Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Suspicious in today’s leaking was no word from the 2 most important banks in the world, insofar as size and center of crisis: the Fed and ECB. Perhaps they will join the party in some form of global coordination announcement “soon” but only a week after the ECB did not even cut rates and days ahead of a FOMC meeting it seems like strange timing. That said what today’s announcement (leak) was, was something that more or less was always “known” – if some crisis happens the world’s central banks are prepared to provide liquidity. Duh, that’s what they always do. But in a market lead by headline reading algos, and trigger happy traders any news item with the world “central banker” must mean buy buy buy. These were not rumors of “easing” actions, they were simply rumors of proposed liquidity actions – but again, the details are best left for those who do not need to react in 0.0001 second to compete with an algo.
That said, after the close the Bank of England and their Treasury did announce what appears to be more like an easing program (sorta). Weaker and weaker collateral will be accepted at the central bank, akin to what the Fed did during our crisis. And Mr. King did say the case for more monetary easing was building. Again very interesting timing considering the bank met within the past fortnight (British reference intended) and chose no action. Conditions have really changed that much in less than 2 weeks?
It does appear the “market” is believing the Greece election will go in the direction of “pro bailout” – Greek banks were up across the board 20%+ today – many are close to penny stocks of course. But if they don’t elect the extreme groups then we don’t get central banker action… and that’s bad right? So do we now not want to see the extreme groups elected – because that makes our stock market go higher via manipulation? Another hit of heroin to the global financial system…please? Who knows anymore. Oh what a twisted web we are weaving.
Anyhow more on BOE/Treasury via FT Alphaville:
Bank of England governor Mervyn King did announce the activation of cheap, long-term funding for UK banks against wide collateral in his Mansion House speech on Thursday.
But there’s an element of credit easing…
What I can say tonight is that the Bank and the Treasury are working together on a “funding for lending” scheme that would provide funding to banks for an extended period of several years, at rates below current market rates and linked to the performance of banks in sustaining or expanding their lending to the UK non-financial sector during the present period of heightened uncertainty. The Bank would lend, as in its existing facilities, against a much greater value of collateral comprising loans to the real economy to protect taxpayers. But the long term nature of the lending and its pricing mean that the Bank could conduct such an operation only with the approval of the Government, as offered by the Chancellor earlier. So such a scheme would be a joint effort between Bank and Treasury. It would complement the Government’s existing schemes, and tackle the high level of funding costs directly. It could, I hope, be in place within a few weeks.
On liquidity, I want to make clear that the Bank, through its discount window and other facilities, will provide banks with whatever liquidity they require given the prospect of turbulence ahead. Last December, the Bank announced the new Extended Collateral Term Repo Facility under which auctions of short-term sterling liquidity can be held at any time. It is now time to activate that scheme, in the words of the Bank’s Red Book, “in response to actual or prospective market-wide stress of an exceptional nature” over the coming weeks. The Bank will start holding auctions of sterling liquidity with a maturity of six months, and tomorrow morning the Bank will issue a market notice explaining details of the timing and size of these auctions.
The governor added that “the case for a further monetary easing is growing”.
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In summary none of this has a damn thing to do with earnings growth, revenue prospects, cost of goods sold, margins, or even technical analysis. It’s just a great parlor game of global central banker betting…
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