Friday, February 24, 2012
Second LTRO reveals market bias toward dollar bearishness
Back in December when the ECB first announced the 489 bln euro LTRO the euro currency rallied.
Now the ECB is out a second LTRO in the amount of 470 bln euro and the euro is once again rallying.
I have to admit, it's odd to see the euro's strength in the face of all this "money printing." The ECB lends $600 bln in ONE DAY and the euro goes up. When the Fed even hints at doing QE or any other form of monetary policy that adds to its balance sheet, investors are all over the dollar, selling it wildly. The last round of quantitative easing played out over six or eight months and the dollar got crushed. The ECB does it in one day and it's bullish for the euro. Go figure?
To me, this behavior exposes what I believe to be an inherent and irrational, negative bias toward the dollar. People want to sell it for any reason. Their arguments against the dollar (e.g. QE is "money printing") are not only wrong, but applied solely to the dollar and no other currency. If some other central bank or fiscal authority does the exact same thing, these very same investors are are either ambivalent or rationalize it in a way that allows them to take the opposite view.
"The ECB is printing 500 bln euro? Oh, that's bullish."
Sorry, but you can't have it both ways. Something's gotta give. Investors are clearly acting irrationally when they sell one currency for one reason and buy another for exactly the same reason. This type of behavior MUST NECESSARILY lead to a massive loss of money for those operating in this regard, at least eventually.
The problem (for me) is that, as Keynes said, investors can stay irrational longer than I can remain solvent. :(