Saturday, June 7, 2014

Let central bank money printing be your friend

The European Central Bank brought out the liquidity bazooka last week.

The European Central Bank (ECB) took the unprecedented step on Thursday of imposing a negative interest rate on banks for their deposits—in effect charging lenders to park money with it.
The move was part of a series of measures to combat the euro zone's growth-sapping disinflation and give a push to its stuttering economic recovery.


The initiatives included longer-term refinancing operations (LTROs), in which the ECB lends to banks at low interest rates, in order to encourage them to lend to households and non-financial corporations.

In addition, he said the ECB had undertaken "preparatory work" in order to conduct a form of U.S.Federal Reserve-style bond-buying by purchasing asset-backed securities (ABS) from banks.
Furthermore, Draghi said the ECB would cease sterilizing the liquidity injected from its Securities Markets Program. The program involved the purchase of bonds from troubled "peripheral" euro zone countries.

Now I do not endorse central planning by central banks. I also think all this money printing by all these central banks is going to end very badly. Nevertheless when Japan and the US engaged in massive QE their stockmarkets moved substantially higher. There is reason to think the same thing will occur in Europe. I am getting long the Euro Stocks 50 ETF (FEZ) as a low risk speculation. This is an exchange traded fund that represents the 50 largest companies in Europe. I will also be looking at some speculative positions like Greek banks and also stocks in Cyprus which are down 90% from their peak.

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