Even if you think you know how competitive devaluation works, this primer is worth it because parts 2-4 of this series will blow your socks off leaving you wondering, "Damn, why didn't I tink of that?"
Non-bombastic, non-insulting simply straight-forward look at next week's key events and data. If you are so inclined...
Will today be the beginning of the end of the Eurozone? The answer, as of this moment, is in the hands of some 9.8 million eligible to vote Greeks whose choice will determine the shape of the Eurozone in the coming days and months.
When you read about female doctors feeling forced to prostitute themselves to feed their children, about the number of miscarriages doubling, and about the overall sense of helplessness and destitution among the Greek population, especially the young, who see no way of even starting to build a family, then I can only say: Brussels is a bunch of criminals. And Draghi’s QE announcement is a criminal act. It’s a good thing the bond-buying doesn’t start until March, and that it’s on a monthly basis: that means it can still be stopped.
- Sovereign QE not working in Europe
- Emerging market capital flight
- Political risk/popularist governments
- US wage inflation
- Increased currency volatility
- Insurance against natural catastrophes
"War" is back on the minds of the world's richest men (and women). The Global Risks Landscape, a map of the most likely and impactful global risks, puts forward that, 25 years after the fall of the Berlin Wall, “interstate conflict” is once again a foremost concern. As The World Economic Forum notes, these multiple cross-cutting challenges can threaten social stability, perceived to be the issue most interconnected with other risks in 2015, and additionally aggravated by the legacy of the global economic crisis in the form of strained public finances and persistent unemployment. The central theme of profound social instability highlights an important paradox that has been smouldering since the crisis but surfaces prominently in this year’s report. Global risks transcend borders and spheres of influence and require stakeholders to work together, yet these risks also threaten to undermine the trust and collaboration needed to adapt to the challenges of the new global context. Rather ominously, The WEF concludes, the world is, however, insufficiently prepared for an increasingly complex risk environment.
Central bank policy is creating liquidity. Wrong --- the growth in broad money is slowing across the world.
Central bank policy is allowing a frictionless de-gearing. Wrong --- debt to GDP levels of almost every country in the world are rising.
Central bank policy is creating inflation. Wrong --- inflation in most jurisdictions is now back to, or below, the levels recorded in late 2009.
Central bank policy is fixing key exchange rates and securing growth. Wrong --- in numerous jurisdictions this exchange rate intervention is slowing the growth in liquidity and thus the growth in the economy.
Central bank policy is keeping real interest rates low and stimulating demand. Wrong --- the decline in inflation from peak levels in 2011 means that real rates of interest are rising.
Central bank policy is driving up asset prices and creating a positive wealth impact which is bolstering consumption. Wrong --- savings rates have not declined materially.
Central bank policy is creating greater financial stability. Wrong --- whatever positives impact central banks are having on bank capital etc they have failed to prevent the biggest emerging market debt boom in history.
More than six years after the last recession, deflation remains an imminent threat. The continued hope is that the next round of interventions will be the one that finally sparks the inflationary pressures needed to jump start the engine of economic recovery. Unfortunately, that has yet to be the case, and the rate of diminishing returns from each program continue to increase. The collapse in commodity prices, interest rates and the surge in dollar are all clear signs that money is seeking "safety" over "risk." Maybe you should be asking yourself what it is that they know that you don't? The answer could be extremely important.
What Reforms: Hours After ECB's QE Announcement, French Government Fails To Reach Job Creation AgreementSubmitted by Tyler Durden on 01/22/2015 15:11 -0500
Remember when just a few short hours ago, the ECB's Mario Draghi said that under no circumstances should the ECB's historic launch of QE be taken by anyone as a substitute for legitimate fiscal and other labor reform: as in the one thing the continent that has youth unemployment higher than 50% in various nations truly needs, instead of a Dax at record highs? Well, we are happy to report that just hours after the launch of QE, French trade unions and employer groups failed to reach agreement in a final bid to spur job creation in a moribund market by simplifying rules on worker representation in firms, the government and unions said.
If speeches like the State of The Union this week, and the reactions to it, make anything clear, it’s that the PR guys won the fight against critical thinking. All you need to do is get people to believe whatever it is you got for sale. And 99.9% of people are easily fooled. That’s how you define democracy in 2015: how many people can you fool? Which is the most convincing sleight of hand?
Mario Draghi Unveils €60 Billion Per Month QE Through September 2016 With Partial Risk-Sharing: Live Conference WebcastSubmitted by Tyler Durden on 01/22/2015 08:30 -0500
From "whatever it takes" to OMT to "discussing" bond purchases, with European interest rates at record (incomprehensible) lows (apart from Greece) and EURUSD at 11-year lows (down 25 handles in the last 8 months), Mario Draghi looks set to unleash interventionist 'hell' on the investing public in Europe with EUR50 billion (plus plus) of ECB QE per month for as long as it takes...
- ECB to decide on bond-buying plan to revive euro zone (Reuters)
- Draghi Is Pushing Boundaries of Euro Region with QE Program (BBG)
- Investors Wonder Whether ECB Will Do Enough (WSJ)
- Treasuries Drop With Bunds Before ECB; U.S. Futures Rise (BBG)
- European shares hit seven-year high (Reuters)
- At least eight civilians killed in shelling of Ukrainian trolleybus (Reuters), both sides blame each other
- OPEC Will Blink First in Battle With Shale Drillers, Poll Shows (BBG)
- China Injects $8 Billion Into Banking System (WSJ)
- New York says Barclays not cooperating in 'dark pool' probe (Reuters)
With less than two hours until the ECB unveils its first official quantitative easing program, the markets appear to be in a unchanged daze. Well, not all markets: the Japanese bond market overnight suffered its worst sell off in months on a jump in volume, although for context this means the 10Year dropping from 0.25% to 0.32%. Whether this is a hint of the "sell the news" that may follow Draghi's announcement is unclear, although Europe has seen comparable weakness across its bond space as well and the US 10 Year has sold off all the way to 1.91%, which is impressive considering it was trading under 1.80% just a few days ago. Stocks for now are largely unchanged with futures barely budging and tracking the USDJPY which after rising above 118 again overnight, has seen active selling ever since the close of the Japanese session.
How does the economy really work? In our view, both energy and debt play an extremely important role in an economic system. Once energy supply and other aspects of the economy start hitting diminishing returns, there is a serious chance that a debt implosion will bring the whole system down. In this first piece of this story, we explain how the economy is tied to energy, and how the leveraging impact of cheap energy creates economic growth.
Greece's bailout program is not working. After receiving hundreds of billions of Euros in new loans to stave off a sovereign default, Greeks are on the verge of electing a new government that may throw Eurozone politics into turmoil. How things will play out in Greece and abroad is anybody’s guess. But it is important to consider the factors which have contributed to the current state of affairs.