Wednesday, January 18, 2012

Absurdity meet Insanity .......

 This would be absurdity .....
And since it has worked once, in the eyes of central planners it should work again, until it fails. Which it naturally will, just like the first LTRO iteration from 2008. But first, it will be expanded to a very ludicrous level, which will lead to the one outcome that Germany wants more than any other - send the euro plunging (remember - the primary correlation of 2012 is the ratio of ECB to FED assets), at least until the Fed steps right back into the currency devaluation fray, which it likely will as soon as March. So just how large will the next LTRO be? "Market talk is focusing on an even bigger amount to be borrowed at the next 3-year longer-term refinancing operation (LTRO) due on 29 February.GREED & fear has heard guesstimates of up to €1tn!" That's right - it is possible that in its quanto monetary diarrhea (but at least it's not printing, so the Bundesbank will be delighted), the ECB is about to increase its balance sheet from €2.7 trillion to € €3.7 trillion, or a €1.7 trillion ($2.2 trillion) expansion in 8 months! And gold is where again?   
http://www.zerohedge.com/news/shocking-%E2%82%AC1-trillion-ltro-deck-clsa-explains-why-massive-quanto-easing-ecb-may-be-coming-next-m

But here , here my friends comes Insanity ! Again from ZH...

February’s second 3-year LTRO looks set to be extremely large. Really extravagant claims (we have heard reports of €10 tn) are probably wide of the mark because this will not be a complete collateral free-for-all (unless NCBs choose to make it so, which for some of them is admittedly an open question; again, see rational player section below). But the idea of path-finder lightning springs to mind (High-speed cameras reveal that lightning evolves “bang BANG”, essentially); the last LTRO has removed any stigma, making managements who do not exploit the value on offer arguably careless at best. This is, on the face of it, very cheap protection indeed against any possibility of a liquidity crisis for three years.

What to take from this talk ? First , there won't be a 10 trillion LTRO , I hardly believe you see a 1 trillion LTRO either. but that's not really the point. What did we saw happen with the first LTRO of 489 billion  ? Were the billions borrowed by  the banks taking the money at one percent from the ECB  lent to businesses , did we see an increase in lending to each other in the interbank market ? No , what we have seen is an increase of funds deposited at the ECB in exchange for .25 percent interest - the sums at the ECB now exceed 500 billion ? And while the LTRO has allowed sovereigns to sell debt of very short duration , the question remains can they sell debt longer than 5 years , which would fall outside the ambit of the LTRO ? If the banks are as badly fractured as many surmise - zombies desperately trying to patch holes in their balance sheets and roll hundreds of billion in bank debt coming due in 2012  , will providing another 489 / 600 billion change the pattern of hoarding ? I think the answer is no , but let's see what happens Feb  29th when the second LTRO happens.

The real hidden message of someone floating a huge LTRO is that Greece just may be allowed to hit the wall Which means  the banks  ( and pension funds and insurers ) holding Greek , Irish , Portuguese , spanish , Italian , French ( you get the point ) debt are going to get tommy hammered when the default occurs and hard landing becomes reality - thus the LTRO is going to be the bailout to beat all bailouts . Imagine perhaps a trillion to a trillion and one half dispensed to the banks by the LTRO process in just a couple of months  , in just two fell swoops to boot ! Europe will make TARP look like child's play and they also have the ongoing SMP buying spanish , italian and probably irish debt - why should the euro stay over a range 1.10 to 1.20 with such a  level of debasement coming down the line ?

So , as the sums being looted from the taxpayers of europe soar to Mars and austerity is jammed down the throats of the newly poor to pay for this , simply understand things are going to get worse before they truly get worst ..... And that's a wrap !