"The credit team at Citi came out with a note on Friday entitled “Artificial life and Dolly the Sheep”. It contained this rather eye-catching analogy:
at http://ftalphaville.ft.com/blog/2012/01/20/843301/the-ecb-creates-artificial-life/
It’s been the dream of Sci-Fi fans for decades. 18 months ago US scientists announced they had created a living cell controlled entirely by synthetic DNA. Arguably, the ECB can now claim a similar achievement, having revived markets from the brink through its massive liquidity injections. At least to our minds, the rally is entirely artificial – but that’s not to say it won’t have legs.Artificial though this rally it may be, don’t doubt it’s ability to feed on itself, especially given low inventory levels:
The ECB’s LTROs have succeeded in breaking the negative spiral of rising risk aversion, poor asset performance and forced selling. Money is cheap, and every day, confidence is building little by little, prompting buying. The resulting asset performance in turn raises confidence further. The lack of street inventory implies small shifts in demand have a much bigger impact on spreads than in the past.But pssst! the fundamentals just aren’t that good:
The fundamental story remains bleak. Despite a mild winter the European economic data isn’t really improving. Our economists have just lowered their Euro zone growth forecast for 2012 from -1.2% to -1.5%. Spain’s Budget Minister Montoro has just warned the country may miss its 4.4% budget deficit target for 2012. The earnings season has been decidedly mixed, with about 60% of US S&P 500 companies beating to date – much lower than in past quarters.So if traders are in a dream, what’ll wake them up?..."
at http://ftalphaville.ft.com/blog/2012/01/20/843301/the-ecb-creates-artificial-life/
