Today’s market meltdown has rendered tomorrow’s employment data from the U.S. and Canada meaningless, but in a more Marxian sense, superfluous. The damage done from the Europeans inability to face the reality of a CREDIT CRISIS is beginning to create high anxiety in all global markets. The theoretical basis for MUDDLING has been exhausted and it is time for real action.
As expected, the BOE and ECB both held rates steady, but Trichet’s press conference and European Commission President Barroso’s comments sent shock waves to a market seeking reasons to rally in an ultra-low interest rate environment. Trichet’s INANE comments about the ECB and EFSF being prepared to buy more Greek and Portuguese BONDS … think about that.
The market is more concerned about Italy and Spain and the head of the ECB is focusing upon yesterday’s news. Jose Barroso further unnerved the markets by openly admitting that the present EFSF allotment is insufficient to deal with the problems facing the EUROPEAN FINANCIAL SYSTEM and thus the GLOBAL SYSTEM. It seems that the disdain that Eurocrats have for markets has allowed them to fail to listen to what the markets have been trying to convey.
As Barroso and Trichet discussed BOND purchases, the Italian/Bund spread was jumping around all over the place. Early in the day, the BTP futures were gaining on the BUND futures but by the close the reversal was huge as the BUNDS were 150 ticks higher while the Italian bond Futures were 100 ticks lower. If the Europeans are going to try to calm the markets, a genuine effort is going to have to be made and real money is going to be needed. It is time to get everybody back from their beloved beach cabanas and out of their speedos and craft a plan for the financial future of Europe.
When the ECB was headed by Win Duisenberg, he famously commented that the ECB HEARS BUT DOES NOT LISTEN—LET US HOPE THAT THE FORMER ARROGANCE CAN BE CAST ASIDE. The markets are voting with their money and it does not like the status quo. It is always difficult to solve a solvency problem with liquidity, but a huge allocation to the EFSF can at least buy some time. Interventions and exchange controls are not going to be the solutions to any problems, FEAR and ECONOMIC CONTRACTION ARE A DANGEROUS COMBINATION, ESPECIALLY IN A ZERO INTEREST ENVIRONMENT. THE PIIGS HAVE SHOWN EUROPE TO BE A HOUSE OF STRAW WILL THE BRICS PROVIDE GREATER CLARITY AND STABILITY? SALVATION NEEDS TO COME FROM SOMEWHERE. ANY LEADERS?
Tags: Barroso, BOE, bonds, BTP, Bunds, credit crisis, ECB, EFSF, Greel, Portuguese, Trichet
August 4, 2011 at 9:12 pm |
And one wonders why Herr Weber turned down the job as head of ECB. He is looking smarter and smarter every damn day.
August 4, 2011 at 9:23 pm |
Good point –Hedy Axel,when did u know what when and of course how—But Herr Weber is taking over the helm of UBS—hope he is getting paid in swiss francs and GOLD.Again,Frau Merkel has erred and her failure to get Weber to head the ECB will go down as a major policy mistake—That sarkozy slaps her around like a puch and judy doll
August 4, 2011 at 10:27 pm |
Classic title and hilarious line about getting them out of their Speedo’s, Yra. We come for the macro analysis but we stay for the humor.
August 4, 2011 at 10:39 pm |
Reading Bernard Connolly… He pointed out “worldwide return to inflationary 1970s, gold to shine”. In Bernard Connolly’s Dark
Vision for the World Economy, the new Four Horsemen of the Apocalypse are the Financial Collapse of the G3, Political Instability and Unrest, Debt Repudiation and Default, and Worldwide Inflation. So, may be your are right: Gold may be the best defense.
August 5, 2011 at 7:24 am |
How much uncommitted money is left in the world? Obama is taking 2.4 trillion of it, as the markets voted yesterday (2YR yield is lower than 3 mo LIBOR?). Is any going to be left for Europe?
August 5, 2011 at 8:02 am |
USIKPA–goodd catch on the 2 YR trading thru the LIBOR–no banking problems here.The problems are real and not subsiding and the cost of arrogance is infinite.It is pathetic to listen and read the media as they drag out expert after expert who really know little and cannot admit that all their models are flawed –and then the sell side idiots come out and like the movie –The Time Machine–when the siren sounds it is all clear says WEENA—whhat is all clear I don’t know but the sirens say it is all clear
August 5, 2011 at 12:07 pm |
So, Roubini is right (?): “As i argued last year we will get QE3, then QE4 & then QE5 (the Fed, as in the 1950s, targeting the 10yr Treas at 1.5% once all else fails)”.-
August 5, 2011 at 1:07 pm |
roubini was out two weeks ago bullish equities but i think his view is based on that view of fixing long rates
August 5, 2011 at 3:22 pm |
Very interesting. Thanks! (traveling PIIGS Tour).
August 6, 2011 at 8:30 am |
Yra writes “It is time to get everybody back from their beloved beach cabanas and out of their speedos and craft a plan for the financial future of Europe…always difficult to solve a solvency problem with liquidity, but a huge allocation to the EFSF can at least buy some time”.
”Some time”…for what, exactly? New schemes, new jawboning? Personally I wonder; why ask for the same yahoos who caused the crisis in the first place to “fix” it. Let’s remember what was written in Cato’s Letters (December 3, 1720) in the post-bubble days after the South Seas debt pyramid collapsed:
”Many expedients will, no doubt, be offered without doors; calculated, in appearance, to improve the stock, but, in reality, designed to save the directors”.
The European big banks need to, DESERVE to, collapse, and any banks exposed to the same need to collapse as well. The long run health of the West’s banking system, and economic justice, require it. Throwing trillions of Euros ripped from the workers’ pockets will not only be futile, it will be unjust in the extreme.
August 7, 2011 at 1:16 pm |
Writer X –I of course am much more of the Austrian school and thus a liquidator–but that time passed long ago .Many people compare U.S. to Japan but i believe that is faulty as the Japanese economy had huge savings to fall back upon which the U.S. and most of Europe don’t—Liquidating the entire banking system is so fraught with danger and the price that Germany is going to want or rather demand is going to be immense–and of course it is always those who do it right who pay the highest price