European Central Bank

Playing the disconnect, for now. 

• UK is closed today
• Weidmann Says ECB Purchases Could Become ‘Addictive Like a Drug’ (Bloomberg)
• Dutch Premier Rutte Defends Austerity, Says No to More Greek Aid (Bloomberg)
• Storm Isaac forces Republicans to rework convention script (Reuters)
• Christie chose NJ over Mitt's VP role due to fears that they'd lose (NYPost)
• Ayrault warns EU fiscal pact rebels (FT)
• Is Canada's New $100 Bill Racist?  (BusinessWeek)
• Will Fed Act Again? Sizing Up Potential Costs (WSJ)
• Samsung Slumps Most in 4 Years on U.S. Sales Ban Concerns (Bloomberg)
• States may require insurers to hold more capital (WSJ)
• Wen Says China Need Measures to Promote Export Growth (Bloomberg)
• Economist Appearing On Max Keiser Show Forced To Resign (Forbes)

Earlier today we showed for the nth time that with insanity and insolvency ravaging the old continent, at least one person has the temerity to avoid sticking his head in the sand of collectivist stupidity and denial. That person is Bundesbank head Jens Weidmann, who until now may or may not have had the backing of Germany's elected leader, Angela Merkel. Moments ago it became clear whose side Merkel, who recently came back from vacation and is set to spoil the party that the (insolvent) mice put together in her absence, is on. From Reuters, who quotes Merkel in her just released interview with German ARD: "I think it is good that Jens Weidmann warns the politicians again and again," Merkel said. "I support Jens Weidmann, and believe it is a good thing that he, as the head of the German Bundesbank, has much influence in the ECB."

Forget Merriam-Webster. The Mario-Webber dictionary is where it's at these days...

It is one thing for various anti-Central Planning (and thus central bank) outlets to warn, over 3 years ago, that easy monetary policy is merely an enabling substance, and is addictive as any drug to a dysfunctional political establishment which is more than happy to avoid fiscal prudence if monetary policy is readily available to delay the inevitable day of reckoning when monetizing the debt will no longer work. It is a different matter entirely when the head of the world's only solvent central bank -  the German Bundesbank, which happens to be the biggest guarantor of that other mega hedge funds the ECB, and which of all developed economies also happens to have had the closest recent encounter with hyperinflation (unlike all the "other" theoretical experts who enjoy talking extensively about matters they have zero experience with). In an interview with German Spiegel magazine, Buba head Jens Weidmann, once again has loudly warned what as recently as 2009 very few dared to even think: namely that rampant and gratuitous deficit plugging using central bank debt issuance, and thus explicitly monetizing the debt, "can be addictive as a drug." Obviously, like any drug overdose, the aftereffects are always fatal.

Again

If you still require proof that in the short term, market action is driven by perceptions and sentiment rather than reality, here it is. It is worth quoting again what Mrs. Merkel said in Ottawa in toto:

“The European Central Bank, although it is of course independent, is completely in line with what we’ve said all along. And the results of the meeting of the central bank and their decisions, actually shows that the European Central Bank is counting on political action in the form of conditionality as the precondition for a positive development of the Euro.”

Does this sound like 'unlimited bond buying without preconditions' to anyone? No? Investors seemed to think that is what it meant. We see no painless way out for Spain, regardless of what ultimately happens. Even if the ECB were to act without conditionality or limits, it could not possibly alter the underlying solvency problems -  and this isn't going to happen anyway. So what are markets currently pricing in? Everybody seems quite certain of a happy end at the moment. The bet is that massive central bank intervention is heading our way in the near future and will boost asset prices further. This is a mindset that has very likely set up the markets for disappointment.

If this doesn't piss at least a 20% of you off, and scare the remaining 8% into reading the next installment, then I obviously haven't been doing my job. Alas, I'm pretty good at what I do!

We're doomed, doomed, I tell you. 

• German central bank warns country’s financial health not a given (WaPo)
• Secret Libor Committee Clings to Anonymity After Rigging Scandal (Bloomberg)
• Peru Declares State of Emergency to Quell Violent Mining Protests (Dow Jones)
• Euro-Area Economic Adjustment Only Half Complete, Moody’s Says (Bloomberg)
• Wall Street Leaderless in Rules Fight as Dimon Diminished (Bloomberg)
• China Swaps Drop From Three-Month High as PBOC Adds Record Cash (Bloomberg)
• China invest $1 billion in U.S. Cheniere's LNG plant, Blackstone to act as intermediary buffer (FT, Reuters)
• Romney Offers Lukewarm Support for Fed Audit - Hilsenrath (WSJ)
• U.K. Unexpectedly Posts Deficit as Corporation Taxes Plunge (Bloomberg)
• Obama issues military threat to Syria (FT)
• Merkel Allies Signal Concessions on Greece Before Samaras Visit (Bloomberg)
• Chinese banks warned of foreign exchange risks (China Daily)

By now it should be painfully clear to involved that the Greek economy is nothing but a zombie, whose funding shortfalls and other deficit needs are sustained each month only courtesy of constantly new and improved "financial engineering" ponzi creations out of the ECB, the ELA, and other interlinked funding mechanisms which are merely a transfer of German cash into empty peripheral coffers. And while the attention of the world has moved on, at least for the time being, from the small country which has been left for dead with the assumption that Europe will do the bare minimum to keep it alive, but not more, Greece once again reminds us that not only does it still pretend to be alive, but that the zombie is getting hungry, and want to eat.

My point with all of this, is that we’ve just witnessed Mario Draghi’s “bazooka” moment. Remember back in 2008, when Hank Paulson claimed that it he made a big enough monetary intervention threat that the markets would somehow correct themselves? Well, we know how that turned out (the markets called his bluff and the Crash happened).

Buy everything I say without limit. Leverage each purchase to the maximum allowed under the law. The markets will only go up and not down and 100,000 is the next stop for the S&P. It is to be Dow without Jones, assets without liabilities and wealth without poverty. The Middle Class has been evacuated and everyone is wealthy beyond belief. It is just there, of course, that the truth lies in this merry old land, “beyond belief.”

"I like fantasy---it wakes up the brain cells.”

- Dr. Seuss

And to think that the market could have learned its lesson by now. Following the planting of an unsourced, glaringly obvious ECB propaganda report such as that attempted yesterday in Der Spiegel, in which nothing of substance was in fact enacted or even proposed (as rate caps is merely a regurgitation of ideas thrown out previously in the summer and fall of 2011), peripheral bonds once again tightened on absolutely nothing, with the Spanish 10 Year now back in the 6.30% territory, over 100 bps inside where it was a month ago. On not a single enacted reform or actual ECB action. Of course, it was a matter of hours before the German FinMin put an end to this latest rumor, and sure enough an hour ago a spokesman for the German FinMin said they were unaware of any ECB plan to target bond spread. Perhaps because there are none? And of course, if there were, the Germans would promptly put an end to what is my implication an open-ended bond buying program without conditionality: something that worked like a "charm" last summer with Italy. And just to make sure Germany's message was read loud and clear, here is the Bundesbank turning on the "just say 9" machine.

Sugar pill will not last long.