Notes From Underground: So Long, Mario

A quick summation of ECB President Mario Draghi’s final press conference:

1. The Draghi Era is ending and I have to say that this was one of his best press conferences. Draghi exited, stage left, not PURSUED BY A BEAR and he did it with grace and aplomb. He took a BOW for his self-imposed mandate of PRESERVING THE EURO BY DOING WHATEVER IT TAKES. The desire to keep on keeping on by sustaining QE, TLTRO, MTO and most significantly, NEGATIVE INTEREST RATES will be a testament to the judges at the COUNTERFACTUAL HALL OF FAME. How much QE was enough? What was the political damage that resulted from the bond buying program? This will be an issue that the cheerleaders of lower for longer will never entertain.

2. Again, Draghi stressed the need for greater synthesis of the EU in monetary, fiscal and political harmonization. He was laying the groundwork for Christine Lagarde and what I have maintained is Lagarde’s dual mandate of the creation of the true EUROBOND with a massive EUROWIDE fiscal stimulus program. Drahi urged those with budget room should ramp up spending while the deficit stressed OUGHT to get their fiscal houses in order. This is nonsense for once Germany capitulates to an infrastructure program fiscal stimulus will bloom all around the European Union. As an aside, the Financial Times had a story about how that the progenitor of the SCHWARZE NULL came out in favor of German fiscal stimulus in an effort to replace worn infrastructure. Spend while money is cheap.

3. Draghi still made a statement that the limits on each country’s bond purchases are self-imposed by the ECB so there may be room for the central bank to play with the amount of bonds purchased on any given day. The relevance of the CAPITAL KEY is in the stock of BONDS, not the FLOWS. This is important when trading any individual sovereign under duress. (I think Draghi is on thin ice here but something he failed to note as self-imposed by the ECB is the 2% inflation target.) Lagarde’s task is not to build the balance sheet. It is fiscal. Maybe President Lagarde could dispense with the new round of QE if Germany would ramp up fiscal stimulus.This seems to play to Jens Weidmann.

4. In response to a question about any mistakes the ECB made under the Draghi regime, the outgoing president said there was an overstretched commercial property market in Europe but felt that was a result of foreign investors seeking to be involved in EURO investments. Mario doesn’t see any BUBBLES. He did suggest the  SHADOW BANKING SECTOR was a blindspot because of the lack of transparency. But Draghi said the corporate bonds and leverage markets were not as significant in Europe as in the U.S. because of the structure of capital markets so he was not overly concerned. Enter Christine Lagarde and we will prepare for the change of leadership.

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9 Responses to “Notes From Underground: So Long, Mario”

  1. Kevinwaspi Says:

    Too bad Eurozone based banks cannot seem to generate returns on equity greater than 4%. Mario can’t see any bubbles, but give him credit for being blind to financial repression as well. Two wrongs appear to make a right.

  2. asherz Says:

    Yra,
    Two blind men who ran the world’s economies.
    “Mario doesn’t see any BUBBLES. ”
    Italian, Greek and other sovereign debt properly priced? Negative interest rates?

    Alan Greenspan in a 2002 speech at Jackson Hole:
    “We at the Federal Reserve considered a number of issues related to asset bubbles — that is, surges in prices of assets to unsustainable levels. As events evolved, we recognized that, despite our suspicions, it was very difficult to definitively identify a bubble until after the fact — that is, when it’s bursting confirmed its existence.”

    Ambrose Evans-Pritchard addressed much of your piece today on October 16 in this must read analysis.

    http://gata.org/node/19528

    Welcome back from the holidays.

    • yraharris Says:

      Asherz–thanks for this post of the Pritchard piece—your input is always provocative while enlightening

  3. ShockedToFindGambling Says:

    Yra……Mario doesn’t see any BUBBLES

    When you institute a worldwide plan to artificially inflate the price of financial assets, what do you call it?……Making the same mistake you made in the early 2000s, but on a much bigger scale?

    He must be kidding.

  4. GreenAB Says:

    The “Schwarze Null” could become a major issue in Germany very soon.

    Hi, Yra – update form Germany. The SPD is in the process of determening a new Leadership Duo. Yesterday the votes for the first rund came in and boy it doesn´t look good for the establishment. Though Scholz (Vice Chancellor)/Geiwitz managed to come in at first place, they only had 22%. Closely followed by the left wing cahndidates of Walter-Borjans/Esken.

    Both duos will face of in a final election. so, mark November 29th in your calendar. If Walter-Borjans/Esken win, the Grand Coalition will near certainly come to an end.

    They are making the rounds with a wealth tax, an end to the Schwarze Null, increased spending and other left stuff.

    My gut tells me, they are about to win since the the elderly (conservative) members of the SPD seem to lack interest in participating in the process. The first voting round saw just 53% participation.

    • yraharris Says:

      Green AB–have missed your input but as you note it will be heating up and the Thuringia election results are further damning for Merkel and the mal effects from the ECB policies of NIRP have caused real damage to German savers—and GREEN I want you input on the question I have posed about the German implicit guarantee of the ECB balance sheet being an act of fiscal stimulus as it will be a continual call on the German budget—-I think this question is of major importance and will be an issue that Lagarde will have to confront.

  5. Louis Says:

    Thank you again!! What do you mean by “CAPITAL KEY”.

    Thank you

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