"Together with the series of targeted longer-term refinancing operations
to be conducted until June 2016, these asset purchases will have a
sizeable impact on our balance sheet, which is expected to move towards
the dimensions it had at the beginning of 2012."
At the end of March 2012, the ECB's balance sheet was EUR 2.98 trillion. It currently sits at EUR 2.03 trillion. The difference between those two figures is 950 billion euros. The first TLTRO managed to attract a demand for just 82 billion of loans, for reasons mentioned in this space yesterday. Even if we assume that the take-up for TLTRO #2 doubles, that would still be a shortfall of nearly EUR 800 billion. There aren't enough ABS and covered bonds to buy to fill that shortfall. What's next- corporate debt (thereby exposing the ECB to more overt credit risk)? Sovereigns (thereby offending German sensibilities vis-a-vis monetary financing)? Neither of these will solve the primary issue of getting credit to SMEs.
Although the market has anchored upon this statement thanks to Draghi's emphasis, the statement isn't actually anything new. The "dimensions....2012" phraseology appeared verbatim in the September statement, for example. Moreover, it is classic central bank speak, allowing plenty of wiggle room. How close to that previous level of 2.98 trillion constitutes the same dimension? 2.9 trillion? 2.5 trillion? One has to posit that if Draghi had his druthers, the dimension best describing the size of the ECB balance sheet would be the Fifth one.
In the meantime, Macro Man isn't sure that we learned as much as the market seems to think we did. Yes, the mention of relative balance sheet sizes would appear to sanction a lower currency, but if you didn't know that that's what the ECB wants then you haven't been paying attention.
Still, that's not to say that Draghi won't get his wish. US jobless claims printed the lowest 4 week average since the height of the dot-com bubble yesterday; at the rate this is going, Janet Yellen might have to use your author as her next example of a poor soul who's not working. US fixed income has slid lower ever-so-gradually, taking EDZ5 a full 25 ticks off of its October 15 highs and right into the sweet spot of the 99.25/12/00 put fly mentioned last week. Can we press "stick"?
Sadly not, with payrolls set to be released today. Macro Man's model is quite bullish, forecasting a robust 272k out-turn. Should that result eventuate, one would have to think that both the dollar and yields will be marked higher. As for stocks....the day ends in "y" but doesn't begin with "s", so the default setting is that they rally. Then again, that pesky 4th gap is still unclosed, and great employment data makes it that little bit harder for Yellen to keep moaning. Eventually, markets will capitulate and start pricing tightening again.
She should relax. After all, it's good news that good news is bad news.
i didn't get my box of chocolates for warning about Russian assets and currency
ReplyDeleteWell DX sits at a very critical level by the looks of it. Dollar funded carry could be under a bit of pressure before too long.
ReplyDeleteFor a long time, bad news has been good. So if good news is bad now, then it must be all good!
ReplyDeleteRossmorguy
ECB is gonna have to do something different at some point, but for now FX and interest rates are helping the cause so they don't have to worry. Agreed getting another 1T of assists on the balance sheet is going to take some creativity. Will it help lening to SME, 98% no but maybe at the margin the portfolio effect channels some there. But worldwide, policy makers are convinced in the efficacy of QE so who am I to judge. I've been waiting for a reversal in EUR almost as long as in the spoos. Clearly we are not there yet. I think it's gonna reverse when an actual plan is released and probably disappoints.
ReplyDeleteRUB thank you. BRL waiting for a FinMIn declaration also looking iffy.
2100 in spoos almost looks conservative now.
i am convinced the best and most rational game theory strategy for the ECB at this point is to buy 1T worth of YEN denominated assets! Would solve all their issues at once..
ReplyDeleteNothing matters except JPY at 120
ReplyDeleteWhy would ECB even bother doing anything when freshly printed yen is gusing out from the manufacturing island?
washedup, that's not possible.
ReplyDeleteJaps will buy euro denominated crap faster than you say LTRO
it takes a long time to say LTRO
ReplyDeleteoh i know Roman - meant it more as a joke - i honestly don't see a way out for the ECB - period. The pink swan over there is maybe a resolution of russia/ukraine along with some kind of growth acceleration in ROW that drags their LEIs up kicking and screaming.
ReplyDeleteThat's why it failed some miserably.
ReplyDeletePS Could owner of this blog consider using Discus for comments instead of this blogger crap?
Instructions are here https://disqus.com/admin/blogger/
Doesn't NIRP defeat and QE program at this point? Wouldn't the ECB essentially be pushing money to banks that would have to pay for the privilege of holding it?
ReplyDeleteI would think NIRP has to go bye-bye before any QE program took flight. Am I missing something?
In the US the stated goal of QE was to lower rates, but that can't be in Europe with rates already very low. If the goal in EU is to free up balance sheet (to re-clog it with bad debts to promote growth) there may be other alternatives, but I never understood how this is supposed to work - your typical Spanish bank up to the gills in Obligaciones could already sell those bonds if they wanted to. The market for them is liquid, the yields are low. If there were better options for them they would take them, with or without Draghi. So whats the point of ECB buying them? If anything it creates a disincentive to sell with a lower rate environment created.
ReplyDeleteAlso, I vote no for Discus, its blocked at my office.
It's not like LB to celebrate success or taunt other competitors, but we did almost nail the NFP number with a +215 estimate here yesterday. Zandi and Swank are going to be my predictions bitches now.
ReplyDelete"Missed it, by this much"
Assume LB will receive the usual prize for winning MM NFP Bingo? I'll be watching the mail, MM.
Nice hit LB! We were way too high in my office, comme d'ab!
ReplyDeleteLifetime free membership of this comments section coming your way LB, ... you're welcome!
Claus
I suggest re-writing the article with a "bad news = good" slant.
ReplyDeleteThanks, Claus. Very honoured and suitably humbled. Let me find my Oscar acceptance speech. I'd like to thank my Mum....
ReplyDeleteKeep a seat warm for me in your office though, and I can churn out your firm's NFP predictions, just in case things go pear-shaped at Falling Knife Capital, on account of our inability to get FX right.
I see Spoos were down momentarily, but US punters are back at it now, front-running the POMO as usual. Wait a minute, this bloke is trying to tell me something...
What's that? No POMO today? Who f*cked up the POMO schedule? We'll have to wait until next week, then..... (silence) ... (muffled whisper) .... WHAT? No POMO next week? No more POMO ever? Holy crap....
yet another data point (for this punter anyway) that yellen is not as friendly to the asset-inflationistas as is commonly believed..
ReplyDelete"In a speech in Paris, Federal Reserve Chairwoman Janet Yellen said monetary policy will have to normalize, and that it may lead to financial turbulence. "
short the fuck up !
ReplyDeletenico - assume u mean short spoos and agree - very tempted to - i just don't have the same fortitude in my extremities as u seem to possess (note my moniker!) - the stream of buyers seems endless - hope they enjoy their tulip bulbs.
ReplyDeleteA look at today's "turbulence" so far:
ReplyDeleteMr Bond clearly doesn't fancy US growth with US10Y in a 10 bp plunge intra-day, and credit spreads are wider. Over in FX land, punters are even willing to defy Kuroda and buy some yen today.
RUT and COMP are lagging today, not usually a bullish indication. But as for SPY, well.... it seems to be disconnected from other financial instruments. Can't help feeling that the big money is passing SPY on to clueless John-John lunchtime punters here.
Or LB, the super big SFWs just go to main indices rather than messing with the small stuff.
ReplyDelete'puh 5% in US eqs ... hokay, misser broker I buy 10grillion of your essenpees worrever is called'
washedup
ReplyDeleteanything but spoos
@Polemic, did you mean SWFs? Sometimes it is hard for us John John lunchtime punters to keep up here.... ;-)
ReplyDelete-Whammer
I must be old and irrelevant, I remember when a +1m NFP print was seen as good news. Longing for the past..... what a waste of time
ReplyDeleteHa ha, will do LB!
ReplyDeleteIncidentally, I think Polemic has a point. It is fair to assume that as long as the liquidity faucets are open, Spoos will be one of the main beneficiaries, especially on pull-backs which will be seen as "value opportunities" by big benchmark investors. It works as long as it doesn't I suppose!
Oh and don't miss the epic OW failure in my home country ... what a joke! That thing was stuffed down retail client's throat only six months ago! This is a dirty business ...
Claus
Hi whammer.. yes i did mean SWF s a late evening and fat fingers on a phone turned them into Stupid F**kin W@nkers. Apols..
ReplyDeleteBond risk...
ReplyDeletehttp://imgur.com/emz6up0
Since October 2011:
ReplyDeleteSPX up 89%
EPS up 27%
Anon..9.03 Your point being? And is oct 2011 important?
ReplyDeletePolemic:
ReplyDeleteOctober 2011, similar market structure ( vertical ramp up ) to the present and to a lesser extent Spring 2013.
October 2011 (Sept. QE 3 announcement) SPX...a 1072 low to a high of 1287 then retraces to Fib 61.8 at 1154
Spring of 2013, similar structure and retrace
Present (Bullard, ABE, Draghi) SPX... a low of 1818 to high of 2036. A Fib 61.8 retrace could take it to low 1900s.
All above 3 time periods at +21 MACD.
Buybacks have certainly distorted EPS. If interest rates rise can Draghi and ABE drive prices higher ex buybacks, QE, POMO ?
Given that the economy has been/is still growing ... is it abnormal for multiples to drive 75% of the rally (especially factoring in that 2011 was just after the debt ceiling panic)?
ReplyDeleteJust asking really ...
Claus
Good point, though now guidance on 4th quarter sales growth reduced by almost half to 2.2% yoy and growth of earnings now 4.5 percent down from 9.6 percent in September
ReplyDeleteGIS first of the consumer staples to come out of the closet with a profit warning.
ReplyDeleteGiven that all the big staple MNC's more or less live in a global low growth environment deriving increasing number of sales outside the US, the quick and strong USD rise will definately come to haunt more of them and in effect start hurting the major indices. Perhaps a conservative covered call strategy time, extending to Q1-Q2?
Carry Monkey in reverse. Spoos didn't notice this on Friday, are we seeing correlation breakdown already?
ReplyDeleteLB - spoos also ignored the announcement of an earnings delay by RIG (transocean) one of the largest deep water drillers with news of a $3.6 B write down due to contracting day rates - reminds one of Jan 2007 when HSBC took a charge on subprime in their US subsidiary.
ReplyDeleteEarly for the storm, but the clouds are beginning to gather..
Good point washedup ... this is key to look at; i.e. the nexus between low oil prices and corporate non-financial debt/stress in the energy sector. Corporate debt is the new bubble and the lower oil price is giving us a front-row seat to the action in high yield energy space.
ReplyDeleteClearly, a lot of turds are being squeezed here as global commodity prices descend further into the abyss. Mind you, this could trigger all kinds of nasty price movements, but not a new financial crisis in my view. The next recession will NOT be an earth destroying systemic financial crisis ... I think this is the key difference.
I think the 2008 and 2011/12 playbooks are ill-equipped to tackle what comes next here. Sector/country selection will be absolutely key!
Claus
If HY is getting hit because the energy sector triggered it fair enough. But to continue it assumes that the chance of default of the issuer is increasing, which is fine for Energy sector but non energy sector ratings most likely to improve as energy input costs fall. So, someone holding energy takes hit and gets out of whole portfolio? And so sells the good stuff as in baby/ bathwater scenario? Perhaps the sensible thing is to catch the babies.
ReplyDeletesure CV - point wasn't to proclaim teotwawki - I am as convinced as you the spoos will outperform commodity intensive EMs in this cycle - doesn't tell u much about levels at which that occurs, and I am k with the thesis the downside doesn't have to be much.
ReplyDeleteAll in good time - right now I am focused on the ST puzzle of how I can locate occasional LT bears, but not a single one (including, admittedly, myself) who thinks us equities could pull back even a little into yr end!
Fair point Polemic ... I don't disagree with this actually. The only question that does need raising is of course the energy sector's capex intensity and its impact on growth.
ReplyDeleteOn the year end rally Washedup ... I agree that it will not have a lot of power from here, but Eurozone equities might ;)
Claus
A friend texted me that "spoos have reached a permanently high plateau". That's about right.
ReplyDeleteBy the way , does anyone else suffer really strange music/ noises appearing when accessing this site? ( and others on blogger). Been happening to me for ages and doesn't seem to be anything fixable in the coding ..weird
ReplyDeletePolemic - its just your inner george soros trying to communicate with you - don't be afraid, just pay attention.
ReplyDeleteLB , when you move west across the USA, having traveled for miles across pretty flat terrain you find yourself in Denver, a city already at high altitude. But then come the Rockies.....
ReplyDeletePol, good one. But if traverse the US a bit farther South, you cross a plateau and encounter the Colorado River and its magnificent Canyon. It's all downhill to the ocean.
ReplyDeleteHere's another LT point of view from one of the better chartists out there.
Russell 2000 At Resistance - Chris Kimble
I too have strange music/commecials playing here. The recent one is trying to sell me a Subaru ... Useful to navigate those Rockies I guess ;)
ReplyDeleteSocGen-Stocks +38% in the last 3 years, reported profits +3%. A "complete disconnection with fundamentals"
ReplyDeleteIt's well dodgy, this old market. Innit?
ReplyDeleteAnon , but as we have said before - if alternative investment yield zero then stocks paying a dividend can be priced at anything and still do better on a yield basis. Earnings may not have risen but discount rates collapsed. Also loads of euro stock prices then were wrapped in euro-outlook doom rather than fundamentals . So bad base to start from.
ReplyDeleteOk .. LB.. my go in analogy chess. I'll move to take you North West a bit to where you find the Virgin Galaxy project...
Washedup - I m just going mad.
And yes - S'well dodgy. Let the talking heads on Bloomberg TV sum it up thus.
does anyone know if the technical indicator %of stocks in a given index above their X day moving average (20,50,200, whatever) comes canned i.e. has a standard name (a la bollinger, a/d, chaikin) or if it has to be calculated manually.
ReplyDeleteHope that question made sense..
Washedup, stockcharts.com offers $nya200r, $tsxa200r 50 100 dma's also available .....I'm sure there are more exchanges, just didn't digging, sorry.
ReplyDeletehttp://stockcharts.com/c-sc/sc?s=$NYA200R&p=W&st=2007-01-02&en=(today)&id=p45262077556&a=264389817&r=380
A paid account will enable chart overlays.
Ps the link is not to a chart of mine but rather a favourite sothsayer I like to follow.
Re Stockcharts , you don't need a paid acc for overlay. Just change one of the indicators at the bottom to 'price' and tap in the price code you want to compare to. I've just used it to produce the tullow oil vs brent chart here http://polemics-pains.blogspot.co.uk/2014/11/how-do-you-know-when-bottom-is-in-for.html
ReplyDeletehey thanks, learn something new here everyday.This blog is worth 10x the normal admission. :)
ReplyDeletethx pol/john
ReplyDeleteGet it negative Abe, you can do it...
ReplyDeletehttp://imgur.com/DAWOx09
Euro Area 2015 CPI Estimates:
ReplyDeleteECB: 1.1%
Morgan Stanley: 1.2%
Deutsche Bank: 1.1%
BofA: 0.9%
Goldman: 0.8%
Barclay's: 0.7%
JP Morgan: 0.7%
Apparently the end of QE3 does not spell the end of the Bull Market...S&P 500 has gone from flat on the year to up double digits in 3.5 weeks
ReplyDeleteIf they ended it last January, I guess the SP 500 would be up 100 percent
Anon @ 3.29, thank you for that in-depth piece of commentary. If that's the extent of your analysis, then you are officially a doorknob (and we mean that in the nicest possible way).
ReplyDeleteNow that the POMO schedule is no more, it's time for punters to read up on something 'new' - the Term Deposit Facility. Among other uses, such as banks earning interest on reserves, a modest expansion and adjustment of this mechanism can also be used to drain liquidity from the financial system by the simple expedient of the Fed slightly raising the rate paid to the banks for doing nothing other than parking their reserves.
Term Deposit Facility
The FT reviewed this mechanism a while ago:
TLF and the IOER
Why does this matter? Well, doorknobs, if the Fed tweaks the rate a little bit higher, say from 27 bs this week to 35 bps, then the banks might decide to be lazy arses and just leave more cash parked at the Marriner Eccles building, instead of making it available for loans (that nobody wants anyway), or lending it to "investors" who want to borrow from the primary dealers for those essential margin punting purposes that they enjoy so much. So margin requirements might be raised.
Over-enthusiastic equity punters can expect to hear about this mechanism in the media at some point. Most probably this will happen shortly after they have bent over and dropped trou, for example by selling vega (apparently and amazingly, the latest en vogue retail trade du jour) in front of a mild decrease in market liquidity and been given the red hot poker.
LB - agreed on the potential impact to margin costs and levels - but, do u think the $25-30 BN windfall to dealer banks over a few years as this mechanism is invoked is priced in to XLF? I mean the 3 T reserves aren't changing for a few years per aunt janet and you could hazard a guess the increase would be say 100 bps over a period of time - bank NIMs would come down, but I think thats probably better captured through 5/30 financial credit steepeners which really don't have to change- welcome ur thts..
ReplyDelete@LB, I think anon at 3:29 was kidding, and no it wasn't me ;-)
ReplyDeleteAs one of the token John John lunchtime punters here, I guess am not that surprised that retail people are selling vega, though I must confess that I had to look up what that meant.... Nevertheless, I do expect you're right about the whole "hot poker" thing.
-Whammer
Goldman: Buybacks to increase 18% to $707 billion in 2015.
ReplyDelete@LB(6:59)
ReplyDeleteDoes that mean you're selling or sold NLY or mreits?
Which products are you referring to when you are talking about retail being short Vega? Single Stock options, VIX, ETF's etc..? Is it a general observation or something specific that somebody had decided to enlighten them on?
ReplyDeleteApparently small punters have decided to play the XIV ETF, among other things, as a way of selling volatility.
ReplyDeleteOvercrowded Trade du Jour
Anon, no. Not much worried about mREITs, but hedging against a general sell-off with a few IYR puts for the time being.
ReplyDelete