Quadruple Witching, Europe Breaks Out a Band Aid

European shares rallied following yesterday’s concerted action among ECB, FED, SNB, BOJ and BOE to launch new coordinated USD 3-month repo operations. Although this is not the sustainable solution for the solvency crisis in Europe, it assures that lenders will have enough dollars. This and the reaffirmation of Sarkozy that Greece will remain in the Eurozone (which does not mean it will not default) helped lift sentiment again today. Investors are also confident ahead of US Secretary Geithner meeting with the EU Ministers. It is expected that Geithner will suggest that EFSF be used in the same way that TALF was used in 2008 when the Treasury gave credit protection to NY Fed which in return loaned the money to investors with the intent that that money be used to buy asset-backed security. Note that TALF was initiated once TARP was over – the original US bailout plan was abandoned after the Fed paid $700B to buy subprime assets from banks. TARP was the banks’ bailout plan whereas TALF was the consumers’ bailout plan, in the sense that the purpose of the TALF was to encourage investors to buy the asset backed securities which would encourage lending down to the consumers’ chain. In the European version, sovereign debt would be replaced by the asset-backed securities with the EFSF playing the role of the US treasury while ECB the NY Fed. The biggest difference is that EFSF is composed of heterogeneous countries with heterogeneous political and economic conditions. Those same countries have also persistently misdiagnosed the situation as a liquidity problem rather than a solvency one; accepting EU TALF would mean revising the strategy.
– Financials were higher on the sentiment but dropped off their highs during mid-session. UBS was also higher with the rest of its peers from yesterday’s loss of over 10% in the market.-TTN

The S&P has rallied about 60 points in four days and the hedge fund performance chasers may run this to the 1230 level or higher by quarters end. Today is quadruple witching, so expect high volume and perhaps volatility.

Long TNA, AMZN, CMG, WLT, AAPL . Finger close to sell buttons.

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