This is the question investors all over the world are asking after the massive selloff on Friday. I have argued that gold was a tired bull for the last six months and that global equities had replaced gold as investors’ and traders’ haven and store of value. Gold has done yeoman’s work as a store of value in the world of central bank hyperactivity resulting in negative real yields all over the globe. As gold prices have stagnated, investors have sought out other asset classes to supplant the need for increased risk and hopefully positive returns. Multinational corporations with high dividends have become the new store of value and the rush to unload traditional hard assets for productive real assets has gained traction. The Cypriot debacle scared global investors and sent them scurrying from bank deposits to corporate assets, with a higher yield via dividends and possible appreciation. (Especially if the assets are domiciled in a jurisdiction that has a court system that protects property rights.)
Archive for the ‘ECB’ Category
Notes From Underground: Draghi … Could’ve, Should’ve, Would’ve
August 8, 2012The interest rate variable is alive, well and affecting global markets. Mario Draghi has played the “WIZARD OF FRANKFURT” as he has sought to forestall a financial implosion of Europe. Draghi’s comments in London on July 26, in that the ECB would stem the crisis at end with the tools at its disposal, markets had to believe that ECB policy would be “SUFFICIENT.” As we all know by now, President Draghi has been successful as the Spanish and Italian yield curves have steepened and the 2-YEAR NOTES have seen its yields dramatically drop–the Spanish went from 7% to 3.73%.
Notes From Underground: Europe Steals A Page From Alan Greenspan
October 27, 2011It was once reported that Alan Greenspan, the Maestro of solipsistic reasoning, once said, “if you understood what I said, I must have misspoke.” The markets think they understood the basics of the GRAND EUROPEAN PLAN, but after reading through the many releases, I am not sure how the bail concoction actually will be deployed. (more…)
Notes From Underground: The European Union KICKS GEITHNER’S CAN DOWN THE ROAD
September 18, 2011Friday and Saturday were the days that U.S. Treasury Secretary Geithner was in Poland sitting in on an ECOFIN meeting to try to persuade the financial policy makers of the EU to come to some type of resolution on a bailout of the PIIGS, an increase in the European Financial Stability Facility, and, hopefully, some program of support for the recapitalization of the European banking sector. Geithner pressed the ECB and European Governments to increase the 440 billion EURO EFSF rescue fund by utilizing leverage in its buying of sovereign debt. The tone of Geithner’s message was that the U.S. has woken up to the huge threat the EU debt crisis poses for the American economy, and, of course, President Obama’s election chances. Mr. Geithner warned that the EU crisis was a “CATASTROPHIC RISK TO FINANCIAL MARKETS.” He advised that the conflict between European governments and its central bank must end.
Notes From Underground: A STARK Reminder of Merkel’s bad decision
September 11, 2011Many times NOTES FROM UNDERGROUND warned that Chancellor Merkel had made a grave error by failing to push for Axel Weber to assume the Presidency of the ECB after Jean-Claude Trichet. I argued that the German populace would be a more willing participant in an enhanced bailout facility if a strong anti-inflationist from Germany was at the helm of the mechanism of financial bailouts for the PIIGS. It seemed that President Sarkozy had “bested” Merkel and the German Chancellor was forced to abandon Weber and agree to a compromise, ECB President Mario Draghi. Friday’s announcement by Juergen Stark that he was resigning his position on the ECB Executive Board and Governing Council gave the markets a scare and led to a large selloff in the EURO and global equity markets.
Notes From Underground: Did I miss anything while I was away???
September 7, 2011The unemployment report on Friday was much weaker than expected as zero net jobs were created. More disheartening was that average hourly earnings produced a negative number, which failed to confirm and support the earlier released personal consumption data. The equity markets went into risk-off mode as the economy went into the Labor Day weekend in a very fragile state.
Notes From Underground: The Jackson Hole Economic Summit
August 25, 2011Jobless claims, GDP, consumer sentiment … all meaningless as the Bernanke speech at 9 a.m. CST takes precedence. The financial world awaits to hear if the FED CHAIRMAN will deliver another gift like last August’s Portfolio Balance Channel speech. While QE2 did not commence until November, the groundwork was laid in August and the plan delivered at the September FOMC meeting. The markets well understood that the intent of Jackson Hole precipitated the equity market rally that began in September.
Notes From Underground: ALAS, THE ECB STEPPED INTO THE VOID
August 8, 2011As expected, the ECB began buying Spanish and Italian bonds. The ECB actions brought about a drop in yields of 82 basis points on the Italian and 92 points on the Spanish. Today was one of the few days in recent memory when the Italian and German Bond Futures both staged significant rallies, meaning this was just not a rotation out of one and into another. The collapse in equity prices obviously caused a flight into DEBT as global investors ran to safety. GOLD, of course, was the greatest recipient of the search for safe havens. BUT THE BID FOR GOLD WAS HELPED BY THE ACTIONS OF THE ECB, FOR TODAY WAS THE FIRST DAY OF QE1 FOR EUROPE. Further proof for this was that the EURO FX failed to rally in conjunction with the ITALIAN BTP rally. Italian bonds up; EURO down as the ECB was creating short-term liquidity.
Notes From Underground: Intervention where is THOU STING
August 4, 2011Yesterday the Swiss National Bank surprised the markets by lowering overnight lending rates to basically ZERO–the nearby 90-Day EUROSWISS contract (Sept. 2011) traded for 2 basis points–or, 0.9998 for those keeping score. The SNB also pledged to increase sight deposits from 30 BILLION SWISS to 80 BILLION SWISS, a very aggressive liquidity add, all in an attempt to stem the rise in the FRANC. By the end of the trading day the SWISSIE recouped most of its overnight losses in an act of defiance.
