European Central Bank

...Until The Bubble Bursts

Critics of today’s fiat currency/fractional reserve banking world have (for what seems like forever) made the common sense point that when debt rises faster than cash flow, bad things are bound to happen. In every cycle since 1980 this has been dismissed by the vast majority who benefit from inflating bubbles - until the bubble bursts. And here we go again.

How Billionaires Are Investing In 2016: "The Only Winning Move Is Not To Play The Game"

"The world’s central banks can’t save us anymore." That was the message from some of the world’s most prominent investors at the World Economic Forum in Davos, Switzerland, on Friday. Each was resistant to putting on fresh positions and expected asset prices to head downward. In short, they say, the only winning move is not to play the game. “The trade now is to hold as much cash as possible,” said Nikhil Srinivasan, chief investment officer for Generali, a European insurer with $480 billion in assets. “Equity markets could go down 15% to 20%.”

Global Stocks Surge, Oil Soars As Hopes For Central Bank Stimulus Return

"There is hope of more stimulus in March and potential for even more stimulus in Japan and China, so if we get concrete positive economic news the rebound could last into next week,” said John Plassard, senior equity- sales trader at Mirabaud Securities. “I told my clients to fasten their seatbelts and wait for better news, and this is finally happening."... "The turnaround in sentiment came amid signs central banks may be prepared to act after $7.8 trillion was erased from the value of global equities this year on China’s slowdown and oil’s crash."

What Will Mario Draghi Say Today: Thoughts Ahead Of The ECB Announcement

ECB rhetoric likely to focus on collapsing inflation expectations (pictured below), now close to levels where QE1 ECB got announced in Jan 2015. With Oil lower than expected by the ECB for 2016, and oil forward un-anchoring and moving below 50$ (chart below), an higher inflation for the year due to base effects is also harder to see. Rhetoric can include anticipation of deeply negative interest rates and upsized QE, for future meetings.

The EU Bail-In Directive: Dark Clouds Are Gathering

In principle, the BRRD, or “bail-in directive” as it is also known, is quite a good idea. The fact that lending money to fractionally reserved banks or even merely depositing it with them, involves risks needed to be firmly reestablished. One simply cannot expect that banks and their creditors will be bailed out by taxpayers at every opportunity. Besides, the admission that there are risks in banking that have hitherto been glossed over or have even been lied about was long overdue. However, Europe’s governments are now likely to find out that the current monetary system with its fractionally reserved banks is actually incompatible with this admission, so to speak.

Nomi Prins' Financial Road Map For 2016: "The Potential For Chaotic Fluctuations Is Greater Than Ever"

We are currently in a transitional phase of geo-political-monetary power struggles, capital flow decisions, and fundamental economic choices. This remains a period of artisanal (central bank fabricated) money, high volatility, low growth, excessive wealth inequality, extreme speculation, and policies that preserve the appearance of big bank liquidity and concentration at the expense of long-term stability. The potential for chaotic fluctuations in any element of the capital markets is greater than ever. The butterfly effect - the flutter of a wing in one part of the planet altering the course of seemingly unrelated events in another part - is on center stage.

Stocks Resume Rout After Massive Chinese Intervention Fails To Lift Shanghai, Calm Traders

After yesterday's historic -6.9% rout in the Shanghai Composite, which saw the first new marketwide circuit breaker trading halt applied to Chinese stocks (on its first day of operation), many were wondering if the Chinese government would intervene in both the once again imploding stock market, as well as China's plunging and rapidly devaluing currency. And, after the SHCOMP opened down -3%, the government did not disappoint and promptly intervened in both the Yuan as well as the stock market, however with very mixed results which global stocks took a sign that the "national team" is no longer focused solely on stocks, and have resumed selling for a second consecutive day. 

Frontrunning: January 4

  • China stocks tank, triggers circuit breaker (Reuters)
  • Stocks Slump Across Europe and Asia Following Shanghai's 7% Crash (BBG)
  • China Halts Stock Trading After 7% Rout Triggers Circuit Breaker (BBG)
  • Iran says Riyadh thrives on tension after relations cut (Reuters)
  • Saudis and Bahrain Face Off With Iran in Worst Clash Since 1980s (BBG)
  • Syrian rebel group backs Saudi move to cut ties with Iran (Reuters)

What Does The Future Hold For Negative Rates In Europe? Goldman Answers

While the market might have been disappointed by the ECB’s “underdelivery in December, it came as a relief for the Riksbank, the SNB, the Norges Bank, and the Nationalbank who are effectively forced to cut each time the ECB eases or risk seeing upward pressure on their respective currencies. That dynamic has led to a veritable race to the Keynesian bottom with Norway as the last man standing in terms of conducting monetary policy with rates above zero. As we enter the new year, a number of questions remain regarding Europe's headlong plunge into NIRP-dom.