We will not publish again until Thursday night but before today, but here is something to tide you over.
The German Finance Ministry banned the use of naked CDSs and the short selling of some bank stocks, in an announcement this afternoon. We have not seen enough to know the intricacies of this action but it shook the markets. U.S.equities dropped and the euro made fresh lows against the DOLLAR and several EURO crosses. We warned last night that the GRAND INQUISITORS of the Euro zone had the torture chamber of speculator pain at its disposal and today the first instrument was revealed.
The market senses that the Europeans are running in circles as they seemed to have run out of fresh ideas to salvage the EU. What other tools does it have in its chambers of horrors? We don’t know but with this initial unveiling we wouldn’t be surprised to see some effort at EXCHANGE CONTROLS. The bunds and other DEBT instruments rallied as the flight to safety became paramount. We used to have respect for Frau Merkel but as time goes by we are more and more disappointed by the mess of things she has made with her dithering. Each delay of action has brought more uncertainty. One of our principle rules at NOTES FROM UNDERGROUND is that MONEY IS FASCIST for it craves uncertainty as its fear. A strong state is preferred to a spineless, wishy-washy regime that makes policy without fortitude. The EURO is now paying the price for randomness of action. Trade accordingly!
May 18, 2010 at 5:42 pm |
On a recent visit to Germany (Berlin Munich Bavaria) that included Prague and bits of Austria I was struck by how small countries with very distinct languages and cultures could be bound by a singular political and financial arrangement. Workforce mobility is almost impossible as a result (compared to any english speaking westerner), and long historical bonds and fractures are ever present. What we are witnessing is the culmination of these historical and modern realities in my view. When times are good a bloated ineffective bureaucracy and excessive mistakes in pay go unnoticed. During times of stress the reality of the arrangement is laid bare.
I think historical relationships may prove to be more important now than ever as guideposts to the future.
tw
May 19, 2010 at 3:29 am |
Today Germany banned a whole slew of dangerous trading practices, including naked short selling on some stocks, currencies, and government bonds. It also declared null and void naked credit default swaps (ie.. CDS that are just bets and not actual insurance ). This is exactly what Obama should’ve done on Day One; yet here we are still discussing the Dodd Bill, which is 1,300 pages of toilet paper. This will be interesting to watch.. after it was announced, the Euro took a nasty tumble, dropping more than two cents on the day. If this ends well, it could be repeated worldwide to the benefit of us all. But this is a dangerous time and place to rattle markets and liquidity. We shall see..
May 20, 2010 at 8:50 pm |
mr.Kowalski—I am always concerned when governments start playing with the capital markets,especially developed countries.It is a different story when emerging markets place restrictions on inflows but I think markets get nervous when mature developed countries place artificial barriers to capital flows.I am not opposed to sensible regulation[was openly opposed to the repeal of glass-steagall and believed we have paid a systemic price for the avarice that its repeal allowed.But the German move was unilateral and ill advised.