Moments ago, the Goldmanite in charge of the European Central Bank delivered yet another speech, this time seeking to offset some of the hawkish comments over the weekend from his comrades, all of which suggested that no more easing, or public QE, was coming any time soon. It was, as usual, full of the same lies that have pushed European stocks to highs not seen since Lehman even as Europe's economy is now slumping into a triple-dip recession. Here is a choice selection of his comments, properly annotated.
ECB's First TLTRO A "Failure": European Banks Take Less "Free" ECB Loans Than Worst Case ExpectationSubmitted by Tyler Durden on 09/18/2014 07:01 -0400
As part of Draghi's attempt to reflate the ECB's balance sheet by €1 trillion, a key variable was the extension of the LTRO (1&2) program, in the form of the Targeted LTRO, or TLTRO aka LTRO 3 & 4, whose initial take up results were announced earlier today. It was, in a world, a flop. Because while the consensus was for European banks to take anywhere between €100 and €300 billion in nearly zero-cost credit from the ECB (at 0.15%) to engage in carry trades in today's first round TLTRO operation (ahead of the second TLTRO in December), moments ago the ECB announced that banks, which head already been actively paying down the first two LTRO carry programs, of which only €385 billion had been left of over a €1 trillion total at inception, were allotted a tiny €82.6 billion across 255 counterparties.
Why The Collapse Of Abenomics Is Important: It's A Large-Scale Failure Of Keynesian Stimulus In Real TimeSubmitted by Tyler Durden on 09/14/2014 21:07 -0400
We have frequently discussed the nonsensical attempt by Japanese prime minister Shinzo Abe and BoJ governor Haruhiko Kuroda to print and spend Japan back to prosperity. By now it is well known that devaluing the yen has not achieved the desired effect, but rather the opposite. Not only have exports not really received the expected boost, but Japan’s trade and current account surplus have decreased markedly, even posting negative numbers for the first time in decades. Of course, currency debasement never works: it cannot work. This is Keynesian logic and brilliance in all it splendor.
Markets Digest Wristwatch, NIRP Monetization, Catalan Independence News; Push Yields, USDJPY Even HigherSubmitted by Tyler Durden on 09/10/2014 07:08 -0400
Overnight the most notable move has been the ongoing weakness in rates, with USTs reversing earlier Tokyo gains after BoJ Deputy Governor Iwata, in addition to commenting on a lot of things that didn't make much sense, said he didn’t see any difficulties in money market operations even if BoJ bought bought government debt with negative yields, as InTouch Capital Markets notes. As a reminder, yesterday we noted that in a historic first the "Bank Of Japan Monetizes Debt At Negative Rates." As Bloomberg notes, this may be interpreted that BoJ may target negative yields to penalize savers, which "all boosts the appeal of yen-funded carry trades." In other words, first Europe goes NIRP, now it's Japan's turn! So while this certainly lit the fire under the USDJPY some more, which overnight broke about 106.50 and hit as high as 106.75 on Iwata's comments, it does not explain why the 10Y is currently trading 2.52% - after all the fungible BOJ money will eventually make its way into US bonds and merely add to what JPM has calculated is a total $5 trillion in excess liquidity sloshing in the global market.
First, Europe infamously shifted to a NIRP and now Japan has begun NIRP monetization. As WSJ reports, Tuesday marked another milestone in the topsy-turvy world of monetary easing in Japan: The Bank of Japan bought short-term Japanese government debt at a negative yield for the first time. In the understatement of the decade, one Japanese bank strategist noted, "The BOJ probably didn't expect this would happen, and T-bill rates staying negative should be a cause of concern for them." The BoJ's decision to scoop up these negative-yielding bills appears to confirm they will meet the QQE-buying demands no matter what the cost (to the Japanese people). The bottom line, the Bank of Japan is now implicitly issuing debt to the Japanese Treasury.
The ragged Keynesian excuse that all will be well in Japan once the jump in the consumption tax from 5% to 8% is fully digested is false. Here’s the problem: this is just the beginning of an endless march upwards of Japan’s tax burden to close the yawning fiscal gap left after the current round of tax increases, and to finance its growing retirement colony. There is no possibility that Abenomics will result in “escape velocity” Japan style and that Japan can grow its way out of it enormous fiscal trap. Instead, nominal and real growth will remain pinned to the flatline owing to peak debt, soaring retirements, a shrinking tax base and a tax burden which will rise as far as the eye can see. Call that a Keynesian dystopia. It is a cautionary tale for our times. And Japan, unfortunately, is just patient zero.
Suppresses true money velocity concealing real inflation risk to the economy
Japan’s QE was large enough that no one, not even the most stark raving mad Keynesian on the planet, could argue that it wasn’t big enough. Which is why the results are extremely disconcerting for Central Bankers at large.
The three charts below are still another reminder that the Fed’s heedless fueling of the third financial bubble this century has done enormous damage to the internals of financial markets. In this case, investors and savers being brutally punished by ZIRP were herded into bonds funds in a desperate scramble for yield. Yet the market’s structural liquidity condition has gone in the opposite direction. Dealer inventories of corporate bonds have plummeted by nearly 75% from pre-crash levels, meaning that the ratio of dealer inventories to bond fund assets has virtually been vaporized. The implication is no mystery. When the financial markets eventually succumb to a “risk-off” selling panic, the corporate bond market will gap down violently, "everyone is hoping to be first through the exit,” warns Citi's Matt King, "by definition, that’s not possible."
Following this evening's lengthy finger-pointing lecture from Argentina's Kicillof, Argentina formally defaulted. Shortly thereafter the hoped-for private bank bailout deal also failed leaving the default process likely to take a while. So how has Argentina defaulted three times in the last 28 years? Simply put, the problem is not Judge Griesa’s ruling. The problem is that Argentina had decided to once again prefer deficits and unrestrained government spending to paying its obligations.
This is it! The holy grail of forecasting, Jeffrey Kleintop has discovered it. You'll never have to worry about actual earnings reports, a massive bubble in junk debt, the sluggishness of the economy, new record levels in sentiment measures and margin debt, record low mutual fund cash reserves, the pace of money supply growth, or anything else again. Just watch the yield curve! Unfortunately, as we showed here in the US, this advice could turn out to be extremely dangerous for one's financial health - and has been across many nations throughout time. People remain desperate for excuses as to why the latest bit of asset boom insanity will never end
The US is tapering, with the Fed knowing any further monetization of private sector bonds will lead to a crash in the already illiquid bond market; Japan is stuck with its massive QE, jawboning every day a rumor that first appeared in November of 2013 (and which sent the USDJPY 500 pips higher and has so far been nothing but a lie) that it may do more, but has unleashed such a firestorm of imported inflation, plunging real wages and collapsing exports that there is nothing Abe or Kuroda can do to boost the Nikkei "wealth effect" or halt what now appears an almost certain 2014 recession. Europe, too, saw a rumor emerge in November 2013 that it would also launch QE, however it won't: instead the ECB just went NIRP and is threatening to do ABS purchases, which just like the OMT pipedream will never happen simply because there aren't enough unencumbered assets to monetize (most of which are already have liens with local banks) while an outright QE would require redrafting Article 123. So what is a world starved for "outside money" to do? Why make up another rumor, this time focusing on the last possible source of QE: China.
In the mid-sixties at the height of the “social revolution” the line between democratic benevolence and outright communism became rather blurry. The Democratic Party, which controlled the presidency and both houses of Congress, was used as the springboard by social engineers to introduce a new era of welfare initiatives enacted in the name of “defending the poor”, also known as the “Great Society Programs”. These initiatives, however, were driven by far more subversive and extreme motivations, and have been expanded on by every presidency since, Republican and Democrat alike.At Columbia University, sociologist professors Richard Cloward and Francis Fox Piven introduced a political strategy in 1966 that they believed would eventually lead to the total transmutation of America into a full-fledged centralized welfare state (in other words, a collectivist enclave). The spearpoint of the Cloward-Piven strategy involved nothing less than economic sabotage against the U.S..
No change... no change. Draghi's back and, just like RBA's Stevens last night, is ready to talk (but not jawbone) his currency down; explaining that any day now we might - just might - unleash a treaty-busting monetization of more debt that won't actually reach the real economy but will provide more ammo for carry-traders to leverage longs in peripheral nations sovereign debt. Since the last ECB NIRP unleashing, things have got worse for Europe... but it will take time we are sure... just wait until H2 2014...