The discussion is over–ha, ha, ha–and another 3 a.m. decision is made. The Greeks will get their funding and the banks are off the hook for another short period of time. There are so many stipulations involved that it will take time to understand what really took place in the wee hours of another EUROPEAN meeting. It seems certain thought the Greeks will deposit money in escrow to assure all the “DONATING” parties that the CITIZENS OF GREECE WILL ADHERE TO THE FISCAL AUSTERITY TO WHICH THE GREEK TECHNOCRATS AND POLITICIANS HAVE AGREED. THIS IS SIMILAR TO A YOUNG ADULT HAVING TO AGREE TO CERTAIN STIPULATIONS IN ORDER TO RECEIVE THEIR TRUST FUND CHECK, or what is known as a TRUSTAFARIAN.
The Germans have told the Greeks that the wild spending spree is over. It is get a job, go to sleep early and on the first of the month the check will be there. In April, the citizens of Greece will go to the polls and the European donors will see if the Greeks will be comfortable being treated as the adolescent of EUROPE. Besides the ESCROW stipulation, the whole charade was still wrapped around the ridiculous notion of the DEBT/GDP projection for a 2020 target. Global markets were looking for any reason to rally and the EURO CHARADE provided a spark, albeit a small one as the U.S. equity markets surrendered their gains by the end of the day.
In the EUROPEAN DEBT markets, the GREEK 2-YEAR NOTE STILL YIELDED NORTH OF 150%. So, while “MEDIA EUPHORIA” took hold, the actual impact on debt prices in Greece was minimal. The PORTUGESE 2/10 curve narrowed a bit as the inversion dropped to a mere -29 basis points by the close. Now that Greece storm has calmed, the markets will turn its attention to Portugal FOR GLOBAL CAPITAL IS LIKE WATER AND WILL SEEK ITS WEAKEST AREA. The 2/10 curves will continue to be a KEY BAROMETER AS TO WHAT IS GOING ON IN THE DEBT MARKETS. THE LTRO HAS WORKED TO CREATE BULL STEEPENERS IN MANY OF THE PREVIOUSLY STRESSED PERIPHERAL MARKETS. LET’S WATCH TO SEE IF IT CONTINUES.
***FEBRUARY 29 BRINGS THE SECOND ECB 3-YEAR LTRO. It will be important to see the size of the offering for as the Greek crisis was at a boil the global markets were beginning to anticipate an ECB LTRO of ONE TRILLION EUROS. I think that amount is overstated but I believe the number probably being considered was 50% larger than last time, around 750 BILLION EUROS. Traders have to be aware that the Greek resolution may mean that Draghi will back off and put forward a lesser amount. If the ECB ONLY ADDS 500 BILLION THE EQUITY MARKETS WILL SELL OFF, AS WILL THE GOLD AND OTHER LIQUIDITY-SUPPORTED ASSETS.
THE MARKETS HAVE BEEN ANTICIPATING MORE IS NEEDED AND A LOWER LTRO WILL BRING A SELLOFF TO THIS WELL-SUSTAINED RALLY. IT REMINDS ME OF THE WEEK OF MARCH 17, 2008 when the FED cut rates after the Bear Stearns debacle, but not as much as the market anticipated. Even though the RATE CUT WAS SUBSTANTIAL IT WAS NOT ENOUGH TO SATISFY THE MARKETS. There is no hard number for the LTRO but it will be important to start paying attention to the rumors and innuendo as Draghi has proven he understands the power of markets, unlike Trichet.
Will President Draghi anger the GERMANS while bringing cheer to the market driven liquidity bulls? The ECB has made short-term progress in preventing a DEBT MARKET COLLAPSE, THUS A DELEVERAGING AVALANCHE. Again, how far will he go to support the BONDS and prevent a collapse in sovereign debt and thus the solvency of the European banking system? This is the main issue for the next EIGHT DAYS. DRAGHI TO THE MARKETS: “DO I NEED YOUR LOVE BABE”?
***And, from the MARDI GRAS PARADE in DÜSSELDORF, GERMANY we experience the CUNNIFICATION of MERKOZY: