Big day tomorrow – how much are the banks going to take LTRO from ECB at 1% interest for three years, and how much of that money will find its way into the “Sarko Trade” i.e. periphery bonds. Today a dedicated section on “Sarko Trade” to sort you out.
Have you noticed that LTRO letters can be used to form TROL? I barely managed to resist the urge to link to a trololo song on youtube. I think I’ll save that for later. Barroso, van Rompuy and Merkozy are soon going to troll us all, and the only rational response to that will be either cake'em or troll'em.
Quote of the Day: What will happen if a punished country refuses to pay? The answer is probably nothing – Dominique Strauss-Kahn skeptical on the proposed EU intergovernmental treaty.
Quote of the Day 2: Europe, led by Germany, is rich enough to buy its way out of this mess. It doesn’t need the IMF. And it certainly doesn’t need to use the ECB as some kind of discreet back door to avoid acknowledging that the Germans are picking up the bill. But it doesn’t have the stomach to do that yet. It doesn’t have the stomach to admit that a true solution to the euro crisis will involve richer countries taking responsibility for weaker ones, and debtor and creditor nations alike signing over true fiscal control to a central union, most probably one with the ability to transfer revenue to wherever it’s most needed (as is the case in the U.S). – The Curious Capitalist / TIME
FX option vols – Saxo
Markets Live – alphaville / FT
Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS (GENERAL)
Revisiting The "Nuclear Option": Will The Fed Buy European Bonds? – ZH
SocGen: This was a question that came up in Friday’s testimony by NY Fed’s Dudley to a congressional panel. Dudley confirmed that the Fed has the legal authority to buy foreign sovereign debt if the collateral is considered good and with appropriate haircuts.
ECB exposure to struggling eurozone economies has surged by 50% in six months; ECB unlikely to act as lender of last resort – Open Europe
ECB should not, will not, cannot backstop. ECB’s balance sheet expansion has made banks reliant on it and a long-term threat has been created. Restructuring is needed. The article link is to a summary, full pdf here and Zero Hedge’s short summary here.
You Want The Truth? You CAN Handle The Truth! – TF Market Advisors
But there is something about this focus on the truth and the willingness of the EU/ECB to embrace negative news that seems like a set-up. Is this all part of a plan to allow the ECB to print? Is it setting up for a renewed effort with the EFSF? Does the IMF have something up its sleeve?
ECB's Stability Review: Seven Charts Of The Sovereign SNAFU – ZH
Outtakes from the ECB report that I linked to earlier.
Budget deficit to exceed 10 percent this year as state revenues continue to suffer
Euro area growth outlook 2012 – Danske Bank (pdf)
Presentation slides
’SARKO-TRADE’
EDIT: You might want to check my previous posts for related stuff, esp. Weekender
The ECB is making banks an offer they can't refuse: buy sovereign paper – Sober Look
The ECB is making banks an offer they can't refuse: buy sovereign paper – Sober Look
1. It gets banks to buy material amounts of eurozone sovereign debt where the ECB is unable to do so.
2. It also slowly recapitalizes the eurozone banks by giving them an opportunity to make significant amounts of money over time without much capital usage.
2. It also slowly recapitalizes the eurozone banks by giving them an opportunity to make significant amounts of money over time without much capital usage.
What The TF Is Up With LTRO? – TF Market Advisors
Adding to your sovereign debt positions means you really believe there is no risk of default, and that using the program, won’t lead to renewed pressure on your business from politicians. I don’t see that happening.
Summary Of Wall Street Expectations For Tomorrow's Hail Mary LTRO – ZH
Barclays, Brockhouse Cooper, Exane, FTN, Monument, RBS and Unicredit oneliners.
Barclays, Brockhouse Cooper, Exane, FTN, Monument, RBS and Unicredit oneliners.
LTRO Will Help Short-Term Funding, But Backdoor QE It Probably Is Not – MarketBeat / WSJ
Roundup of views on the possible complications, i.e. why LTRO is not that bullish.
ECB’s Long-Term Repo Operation – Credit Writedowns
A €360bn LTRO? – alphaville / FT
Morgan Stanley suspects most of the money will go to refinancing banks’ expiring debts – perhaps only €20bn to periphery debt.
Morgan Stanley suspects most of the money will go to refinancing banks’ expiring debts – perhaps only €20bn to periphery debt.
Will the 3yr EZ repo be a difference maker? – Economic Musings
JPM estimates €200 bn of expiring repo to be rolled and €130bn of bonds maturing in Jan and Feb, a rough total of 350 bn.
Einhorn Trades Swaps for Shorts When Betting on Sovereign Debt – TF Market Advisors
Is LTRO a way to have the ECB in control of ever more bonds in an attempt to make it more difficult to short bonds? It would push shorts out the curve where they have to take more risk if somehow Europe fixes itself.
ECB's LTRO experience a cautionary tale for the Fed – Humble Student of the Markets
Market for collateral getting tighter, while banks cannot be forced to lend by providing liquidity. European experience should be a good lesson for the Fed thinking of QE3.
GLOBAL CRISIS
A Plea to Policymakers: We Can’t Risk Another Year of Delay – EconoMonitor
For the last three years the world’s biggest economies – the US, eurozone and China – have been living up to the infuriating euphemism so beloved of policymakers: “kicking the can down the road”.
Why the Global Shortage of Safe Assets Matters – EconoMonitor
There is way out of these problems. Both the Fed and the ECB need to return aggregate nominal incomes in their regions to their pre-crisis trends and do so using a nominal GDP level target. Being a level target it would keep long-run inflation expectations anchored while still allowing for an aggressive monetary stimulus in the short-run
European Austerity Union, Chinese housing bubble pops, Australian housing bubble popping, Indian growth slowdown,
VIEWS
‘Tis the seasonality, hold the jolly – alphaville / FT
Nomura points out that the current techniques for seasonal adjustment tend to boost data in the fourth and first quarter of the year, relative to previous patterns, then depress data in the second and third quarters. FT suggests this is a good reason to ‘fade’ the recent strong US numbers.
Nomura points out that the current techniques for seasonal adjustment tend to boost data in the fourth and first quarter of the year, relative to previous patterns, then depress data in the second and third quarters. FT suggests this is a good reason to ‘fade’ the recent strong US numbers.
Morgan Stanley Deconstructs The Funding Crisis At The Heart Of The Recent Gold Sell Off, And Why The Gold Surge Can Resume – ZH
Looking into the New Year – what can we look forward to in 2012? – Fabius Maximus
The 2012 earnings outlook – Zacks / Pragmatic Capitalism
El Erian on 2012 – Bloomberg via The Trader
DIVERSION
M.I.T. Expands Its Free Online Courses – NYT
New program allows anyone to take MIT courses online for free – and earn official certificates.
The Astonishing Collapse of MF Global – The Motley Fool
Notice this has eight parts.
These Are the Good Old Days – The Reformed Broker
The Power of Living in Truth – Jeffrey D. Sachs / Project Syndicate