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Draghi – We Will Continue to Fight Until Everyone is Dead

Bruce Krasting's picture





 

A week ago I cut a EURUSD short position that was well into the money. (Link) I was concerned that “something” might happen that could make a mess. I listed a number of concerns that might have caused a flip-flop, but Mario Draghi talking, was not on my list. Of course, that is precisely what happened. I’ve read what Mario said a number of times, I think there is no substance to his words.

"The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough"

I’m reminded of an article I wrote more than two years ago titled, Sarkozy Will Get “Stuffed” (link). The occasion was a stupid remark made by then French President Nicholas Sarkozy regarding some new measures that would, once and for all, end the run on the bond markets of Europe:

“We will confront speculators mercilessly. They will know once and for all what lies in store for them.”

This didn’t work out so well for poor old Sarko. The speculators ended up crushing him, and he lost his job. Draghi will suffer the same result.

Mario must be saying to himself,

 
“If only I can just get the Spanish Ten-year back to 6%, all will be well again”.
 

I think he’s nuts. Spain’s problem is its competitiveness. The domestic economy will never recover without a currency devaluation (and debt restructuring). If Mario has his way, Spain will suffer from a decade of recessions with unemployment over 20%. How could he possibly call that outcome a success?

On Friday we got some clarification of what exactly Draghi has up his sleeve when he promised, “It will be enough”. From Bloomberg:

DRAGHI'S PROPOSAL SAID TO INCLUDE BOND BUYS, RATE CUT, NEW LTRO

Bond buys? Rate cuts? New LTRO? That’s Draghi’s bazooka? These things have been tried in the past and have failed. These steps might buy the EU a few weeks (or hours?) of market relief, but they have no chance of turning the EU around.

There is still a market-based system that exists in the world of central bank manipulation. In the end, market forces always prevail. The outcome for the Euro will be no different. Draghi thinks he has the power to thwart the markets. He does not have that power. Draghi is either bluffing or lying, that or he is a blind as a bat.

.

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FX Note:

An interesting outcome of the Draghi comments is that the Euro ended the week north of 1.2300 (up 1.5%). Whatever chance the EU may have, it is dependent on a weaker Euro exchange rate. In my book, Mario’s words have set the EU back, not forward.

A week ago I swore (Link) I would be out of FX until we got into late August. The silliness of the last few trading days changed my mind. I bet all of my recent FX gains on a short EURUSD option strategy. I missed a big blip that got the Euro above 1.2400, and ended up with a fill a bit over 1.2300.

My thinking is that someone in Germany is going to say:

 
“Sorry Mario, you can’t have our cake and eat it too.”
 

As if on cue, this article appeared in Germany’s Handelsblatt today:

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Sun, 07/29/2012 - 15:25 | Link to Comment WaEver
WaEver's picture

If You pee against the wind You occasionally get wet
I wouldn't piss in this market at this stage

Sun, 07/29/2012 - 09:57 | Link to Comment The Fonz...befo...
The Fonz...before shark jump's picture

It's ok the Italians said the same thing in 2 world wars and ended up switching sides....

Bluffs and bluster and prayers the final acts of desperate men

Sun, 07/29/2012 - 09:45 | Link to Comment Snakeeyes
Snakeeyes's picture

Stupid Mario. It doesn't work in the US, why would it work in Europe?

http://confoundedinterest.wordpress.com/wp-admin/post.php?post=16905&action=edit&message=6&postpost=v2

Sun, 07/29/2012 - 16:31 | Link to Comment ghenny
ghenny's picture

If Draghi does the deed does that mean that DOW goes to 14,000 or higher or the reverse 10,000 or lower?  I have stopped trying to figure this one out.  Maybe someone else has a crystal ball backed by some kind of logic.

Sun, 07/29/2012 - 08:54 | Link to Comment Peterey
Peterey's picture

Have you also had the impression that this week rant by mr Draghi (Enter the Draghi, ... the first part of the video on mr Draghi is fun), was a bit over-done and emotional and resembled the rant by former Greek finance minister Giorgos Papakonstantinou warning short sellers that they will be crushed? When I saw mr. Draghi, I thought that, if Central Bank policy communication becomes open reprimand, this might signal a weakness and not a strength on their part. Let me know what you think...

 

http://theincrementaltrader.blogspot.it/2012/07/week-end-review-23-27-ju...

Sat, 07/28/2012 - 21:04 | Link to Comment viator
viator's picture

Anybody tired of this kabuki dance?

Sun, 07/29/2012 - 16:32 | Link to Comment ghenny
ghenny's picture

If Draghi does the deed does that mean that DOW goes to 14,000 or higher or the reverse 10,000 or lower?  I have stopped trying to figure this one out.  Maybe someone else has a crystal ball backed by some kind of logic.

Sun, 07/29/2012 - 00:01 | Link to Comment Buck Johnson
Buck Johnson's picture

Big time, big tim.  This dance is so crazy that one morning or one evening something is going to be said or done that will tip the whole house of cards over and nothing they say will stop it.

Sun, 07/29/2012 - 09:21 | Link to Comment ghenny
ghenny's picture

I think we need to be a little humble here.  While in principle what the note says is correct in practice the Central Bankers and the Market may know something we don't.  There is a scenario where the Central Bankers use their printing power to hold the line against Depression while the politicians get their act together - thinking not unreasonably they can get away with it without inflation for a little longer because of slack capacity on the supply and demand side in the global economy.  It may be that in 12 - 24 months substantial reforms will have been enacted in all of the OECD, including debt reduction plans that are real, and tax policies that makes sense, and labor policies that promote growth, and pension/healthcare plans that are workable, and streamlined regulations, and sensible preparations for climate change.  At that point we could be back on a positive track.  It is dangerous to assume all politicians and bankers - whether Centeral or Private or Public - are stupid and incapable of understanding what is going on.  In some ways over the last decade we have all been learning what works and what does not as our world goes through some fundamental transformations.  It has ever been thus and we have the most educated, if most selfish, generation in history running things.  While I have some serious issues with my fellow baby boomers we may ge religion before we check out - most generations do.  My guess is that they (The Central Bankers and the Politicians) will figure this all out - if only to save their own skins and their lifestyles.  On top of that we may be helped by a few technology, healthcare and energy breakthroughs.  It does not always pay to be a pessimist.  

Sun, 07/29/2012 - 17:52 | Link to Comment SAT 800
SAT 800's picture

Hilarious; but completely delusional. "---including debt reduction plans that are real---". Ha, Ha, Ha, ho, ho, ho. You're too funny.

Sun, 07/29/2012 - 16:33 | Link to Comment ghenny
ghenny's picture

Postscript:

 

If Draghi does the deed does that mean that DOW goes to 14,000 or higher or the reverse 10,000 or lower?  I have stopped trying to figure this one out.  Maybe someone else has a crystal ball backed by some kind of logic.

Sat, 07/28/2012 - 18:20 | Link to Comment Sudden Debt
Sudden Debt's picture

I bet he first Went long on the euro 5 minutes before he said it.
He was with it investors when he said it right?
maybe, while having a beer with them he said: Buy me 100000 speeders hedge 50 long euro, I'll be back in 10 minutes....

Sun, 07/29/2012 - 07:32 | Link to Comment MillionDollarBoner_
MillionDollarBoner_'s picture

Draghi doesn't need to put the long Euro bet on - Goldman does it for him and his "vig" goes into his pension pot ;o)

Sat, 07/28/2012 - 20:15 | Link to Comment Yen Cross
Yen Cross's picture

 A primary dealer couldn't fill the orders on the way up!  That triggered the selloff as the counter party trades were breached. (eur/usd) Friday selloff. The market is long in the 1.20-1.24 range. The weak longs got stopped out! Look @ your " volatility oscillators".

Sat, 07/28/2012 - 17:55 | Link to Comment tom
tom's picture

"Save the euro" turns out to be a deceptively low bar. The periphery could all exit and there would still be a euro. My feeling is no one will exit, not even Greece. The path of least resistance is to continue printing euros. So if your point is, the euro's only going down in the long run, yep. If your point is there's nothing they can do about the capital flight from the periphery, nope, there is: take as much out of the periphery as you want, we'll make more.

Sat, 07/28/2012 - 20:22 | Link to Comment sunny
sunny's picture

Yeah, what he said.  Simple fact is that every time push has come to shove, Germany & Friends have caved, or enough people had the feeling that they caved that markets soared.  No question euroland is a mess, but no one is offering meaningful dialog about tackling the problem of why it is a mess.  Until the Mediterranean crescent gives up the nannystate syndrome it's financial serfdom for them.  Until they come to grips with the idea that you can't solve a sovereign debt problem by creating more sovereign debt, they are doomed.  Then again, we haven't dealt with these problems either....  We're all screwed.

sunny

Sat, 07/28/2012 - 16:13 | Link to Comment q99x2
q99x2's picture

If Goldman intends on taking out Spain like Greece that is probably what they will do.

Sat, 07/28/2012 - 16:00 | Link to Comment Nachdenken
Nachdenken's picture

Goldman trained Draghi lecturing the muppets - who reacted nicely.

And for the encore, another 200 on the DAX and the EUR(USD to 1,27 ?

Sat, 07/28/2012 - 15:17 | Link to Comment Goldtoothchimp09
Goldtoothchimp09's picture

I think this is Mario's way of pressuring Germany to agree to terms that they are currently NOT onboard for.

Note his comments were right before he meets the Bundesbank President and Geithner on Monday.

It would be a very public, and very risky ploy -- read DESPERATE.

Sat, 07/28/2012 - 14:32 | Link to Comment michigan independant
michigan independant's picture

Author Gary Allen gives his explanation:

"If one understands that socialism is not a share-the-wealth programme, but is in reality a method to consolidate and control the wealth, then the seeming paradox of super-rich men promoting socialism becomes no paradox at all. Instead, it becomes logical, even the perfect tool of power-seeking megalomaniacs.

Bruce was correct, they are insane. They have no intent to have a free market.

Sun, 07/29/2012 - 14:38 | Link to Comment ghenny
ghenny's picture

So why do so many libertarians vote Republican if what you say is true?

Sat, 07/28/2012 - 17:31 | Link to Comment Obadiah
Obadiah's picture

keep it coming MI... I like your thoughts

Sat, 07/28/2012 - 14:34 | Link to Comment bankruptcylawyer
bankruptcylawyer's picture

the only thing that can save the euro is a full reversal of pan-european socialist facism led by germany. 

 

the only way i can see that happening is if a huge war breaks out . we need a big war with SOMEONE to put the fear of god into people so the pan-european bearacrats can raise their own stazi to put every country in line. This cannot happen though without germany first giving the go-ahead. 

 

germany is still kind of nationalist , especially outside of berlin ( just as the u.s. is outside of DC and New York and San Fran ) . As long as a big war can be drummed up out of thin air, there should be no problem using the cover of emergency to implement the proper bribes and propoganda campaigns to neutralize the conservative nationalist parts of germany. they will be subdued , the ecb will raise its own poilice forces, plant them in every debtor nation of europe, and then the appropriate balance of inflation and social spending can be re-estabilished. 

this of course, requires an outside enemy. IRAN would do just the trick. and as far as false flags, or actual instigation goes, it would be REALLY awesome if a major european capital was attacked--maybe even nuked--- to help drum up the anger. Eveyone on these boards is saying 2012 olypics will have a false flag. NO way. what use is it? to whom? London is a shit target because it is not European. this major falsa flag needs to drum up a sense of european identity which was NOT there before. an attack on a European Capital could help do this. 

I'm thinking Paris or Madrid. Moreso--Paris.  Germany is off limits because the turkish population is pro-nato and pro-euro. France has the muslim northafrican and middle eastern population that would be the perfect scapegoat for generating the kind of pro-white christian (yet non-francoi-nationalist) pan-european sentiment that could be cultivated for the purposes of getting european support for a massive war. I don't know how israel figures into this but as a zionist jew, i'm fine with a bunch of anti-semitism in france. let the french jews get 'scared' and forced to emigrate to israel. they have a place to go, they will not be slaughtered as a minority in the ensuing global chaos. and if they go down with israel , then at least they went to the holy land for their last hurrah. 

Big Wars WORK. look at how 9-11 led to the war in Iraw and changed a whole lot of things. The consolidation of corporate-government power in america has mushroomed since 9--11, americans have lot more and more of their regional and sub-regional culture and states have become mere shadows of their former political selves. the empire has invented drone warfare and digital money and full communications surveillance. 

this coudl be done again but with Paris and Europe. 

those troops go to war and come home to jobs as EUROPEAN police. 

a lot of this is taken out of the star wars play book if you couldn't tell.  30% of the time, it works ALL the time. 

 

thoughts? can we make a movie out of this?

 

Sun, 07/29/2012 - 08:33 | Link to Comment Red Irish Mist
Red Irish Mist's picture

IRAN would do just the trick. and as far as false flags, or actual instigation goes, it would be REALLY awesome if a major european capital was attacked--maybe even nuked--- to help drum up the anger.

 

Europeans, whatever that means, are not perhaps as gullible as some other nations. There is a very large body of 'Europeans' who do not believe the lies we are fed by the US and/or our Governments. We do not believe Iran has, or wants, nuclear capability so a 'false flag' of that nature would be viewed with very great suspicion. We do however believe that the US Government has nuclear capability and wants to use it, either directly or by proxy.

Sat, 07/28/2012 - 16:25 | Link to Comment OneTinSoldier66
OneTinSoldier66's picture

My thought is that war is hell and it's pretty scary seeing someone promote war as a solution.

Sun, 07/29/2012 - 08:18 | Link to Comment my puppy for prez
my puppy for prez's picture

Just remember that WAR is the Zionist Jew kingpins' favorite playbook.  

No mystery here.  And if you will notice how Bankrupt said he is "fine" with anti-Semitism in France....Talmudism NEEDS anti-Semitism to keep their ranks in the fold.  It's always been so.

Sat, 07/28/2012 - 14:11 | Link to Comment JamesBond
JamesBond's picture

In the end, market forces always prevail.

========

 

i believed this too; until the advent of HFT algos manipulating the markets

Sat, 07/28/2012 - 18:48 | Link to Comment robochess
robochess's picture

I agree but even algos go the side of sentiment... they alone don't create sentiment, they join it and exploit it.

Sat, 07/28/2012 - 13:36 | Link to Comment Reese Bobby
Reese Bobby's picture

I haven't seen anyone summarize the European situation better than David Einhorn, as highlighted by ZH:

http://www.zerohedge.com/news/david-einhorn-throws-france-under-bond-vigilante-bus

Global economic fundamentals are very weak.  Even the U.S. is noticeably slowing.  Central Bank money printing has been proven ineffective as economic stimulus.  I find it amusing that CB blah-blah-blah and a meaningless stock market rally can get anyone excited.

If people want to fear something, FEAR A SUMMER STOCK RALLY.  Good luck.

Sat, 07/28/2012 - 13:19 | Link to Comment Mr.Kowalski
Mr.Kowalski's picture

What he's probably talking about is the ESM getting a banking licence. This will allow the ESM to leverage it's $500 billion or so into $5 trillion and so it can refinance all of Spain and Italy's debts. They can force a 1/3 haircut for bond investors and refinance the rest out to 20-30 year bonds at 2%. Ireland, Portugal and possibly even Greece would be included. 

The problem with this is-- what is to prevent them from borrowing more and more ? 

Sat, 07/28/2012 - 13:49 | Link to Comment Reese Bobby
Reese Bobby's picture

Why would they force a 1/3 haircut on themselves?  I'm not sure you fully appreciate the EU Ponzi-scheme structure.  However I agree there are potential liquidity solutions that all involve massive money printing.  However I have not heard any realistic solvency solutions.

Sat, 07/28/2012 - 13:25 | Link to Comment Kayman
Kayman's picture

Mr.Kowalski

And who/what fills up the other $4.5 trillion on the balance sheet ?

Sat, 07/28/2012 - 16:05 | Link to Comment Nachdenken
Nachdenken's picture

You and I and all the rest who pay taxes, contribute with producive labour.  Anyone I missed out ?

Sat, 07/28/2012 - 14:19 | Link to Comment Reese Bobby
Reese Bobby's picture

Interesting question.  In my mind, ignoring complications and nuances, CB assets and liabilities during balance sheet expansion are really just book entries.  In the U.S. the Fed can expand its balance sheet by buying financial assets and crediting member bank reserve accounts as the offsetting liabilities.  In the EU they have created the Ponzi-scheme between the ECB and individual country CB's working in concert with their large banks.  But I am not an expert in this nonsense.

Please explain the roadblock to massive EU balance sheet expansion you see, if you are willing.  Thanks.

Sat, 07/28/2012 - 14:15 | Link to Comment Winston Churchill
Winston Churchill's picture

There is one born everyday.

4.5 tn.Now thats a lot of them.

A sucker  a day for how many years ?

Sat, 07/28/2012 - 15:35 | Link to Comment Joebloinvestor
Joebloinvestor's picture

Wait for the finger pointing and "blame the US" when the shit falls apart.

These EU fucks are just a bunch of liars whistling past the graveyard.

Sat, 07/28/2012 - 13:09 | Link to Comment booboo
booboo's picture

I will have to go with a Hank Paulsons "Tanks in the Streets" moment for the euro. Hey, speaking of that stuttering bug eyed ass maggot, what's he doing now?

Sat, 07/28/2012 - 13:22 | Link to Comment Kayman
Kayman's picture

Hank sheds a tear everytime he cashes his Goldman check.

After all, Hank saved the world, Al Gore invented the internet, and Europe will become unified (perhaps under the tent of Allah...)

The day-to-day girations of currencies manipulated by criminal banks and Central Bankers is but a Mugs game. 

Sat, 07/28/2012 - 12:51 | Link to Comment shovelhead
shovelhead's picture

Can someone explain to me the mindset of a professional trader who will bet millions on the unicorn fart comments by Draghi? The guy said exactly nothing of substance unless he believes that he can shart Euros by the billions.

I find it unlikely.

I just don't get it. It must have something to do with betting with other peoples money.

Then again...If you can't lose, why not just flip a coin? Why bother reacting to anything anyone has to say?

I'm mystified.

Sun, 07/29/2012 - 13:50 | Link to Comment disabledvet
disabledvet's picture

GDP came in basically in line...but previous numbers were upgraded.http://in.reuters.com/article/2012/07/27/markets-usa-stocks-idINL2E8IR2X... here's the BEA numbers...with the all important "revisions"...in some cases going past three years. The revisions are in fact "the real numbers." (shout out to Tom Keene on that one.)

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Sat, 07/28/2012 - 22:30 | Link to Comment bluemaster
bluemaster's picture

Yep I bet my money and stoped on unicorn fart, No one fund manager or trader in whole world was selling except me.

I give up...

 

 

Sat, 07/28/2012 - 20:03 | Link to Comment DeadFred
DeadFred's picture

The market didn't respond to Draghi's comment, it responded to the fact that the index levels sat on support for nearly two days and didn't have the oomph to break through. Draghi could have quoted Mother Goose stories and the market would have gone up anyway. If you listen to what he said that's pretty much what he did. We're at the top of the range (less than 1% to the top) now so it will correct downward Monday or Tuesday.

What has been the real news in the last couple months? Not very much of it. Some credit downgrades were real because they affect margins. I've tallyed some others but they escape me now because they weren't very big. The other factors such as bond rates VIX and such are actually reactions to the traders activities. Draghi said what he did because the market needed a reason to disguise the reaction that it was about to make. 

If there is ever any real news such as an Iranian missile sinking an oil tanker the real market forces will rear their heads, until then this is all algo-driven, vapor-volume BS.

The biggest real news item I see out there is the drought. Ben announcing QE-whatever will blow food prices through the roof so I'm betting he can't do it. The market will be pissed if he doesn't. If he does announce QE the ramp in food will make the Chinese pissed, almost feel sorry for him. Almost

Sun, 07/29/2012 - 05:20 | Link to Comment Rick64
Rick64's picture

Good analysis, after the correction IMO it will go back up to 1.24 or higher.

Sat, 07/28/2012 - 13:10 | Link to Comment blueridgeviews
blueridgeviews's picture

Professionals don't trade computers and their programs do.

Sat, 07/28/2012 - 12:26 | Link to Comment Bubbles and Busts
Bubbles and Busts's picture

"If Mario has his way, Spain will suffer from a decade of recessions with unemployment over 20%. How could he possibly call that outcome a success?"

Easy...

ECB's Means (Lost Decade With High Unemployment) To An End (Structural Reform)
Sat, 07/28/2012 - 12:21 | Link to Comment CrazyCooter
CrazyCooter's picture

There has to be a John Lenin, round rose glasses angle for Bonzai with that Draghi picture. This whole shit show is a bad acid trip ...

I will now read the article.

Regards,

Cooter

Sat, 07/28/2012 - 11:41 | Link to Comment Snidley Whipsnae
Snidley Whipsnae's picture

"He's either bluffing, lying or blind as a bat."

Maybe he was long equities? Sometimes the simple answer is the right one.

Sat, 07/28/2012 - 20:13 | Link to Comment DeadFred
DeadFred's picture

Simpler still is to take cash from someone else who is long equities. It's easier to hide the paper trail that way. If this this is the real driving factor (in some form or another) for what's going on I'll  be astounded. Cash, women, power, nose candy something is trading hands. Maybe he's smart and it's gold.

Sat, 07/28/2012 - 11:39 | Link to Comment kraschenbern
kraschenbern's picture

To Bruce:  A recognition of the willingness and now the ability of the FED, the BOJ, and the ECB to directly purchase sovereign bonds is appropriate to your discussion.  These three central banks (and associated sovereigns/constituencies) comprise over 90% of the financial markets of what used to be called "the free world".  If you don't think the central bankers and the sovereigns can act in concert to crush the private investors, then your imagination might be a little limited.  Such an event would represent an act of desperation - and it would be unfortunate; but I would not discount it.  It now seems that the "framework" has been established for three central banks/associated sovereigns to embrace in an orgy of financial profligacy - with their constituencies ultimately bearing the cost through their tax systems.

Sat, 07/28/2012 - 13:36 | Link to Comment Haager
Haager's picture

What if they already started to act this way?

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