Global Macro Trading Journal

Daal · Dec 21, 2011

I found specially troubling Mario statements of 'we are not supposed to go against the spirit of the law'. You would think that if he didn't want go do something he would just say 'We did not discuss this option' but with that statement he is making even harder on himself to starting bailing everyone out down the line because he is already saying he doesn't want to use loopholes

Seems entirely reasonable that at one point he gives up and loses face but its going to take a bigger crisis in my view

Martinghoul · Dec 21, 2011

Quote from Daal:
They should soon launch measures to drain liquidity(Maybe they have already, Martin?)I find it hard to believe that they would allow reserves in the system to go up by â¬500b or so

QE + AntiQE = No QE

From the way Mario speaks I find it hard to join the 'ECB will give in' camp anytime soon. The level of the stock market required for that seems quite a bit lower

Excess reserves are going to go up (not by â¬500b, but rather more like â¬200b, given the other tenders rolling off)... The excess liquidity in the Eurosystem is going to go up to arnd â¬470b and is likely to depress the overnight rate, which is something that they would welcome as a sneaky rate cut.

Daal · Dec 21, 2011

Quote from Martinghoul:

Excess reserves are going to go up (not by â¬500b, but rather more like â¬200b, given the other tenders rolling off)... The excess liquidity in the Eurosystem is going to go up to arnd â¬470b and is likely to depress the overnight rate, which is something that they would welcome as a sneaky rate cut.

Have they exhausted their ability to drain reserves?

Martinghoul · Dec 21, 2011

Quote from Daal:
Have they exhausted their ability to drain reserves?

Not really, but they never intended to drain the liquidity injected through the LT/MROs. They're intentionally looking to obtain the same result that they got with the previous 440b 1y LTRO, i.e. depress the effective O/N rate (EONIA) well below the headline refi rate. It's an extra stealth rate cut.

Daal · Dec 21, 2011

Quote from Martinghoul:

Not really, but they never intended to drain the liquidity injected through the LT/MROs. They're intentionally looking to obtain the same result that they got with the previous 440b 1y LTRO, i.e. depress the effective O/N rate (EONIA) well below the headline refi rate. It's an extra stealth rate cut.

Seems to me an attempt to reverse the decline in M1 M2 and M3 that seems to have started in Oct
https://stats.ecb.europa.eu/stats/download/bsi_tab02_03/bsi_tab02_03/bsi_tab02_03.pdf

If the banks use the reserves to buy assets from non-banks it would boost those measures

Martinghoul · Dec 21, 2011

Quote from Daal:
Seems to me an attempt to reverse the decline in M1 M2 and M3 that seems to have started in Oct
https://stats.ecb.europa.eu/stats/download/bsi_tab02_03/bsi_tab02_03/bsi_tab02_03.pdf

If the banks use the reserves to buy assets from non-banks it would boost those measures

Yes, it is, in fact, an attempt to offset or, rather, mitigate the immediate effects of the massive deleveraging that is occurring throughout the European economies.

Daal · Dec 22, 2011

I really need to fund my intrade account soon. Markets there can be quite inefficient sometimes. As of yesterday the prob of France getting downgraded was at 75%(by Jun 30 2012), yet ZH showed some quotes from S&P sov director that makes me think the prob of a downgrade is large
Seems almost a done deal unless some kind of miracle happens

Daal · Dec 22, 2011

"The ECB will hold a second auction of unlimited three-year cash in February, allowing banks to pre-fund themselves for all of next year and beyond, say analysts. "

http://www.bloomberg.com/news/2011-...-ecb-emergency-funds-amid-frozen-markets.html

Makes me wonder whether this first 3 year LTRO was actually under subscribed as some banks held back because they knew they could get the same loans at the likely cheaper rate in Feb

Martinghoul · Dec 22, 2011

Quote from Daal:
"The ECB will hold a second auction of unlimited three-year cash in February, allowing banks to pre-fund themselves for all of next year and beyond, say analysts. "

http://www.bloomberg.com/news/2011-...-ecb-emergency-funds-amid-frozen-markets.html

Makes me wonder whether this first 3 year LTRO was actually under subscribed as some banks held back because they knew they could get the same loans at the likely cheaper rate in Feb

Yep, it's a reasonable guess... Some of the new ECB measures also didn't apply to this tender (more eligibility of collateral, decline in the required reserve ratios, etc) , but will apply to the one in Feb. So it's possible that the one in Feb will actually see more participation.

Daal · Dec 22, 2011

I'm finding tempting to go long BAC and short XLF as a pair trade(The short leg would be only open during the likely US recession and EU troubles, then it would be closed)
Reasoning is as follows
BAC is too big to fail, the main reason the stock is depressed is the litigation uncertainty(some of it is economic uncertainty but BAC is down more than the sector due the former) but its unlikely that the government would itself actively try to bankrupt the firm so the litigation will be lower than otherwise due this fact

There is no TARP now, the way BAC can raise capital by Eric Holder making phone calls and preventing large fines against the firm and let the company raise its own capital through pre-tax earnings