Market has Now Fully Priced In Another 1 Trillion LTRO

Tyler Durden's picture

Just over a month ago we laid out the market's key indicator for whether NEW QE (or the just as fungible LTRO / unsterilized money printing from Europe) was likely. The 5Y5Y forward inflation expectation has been invaluable in front-running decisions by the world's anti-deflation central banks. What is amazing is that the market has become so conditioned now to the glut of easy money (knowing deep down it fixes nothing but needing that fix for their 'assets') that based on this framework, it appears inflation expectations have now priced in another EUR1 trillion worth of LTRO. We strongly suspect, given the one-year highs in inflation expectations that the Fed will disappoint in September (no matter how much insanity Rosengren spouts) but Draghi will come under increasing pressure not to disappoint (like he did last time).


Notably the various extreme monetary policy measures have had less and less impact on inflation expectations.

Of course we already pointed out that the critical sovereign bond markets have seen straight through this but equities remain priced for this occurrence. Given our recent comments on the drought of collateral availability to the most-in-need banks, it would appear that even if the ECB offered it, Spanish and Italian banks would struggle to soak it all up - and in the meantime, the encumbrance and stigma would be immense...


Be careful what you wish for once again...


Charts: Bloomberg

Note: the 5Y5Y Inflation expectation is simply what the market is implying that 5Y inflation breakevens will be in 5Y time - so a medium/business-cycle perspective on where the business cycle will be is perhaps a way of considering it.

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Meesohaawnee's picture

bullish ! Bitchez!! SPY to 1500!

flacon's picture

Ok. So how many weeks/months/years can the market keep on pricing in QE/LTRO *without* there being any actual QE/LTRO? Bernanke did say that he had only ONE TOOL LEFT and that was his voice. Same goes for Monti aparently. 

Meesohaawnee's picture

thats called a stealth short ban. Jawboning is simply telling shorts. Go ahead . Try it. Stealth short ban defined.

TruthInSunshine's picture

Zero Hedge, get your shit together! Don't you know that none other than Nobel Laureate Economist, Dr. Paul Krugman, has opined that we have not yet seen the spiking of interest rates on U.S. sovereign debt that many have predicted thus far, nor the high inflation (based on his acceptance at face value of Fed inflation data) predicted by many of the same people, ERGO, these pessimistic predictions won't come true, no matter how much paper fiat The Bernank & ECB (along with all lesser fractional reserve central banks) print!


Stick with Krugman, because it's not like the dire warnings about the U.K. losing quasi-competing reserve currency status and having to be bailed out from literal insolvency by the IMF, after a prior period where it was a global manufacturing and economic powerhouse, ever came true!  You're too pessimistic!




Krugman argues for infinitely more paper fiat to be printed, inflation targets to be thrown out (de facto), and for far more radical interventionism by the central planners of paper fiat finance known as fractional reserve central banks. They've only gone a bare 5% of the distance they need to go thus far.

He's fucking insane.

Western's picture

i thought his last remaining tool was to send the drones

dracos_ghost's picture

I thought HE was the last remaining tool

Albertarocks's picture

flacon said: "Ok. So how many weeks/months/years can the market keep on pricing in QE/LTRO *without* there being any actual QE/LTRO?"


Ain't that the truth?  The skanky whores just keep ramping the markets up overnight when the US markets are closed and then just sit on their fucking thumbs all day long while it's open.  Ramp the bitch, sit on thumbs, repeat.  And repeat and repeat.  And then when the next round QE is announced (in whatever convoluted form it takes), the satanic pricks will just use that excuse to use all that "even more" play money to drive the god damned S&P to 27,000.  It makes no god damned sense at all but let's face it, those satanic cocksu.... are gonna get their way until the entire stick of dynamite goes off, blowing their fucking heads clean off right along with ours.  And they'll say "Jesus Christ, how were we supposed to know?"  IOW, they're pushing the limits right to the bitter end. 


They're absolutely assuring that there can now be no such thing as an orderly sell-off.  One of these days we're gonna wake up in the morning to find ourselves facing a 7% overnight gap lower.   And the bitch will just fall from there.  One gap that won't be filled for 8 god damned years.  The stupid motherfu... are gonna self destruct and it seems they're too fucking stupid to even see it coming.  The good thing is that they're so blind they won't see the portable guillotine truck either, as it arrives some day in a neighborhood near 'them'.

absente reo's picture

LOL. I broadly agree with what you say, except that "they" know that the logical trade is to be short, and "they" know that many are short, so "they" will ramp and ramp like you say, but "they" WILL drop it, you can be certain of that, when they are suitably positioned for it, at a time of "their" choosing.  Pay attention to the sentiment indicators, in particular AAII bearish %.  "They" will not drop it any time that AAII % bearish is relatively high.  Once it dips to a satisfactorily low level, watch out below....


Albertarocks's picture

LOL... yeah, I know bro.  I just suck at working with photos but I'm so fed up with the markets and Bernanke that I just make one.  Don't know how to post it here (actually I don't think we can) so I just posted it on my own blog just so you can have a chuckle.  Just scroll down to the bottom of the post to see the chairman speaking.  While you're there you might want to check out good old Joe Cocker ... live in Berlin.


Dr. Engali's picture

This market will see S&P 400 before it ees 1500 unless they hyperinflate.

GERxit's picture

yep, and with the bernank, mario and all the other maniacs in lead we're on the best way to exactly this!


Albertarocks's picture

All logic and the facts about "where money comes from" dictate that you are correct.  But Goldman Fucking Sachs purchased the rights to logic and has banned it's use until further notice.  It's just stunning that these god damned markets are being levitated like this... overnight and then do absolutely nothing during the open market hours.  It's manipulation on a scale never seen before.  NEVER SEEN BEFORE IN THE ENTIRE HISTORY OF THE WHOLE GOD DAMNED UNIVERSE.  ALL THE UNIVERSES! 

Damn... I guess I'm gettin' just a bit pissed off, lol.  And no, that's not a bear talking, it's a realist talking.

Jlmadyson's picture

Man ECB just cannot catch break heh.

Hype Alert's picture

Only bad news is priced in. ;)  They should be able to hype up another few percent on some more Open Mouth Committee statements.  We seem to be in the stupid phase of endless ramp jobs.

HaroldWang's picture

You are absolutely correct. I keep making this point. Market flies on any mention of QE/LTRO, etc. but rarely falls much on "disappointments". So by the time the next, "We'll do everything in our power to keep the EU together" BS, the market will have forgotten it already "priced it in" and will soar again.

jekyll island's picture

The Bernank will be under pressure to jump start the "economy" to increase Obummer's reelection chances.  Can he wait until October?  What emergency will "occur" to allow him to publicly crank up the presses? 

yrad's picture

Agree. Romney is going to be pressured to audit the Fed. Benny wont like that at all. So, Obummer is without a doubt the Feds pick...


John_Coltrane's picture

If he does then gas/oil prices will ramp up very quickly (they already are doing so) and dramatically, and that has a lot more to do with his re-election chances than the level of the market which is already at the top of its three month trading range (very few voters hold equities and so could care less about the market levels but they immediately recognize a 10 cent increase in the price of gas).  Gold and bonds seems to think, no QE, as does ZH.    So, I'm guessing no action unless we have a major correction (>20%).  (We must destroy the market first to rescue it)  But a major market correction is a problem for the teleprompter in chief too.  Rock meet hard place.

Who would want to be president in 2013 anyway?  Only a narcissist with a massive ego (in short the current two candidates).

Hype Alert's picture

I wonder. The DOW is 1.1% off it's high for the year.

gunsmoke011's picture

Sad but true. The market will not be allowed to coorect so long as the rule of law is not enforced, Bernanke is allowed to pump tens of billions to PD's via bond auction take downs which the FED will turn around and buy tomorrow putting more money into the system to buy stocks. I am constantly amazed at how apathetic people are to not see through what is going on. Anyone who is still taking their hard earned money and actually playing this rigged game needs to have their heads examined. Bottom Line - maybe it would get fixed if we could find about 1000 Joker Wannabes and take away their movie passes and send the to Capital Hill.

deez nutz's picture

You are absolutely correct. I keep making this point. Market flies on any mention of QE/LTRO, etc. but rarely falls much on "disappointments". So by the time the next, "We'll do everything in our power to keep the EU together" BS, the market will have forgotten it already "priced it in" and will soar again.

at some point the word "capitulation" will be the most googled statistic.

govttrader's picture

Here's an idea

Of the last 13 new 30yr bond auctions (not re-openings, but new issues...going back to May 2009), buying 30yr bonds in the auction and holding the paper for 24 hours has been profitable 13 out of 13 times.   This stat is making its way around the street, so expect an additional amount of players in tomorrows auction. Should be bullish.  Also, shorts in S&P futures have been building as many Elliot Wave technicians have been talking about an  upcoming cliff in the S&P, as they look for a 100-300 point drop in the S&P 500.  This should be bullish for 30yr treasuries as stocks seem to be full of Central Bank hopium lately.

Arnold Ziffel's picture

With questionable 'fundamentals' (such as plunging EU consumer spending, flat $1 McD meal sales and diving Walmart $2 T-shirt sales + a slowing China and plunging Australia house sales/price), I cut my outlook today from "msiserable" to "dismal."


You may quote me on this.

Bunga Bunga's picture

China's KP urges to devalue Yuan:

to boost exports. Imports get more expensive. Good luck Australia.

eclectic syncretist's picture

Volume indicates many people aren't even trading at these levels.  And who can blame them?  The distrust pervades everything about it.

Cplus's picture

I made this point 2 days ago.

SilverTree's picture

Wow! How can I donate?


Cplus's picture

Draghi's choice in September will be at least as painful as Ben's.

When European inflation is discussed, it often degenerates to Weimar Germany, but in reality the anti-inflation sentiment in Europe is much more widespread than in North America, with key factors being the aging population and dependence on fixed government disbursements. Whatever the ECB and Draghi do in September, prepare for serious blowback.

Cognitive Dissonance's picture

Was that as good for you as it was for me?

YesWeKahn's picture

using the previous trillion$ LTRO as collateral.

Dr. Engali's picture

Now they are going to have to print 2 trillion to prevent a sell on the news market collapse.

bnbdnb's picture

You see, we need prices to go UP so people will buy more!

silverserfer's picture

fuck you Bernanke. All my silver are belong to me. Fucker.

PiratePawpaw's picture

+1 for "..are belong to me"


Silver bitchez!

FL_Conservative's picture

Now if Draghi only had some MONEY to carry this out.  Small problem with that scenario, I admit.

slewie the pi-rat's picture

that horse fungicide can flat out run 4evah!

the ECB may very well get a banking licence for the EMF;  this WAS the marioECB  PLAN at the goldilocksTMEUsummit, after all...

  • keep EU together for bankstering au'gogo
  • keep checks in mail

they will get the lic. AND my favorite finiMini is gonna roll his schroedinger chair up to the freaking PRINT console, too?  i dew think sew, as i said @ the summit;  ...unabashedly, i might add... 

this marioECB guy is a freaking squid, ok!

trust me:  bigBang, BiCheZ!  L0L!!!

scatterbrains's picture

I dont know. Gold's calling bullshit so far.

scatterbrains's picture

I can't even disagree with you there Slewie..   my position lately is: in a completely curropted system, insiders and their friends and families front run everything and print/no-print reveals itself in the price of gold before it happens.  If the ECB is going to green light the banking license I'd think gold would be pressing 1900 on it's way to break out to new highs. Instead gold is pressing the downside. Mean while money is still fleeing into swissie etc.. but nothing, not even a tiny pulse in gold YET.

walküre's picture

Handelsblatt is reporting that Warren Buffet is going cash. Increased his cash or cash equivalent position in Berkshire 7.5% this year.

Buffet is not buying this market. Why should anyone?

Neethgie's picture

Buffet is an insurance salesman theese days, his investing to infinity mantra just doesnt ring true anymore.

walküre's picture

Going cash is hardly "investing to infinity". He bought the market in 2008/2009 when he knew the Fed would step in. He's selling and not buying now. Shit is hitting the fan soon. Best to keep powder dry.

Neethgie's picture

I liked the part where buffet got Goldman preffs in exchange for cash.. that were available to how many other investors ? 0, its so easy to be a kingpin when the game is tilted in your favour

Meesohaawnee's picture

i bet becky is buying his bath ducky

Jlmadyson's picture

Buffet going the way of private island but you buy that nice fancy house ya hear.

disabledvet's picture

The world has truly gone mad.

q99x2's picture

I want my QE Twist.

zrussell's picture

.. just a breeze, lifting the Hindenburg....