27th Mar - Intervene, Unforeseen?

Consensus expectations higher, reality lower

The vague promise - or threat - of QE3 has now been digested by the markets. Some rumors that US has bought European bonds - possible, but I don't think so. I think the Friday's move in Italian and Spanish bonds was basically a rumor. In cases like these even an anticipation or a threat of intervention is sometimes enough to drive the prices. 

In the nineties it was enough for the Bundesbank or Bank Negara to be asking for firm, tradeable prices. This signaled that the gorilla in the corner was not happy with the current price levels or recent trend. I think I'll write something about this next weekend. Because intervention is all we have now, we better understand it.

In today's readings, Goldman has a piece on ECB's ELA stealth printing. For those not able to do LTRO, even if the ECB did another round of it, ELA is their only choice. PIMCO's stuff is also good.

 

Longer chart of the Citi's surprise index.

News – Between The Hedges

Markets – Between The Hedges

Recap – Global Macro Trading (on holiday)

The Closer – alphaville / FT

TV: Bloomberg, CNBC, BBC

Debt crisis: live – The Telegraph

Europe Crisis Tracker – WSJ

Tracking Europe’s Debt Crisis – NYT

FX Options Analytics – Saxo Bank

EURO CRISIS: GENERAL

Europe holds back the fire for now – Macro Business

Very nice roundup of the firewall, Merkel-Hollande, Eurosystem collateral policy change and Spain.

On Europe's 'Stealth' Money Printing – ZH
Goldman: ELA, has, however, become now, in some countries at least, a permanent facility increasing the risk of delaying the needed adjustment process in the banking sector.

Some Irish banks unable to qualify for LTRO are tapping Bank of Ireland's ELA – Sober Look

So why would Irish banks not roll their ELA into the 3-year 1% LTRO? There is only one explanation. In spite of the much looser collateral requirements under the latest LTRO program, the collateral posted by the Irish banks under the ELA loans just doesn't qualify for LTRO.

'EU risks talking its way back into crisis' – euobserver.com

The EU's excessive tendency to talk itself down risks becoming a self-fulling prophecy, says the Belgian finance minister, who sees his country as something of a template for surviving the global economic crisis. 

Italian Debt – Not Kicking the Can Far – TF Market Advisors

So in spite of LTRO, in spite of a big rally in Italian yields, in spite of having a technocrat in charge of the country, they continue to issue well over half their debt so that it will mature within a year from now... It looks like Italy is too worried about keeping their cost of borrowing down, at the risk of having to roll in an environment that might not be as “accommodating” as the market is today.

Germany: The Final Frontier... Whose True Debt/GDP Is Now 140% - ZH

Mark Grant: Official debt to GDP Ratio 81.8%, actual139.8%

ASSET CLASS VIEWS

The Great Escape: Delivering in a Delevering World – PIMCO

When interest rates cannot be dramatically lowered further or risk spreads significantly compressed, the momentum begins to shift, not necessarily suddenly, but gradually – yields moving mildly higher and spreads stabilizing or moving slightly wider. In such a mildly reflating world, unless you want to earn an inflation-adjusted return of minus 2%-3% as offered by Treasury bills, then you must take risk in some form.

A good buy? – Buttonwood’s / The Economist

So it was interesting to read a 40-page note from Goldman called The Long Good Buy; the Case for Equities which concludes that “the prospects for future returns in equities relative to bonds are as good as they have been for a generation”

Rabobank’s Foley Says BOJ May Push Yen Weaker – BB (mp3)

BlackRock’s Stattman Says Stocks Are Cheap – BB (mp3)

OTHER

The Gap Between Reality And Consensus Is Growing Fast – ZH

With today's less than stellar consumer confidence number and continued path of missed expectations on key macro data over the past few weeks, it is perhaps wondrous that our brain-trust of analysts and economists continue to forecast higher expectations across the board.

Has High-Frequency Trading Destabilized Markets? – Minyanville

Aaron Brown’s latest, anything written by him is good. Google for him, and he’s also on nuclearphynance.com

Monetary policy: Try overshooting for once, please – Free exchange / The Economist

I realise I sound like a broken record, but it is remarkable the extent to which the Fed is willing to tolerate a very long period of costly labour-market weakness rather than tolerate any meaningful overshooting on the inflation side.

The ever-moving goalpost of retirement – alphaville / FT