NEWS OUT OF EUROPE: The Spanish Banks were all in a rage as the ECB moved to shorten the duration of the TERM DEPOSIT FACILITY, as the terms were shifting to three months from one year. The Long-term Repurchase Operation (LTRO) that was agreed to a year ago provided the needed funding to get European Banks through a difficult liquidity period at a very friendly below-market rate. Now that the ECB has put an end to that program the still-stressed banks are concerned that the ECB removal of the LTRO will cause short-term problems since liquidity is still an issue.
The ECB’s actions triggered fears of stress in the EURIBOR markets and led the selling off of worldwide equity markets and for the risk-off trades to be the trade de jour. Commodities, commodity-based currencies and all other risk-perceived trades were liquidated and the rush for safe havens forced risk off the table. It is interesting that the DOLLAR is not the sole haven as the Swiss franc was higher and the British pound held up fairly well and, as usual, the YEN and BOND markets were the major recipient of safe haven status. GOLD also found a bid after some initial selling pressure. The Gold market is in a tug of war regarding the issue of deflation/inflation, but the current age of uncertainty is keeping the GOLD near its all time highs. Our readers know that we believe that GOLD is the recipient of deflationary psychology.
There are rumors abound that the Bernanke-led FED is getting nervous about the lackluster growth and the headwinds of global growth emanating from EUROPE. The London Telegraph’s Ambrose Evans Pritchard, one of the best financial journalists in the world, has been writing regularly about how the FED is getting ready for a new round of QE. This is what we have been concerned about. If QE was to take place, the GOLD would get the bid to send it to new highs as we would be entering a phase where policy makers were beginning to panic. Today’s equity selloff had to unnerve the FED and Obama administration, especially with the employment data out on Friday. There is a great deal of dissonance though coming from the FED as the regional bank presidents seem to be leaning toward the dissenting opinion of Thomas Hoenig.
Last night, Kevin Warsh, a BOARD GOVERNOR, gave a speech warning against the FED purchasing more assets, which would add to the already bloated balance sheet of TREASURY and MBS paper. Warsh’s words are meaningless to a FED dominated by the chief ’37er: Ben Bernanke. If equity markets continue to slide, the Obama administration will get very nervous as the economy drags and deflationary pressures build. The next significant damage will be to public and private pensions.
Tags: Bernanke, Bond, Dollar, ECB, Euribor, Europe, Fed, Gold, Kevin Warsh, LTRO, MBS, Pound, QE, Swiss Franc, Term Deposit Facility, Thomas Hoenig, Treasury, Yen
June 30, 2010 at 12:57 pm |
love your insight.
but you´re wrong on this – sorry.
there is nothing like a tea party movement over here.
none of the the five parties in the bundestag really do oppose help for the greek.
true – the opposition didn´t vote for the bailout package.
but it was not that they recognized it as a waste of taxpayer money.
what the opposition wanted was a sharp blow to the “speculators” (=Tobin Tax) and they wanted the banks to pay a large share (since in the opposition´s eyes they´ve caused the crisis. )
the Greece issue isn´t discussed in the media or by ordinary people anymore.
i think many already have forgotten about it.
what angers German citizens right now is the new austerity package and the way it is designed – further cuts for the little guy while the rich aren´t ask to share the burden. (instead the coalition – knowing of the desastrous deficit – had the nerve to cut taxes for hotel owners and wealthy heirs at the beginning of the year).
so I agree – Merkel is in a deep hole.
but even if the coalition fails (not likely due to the bad sentiment bor both) – there won´t be a change in euro policy if we get back to a left leaning coalition.