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You can put a lipstick on a pig, but it’s still a pig.

The European Central Bank calls its operation to provide liquidity to banks Long Term Refinancing Operations (LTRO).  But what the ECB is really doing is its version of Quantitative Easing.

They said they wouldn’t print money. But that’s excactly what they are doing. You just have to look at the size of the ECB’s balance sheet to conclude that. The two versions of QE here in the U.S. led to an explosion of the Fed’s balance sheet. Notice in the chart below that the same is now happening with the ECB’s balance sheet.

For the past six months the euro has been moving lower because of the debt crisis. It has dragged everything down with it, including commodities and stocks. But now that the ECB is printing money, what will happen with this correlation?

In theory, printing money should be great for stocks and commodities, and bad for the euro. So we should see this correlation breaking down. Euro should move lower, and commodities higher.

The problem is that everyone is shorting the euro now. It’s the most crowded trade. I still think the euro will move lower, but before shorting it I would like to see a significant rally.

Regarding commodities, I think we will need to see better economic data coming out of China. In other words, we need more proof that China will not have a hard landing.

In 2012, if we get a combination of ECB and the FED printing money, and more signs that the economic situation in China is stabilizing, commodity currencies will have a big rally.

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