On Thursday Peter Boockvar and I gabbed on all things macro with Richard Bonugli. We covered a great deal of the global financial quilt and as we remind listeners, we have done this to clarify important issues regarding financial concerns in an effort to either reduce risk or enhance profits.Concerns are still relevant in regards to what actually happened in Saudi Arabia as well as central bank credibility.
On Monday, I discussed the European financial situation with Rick Santelli, which followed on the heels of Sara Eisen’s interview with incoming ECB President Christine Lagarde. (Look for that link tomorrow.) European sovereign debt had a substantial rally today as the PMIs were all much weaker than expected. As European growth stalls it becomes more important for Lagarde to push faster for a community designed fiscal stimulus program. It is now politics that will dominate the financial discussions for Europe with a new maestro of the political 19-piece orchestra at the Rostrum with baton in hand.
But I pose this question for all the folowers of global markets: Is the German guarantee of the ECB balance sheet an act of the ultimate fiscal stimulus? If the ECB had a mega- sovereign default would the German taxpayer be on the hook for a huge bailout? Are bailouts a fiscal action? As the politics of Germany become more divided isn’t this a legitimate question about the present situation plaguing the global financial system?
From a trading perspective: On Monday, the drop in the DAX and European bank stocks was so SEVERE following the weak PMI data. So in Europe, where rates are in negative territory, BAD NEWS drives equity markets lower while in the U.S. bad data is deemed a stock market positive. Will it take a harmonized fiscal stimulus to elevate European equities?
Tags: Christine Lagarde, DAX, ECB, fiscal stimulus, Germany, PMIs
September 23, 2019 at 6:53 pm |
Yra- The answer to your question of a balance sheet bailout being the ultimate fiscal stimulus is no. Monetary stimulus doesn’t necessarily create jobs, increase GDP or reverse an economic slowdown. What we are witnessing is a powerful push on the proverbial string. Negative interest rates aren’t prompting new plant building, machine purchases or job hiring.
Fiscal stimulus would do all of those things. Roads would be repaired, potholes filled, hospitals built, and machines upgraded. Will the Germans provide this kind of lift? My guess is that at the end they will or face a collapse in the EU economy.
Bailing out the ECB now is what the Fed did a decade ago when they bailed out C, MER, BOA, and GS. The taxpayer paid for it. A huge mistake which just kicked the can that was full of worms.
Over the next few years fiat currencies will be given a massive Gutenberg treatment with QE4 and 5, possibly ECB Eurobonds. fiscal stimulus with even more debt piled on, and more monetary quackery.
The asset that will benefit will have an even greater luster and shine.
September 23, 2019 at 10:39 pm |
Asherz- Bravo!
I am thinking there are a few people on this blog who would enjoy this t-shirt.
https://www.etsy.com/listing/705162786/got-gold-triblend-tee?ga_order=most_relevant&ga_search_type=all&ga_view_type=gallery&ga_search_query=got+gold%3F&ref=sr_gallery-1-1&organic_search_click=1&frs=1
September 24, 2019 at 5:35 am
YRA HAS THAT TEE SHIRT –RAN IN IT THE OTHER DAY—-I WAS FOLLOWED BY A CAR FROM THE VELVET UNDERGROUND
September 24, 2019 at 5:41 am |
Asherz—right on target and the issue that will effect will be the guarantee of the balance sheet as a harbinger of poor political outcomes in Germany.People like Otmar Issing are important because they understand the political economy rather then the narrow thinkers steeped in maths while devoid of the essence of political economy.The pushing on a string which I learned from the essays of Schumpeter led me to Rediscovering Schumpeter last night –thanks for the poignant response.