This morning the European Central Bank (ECB) announced the results of the second round of its Long-Term Refinancing Operation (LTRO). The bank loaned a total of €529.5 billion to 800 different banks within the currency bloc, both numbers slightly higher than expected, but well within the anticipated range.
What on earth does that all mean and what are the implications for markets? In the attached video Simon Baker CEO of hedge fund Baker Ave Asset Management helps us find some answers.
Baker characterizes LTRO as Quantitative Easing with a European accent. "The ECB has gone in and provided liquidity for a lot of these countries," he says. Which is obviously something less than "organic" but the liquidity injection has accomplished what it set out to do, says Baker citing Italian 2-year debt yield dropping from 8% to 2.5% over the last 12 months.
The issue dominating mind-share in financial circles isn't so much whether or not a Central Bank can manipulate rates in the short-term. Obviously it can. The rub is controlling borrowing costs doesn't solve member-nations' core problem.
"The real issue is how do (European nations) grow their way out of this?," ask Baker. "We still have no visibility on that."
Speaking of Central Banks, liquidity jams and limited visibility on economic growth, Federal Reserve Chairman Ben Bernanke is delivering his semi-annual testimony to Congress today and tomorrow.
Formerly known as "Humphrey Hawkins," the testimony is something of a wonk-fest during which Bernanke is widely expected to reiterate what has been his message for months: "Monetary policy isn't a panacea, we need fiscal help and I'm not sure about the economy."
In other words, "It's business as usual from Bernanke," as Baker puts it.
It's easy to be cynical about the machinations of global central banks by the scale and scope of liquidity efforts. "Never in history have the five largest central banks coordinated on any kind of easing," notes Baker. As if that weren't enough Baker says there are "over 100 different central banks doing some kind of easing."
Will it be enough in the long-run? Probably not but betting against the impact on equity markets has been a losing proposition, particularly in the U.S. where stocks have responded almost precisely the way the Fed seemingly wanted.
We're all in this together, both as citizens of the world and individual investors. We want to know how you're playing it. Tell us in the space below, via our Facebook page or Tweet me @Jeffmacke and you can reach Simon Baker @CheekyTrader.