There has been a fair amount of cheer in world markets since late December, and thus far in January. I think the root cause is related to the European Central Bank's long-term refinancing operations.

I have said all along that LTROs are the functional equivalent of quantitative easing -- the Federal Reserve's bond-buying/money-printing programs -- even though the ECB denies that is the case.

However, I believe it is now becoming apparent to people that the ECB is only fooling itself, and they are starting to contemplate what the next round of LTROs (on Feb. 29) might amount to.

I have heard speculation that it might be as much as $1 trillion, and last week my savvy, anonymous friend, the Lord of the Dark Matter, suggested that estimate may turn out to be correct.

He also believes that many people may have underestimated the impact of LTROs. Aided by a relaxation and expansion of collateral guidelines, the LTROs have largely ensured funding for European banks for the first time in quite a while. And because everyone can see that there are means in place to finance government debts, there has been a giant sigh of relief.

Image: Bill Fleckenstein

Bill Fleckenstein

This has precipitated a willingness on the part of investors and speculators to own short-dated government paper. That in turn seems to have soothed stock and bond markets worldwide.

A ruse by any other name

Of course, the ECB will never admit that it is printing money. Its bankers like to pretend that the sudden creation of euros is temporary, just as the Fed claims that its quantitative easing is merely provisional and will someday be withdrawn. (Neither story holds water, at least during the next year. But the European version is the less believable, since the LTROs to date have three-year terms.)

As for the consequence of the potentially epic amount of quantitative easing that has gone on in Europe, the LODM summed up the situation succinctly: "For the avoidance of doubt, these LTROs solve nothing, but even with many uncertainties in (the European Monetary Union) surrounding Greece (and Portugal), for example, I have no interest in picking a fight with Mr. Market just yet."

I think that has been the conclusion for many, and once again money printing has saved the day, for a while.

Once we get past the LTRO in February, we may be able to determine whether the can has been kicked far enough down the road to alleviate the temporary concerns about a deflationary collapse of the European banking system caused by its leveraged ownership of bank and government debt. Then we can turn our attention to the start of a worldwide bond bear market that will cause havoc in America, Japan and other places where printing presses have carried the day for so long.

Afraid of its own shadow

I definitely don't want to get too far ahead of myself, but if we ever want to get to a moment in time where the bond market ultimately takes away the printing press from the idiot central bankers (by refusing to buy their paper), the battle over fears of a deflationary scare must be won.

The only place that fight is currently being waged is Europe, and it does seem that the ECB is willing to print enough money to lay those fears to rest, although officials deny it at every juncture. The next few months may be important, because if we finally end the bond bull market that has run on for 30 years now, aided and abetted by the printing press, it will be a very big deal.

So far, so good

Two weeks ago I said that I thought Microsoft (MSFT, news) is "exhibiting a different personality this year compared with last." (Microsoft owns and publishes MSN Money.) How the company's stock was treated after it reported earnings last week only confirmed this impression.

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Even though Microsoft's revenues were just a shade worse than lowered expectations, folks finally seemed to be looking toward the future instead of at the past. Thus, the stock for the first time in a few years actually rallied on an earnings report, instead of getting pummeled.

To restate my view, I think this is Microsoft's year to do well, regardless of what the market does, and last week's breakout on massive volume increases my confidence that it will happen (I even bought some more).

At the time of publication, Bill Fleckenstein owned or controlled shares of the following company mentioned in this column: Microsoft.

This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.