brother disco stu's shocker - tuesday, page-52

Financial Panther:

You're only half right.

Not only do these bonds clog up the balance sheets, but the banks are caught in their own death spiral reality.

Driving down yields is not the result of QE. In fact, yields should increase, as ECB will demand more yields for the bonds it buys from countries like Italy and Spain (demanding more reward for their risk)

Hence when yields go up bond prices fall.

Mark to market is destructive, death cycle process. ECB cannot in good faith pay a flat rate for future bonds, as economic law does not permit the pricing of a commodity to be stagnant even though there is a ridiculous amount of supply out there.

Hence, every single tranche that is sold at progressively higher and higher yields, will drive the general bond pricing lower and lower.

There will come a time where the bond purchases by ECB are the ONLY buyers in the market, in which case it may be profitable for the ECB to buy an Italian bond yielding at 9%, where their cash rate is only at 2%, but for the existing holders of similar bonds who paid a price basis 5%, that represents an 80% haircut.

So the BIGGGGGGG question is - will the ECB maintain current bond yields by generating enough demand (via printing machines of course) for long enough for all these bank holdings to mature and get redeemed, so they don't have such a big haircut and take massive losses?

And the following question - when redemption is due, how will these governments repay the debt? What with?

And then the NEXT question after that - how long does the ECB need to maintain the pricing?

And finally the LAST question all bears base their shorting on - What happens when the US of A gets to this situation?


I'm bid 1 Euro for SG.