Three reasons to fade the rally on higher LTRO2 uptake – February 28, 2012, 05:02 GMT
Disclaimer: This is in no way my professional recommendation and due discretion should be undertaken when making any trades
1. Sovereign bond carry trade is unlikely to continue
a. Yields are no longer attractive on a risk:reward basis
Peripheral bond yields have come sharply off their highs. 10 year BTPs now yield about 5.42% (as of this article) compared with close to 7% pre-LTRO1. This brings it roughly in line with “fair-value” pre-LTRO1 (~5.7%). This leaves almost zero room for further downside meaning banks would more likely invest the funds in other less risky assets (Australian/New Zealand bonds yield comparably lucrative yields at almost zero risk). Heck, the banks might even decide to hoard the cash considering 1% isn’t much to pay.
b. ECB’s foolish move
By swapping its Greek bond holdings to avoid the newly enacted CAC, future investors are likely to think twice about investing in risky debt since they are effectively placed in a subverted class. This is a far cry from the suggested handling of ECB holdings pre-LTRO1 whereby the ECB would swap its holdings into the EFSF and let the fund stomach the losses.
2. Structural issues still remain
a. Peripheral debt is still risky
The Italian technocratic government has yet to prove it is able to bring down its ballooning debt and with the risk of contagion still high, current bond yields are not reflecting the underlying risk holding such debt entails. Portugal, for that matter, still has bond yields hovering near 13% which will be unsustainable if no further bailout is provided.
b. EURUSD has recovered roughly 10% from its lows
The northern European countries, which are the primary creditors for whatever firewall Europe plan’s to put up, are predominantly export oriented. It is no coincidence that the drop in the EURUSD coincided with the pick-up in German business activity. With the rest of Europe in a recession, the EUR needs to stay low so that the countries can export their way out of it. Sadly, competitive devaluation seems to be the name of the game now and German business activity is likely to adjust downward sharply pretty soon. This means the Germans are unlikely to raise their commitments to the future enlarged firewall required.
3. Whatever resultant rally will be knee-jerk and unsustainable
a. No LTRO
Clearly this effect would be unlike persistently low interest rates where resultant economic activity can be sustained.
b. Not a form of easing
LTRO is only granted to banks. As explained above, and banks have no incentive to pass on this liquidity to the economy at large. Since the extra liquidity is unlikely to find its way to the economy, there is no reason that ANY supply side improvements will follow and hence no resultant improvement in competitiveness.
You’re now chatting with a random stranger. Say hi!
You: 19 m singapore here
Stranger: 19 m singapore there
Stranger: 내가 한말 마춰봐
Stranger: can u read that?
You: no haha
Stranger: i was joking
Stranger: 18 m korea
You: oh wow
You: nice to meet you
You: what you doing on a valentine’s day haha
Stranger: today is valentine’s day
Stranger: isn’t it?
You: you have no girl?
Stranger: i have one
You: 그녀와 함께 시간을 보내는가!
Stranger: you r koreanㅋㅋㅋ
You: 전 아니에요!
Stranger: so good at writing korean
You: not so good
You: korean exams very tough?
You: like singapore
Stranger: i study till 3a.m.
Stranger: and wake up 6
Stranger: i mean 7
You: that’s worse than singapore
You: but my parents always ask me go tuition
You: are you in a top school by any chance?
You: which university?
Stranger: Seoul National University
Stranger: 0.3% of highschool students can get in there
My wife always insists I accompany her on her trips to NTUC. Unfortunately, like most men, I found shopping boring and preferred to get in and get out. Equally unfortunate, my wife is like most women – she loves to browse.
Yesterday my wife received the following letter from the local NTUC Fairprice:
Dear Mrs. xxxxxxxx,
Over the past six months, your husband has caused quite a commotion in our store. We cannot tolerate this behavior and have been forced to ban both of you from the store. Our complaints against your husband, Mr. Lim , are listed below and are documented by our video surveillance cameras:
1. June 15: He took 24 boxes of condoms and randomly put them in other people’s carts when they weren’t looking.
2. July 2: Set all the alarm clocks in House wares to go off at 5-minute intervals.
3. July 7: He made a trail of tomato juice on the floor leading to the women’s restroom.
4. July 19: Walked up to an employee and told her in an official voice, ‘Code Yellow in Houseware section. Get on it right away’. This caused the employee to leave her assigned station and receive a reprimand from her Supervisor that in turn resulted with a union grievance, causing management to lose time and costing the company money.
5. August 4: Went to the Service Desk and tried to put a bag of M&Ms on layaway.
6. August 14: Moved a ‘CAUTION – WET FLOOR’ sign to a carpeted area.
7. August 15: Set up a tent in the camping department and told the children shoppers they could come in if they would bring pillows and blankets from the bedding department to which twenty children obliged.
8. August 23: When a clerk asked if they could help him he began crying and screamed, ‘Why can’t you people just leave me alone?’ SCDF was called.
9.. September 4: Looked right into the security camera and used it as a mirror while he picked his nose.
10. September 10: While handling guns in the hunting department, he asked the clerk where the antidepressants were.
11. October 3: Darted around the Store suspiciously while loudly humming the ‘Mission Impossible’ theme.
12. October 6: In the auto department, he practiced his ‘Madonna look’ by using different sizes of funnels.
13. October 18: Hid in a clothing rack and when people browsed through, yelled ‘PICK ME! PICK ME!’
14. October 22: When an announcement came over the loud speaker, he assumed the fetal position and screamed ‘OH NO! IT’S THOSE VOICES AGAIN!
15. Took a box of condoms to the checkout clerk and asked where is the fitting room?
And last, but not least:
16. October 23: Went into a fitting room, shut the door, waited awhile, and then yelled very loudly, ‘Hey! There’s no toilet paper in here.’
One of the clerks passed out.
Give your loved one a nerdy Valentine and they’ll be yours forever! Why? Because if you give them diamonds/cufflinks this year, anything you get them next year will fall short. Give them one of these and anything they receive next year will be a step up. It’s called expectation management and is the key to a long and happy relationship. On that dismal note, Happy Valentine’s Day!