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Is the LTRO to 2012, what TARP was to 2009?


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When TARP was about to be launched, it was not as obvious as everyone may think. Most market participants were extremely pessimistic about it's prospects or success, only after the fact did investors look back and mark the bottom the date when market partcipants re-entered the market due to Geithners announcement of the PIP as part of the TARP.


On February 10, 2009, the newly confirmed Secretary of the Treasury Timothy Geithner outlined his plan to use the remaining $300 billion or so in TARP funds. He intended to direct $50 billion towards foreclosure mitigation and use the rest to help fund private investors to buy toxic assets from banks. Nevertheless, this highly anticipated speech coincided with a nearly 5 percent drop in the S&P 500 and was criticized for lacking details.


On March 23, 2009, U.S. Treasury Secretary Timothy Geithner announced a Public-Private Investment Program (P-PIP) to buy toxic assets from banks' balance sheets. The major stock market indexes in the United States rallied on the day of the announcement rising by over six percent with the shares of bank stocks leading the way. P-PIP has two primary programs. The Legacy Loans Program will attempt to buy residential loans from bank's balance sheets


Looking at the LTRO history doesn't always repeat itself but sometimes it rhymes:




Everyone knows where I stand, I am massively long, so I am just looking for more reasons to confirm my bias, but I have been hearing some good things about LTRO last night and today from my friends who have been on the sidelines. More tidbits from my network, most of the fund managers I know are 20-30% Net long at the moment and have experienced redemptions of less than 10% of AUM as of last week.


Italy has had the same debt to gdp level for nearly 20 years, there was no change in fundamentals, rather bond vigilantes driving yields up unwilling to lend. Spanish Bond auctions last few days confirm that to a certain extent, sovereign debt markets serve a purpose as a safe harbor for capital, and if the LTRO helps reduce yields and bring back normalcy into markets, I believe we can see risk capital return to equities.

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