereby diluting bank execs option packages.

Fips_OnTheSpot's picture

upcoming would be Basel III (3).


Interesting the 7-day "parking" rose to some insane amounts, also. Just I might go to sleep until 01/01/2012

trade the day's picture

Oh boy.  thin volume , on this news eurusd should hit 1.40. 

achmachat's picture

has anyone else noticed in europe that banks keep large sums (anything above 5000€) for much longer now (almost a week) when you wire money?

That looks like a huge sum of free money for the banks.

Catequil's picture

yep, in my case for instance I had a small problem (technical mistake) with a money transfer and it took about 14 days to sove it. these 14 days the money were in the bank system....

Zaphod B.'s picture

So long and thanks for all the fish!

I love the sarcasm....'got all day'....'wait theres more'

Nearly coughed a raisin out me nose...

This week more stories on negative margins on all those 'phlat-screen TV' loss leaders?????

lolmao500's picture

German bonds are the new US bonds! Really bankrupt but the market haven't figured it yet.

misterc's picture

You seem to be the first one to get this here.
We Germans have 2 billion € in public on-balance-sheet-debt. We have bailout obligations of roundabout 400 billion, I think.
We have massive demographic problems. Public spending is out of control. Welfare spending is hilarious. Counties and cities are broke. A social study recently warned of public unrest aka London iPad riots at some point in the future in Ruhrgebiet (our rust belt).
Young people, even educated, are more or less locked out of good paying jobs. Time-limited, contractor jobs only.
It's almost impossible to have two kids on one middle-class-income. Your wife has to work, too. And it better be not a McJob. Cost of living is going trough the roof. We are a nation of renters. Leveraged financial instititutions and dubious companies like Annington buy up all the condos and raise rents in order to make management, creditors & stockholders whole (massive wealth transfer).
Oh yeah, and our so called manufacturing base is also going down (look at all the greentechs, they've gotten run over by China with cheap solar cells and so forth). Volkswagen, Mercedes-Benz & BMW are all massively vendor-financing with their own banking entities (VW Bank, BMW Bank, Mercedes Bank). Channel stuffing to the point where you have not a single parking spot available for your current car when visiting a BMW dealer (I have experienced this myself).
We are repeating the American mistakes at a very, very fast rate (McJobs, education bubble, real estate bubble in some parts of the country), yet our tax rates are not at historic highs but near historic highs. Not much room to go without risking capital flight, in my opinion.

How anyone can buy German bunds at all is beyond me.

Sandmann's picture

aka London iPad riots

Why do you say iPad. They were Blackberry Messenger Riots

Temporalist's picture

Either way they'll have to resolve to eating them.  How do you like your Android; with ketchup or mustard?

misterc's picture

One more thing, a friend of mine works at the BMW motorcycle plant. His opinion is that most parts come from other countries by now, they basically just stitch it together here in Berlin. But he thinks that's dangerous, as you have to deliver BMW quality if you ask for BMW pricing.
And he's just a temp worker there for the past year. He's been a temp for the last few years. He wouldn't be able to afford the BMW motorcycle he's involved manufacturing.

Sounds more like China, doesn't it? 

GoldBricker's picture

It's all inflation, whose pressure makes itself felt everywhere, all the time. There's the headline, visible price inflation, and then there's the other things you mention: working mothers, temp work, no jobs, quality dilution, and much more. These other things decrease our quality of life just as surely as higher prices, but less visibly.

What you see at BMW now was already happening with Volvo cars in the early 1980s, as more and more parts were made outside of Europe. Even the Chinese sub a lot of stuff out to still-poorer countries, like Vietnam and the Philippines.

The world still associates 'made in Germany' with high quality, and for good reason, but keep in mind that Britain and the US once enjoyed similar reputations.

Temporalist's picture

You know Germans make good stuff.  Sham-fucking-WOW!

deez nutz's picture

     Sounds more like China, doesn't it?

actually it sounds more like Amerika.

Sudden Debt's picture

Everybody can buy a BMW! Just apply for a loan and sign with blood.

El Hosel's picture

BMW    Bite My Weenus .  INDU futures are down 11,  the PPT must have had too much eggnog.

VisualCSharp's picture

Maybe unrelated, but I just got a class action lawsuit notification in the mail yesterday. It was regarding high-pressure fuel pump and turbo wastegate failures in BMW's N54 engine. When I owned my 135i I had to get two HPFPs replaced before I sold the car. It's a shame, too, because it was a great car besides.

Variance Doc's picture

What year was the car?  I have a 2010 335i, drive the crap out of it (daily driver), and have never had problems with the drivetrain (just the radio had to get replaced).  Great car.

e-recep's picture

Communicating vessels. China's living standards will rise, Germany's will fall. That's what you get when you have "global free trade". It's very profitable for huge corporations but not for the majority of the locals in the developed part of the world. Yet those locals have been voting for governments who advocated "free trade". Idiots.

AGoldhamster's picture

waoh - 1 of a million who got it finally ... sure you are not european

CvlDobd's picture

Look at my avatar. That's me on my R1. If you wait a minute my friend on his S1000RR should be along. It's a badass bike. It's just ugly IMO.

They opened up a new BMW dealer in Asheville NC and bikes seem to be selling well there. Makes me scratch my head. At the grand opening there was an Aston Martin and a Ferrari in the lot so maybe it's the really wealthy peeps buying the BMW bikes.

GoldBricker's picture

Thanks for the update. I live in Belgium, where the economic situation is similar (except our state bonds are not considered that safe, and we have neither Merko nor Kozy to represent our parochial interests).

Regarding bunds as the new T-bills, I guess that bankruptcy is relative. Germany isn't solvent, it's just less insolvent than the other big players. It's like black holes; they're all voracious points of no return, but some might be 100 solar masses, while others are a million.

Temporalist's picture

All Belgium needed was a new government.  Everything is going to be great now that there is a gay socialist in charge.  And if that doesn't work you can get Van Rompuy to straighten the country out; he should be a national hero.

Jendrzejczyk's picture

Assuming your land(over)lords have a large mortgage on the apartmet building, would it be possible to organize a renter's holiday? If everybody in the complex got together and refused to pay rent for a few months, the loan might go into default and be forclosed upon.Evicting everyone in the building at the same time would be rather difficult and costly.

Not many investers would want to purchase such a troublesome property.

Using all the cash they saved from not paying rent, the tenants could then put a sizable downpayment on the (distressed) property and purchase it for pennies on the dollar.

Just a thought.

lolmao500's picture

Great idea. But you would have to do this in secret and quite quickly for it to work.

And even if it worked, the cops would come knocking with ``conspiracy to commit fraud`` arrest warrants.

VisualCSharp's picture

And when they do come knocking, make sure your dogs are kept safely hidden, lest they end up dead.

bbelux's picture

you forget the healthcare...

Platypi4Lyfe's picture

Fucking shocking.. could it be this actually is structural rather than liquidity crisis? Woah man, trippy..