Some pretty stern commentary from BTIG’s Dan Greenhaus on the growing similarities between 2011 and 2008.Yesterday’s big global central bank intervention:
Several developments of late have certainly caught many an economist’s eye, developments which make today’s announcement from the ECB a bit less surprising. In September, both the Swiss National Bank and the ECB drew on their liquidity swap lines with the ECB, $200 million in the former case and $500 million in the latter case. However, while the SNB’s tapping was certainly about forex intervention, the ECB’s tapping was surely related to funding stresses in the region. This much is fairly well known but what has garnered a bit less attention among broader market participants has been the increase in the Fed’s foreign official reverse repurchase agreements (chart above). These agreements/operations are in place to allow foreign central banks to gain access to the Fed’s securities holdings on a temporary basis, although we are not privy of course to which banks are tapping these agreements. The current level of repos outstanding, at over $103 billion, is greater than the spike seen at the depths of the credit crisis.
To say there is a funding issue in Europe remains an enormous understatement. While U.S. funding measures such as the Ted spread or LIBOR have increased, both remain well below levels not just from 2008 but from 2010. The same cannot be said of European indicators. Euribor/OIS is roughly double 2010’s level while the Euro/USD basis swap (the cost of converting Euros into dollars) remains elevated at 82 bps.
We have to say though, the action today feels remarkably similar to 2008. If you recall, the equity market put together numerous rallies of 7-15% following any announcement that suggested policy support for the economy or markets. Remarkably, the rally from late October until early November was 18.5% in force (following a 33% drop). From November 2008 until early January 2009, the S&P 500 rallied nearly 25% (following a 25% drop) Each of these rallies were preceded/caused by some central bank or policy announcement that suggested “all as well.” But none of us will forget that it wasn’t then..and it isn’t now.
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