(Chapter 20)Do you think the 「LTR O」 launched by the European Central Bank, to solve the debt crisis of the Euro area?



The LTRO “What is the significance?” If I tell you, this is an unfair administrative initiative, will you agree?


Long-term refinancing operation is simply:


First of all, the European Central Bank, reducing the quality of the collateral for the bank to provide loans.

然後,歐洲中央銀行,再以1% 的極低亷利率,向銀行注入資金;銀行領得貸款後,把借款用來購買歐洲國家債券,套取利息差價,銀行再將購買回來的歐洲債券,再向歐洲中央銀行,作為再度融資之抵押品,如是者循環運行。

Then, the European Central Bank, and then to 1% of very low interest rates, into the bank funds; bank after receiving the loan, the loan used to purchase the bonds of European countries, taking interest on the difference. European government bonds, the bank will buy back again to the European Central Bank to take out a mortgage, as a second loan, in the case of cycle run.


The operation of this revolving loan, equivalent to the European Central Bank, to use the roundabout way to give money to the bank.

這些措施,對其他人來說,根本不公平 。

These measure others simply unfair.


So, this financial arrangements: the European Central Bank, start the machine to print money, the money given to banks, the bank bought bonds, most of the money, or flow back into the central bank.

LTRO的全文是:Long Term Refinance Operation,即長期再融資操作。

The LTRO the full text is Long Term Refinance Operation, namely long-term refinancing operations.
Why is it so important?


Please take a look at the following reality:

西班牙財政部於2011/12/20: 賣出了37億歐元3個月期國債,收益率為1.735%,而11月份同期國債的平均收益率為5.11%。

2011/12/20: Spain Ministry of Finance sold 3.7 billion euros of three-month Treasury yield 1.735 percent, while in November the same period the average yield of treasury bonds was 5.11%.
The Spanish government bonds, the issue of over-subscription ratio: 2.9 times.


Spain’s six-month Treasury yields fell from 5.227% to 2.435%, the issue of 1.92 billion euros, the oversubscription of 4.1 times.


Let’s look at: substantial decline in the rate of returns to investors.


I need not remind, you can see, the rate of return of investors, the decrease is too great, and this, I do not care, but the reasons behind fascinating.


In simple words, the European Central Bank, the Bank’s injection of administrative arrangements, may become a new “carry trade", this, even I do not understand what is the matter?


In essence: the banks from the European Central Bank, with a very low interest rates (1%) loan, then, banks use the money, buy the bonds of sovereign states, to earn the interest gap in the middle.


For example:
You purchase three months of the Spanish government bonds, you can earn 0.735% of the proceeds.
If you buy a 6 month bonds, you will earn 1.435% of the proceeds.
This “carry trade" has made short-term bond yields, has undergone tremendous changes.


Dear readers, I believe you will see that such an arrangement, the excellence?


Although, the European Central Bank’s long-term re-financing operations, and not fundamentally solve the problems of the financial crisis in Europe, such an arrangement, however, to the debt crisis, alleviate the time and later blasting.


Long-term refinancing operations, the European Central Bank to become the middleman of the whole process, because the European Central Bank, not a country, cannot be directly purchased the national debt of European countries.


European Central Bank, only as the role of printing money, when more than 500 banks worldwide, to get cash, they can go to buy the bonds of the various countries of Europe. Then these bonds, returned to the European Central Bank, as a continuation of the collateral of the loan.

As a result, the bonds of these countries, and ultimately: or return to the European Central Bank vaults.


The so-called “rescue the financial crisis," the operation, complete with Geithner and Bernanke, to cope with financial crisis taken by the way, very similar.


Therefore, the financial markets, many investors or some European countries are against the use of this so-called “save the financial crisis" operation.

Against the use of these measures, “to save the financial crisis," as summarized below:

1. 在現階段,已經負擔巨大風險的銀行:為什麼?還要購買更多的歐洲國家債券?

At this stage, the burden on the banks of the huge risk: why buy more European countries’ bonds?


2. Assumptions: the European Central Bank placed in the vault of the national debt, once again, the rating agencies continue to downgrade.
So, the European Central Bank vault, has already been installed overflows government bonds, the European Central Bank will be how to deal with?
Because of the financial crisis erupt at any case, the purchase of the heavily indebted countries debt, after all: it is full of risks of trading.


The first question, “Why?" It’s hard to refute.


The second question: “What if" it is easy to explain?


Since the European Central Bank, has been relaxed conditions of the quality of the collateral bonds, “downgrade" can still become the collateral for the loan; like the U.S. Federal Reserve, the implementation of the first round of quantitative easing policy, practice, exactly the same any securities, bonds can become collateral for the loan.


In any case, the European Central Bank, the higher the amount of loans, the risk appetite of investors, the more strong.


Long-term refinancing operations plan to solve the debt crisis continues to spread down?

These initiatives, is absolutely impossible to solve the debt crisis in Europe.


However, the advantages of long-term refinancing operations plan: It can postpone the time of crisis; can re-establish confidence in financial markets.
Dear readers: LTRO this new term, is too important, we should be in-depth study its connotation.


The following narrative is a message from Bloomberg:


If man really has a “future life", I would like to become a “bank", because every government and the country’s central bank, and hope that the “I" can life thrive, even in sleep, but also earn the money.


European Central Bank in 2011, the introduction of three-year period amounted to 4,891.9 billion euros LTRO, the European Central Bank interest rate to 1% of loans to European banks, to help banks to ease the liquidity difficulties, to avoid facing banks, debt maturity, fail to raise enough funds to cope with debt difficulties from the traditional markets.


In addition, the British “Financial Times" quoted a source said: because European banks are increasing demand for liquidity, the European Central Bank’s long-term refinancing operations (LTRO) the amount of funds, increased to € 1 trillion, the European Central Bank further increase in cash, will add pressure to the euro again.


In 2011, the European Central Bank to provide up to three years, the upper limit of loans, lending hundreds of billions of euros of funds dedicated to the European banking system. At that time, a total of 523 banks responded, ultimately, lent 489 billion euros, exceeding the expectations of the market.


The European Central Bank, the implementation of long-term refinancing operations, there are two layers of intention:
The first is: the implementation of long-term refinancing operations the elimination of market panic, reduce the pain of troubled European banking sector as a whole financing, to avoid the disastrous “credit crunch".


According to estimates, the European banking sector, there will be approximately € 650 billion of short-term debt will be due at the end of 2012, the loan from the European Central Bank, just to alleviate the urgent needs.


The second is: the European Central Bank, banks to obtain loans, to the allocation of funds to the debt-ridden countries, inhibition of the European debt crisis, and further deterioration.


However, the European Central Bank, ignoring the most important key: these operations, the central bank must be able to stimulate new lending, consumption and investment in order to contribute to rescue Europe’s debt crisis and GDP growth, in fact, access to these loans to banks, but did not release loans to corporate power.

As the European banking industry is facing to reduce the size of the balance sheet and the risk of pressure at the same time urgent need to strengthen capital base, further holdings of euro area member states’ interest in government bonds is limited.


The European banking industry, preferring the hands of ample liquidity, stored in the European Central Bank’s overnight deposit accounts, or for debt refinancing.


The European banking sector, are more willing to funds deposited in the European Central Bank, rather than lending to other banks, the reason is: fear of counterparty, to be sacrificed in the euro zone sovereign debt crisis.


Many investors believe that the European Central Bank three-year, no ceiling on lending mechanism, regarded as a “disguised" quantitative easing (QE) initiative, because the central bank, and there is no limit to the bank, take these loans to buy bonds issued by euro area countries.


However, the combination of banking, not willing to buy the country into a debt crisis, the issue of state bonds, therefore, the European Central Bank is currently implementing a disguised form of quantitative easing effect, may be far less than the direct introduction of the quantitative easing policy more effective.


European Central Bank, the second batch of up to three years of refinancing operations, will be February 29, 2012, it is expected that the effect is not significantly.


Now it seems that the European Central Bank, the implementation of all initiatives, just in response to the European debt predicament to get some more time.


European financial officials to restore confidence in financial markets, the leadership of the European Central Bank, have to shoulder a greater mission.
“Lender of last resort" This hat is sure to buckle on the top of the head of this group of leaders.
The increase in European currencies, the prospects for the euro, will eventually and gradually bring the downward pressure of the euro currency.

斯圖加特的Landesbank Baden-Wuerttemberg銀行分析師Jens-Oliver Niklasch形容:

Jens-Oliver Niklasch, an analyst at Landesbank, Bank of Baden-Wuerttemberg in Stuttgart, describe:
The European Central Bank raised the long-term refinancing operations are:
“It’s basically money that falls from the sky, impeccable condition, everyone wants a slice."


The European Central Bank recommends that: just use a very low cost, and to inject a lot of money to the bank, the Bank will actively apply for this come out of the pie.


European Central Bank, in order to alleviate the shortage of bank liquidity cash, launched on the banks of the three-year financing Loan Scheme (LTRO), financial markets have been hoping: financing projects can be equated at once disguised rescue of banks, because of the increased more liquidity in cash, to address the reality of sovereign debt, national debt must be repaid.


LTRO this plan, an increase of some qualification, list of banks financing from the European Central Bank, in fact: the European Central Bank, the loan must be eligible collateral requirements to reduce the bank be able to use the risky assets as collateral, banks have to pay a certain amount of a fine, but the European Central Bank, the statutory reserve ratio by 2% to 1%, banks will be able to use less collateral to obtain loans.

The five countries each month the total debt due
希臘 愛爾蘭 西班牙 葡萄牙 意大利 五國每月到期債款
Greece Ireland Spain Portugal Italy the total debt due a month
01-2012 43.60 4.74 154.47 39.63 165.95 408.39
02-2012 25.07 0.04 150.37 42.53 630.50 848.51
03-2012 174.51 62.09 94.86 28.32 516.98 876.76
04-2012 20.68 13.03 268.94 10.11 463.92 776.68
05-2012 115.46 0.00 89.23 3.68 194.47 402.84
06-2012 29.91 6.39 67.58 120.49 111.95 336.32
07-2012 30.49 0.00 315.83 10.54 271.16 628.02
08-2012 96.79 0.05 75.44 3.90 280.27 456.45
09-2012 10.19 0.19 78.15 6.12 263.73 358.38
10-2012 11.75 12.01 316.81 17.75 292.34 650.66
11-2012 0.87 0.00 28.53 0.52 227.78 257.70
12-2012 23.35 0.36 57.93 14.74 407.37 503.75
總債款 582.67 98.90 1698.14 298.33 3826.42 6504.46
資料來源: Bloomberg

This blog, written in 09-02-2012, Hong Kong time is 0.05am, the price of the euro against the U.S. dollar is: 132.88/93.


I am sure: from this moment on, the medium term, the euro will gradually decline. Investors should be able to seize the opportunity to sell the euro.


In my opinion: the Bank of England to determine: £ 75 billion quantitative easing loan amount, used to save the crisis of British economic decline. Say: British printing cash, global funds, must be immediately flooding, asset and commodity prices, including: Gold, Australian dollar, New Zealand Dollars and Canadian Dollars and other currencies will rise up.


In addition to the British Government will introduce quantitative easing policy.
February 29, 2012, the European Central Bank, but also a lot of possibility will be introduced, long-term refinancing operation of the program, which is called: European-style quantitative easing policy.
At this time, the global capital will be more flooding, the Australian dollar rose to break the $ 1.1; the price of gold, re-increase of $ 1,900 is not impossible.


Dear Readers: Here’s a key point, we must understand: regardless of the stock market, commodities and currencies. If investors expect that they will rise further, must match the one of the following two conditions:

The first is: the United States or global economy, the continued strength or signs out of the haze, investors on the prospects expected to be optimistic about the objective environment, financial markets will lead to rise;


The second is: central banks continue to print money, continue to implement quantitative easing policy, because these initiatives will contribute to the investment market, the strength continues.


Let me say again, look forward to the global economy improves in a short period of time, to drive investment markets rise, is an impractical idea. In my opinion: only able to commodities, currencies, and gold pushed up.
Largely rely on: the central bank of each country, competing to print money.

The fact is: the national central banks, each ready to start printing money machine.

部份參考資料來自:Part of the reference data from:

筆者在本站網誌發表的所有內容,純屬個人意見分享,並未對任何人士構成投資建議 。

My blog published on this site all content is purely personal opinion to share, did not constitute investment advice for any person.




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