Overnight Trade

The Asian markets are unsettled, there has been some upside pressure on the Euro as I showed you, interestingly, commodities (oil, silver, copper and gold) were all under pressure. To be fair gold was under pressure because of price stability curbs the PBoC in China put in place overnight.

Italian 10 year BTPs which closed Friday at 6.98% are back above the 7% mark.

As for the European Central Bank's faux QE, the LTRO (Long Term Repo Operation) in which they took any "A" rated or better collateral (the better collateral the banks surely held to use in private financing, sticking the ECB with their dirtiest laundry) and lent (net) over $220 billion Euros for 3 years, which the banks where theoretically supposed to use to finance a carry trade in which they took the 1% money and bought 6 or 7% yielding BTPs and other sovereign debt, as we saw last week already was showing signs of being an abysmal failure as banks redeposited the money with the ECB for safe keeping and BTPs which should have moved down because of the theoretical buying, actually moved up.

Last week, a day after the LTRO was conducted, the ECB saw a 2011 record usage of their deposit facility, the banks put the money there for safe keeping as no on trusts anyone as far as any kind of lending of private broker repo / bank activity as there is a freeze in liquidity in the traditional cash markets as well as the repo-reverse repo shadow banking system.

Last week the ECB saw $82 billion Eur deposited after the LTO bringing the facility to a 2011 record of $347 billion, but think about how much of that came in 1 day after the LTRO-$82 billion! I don't think it was any coincidence.

Well today, overnight the ECB has set a new record in its deposit facility usage as banks deposited another $65 billion overnight to bring the facility's usage to an ALL TIME NEW RCORD HIGH of $412 billion Euros.

remember last week we saw something very similar when the US Treasury auctioned off 4 week debt and had 9 times more bidders then paper for sale, the interest rate the paper yielded was a big fat, exact 0.00%, so US banks and others were willing to take an absolute return of 0% just to safely park money at the Treasury, and even worse, whatever they are afraid of, this was a 4 week auction, meaning they are very afraid to have their money in banks or other institutions over the next 4 weeks, so much so they are willing to have 4 weeks of opportunity cost and make 0% for it.

The KICKER in Europe is the banks borrowed the money at 1% and earn only .25% in parking it at the ECB's Deposit facility, so in the US banks are willing to earn ZERO on their money, in Europe, they are willing to PAY .75% to keep it SAFE!! And there aren't problems in the banking system MUCH bigger then we comprehend (sarcasm)?

I think we can officially conclude that Sarkozy's dream that the LTRO would be used to buy sovereign debt is now a nightmare as the money goes out of the ECB to banks and then comes right back in as they are terrified of using it for any other purpose then increase their capital ratios.

In signs of further trouble, the German 1 year Bund has dropped to levels BELOW ZERO. When this last happened was in late November, just before the coordinated Central Bank action to provide liquidity (as speculation was 1 or more major banks was on the verge of failure).

As far as earnings news, Sears (SHLD) pre-announced and is getting slaughtered, down over 19% this morning on Q4 results.  The results reflect what has been thought the entire time about the holiday season, retailers were dumping in volume on ultra thin or non existent margins. This will lead Sears to close 120 K-Mart and Sears stores.

Updates are coming, I want to give the market another 30 mins. to settle in. If you didn't already, please check out the 10 min video posted last night below.