Friday 13 March 2020

ECB and Fed unleash a $5Tn bank subsidy/ monetary carpet bombing

We are not so much witnessing a monetary bazooka being fired, as a coordinated carpet bombing

The Fed is offering >$1.5Tn to repo to Primary Dealers to buy Treasuries and clip coupons when they cut rates and resteepen the curve next week.

The ECB announced a TLRTo worth EUR2.3Tn. At -0.75%. BTPs yield 1.8%... and can be bought with no capital charge by say Deutsche Bank.

So spell this out for those who are a not focussing.

If Deutsche Bank's market cap is €11bn and they can borrow from the ECB at -75bps and buy BTPs at 1.8% with no risk and no capital charge, how much of the ECBs €2.3Tn TLTRO announced yesterday do they need to use to make €2.5bn net profits and be on 4-5x P/E, based on this one TLTRO alone?

With some operating costs and taxes Im guessing about €130-140bn?

That would put them on 4x P/E just from this TLTRO. Surely even Deutsche cant screw this up...

There was also EUR800bn of capital relief per the twitter note below.

The Chinese cut the Reserve Ratio and that was worth $80bn or so.
The BoJ and BoE also took actions.

So in summary, between the ECB and Fed alone we just saw far in excess of $5Tn thrown at the markets...

Question is what to buy.

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