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Several interesting articles on how the LTRO is not as great as it originally was thought to be. More LTRO will just crowd out proper holders of the debt and make everyone reliant on ECB. The more the LTRO size is increased, the more strained the bank balance sheets become as all bonds will be pushed to ECB for some 1% money.
Peter Tchir points out that the recent moves seen in Italian and Spanish bond yields are nothing spectacular, and similar relief moves were seen twice in the past 6 months. Is LTRO the solution, part of the solution, a partial but inadequate solution or part of the problem?
Peter Tchir points out that the recent moves seen in Italian and Spanish bond yields are nothing spectacular, and similar relief moves were seen twice in the past 6 months. Is LTRO the solution, part of the solution, a partial but inadequate solution or part of the problem?
Surprisingly the Greek PSI negotiations are in a stand-still, and Greece suggested an extra EU summit for February on related matters. No wonder Greece is in a such a trouble - they still believe in EU summits!
Today I've spent four hours combing through the daily articles, from 204 feed subscriptions and roughly 500 articles I present the ones below. Leave a comment, share the MoreLiver, follow me on Twitter or Facebook and email me for suggestions.
News – BTH
Press digests by Reuters: FT, WSJ, NYTDebt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
EURO CRISIS: GENERAL
Would you join a monetary union like this? – alphaville / FT
Poland has been aboard the euro-adoption boat for a long while. Expectations for eurozone entry were so ingrained in the population they even managed to spawn a euro-denominated mortgage binge. But that was before Greece. Before Ireland. Before Portugal and, most notably, before Italy (a country whose banks own a large chunk of the Polish banking sector).
Euro Area Unemployment Rate Up 0.2 Percentage Points to 10.4%; 8th Consecutive Monthly Rise; Further Deterioration Coming; Country-by-Country Comparison; Expect Germany to Turn for the Worse – Mish’s
European Policy By Sloth – Macro Man
To sum up, while TMM expect the new month to bring a new bear attack on Portugal, they fear that they have been too cautious on the risk front. The strength in US equities, despite a relatively tepid earnings season, speaks volumes. And if the liquidity emitted from the upcoming 3yr LTRO is indeed large enough to restart animal spirits, then it is not hard to imagine equities finishing the year a lot higher.
EURO CRISIS: THE TREATIES / SUMMITS ETC.
This EU Summit was hardly a game changer – Steen Jakobsen / Saxo
Current plan: print money indefinitely, violate the EU Treaty, ignore solvency issues, continue to buy time. In May (after the French election) that will be the main subject because this EU Summit served as an appetizer for the final show down when Greece and probably Portugal will ask for a holiday from the EU. Then maybe we see the full endorsement of the Germans for a Euro bond once its fantasy of prosperity through austerity is dashed on the rocks reality.
Of course, Merkel would never say outright that she wants the crisis to persist so she can press forward on European integration and reform. But, effectively, that what’s going on. Yes, Merkel insists again and again that the steps she’s taking are aimed at rebuilding confidence in the monetary union. But her actions have always spoken otherwise.
The euro crisis: "Merely useless" – Free exchange / The Economist
Some argue that banks will have met most or all of their funding needs for the year after the next round of ECB lending and will therefore lose their appetite for the sovereign-debt they can use as loan collateral. Yields may begin rising again, prompting a new panic.
Will the Eurodeal work? ‘Negative,’ says economist – Wonkblog / WP
“The level of uncertainty is still very high,” says Packard, who believes the German approach toward the Greek debt restructuring talks has been counterproductive. “I’m not sure what’s on their minds...it’s almost as if [Germany] did not want it to happen,” she says. “It’s surprising that some of the parties involved would want to heighten the level of bitterness at this extremely fragile state of things.”
EURO CRISIS: ECB
Why An Outsized LTRO Will Actually Be Bad For European Banks – ZH
Takes from Nomura’s research note: LTROs are increasingly punitive and lead to subordination of senior unsecured bank debt… If the size is bigger than this, perhaps in the range of €500bn or greater, the effect on bank balance sheets in Europe will be distinctly negative in our view, and would make future wholesale and term funding from private sector sources significantly more difficult.
The Market Says CYA LTRO To Yesterday’s Negativity – TF Market Advisors
The point is that moves of 125 bps aren’t that uncommon and aren’t a clear sign that LTRO is working. What is clear is that the markets are thin, easily manipulated, or scared into big moves, but once the catalyst for that move is gone (ECB gets tired of buying, nothing from Grand Plan works, or LTRO is about prefunding debt not buying more bonds) the market has returned to focusing on deteriorating fundamentals.
Is the ECB/EU Achieving Stated Objective of Balanced Growth? – EconoMonitor
Put more simply: nominal GDP is diverging across program and non-program countries. If this economic duress leads to early exit, I would posit that the balanced growth clause has been breached.
OTHER
Cyclically Adjusted Price/Earnings ratio charts for the major economies. Long-term above-average performance should follow cheap valuation.
Who rules the world: companies or governments? – Saxo
Domestic politics are less and less important for global companies, and the competition among nations will automatically force them to loosen their regulations and taxes, thereby further expanding markets for companies… With governments likely forced to deleverage over the next decade, the power balance will shift even more in favour of companies.