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Wednesday, December 21, 2011

ECB rolls out cheap money

The chase by Marty Cej:

European stocks are mostly higher and U.S. stock index futures are pointing to early gains after the European Central Bank said it will lend the region's banks a record 489 billion euros for three years, almost double expectations. The loans, at a sporty 1 percent (at these prices, you'd be crazy not to borrow!), provide Europe's cash-strapped banks with plenty of liquidity for the foreseeable future and should bolster confidence in the European financial industry, economy and the ECB's commitment to stability. In the simplest terms, European banks can borrow from the ECB at 1 percent and lend to companies, consumers and governments at much higher rates, pocketing the difference. Yes, Virginia, the ECB is a central bank. The true test of the efficacy of the ECB's plan, however, is not the demand from the banks but the demand from the banks' customers.

With just a few trading days left before the New Year, time has all but run out for a Santa rally. So far this month, the S&P/TSX Composite is down 4 percent, the S&P 500 down 0.45 percent and the Dow Jones Industrial Average up a measly 0.48 percent. Volume is low, tax-loss selling is picking up and many of the headwinds that buffeted financial markets through 2011 continue to blow.

There is still plenty of time left this year for us to label and list the challenges and opportunities investors will face in 2012. Yesterday's conversation with economist Joel Naroff was an excellent example. One of the most accurate forecasters for the U.S. economy in recent years, he surprised us when he argued that the world's largest economy will grow much more briskly next year than most economists and investors expect. Outliers… I love 'em.
Speaking of outliers, Edward Zarbitsky at ACI Research is the only analyst

anywhere who has a 'sell' recommendation on Apple stock. He joins us at 10:00 a.m. ET.
The market is talking about Research In Motion today after Reuters reported late yesterday the company rebuffed talks with Amazon that could have led to an offer. Citing unnamed sources, Reuters reported that Amazon hired an investment bank to kick the tires but RIM executives decided to fix its own problems rather than court outsiders. The Wall Street Journal followed with a story of its own -- again citing unnamed sources -- that Microsoft and Nokia considered a joint bid for the BlackBerry maker.

No matter how flimsy the speculation -- who hasn't spit-balled a bid for RIM this year over their third dirty martini at a wood-paneled pub with the word "Olde" in its name?? -- the stock rallied as much as 10 percent overseas and is higher in the pre-market. We've contacted all the principals, none of whom comment on market speculation, and will continue to test the logic of the potential tie-ups that have been proposed.

The tech sector will be a busy on today after Oracle reported after the close of trading last night. The world's second-biggest software maker missed both revenue and profit expectations and said that customers are taking longer to assess and close deals. That level of caution among companies can tell us plenty about the software and hardware industries, as well as the broader economy. The Oracle story today is bigger than Oracle.

The TMX Group said a few minutes ago that it has purchased a 16 percent stake in the Bermuda Stock Exchange, scoring a seat for TMX CEO Tom Kloet on the BSX board and some choice tee times. The TMX says the deal "represents TMX Group's commitment to looking beyond Canada for opportunities."

While that is true, I'm curious just how big an opportunity the BSX provides. It's not exactly the Hong Kong Stock Exchange. We expect to have a conversation with the CEO of the BSX later this morning.