Archive for the ‘ECB’ Category


August 8, 2011

As 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: Mr. Market to Jean Claude Trichet … CA​N YOU HEAR ME NOW

August 4, 2011

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.


Notes From Underground: Intervention where is THOU STING

August 4, 2011

Yesterday 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.



July 7, 2011

Yes, the ECB raised rates today and Trichet failed to listen to the wisdom offered by NOTES FROM UNDERGROUND. That means I have overestimated the wisdom of Trichet while underestimating the size of his ego. The rate rise to 1.5% was widely anticipated so the EURO was immediately sold but regained some strength after the ECB announced that it was WAVING THE MINIMUM CREDIT RATING FOR PORTUGUESE BONDS USED AS COLLATERAL FOR REPOS. As the ECB raises rates, it allows for weak collateral to be utilized thus allowing for a large liquidity infusion. This is a fine example of Dostoyevsky’s Grand Inquisitor as bread is taken from the people with one hand and returned to them with the other and the people believe it is a miracle. Europe has become a “ball of confusion.” Why raise rates when you are simultaneously lowering credit standards to prevent a sovereign default?



July 6, 2011

Tomorrow the Bank of England and the European Central Bank announce their interest rate decisions. It is a foregone conclusion that the BOE will hold the overnight lending rate at 0.50% as the U.K. economy is fragile and struggling to gain some upward momentum in the face of budget austerity. The BOE will also hold its QE program at 200 billion pounds and not look to increase the liquidity add as the POUND is relatively weak against most of the world’s currencies. Mervyn King is not worried about the inflationary impact of high food and energy costs, for he is more concerned about higher prices being a severe headwind for the average wage earner, which places him in the Bernanke camp.



July 5, 2011

As the clock resets on the Greek crisis and the fog of questionable financial shenanigans begins to lift, it appears that a new game is emerging within the confines of the default arena. The three main ratings agencies that enjoy near monopolistic power, granted by government decree, are in a rush to downgrade the sovereign debt ratings of the European peripherals. It seems as if Fitch, Moody’s and S&P are leading the race to downgrade the fastest as if to put more and more pressure on Brussels in a game of CHICKEN DEFAULT. As it is now obvious to all, the ECB and the EFSF are trying to prevent a legal definition of DEFAULT from occurring so as not to pay out on the credit default swaps, especially to all those empty creditors.


Notes From Underground: The Inflation Fears are Muted as a Renewed Threat of Deflation Appears on the Horizon

June 12, 2011

Global equity markets have been under pressure as the economic data from all regions of the world has been weaker than expected. British industrial production numbers were horrid and other areas in Europe have also experienced worse than anticipated activity. Low-money rates have been successful in pumping up many asset classes, especially since Jackson Hole Speech of August 27, 2010. The developed world’s CENTRAL BANKS have been creative in finding ways to keep REAL INTEREST low if not outright negative, making investors holding of cash a losing endeavor.


Notes From Underground: Trichet, the Lame Duck, Provides Lame Rhetoric to Duck the Serious Issues

June 9, 2011

It is time for the ECB president to leave the scene as he is losing the credibility that he has labored so hard to construct. Mr. Trichet delivered the widely expected phrase “STRONG VIGILANCE” in his post-ECB monetary policy press conference. The EURO made its high for the day on the utterance of the words “STRONG VIGILANCE” but sold off quickly as Trichet emphasized that the ECB does not signal a guarantee on future interest rates. The guardian of EURO monetary policy desired to keep the markets off-balance.


Notes From Underground: Bernanke’s Suatainable Trajectory

June 8, 2011

The FED chairman delivers a major address on the economy at the International Monetary Conference hosted by the Atlanta Fed. It seems that the FED is content to stand behind the veil of its dual mandate. Bernanke did a great deal to explain away the transitory nature of commodity price increases, while maintaining that the economy recovery is too fragile and unemployment too lackluster to begin removing the language of … “economic conditions are likely to warrant exceptionally low levels for the federal funds rate for an extended period.” This is very consistent language and unlike the way the S&Ps reacted to the chairman’s speech, I believe that Bernanke’s language was very soft.


Notes From Underground: One Big Question For the FED

May 11, 2011

If the prices of commodities are falling because of increased margin requirements on ENERGY and PRECIOUS METALS, WHY DOESN’T THE FED JUST ASK FOR EMERGENCY POWERS TO CONTROL MARGINS FOR ALL INVESTMENTS? Chairman Bernanke is on the record as believing that INFLATIONARY PRESSURES ARE TRANSITORY. Well, it seems that the power to make higher commodity prices transitory is to raise margins and force the speculators to disgorge their positions. The increase in MARGINS and the RESULTING LIQUIDATION WOULD ALLOW THE FED TO MAINTAIN QE POLICIES WITHOUT THE FEAR OF TRANSITORY PRICE INCREASES.