Investors woke up Wednesday morning to the news that the European Central Bank (ECB) had performed a “Bernanke.”
The ECB announced it was giving away free money to European banks through something it called Long Term Refinancing Operations (LTRO).
Everyone else should call it Let The Ripoff Occur.
The operation is based on the principle that nobody wants to hear the ear-piercing screams of heroin addicts suffering through withdrawal, drowning out the soothing sound of Christmas carolers.
[ad#Google Adsense 336×280-IA]So the ECB is providing more drugs to the European banks just ahead of the Christmas holiday.
Here’s how it works…
The ECB is lending long-term money to European banks at 1% interest.
Those banks can then pay down their existing short-term debt to the ECB. Or they can invest the money in longer-term European sovereign debt and collect 5%-plus. Or they can simply hang on to the funds and make their balance sheets look more attractive.
Under these conditions, it’s no surprise the banks jumped at the chance to borrow money and did so to the tune of nearly $500 billion. After all, if you were offered a chance to refinance your mortgage at 1%, wouldn’t you do it?
But the real question is… Where did the ECB get the money for these cheap, long-term loans?
The answer, dear reader, is from the same place our own Federal Reserve got its money for quantitative easing parts one and two. It printed it out of thin air.
I cannot imagine a more compelling reason to own gold right now.
Yes, the shiny yellow metal got clubbed last week. And yes, there may be a bit more downside. But with the ECB now borrowing the heroin-filled syringe of the Federal Open Market Committee, any dips in the price of gold are like early Christmas presents – unexpected and tremendously appreciated.
Banks pay 0.10% interest on savings deposits. The broad stock market is marking time, and will likely do so for a few more years. Long-term U.S. Treasury bonds pay 3% interest.
I can’t imagine a more opportune time to buy gold. You should look at last week’s weakness as a Christmas gift. Be thankful for it.
Merry Christmas,
Jeff Clark
[ad#jack p.s.]
Source: The Growth Stock Wire