Sep

16

 The ECB has announced a dollar-based liquidity operation to last through the end of this year so that European banks can access dollar liquidity that they have been shut-out of by the market.

Rocky Humbert writes:

Those of us who follow the US$ money market fund holdings see that the big European banks have gotten shut out of the US$ funding market. While they already had effectively unlimited liquidity from the ECB in Euros, they needed a counterparty to swap those Euros into Dollars. No private counterparty was willing to do this in size, so the Fed and the ECB engaged in this swap. If the collateral that the European banks post to the ECB have declined in value when the swap comes off, the ECB will still have to make the Fed whole — and the only way to do that is to print more Euros, sell them, and buy Dollars. That's not bullish IMHO.

The only people who are stunned are overleveraged idiots whose positions blow up on a move than is less than 1 ATR. My currency view (which may be proven wrong) is predicated on fundamentals AND technicals. The fundamentals haven't changed. And the short-term technicals haven't either. (yet). Like I wrote before, check in with me in a few months.

Gary Rogan writes: 

They are trying to fix the whole world by monetary manipulation! We have a much more tightly coupled system, and it's bursting at the seams. You can of course stick with the optimism, and now that it's becoming clear BHO is unlikely to get reelected this may be the right course, but I believe we will get wherever we are going sooner if they somehow resolve the European mess once an for all, whatever current pain is involved instead of being so ingenious about pushing the can down the road.

Stefan Jovanovich writes: 

I agree with your diagnosis, Gary. But, the Congress and the President and the elites they usually represent have been doing monetary manipulation and other things to fix the world ever since the Republic was founded. I make no bets on BHO's re-election. Incumbent Presidents have a massive advantage; it takes extraordinary circumstances for them to be voted out of office. Without Ross Perot Bush I would have been re-elected; without the Iran hostage crisis and his attempt to become First School Teacher/Preacher of the nation even Carter would have had a better than even chance. (Look up the polls for September 1980, and you will see how likely it seemed that he would earn a second term.) I place my confidence in Hamilton's Curse/Treasure. Our first Secretary of the Treasury's theory was that the Federal government could succeed if we followed the British model and had a "City" interest that insisted the national Treasury not be raided so frequently that the currency would be trashed. That was true for much of the country's history; our greatest failures as a nation have come when the "City" interest became more interested in working the government (the cotton land boom, for example) than in securing safe returns for the money the Treasury already owed them. We now have a revival of that traditional "City" interest, not on Wall Street but on Main Street. The Baby Boomer present and prospective Social Security recipients represent the largest group of U.S. IOU holders ever assembled. Their interest will supersede all others, and the House of Representatives will vote that interest. How can we geezers lose when everyone agrees that you should not "scare" the seniors by suggesting their claims are anything less than secure?


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