Wednesday, November 30, 2011

All central banks coordinate action

Yesterday the Financial Time announces that the Euro had 10 more days, Moodys downgraded a bunch of banks, and this morning Global QE3 was jut announced (coordinated central bank action, Europe, Switzerland, USA, Canada England).  So borrowing dollars (swap rate) has just become a lot cheaper.  If past performance is any indication of how long this will push stock price, I would say December 31st 2011 for a high (S&P 500 could even breach the 1,300 level -- its at 1,225 this morning).  This is not a market for short players.

Eventually, the world will realize that yes there's a liquidity problem, but there a more dramatic solvency issue here too.  The question is will this help?  Because although a cut int he borrowing cost is nice (in 2008/09 US banks generated $13 billion in profits from borrowing cheap (s/t) and the lending the government (l/t) and milking that zero cost yield curve, the fundamental problem is that if you don't trust the counterparty (i.e. other banks) to be around in a few months, there is only one interest rate that interest you 100% payable upfront!


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