In case you missed it. Here is Draghi's two minute diatribe, courtesy of Bloomberg TV, sprinkled liberally with every algo-headline-seeking word required to raise the perception that something actually just happened other than smoke, mirrors, and and conditional help best summarized by the phrase we used earlier to explain the Catch 22 Europe finds itself in now: "Spanish bonds soar on expectations Spanish bonds will plunge to allow Spanish bonds to soar on ECB purchases... but only after Rajoy hands in his resignation and gives the key to Spain to the IMF"
Several months ago we first suggested that the only outcome of the ongoing antagonism between Germany, the now Goldman-controlled European central bank hell bent on generating inflation at any cost, and the rest of Europe's insolvent states, would be a German referendum in which the German people themsleves are asked what they think of the current mess Europe finds itself in. Naturally, days like today, when the ECB does away with inflationary caution and returns to tried and failed methods - because as a reminder conditional secondary market bond purchases are nothing new, and were last tried in the summer of 2011 when Italy became the latest entrant to the SMP program, and failed - is when the impetus for referendum would be highest. Sure enough, German Spiegel has come out with an article pulling precisely on this increasingly more festering wound for the German population.
Today's move can be summarized in one word: euphoria. The same euphoria every previous instance of central planning intervention has engendered, only to fade days, weeks or months later. But for the time being it will suffice, and send the S&P to fresh post 2008 highs. In the meantime, below is the definitive note summarizing what has just happened, courtesy of Pierpont Securities via Bloomberg.
For the fifth week in a row, MBA mortgage applications fell - dragged lower by a notably consistent drop in the refinance index - which dropped 3% this week alone and represents almost 80% of the total number of loans. Surely if rates are rising - as they have in general in the last few weeks - we would expect the 'rational homeowner of olde' to rush to his friendly local mortgage broker and refinance immediately for fear of missing the turn and the 'opportunity of a lifetime' to lock-in low rates. Unfortunately, just as retail equity investors appear to the be the smartest players in the room as they sell into strength, so the homeowner has now become conditioned by the Fed's central-planning and repression to expect rates to remain low - and QE3 to be implemented later in the year - and therefore will wait for the 'expected' lower rates rather than accept a periodically rising rate. Yet another unintended consequence that hints at the fact that should we see 'real' recovery (we know, but go with the thought experiment) then higher rates will act as a drag on a burgeoning mini-stimulus from refinancing and normalize us back to lower growth.
One of the primary purposes of a government, any government, is to sustain itself. In its final hours it will do almost anything possible for its self-preservation. While everyone stares at Frankfurt and the last ditch effort of Mr. Draghi there have been other events which are part of this play and merit your attention. Austria has come out and stated quite succinctly that no more Austrian money will be used for other countries; any other countries. Yesterday the Netherlands stated in absolute terms that no more of their money will be used for Greece. If the condition of any ECB funding is to be the approval of the EU and the use of their Stabilization Funds then what Mario Draghi is proposing may never come to pass, may never happen and may just be a rhetorical exercise in wand waving. To us, the world seems askew at present. China is in serious decline, Europe is in a virtual recession as Eurostat releases the numbers today and points to a -0.2% contraction of the EU-17. The markets rally based upon the supposed three Saviors of the world, the central banks of the United States, Europe and China and so the worse that it gets the larger the rally as the central banks will ease and ease again until some kind of wall is hit.
Remember rule #1 of central planning: when in doubt, baffle with BS. Sure enough, after a very ugly Manufacturing ISM hit the tape two days ago, today we get a big beat out its sister tracker, the Non-manufacturing ISM, which printed at 53.7 on expectations of a decline from last month's 52.6 to 52.5, in the process topping the highest Wall Street forecast for the August number. Compounding the 'confounding' is that while the mfg Employment indicator dropped, the non-manfucaturing employment rose from 49.3 to 53.7. Perfectly logical? Exactly. At least there was some symmetry in the Prices Paid indicator, which jumped both here as it did two days ago, from 54.9 to 64.3: the largest component bounce of the August series. And finally, whereas the manufacturing respondents were uniformly bearish, those who rely on services are still full of hopium.
Confused by the implications of Draghi's pre-leaked speech? Don't worry, you are not alone. As the following sampling of opinions by Wall Street experts via Reuters confirms, opinions range from the positive to the negative, to the completely clueless.
UPDATE: US equities surge on day-session open (as AAPL hits low of day)
Perception; Independence; Conditionality; Unlimited; Fully-Effective-Backstop. Draghi 'nailed-it' on the drinking game but it seems the world is not amused. The market's reaction to the new OMT is modest EUR weakness (and more JPY weakness), practically no change from US equities (and modest weakness in European equities), Gold and Silver disappointed at the 'conditionality' and not total print-fest; and yet 2Y Italian and Spanish bond yields - which flatlined for a while, are now dropping faster and the longer-dated Italian and Spanish yields are dropping also. US Treasuries are 5-6bps higher in yield. In Summary: "Spanish bonds soaring on hope Spanish bonds will plunge to allow Spanish bonds to soar on ECB purchases" - everything else not impressed.
The ECB has released the details of its SMP 2.0 program, aka the OMT program, which will be pari passu, unlike the SMP 1.0. The full details are a whopping 472 words. Furthermore, we hope that it is quite clear to Greece that if the ECB has bought Greek bonds under the new SMP 2.0 program instead of SMP 1.0, its debt would now be about €100 billion less.
Even as Goldman's representative to the ECB continues to drone, a few hundred miles east of Frankfurt, one country has rebelled against the new world world:
- HUNGARY REJECTS IMF AID CONDITIONS, PREMIER ORBAN SAYS
What is wrong with them? Don't they know that the globalist central-planning dictators always know what is best for them? Needless to say the Hungaria Forint tanks, just as intended.
It was the best of times, it was the worst of times. A dramatic beat by the ADP jobs number at 201k vs expectations of 140k is the third month in a row of beating expectations for jobs and the highest add of jobs in 5 months. QE-off? Good is bad? Well there is some bad is good in here too - the manufacturing industry only added 3000 jobs. Perhaps, rather ironically, the rise in jobs is due to the election providing a stimulus - someone has to do all that fact-checking and empty-chair-lifting.
At 2:30 pm CET, 8:30 am EST, Mario Draghi will take the podium and either whip out the Bazooka, which may lead to the resignation of Jens Weidmann from the ECB governing council and further unpredictable consequences (the ECB already broke European money markets when it lowered the deposit rate to 0.00%), or a water pistol, in the process destroying any remaining credibility he may have once and for all. More importantly, what today will show is who currently has the upper hand: Goldman, via its assorted money printing muppets, or Germany, for whom Weimar is always one CTRL-P away. Find out as soon as the ECB building fire alarm goes off and when Mario Draghi presents the latest and greatest details of his plans to reporters.
As unemployment (broad and youth) goes from the sublime to the ridiculous in the troubled nation, Reuters is reporting that tensions are rising - even among the Police themselves. "They make us fight our own brothers," one riot-policeman urged with regard the Greek police protesting austerity cuts and preventing riot-police from leaving to secure other demonstrations this weekend. The government plans to slash police pay in a new round of spending cuts worth nearly EUR12bn over the next two years, which the police, firefghter, and coast guards will be prtesting later today in Athens. How soon before TROIKA demands 8 days a week and 99% taxation - as the hair-trigger on the gun they are holding to their own head becomes more and more sensitive.
Despite consensus for a 25 bps cut by the ECB, Mario Draghi decided to leave rates unchanged. To say that this is ominous for the press conference in 45 minutes is an understatement.