GERMANY’S DAX ON PACE FOR 143% RETURN IN 2012…
Europe’s LTRO has far surpassed most investor’s expectations and my brief rental of German equities in September is now looking like a mistake. The LTRO program has proven far more beneficial than I expected it to be and European stocks have boomed since Q3 last year with German equities surging almost 40% from their lows.
But the real story for equities has been in 2012. So far this year the S&P 500 has yet to experience a single -1% down day. And while the S&P 500 is up almost 6% YTD, its performance is nothing compared to German equities which have been the primary beneficiary of healing in Europe. The Xetra DAX is up 14.5% year to date! For those playing the trend following game, that’s a 143% annualized return….My guess is some German equity traders are packing it in the for year after a very healthy gain….After all, 145% annualized isn’t exactly sustainable and 14.5% is a pretty good year given the way this market has yo-yo’d these last few years….
Don’t fight the ECB!!!
The long-time old adage for U.S. equities used to be: “Don’t fight the fed”. Is the new mantra for 2012 now: “Don’t fight the ECB”? It looks that way. I read somewhere that a second LTRO is planned by the ECB for late Feb. The source said they expected this second LTRO to be more than double the first, an estimated one Trillion! Is that a rumor or a fact at this point? Should we rent this German equity rally for a couple more weeks?
No one knows the size of LTRO II until they do it, because the size depends on demand.
Does this LTRO get into the economy better than QE program and thus stimulate the growth in the economy and avoid the recession that Bernanke mentioned today is already occurring in Some Euro countries ?
That 40% from the bottom is a great return and I wish I had been on board but I was not. Is there any way to predict these things in advance and then benefit from them?
When US first did TARP the banks healed and came back in price but later they fell hard again. Could this also happen in Europe if in fact the growth in ecomomy does not follow the growth in available LTRO. Still if there is to be a doubling in the LTRO at month end should an investor go along for potential additional move?
Someone smarter than I may shed some light!!
@ LRM-
I think you end up with two winners. Those that speculate should profit but they have the finger to switch the risk button off quickly. And those that wait(whos should not engage in what they don’t know)..should benefit once the LTRO ends and we have competing LTRO IV(Monti like s roman numerals) vs. QE4.
Me..I’m the latter. It’s too risky for my expertise. It’s not my job to get in front of LTROs. I don’t have a clue and could never explain what I was doing to a jurry of my peers. I’ll stick to what I do best and front running the LTROs is something I’ll have to steer clear of. Because of what I just wrote…I think it will work and you will make money.
It seems the stupidest logic to invest sometimes produces the best returns. Heck…maybe I will buy European financials.
@VII
It seems you also like Roman Numerals!!
Thanks for the feed back.
I assume from past posts that you are financial planner of sorts and that you would have to look someone in the eye and tell them why you made an investment.
Of course if it makes money they will probably not ask too many questions but if you guess wrong it could be the firing squad .
The trouble is that these days as Bernanke stated today, he knows that at <2% on ten UST he is PUSHING savers out of safe investments into more risk to STIMULATE the economy. This is his plan. But if one has a low risk profile, one may wish to increase position in low risk to scrap as much additional income as possible thus reducing equity position.
If on the other hand UST yield was higher, then one would need less UST and be able to devote more to equity.
I obviously do not think like Bernanke!!So (those should not engage in what they don’t know) eventually may have to as capital erodes over the next 2-3 years of ZIRP . I will hold out as long as possible for a good return at a good entry re risk
Well everything is up in Europe now. The italian banks are up 20% or so, BTPs are up, bonos are up. Everythink seems 100% correlated, copper, gold, silver, stocks, tell me what is not. So now: what does it mean ? Is it a market ? In a ZIRP world what a normal John Smith or Luigi Rossi or Karl Schmidt should do ?
Then look at the real economic data. Are they so much better ? Is average Joe’s income going in the right direction ? Are we investing in education more or less ? I can continue for hours…
Speak clearly: we’re in a global financial fascism where the REAL differences (that is what matter to average Joe) between USA, Europe and China are almost nil.
It’s funny you writing about the German traders selling in February and walking away as I was just writing the possibility of a similar performance scenario in the Wall Street melt up in 2012.
Apparently the Germans beat us to it lol.
LRM = Anonymous
“…German equities which have been the primary beneficiary of healing in Europe.”………. ??Healing??
This feels just as “healing” to me as QE-2, which led to a bernanke put where the markets could not go down for a year. Cullen, on that one, you did not call it a “healing” and I would not call this a healing either. I would call the German market melt up an investor relief rally where the investors don’t really understand that more euros are not really being created and the can is being kicked even further, eventually leading to bigger write downs. WHEN this credit fueled rally will collapse, I have no idea, but that it WILL collapse is implied by the fundamental construct in the creation of the euro.
I’m expecting Greek riots to start fairly shortly…… and I’ll still go with your “short” on your algo….
Greece doesn’t matter (except to Greece) It is too small.
LTRO takes Great Depression II off the table because it prevents the only possible transmission mechanism of a Great Depression (cascading bank failures) from taking effect. Whatever else it does is debatable, and may depend on what the ECB and its big players are doing in private.
I missed the German stock rally because I was waiting for the Euro to drop some more. oops.
Andrew,
I will disagree with your conclusion. No net euros are being created by the LTRO. Liquidity is temporarily being injected into the system, but this is simply allowing more sovereign debt to be purchased without any means to retire the debt, which would require new euros being created. This can only be done through a fiscal intervention, not a monetary intervention. As yet, this mechanism does not exist. Perhaps Greece is too small, but the LTRO does nothing to prevents Portugal, or Spain, or, or or….from going down the Greek path. It may just take longer………
Right rhp,
When the ECB lends out cash for long term liabilities that would be worth 70% of their face value if they were marked to market, it is money printing in my book… temporarily money creation, but creation none the less.
I don’t understand why so many people are surprised with this rally, especially in the US. It was quite clear to me that those banks would try to make a profit in equities of the LTRO program from the get go. You have 1% interest over a 3 year period with those loans. Had you put only half of this capital, that most banks don’t need right away, to work in the stock market you would have made a substantial return already. I’m glad I did. And it is a self-feeding rally, there is still money on the side from people that were too cautious and finally realize that they will miss out on that huge opportunity. It is a bit late now and the way this kind of moves end is usually brutal.
But hey! LTRO part II is coming out soon.