Best of the Week
Most Popular
1.Dow Stock Market Trend Forecast 2015 by Nadeem Walayat - Nadeem_Walayat
2.Gold And Silver – Forget The News. Silver $12 – 14? Gold $1,000 – 1,100? 5 - Michael_Noonan
3.A TOP Formation In Apple Inc. - Crash Condition Signal Recorded - David Harris
4.Gold Gets Safe Haven Bids But COMEX Has Stopping Power - GoldSilverWorlds
5.The Swiss 10-Year Bond Illustrates Central Banks` Flawed Monetary Policy - EconMatters
6.Exponential Explosions in Debt, the S&P, Crude Oil, Silver and Consumer Prices - DeviantInvestor
7.“Forgive Us Our Debts” – Only Way To Prevent Economic Meltdown - GoldCore
8.Is Russia Planning a Gold-Based Currency? - Marcia Christoff-Kurapovna
9.Stock Market Trend Forecast 2015 Video - Nadeem_Walayat
10.Gold GDX ETF Technical Analysis - Austin_Galt
Last 5 days
Gold Price Glimmer of Hope - 1st Mar 15
Stock Markets Are Riding High on Thin Air - 1st Mar 15
Varoufakis vs. the Troika - Showdown in Athens - 1st Mar 15
Subprime Rising - U.S. Debt Breaking Bad Part 2 - 1st Mar 15
Gold CoT Improving, But ... - 1st Mar 15
UK General Election 2015 Seats Forecast - Who Will Win? - 28th Feb 15
UK General Election 2015 - Forecasting Seats for SNP, LIb-Dems, UKIP and Others - 28th Feb 15
Stocks Bull Market Continues - 28th Feb 15
U.S. Debt Breaking Bad - 28th Feb 15
NATO Frankenstein - When Centralization Scales Beyond Our Control - 28th Feb 15
Gold And Silver Insanity Prevails; Precious Metals Without Direction - 28th Feb 15
Fed Raising U.S. Interest Rates - Shovelin’ Schmitt Against the Tide - 28th Feb 15
Don't Let This Stock Market Myth Cost You Your Gains - 28th Feb 15
Recession is On The Way; Beat The Stock Market Crowd, Panic Now! - 28th Feb 15
Stock Market Indexes Creeping Towards the Edge - 28th Feb 15
GGD Going for Mexican Gold - 27th Feb 15
Foreign Real Estate Is the New Swiss Bank Account - 27th Feb 15
10 Reasons Washington Has War Fever - 27th Feb 15
Gold and the Euro Tragedy, Iraq 3.0, Ukraine Conflict Three Ring Circus - 27th Feb 15
Deepak Chopra - New Age Genius or Bullshit Expert? - Video - 27th Feb 15 - Videos
New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - 27th Feb 15
Will Month Long Stocks Rally Continue? - 27th Feb 15
The Only Public Hedge Fund You Should Own - 27th Feb 15
UK House Prices Trend 2015 and the May General Election - 27th Feb 15
Why America is Ungovernable - The Republicans’ Civil War - 27th Feb 15
Gold vs Gold Stocks: Bullish Anomaly Developing? - 27th Feb 15
I Heart Capitalism, Nasdaq Stocks, Then And Now - 27th Feb 15
The Fed’s History of Assassination - 27th Feb 15 i
Gold Bull Market Forecast - Money Will Rotate Into These Dead Investments - 27th Feb 15
"Audit the Fed"? We've Already Done That (Well, Kind of) - 26th Feb 15
Forget Peak Oil; Worry About Peak Demand - 26th Feb 15
Currency Wars, Again - 26th Feb 15
The Fed Waited Too Long: Here Comes Inflation - 26th Feb 15
Investing Inertia Won’t Keep Your Cash Safe - 26th Feb 15
The Net Neutrality Scam - 26th Feb 15
Will Conservatives Out of Control Immigration Crisis Boost UKIP Election 2015 Prospects? - 26th Feb 15
EU Warns Ireland and Euro Zone of Debt Dangers - 26th Feb 15
Commodity Prices Set To Plunge Below 2008 Lows - 26th Feb 15
Ukraine Hyperinflation as Currency Plunges 44% in One Week! - 26th Feb 15
The State of the Global Markets 2015 - 53 Page Report - 26th Feb 15
NASDAQ New 15 Year High - Stock Market Death By Overdose - 25th Feb 15
12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - 25th Feb 15
Sugar Commodity Price To Sweeten Up - 25th Feb 15
Investor Profits from China 2,000-Year Unstoppable Trends - 25th Feb 15
How to Borrow Cheaply from a Government-Owned Bank - 25th Feb 15
Debt Be Not Proud - 25th Feb 15
Liberal Democrat Election Blood Bath - Could Nick Clegg Lose Sheffield Hallam? - 25th Feb 15
Wheat Commodity Price Technical Trend Forecast - 24th Feb 15
Bitcoin Price Might Stay below $250 - 24th Feb 15
Another Important Stock Market Inflection Point Approaching - 24th Feb 15
Gold: The Good, Bad, and Truly Ugly - 24th Feb 15
Eurozone Gold Holdings Increase to 10,792 Tonnes As “Reserve of Safety” Amidst Crisis - 24th Feb 15
Bird Doo; Yellen Goes to Congress - 24th Feb 15
Is Gold Investing Risk Free? - 24th Feb 15
The Bull Case For Gold Price 2015, and the Bear - 24th Feb 15
Europe - The Intersection of Three Crises - 24th Feb 15
Gold Price Just Needs More Time - 24th Feb 15
Gold Price Downtrend Looks Set to Continue - 23rd Feb
Silver Price Depressing Downtrend Will Eventually End - 23rd Feb 15
5 Reasons Why You Should Sell Amazon Stock - 23rd Feb 15
Global System Catastrophe Is Key Threat To Human Civilisation - 23rd Feb 15
Greece Crisis Yields Ideal Market Opportunities - 23rd Feb 15
Gold and Silver Stocks or General Stock Market Indices? - 23rd Feb 15
Swimming With Sharks: Goldman Sachs, Schools and Capital Appreciation Bonds - 23rd Feb 15
Stock Market - The Fed Still Has Your Back - 23rd Feb 15
Soybean Commodity Price Technical Outlook - 23rd Feb 15
Gold Weekly COTs and More - 23rd Feb 15
Stock Market New Highs With Weak Breadth - 23rd Feb 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The State of the Global Markets 2015

The ECB's Long Term Refinancing Operation (LTRO) is Bullish for Stocks

Stock-Markets / Stock Markets 2012 Feb 13, 2012 - 07:03 AM GMT

By: Money_Morning

Stock-Markets

Best Financial Markets Analysis ArticleJack Barnes writes: If you listen to the talking heads, there is no end in sight to the Euro crisis.

Even with the European Central Bank's (ECB) recent Long Term Refinancing Operation (LTRO), Greece is still making all the headlines.


As of late last week, a possible new deal has been made in Greece. However, the finance ministers that are responsible for the deal are not sure it will be enough to release the second bailout of Greece.

The ECB has been demanding that debt it bought at a discount be honored at full par value. It is now reported that the ECB will sell these debts at cost, and allow the debt to be retired.

This is a huge first step in the process of getting Greek debt levels low enough to be sustainable.

Yet, we are still well into the second year of this crisis and the market is growing tired of endless European emergency meetings.

It reminds me of the period around January 2009.

The reality is Europe needs to go through a hard, brutal adjustment period, where the weak states that cannot handle being in the European Union (EU) leave.

While a New Greek deal has been announced, few people believe it will be the last deal, or the best deal. That is, if it is even ratified in the end.

"It's up to the Greek government to provide concrete actions through legislation and other actions to convince its European partners that a second program can be made to work," EU Economic and Monetary Affairs Commissioner Olli Rehn said.

The rolling bailout process appears to be set up to happen this spring, as the ECB pumps fresh liquidity into its banks for unlimited dollar amounts. The drain on the balance sheets of Euro banks appears to be ending.

The ironic angle few people are tracking is that U.S. banks have been helping to drive Europe's big banks into this crisis.

Setting the Stage for the Second LTRO
Let me explain.

U.S. banks have loaned money to European banks via our money market accounts for periods between seven and 270 days on average.

So when you left cash in your money market account, a significant portion of that cash was actually being invested in unsecured loans to European banks in a search for higher yield.

These funds were typically rolled over at the current market rates, allowing Euro banks access to shorter-term liquidity. However, that began to change in July 2011 when U.S. banks started shortening the terms of the funds or flat out began to repatriate them.

This shift by American banks caused European banks to lose access to what they were using for near-term liquidity. European banks were using short-term loans to make longer-term loans to their clients.

The process of paying back their short-term funding, while still holding onto longer term loans has stretched their balance sheets even more.

This reversal of funding caused an expansion of the leverage at the banks, as they have loans outstanding but have to pay back the source of them.

As result of this liquidity crunch, the ECB rolled out a program to allow banks to recapitalize themselves.

It's called the LTRO (Long-Term Refinancing Operation). Think of it as being like the U.S. Troubled Asset Relief Program (TARP) but for Europe's banks.

The LTRO allows banks to bring their loans to the table, turn them in with a small haircut, and receive cash/capital in return.

The first of the LTRO operations was in late 2011 and raised about $500 billion in funds for the banks. The loan terms are amazing. The ECB is charging just 1% for these new funds, which are good for three years.

This will allow banks to deposit those long-term loans at the ECB and get back cash at a discount to help lower their risk levels.

The second LTRO is scheduled for Feb. 29, with estimates that it may be two or three times the size of the first.

A Massive Injection of Cash
If so, combined we are talking about as much as two trillion additional euros that may be injected into the European banking system in a short period of time. This capital will be put to risk.

Like the TARP, these funds will allow Euro banks to take risk again - if only to try and pay back losses and capital haircuts they've had to take.

Here is the issue: that money will seek the highest rate of return as it trickles down to the banks' trading desks.

This means it will most likely show up in places like commodity prices, and bank and sovereign debts trading at a discount to par. Banks are being encouraged to leverage up on their host nations' sovereign debts.

While the market never repeats, it does rhyme sometimes.

It's my expectation Europe is preparing to recapitalize its banks via LTRO to help them weather the coming storm when Greece officially leaves the EU and the focus turns to other weak member states.

Remember, whatever deal Greece cuts now, Portugal and Ireland will want to renegotiate their deal. The Greek drama is only the first act. There is going to real market impact when the second LTRO is finalized.

What happens after that will be very noteworthy...

Soon, thanks to the LTRO, European blue chip stocks could be an interesting place to put speculative funds to work again.

Source http://moneymorning.com/2012/02/13/ecbs-long-term-refinancing-operation-ltro-bullish-for-stocks/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive



© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014