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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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Sat, 07/28/2012 - 14:16 | 2659162 Ghordius
Ghordius's picture

D of C, How is Ireland faring? How was the last referendum? How many want to get out? Ever heard about Currency Wars? 8-|

Sun, 07/29/2012 - 07:47 | 2659291 THE DORK OF CORK
THE DORK OF CORK's picture

@Ghordius

A economic neutron has gone off - the buildings remain and the people reside inside - I am not sure if they are dead or alive but they get enough to eat and stuff.

The GNP per head has been cut from 37,000 + Euros in Y2007 to 27,000+ in Y2011.

@Kayman

The last time I checked the science  -  Energy is defined as the ability to do work........under the present currency structure if the domestic economy of Ireland started to move again it would suck in imports and export hard currency.

People get enough euro credits from the multinational operations to sustain themselves but you can't get a flight from Cork to Belfast anymore - all the fancy stuff has been cut to the bone or simply taken off.

PS.... a stat worth looking at.

Irish road freight (tonnes carried)

Y2001           :199,829 Million Tonnes

Y2007 (peak) :299,307 Million Tonnes

Y2011           :110,260 Million Tonnes

Even if we went back to Y2001 levels of activity we would have to export a Shit load of $$$$.

ENERGY IS DEFINED AS THE ABILITY TO DO WORK

It would take many many many men with shovels and pikes to beat even one bulldozer.

Sun, 07/29/2012 - 13:58 | 2660485 disabledvet
disabledvet's picture

great data as usual.

Sat, 07/28/2012 - 12:23 | 2659017 Kayman
Kayman's picture

"I don't get this mantra of Spain’s problem is its competitiveness or Italy or even Greece......."

OK... China has no social Hammock. Your either work or you starve. Europe has a hammock, and when you don't work, your working neighbors are taxed to support you.

Gosh, I don't get it either...

Sat, 07/28/2012 - 10:37 | 2658898 disabledvet
disabledvet's picture

oooops.

Sat, 07/28/2012 - 10:11 | 2658860 SubjectivObject
SubjectivObject's picture

The video: Word.

Unless the NVA gets out en mass and often, Colonel Kurtz' "horror" will become the alternative.

Sat, 07/28/2012 - 13:34 | 2659107 CIABS
CIABS's picture

Dork of Cork:  It does look like a trap at this point.  Who set the trap?

Sat, 07/28/2012 - 09:33 | 2658816 apberusdisvet
apberusdisvet's picture

What many are missing is that the Eurozone is the first leg of the incremental adoption of the NWO, or the total control over the world's population by the banking cartel. The psychopathic elites have come so close to having the ECB gain total sovereign control over fiscal and monetary issues; they are not going to give up so easily.

Sat, 07/28/2012 - 11:32 | 2658972 Peter Pan
Peter Pan's picture

Before any new world order sets in I can assure you the prerequisite will be an extended and painful period of chaos.

Sat, 07/28/2012 - 11:31 | 2658969 TNTARG
TNTARG's picture

Paraphrasing: You can control all the people for some time. You can control some people forever. But you can't control all the people forever.

Sat, 07/28/2012 - 10:54 | 2658915 TPTB_r_TBTF
TPTB_r_TBTF's picture

The Eurozone has barely begun and is nowhere near its End. It will sorta "end" when the NWO integrates the Eurozone into itself; however, it will remain a region within the NWO.

"Those under Euro-Bondage can bitch about anything they like, but they can never leave."

Sat, 07/28/2012 - 10:38 | 2658899 disabledvet
disabledvet's picture

you make it sound like it's a problem.

Sat, 07/28/2012 - 12:15 | 2659011 Kayman
Kayman's picture

"you make it sound like it's a problem."

Gallows humor ?

Like a shave and a haircut before the hanging !

Sat, 07/28/2012 - 12:26 | 2659028 disabledvet
disabledvet's picture

As any great General will tell you "you have to get in the mind of your opposition." interestingly...doing so literally only obscures the matter...if he's good. Combating financial "blitzkrieg" is not for the uninitiated.

Sat, 07/28/2012 - 13:12 | 2659083 Kayman
Kayman's picture

And "blitzkrieg" was a sucessful tactic (Britain aside) but was a lousy long term strategy.

Our Financial Overlords are bouncing day-to-day from pillar to post, oblivious to the long term consequences of using scarce fresh blood to save the gangrenous appendage.

Sun, 07/29/2012 - 14:23 | 2660515 disabledvet
disabledvet's picture

the USA has had MULTIPLE Depressions. The theory that "this whole bankster bailout thing" is new is a complete falsehood. We've had CENTURIES of experience with them! Granted we haven't really had one since WWII...but "this time is not different." So in an act of tremendous boredom perhaps we could imagine for a moment "what is the plan of the opposition"? Just hazarding a guess here but i say "growth at a reasonable price" which provides the asset stability that creates CONFIDENCE that when a banker lends out OP'sM that he will not only get the principle back with interest but that a "beginning of a beautiful relationship" will unfold. http://wiki.fool.com/GARP

Sat, 07/28/2012 - 10:53 | 2658921 TPTB_r_TBTF
TPTB_r_TBTF's picture

it's not a "problem"; rather, a milestone to achieve.

Sat, 07/28/2012 - 09:31 | 2658813 Joe A
Joe A's picture

How is he going to "mercilessly confront the speculators"? Other than putting them away or sending them to the eternal trading fields I see no other way to confront them.

Sat, 07/28/2012 - 09:31 | 2658812 proLiberty
proLiberty's picture

It's simple: a central bank can only create money out of thin air.  They cannot create economic assets.  The hope of the Keynesian worldview is by creating the right mirage (as Mises called such a wave of fiat money), they can trick and coerce the participants in the economy to make decisions about spending and investing that they would not make abasent the false image of economic reality.

When you diistort economic signals, you distort economic decisions.  In a world where the difference for business between success and failure is just a few percent, it only takes a few wrong decisions to destroy success.  A company that is not making a sufficient profit is not "sustainable", a concept the left loves for things they can spin and game.  But you cannot spin or game a balance sheet or P & L for long.  Even Enron and MF Global ran out of tricks and blew up.

If we are to the point where the only question about saving the economy is how the central bank will do it, this cannot end well.   Women and minorities hardest hit.

 

Sat, 07/28/2012 - 21:44 | 2659752 Hulk
Hulk's picture

Damn that was good !!!

Sat, 07/28/2012 - 15:52 | 2659328 Dr. Sandi
Dr. Sandi's picture

 

When you diistort economic signals, you distort economic decisions.  

Will somebody get that damned canary out of here. Some of us are trying to get a little coal mining done.

Oh, never mind, he's quiet now.

Sun, 07/29/2012 - 02:21 | 2659936 John_Coltrane
John_Coltrane's picture

When you distort the price of money via interest rate manipulation it is not possible to make rational economic decisions.

As Ron Paul has stated so often in the last 30 years,  "there can be no sound economy without sound money".  And there can be no sound money as long as the FED exists.  Economics is just that simple and complex.

Sun, 07/29/2012 - 08:56 | 2660070 Muppet Pimp
Muppet Pimp's picture

Divorced Currencies Bitchez...

Sat, 07/28/2012 - 12:56 | 2659062 JohnG
JohnG's picture

 

 

"Women and minorities hardest hit."

Disagree...highly compensated white males hardest hit.

Sat, 07/28/2012 - 11:35 | 2658976 donsluck
donsluck's picture

"the left loves for things" WTF does that mean? What is "left"? Why do you compartmentalise so much? Were Enron and MFG run by "lefties"?

Sat, 07/28/2012 - 09:19 | 2658803 vmromk
vmromk's picture

Love your articles Bruce.

Any thoughts as to when we can expect to see Draghi and Bernanke in handcuffs ?

Sat, 07/28/2012 - 10:34 | 2658893 TPTB_r_TBTF
TPTB_r_TBTF's picture

We will only see Mario or Benny in cuffs, if they make a bad power play and are deposed by TPTB, the way Strauss-Kahn was.

We have images of Strauss-Kahn in cuffs.  He seemed to have made himself expendable in some way.

As long as Mario and Benny are good ole boys, they wonT get cuffed nor assasinated.

Sat, 07/28/2012 - 12:11 | 2659008 Kayman
Kayman's picture

"... Strauss-Kahn in cuffs.  He seemed to have made himself expendable in some way."

All these figureheads have an undated Letter of Resignation signed for their masters the day they are appointed.

How can you talk shit and know you are talking shit, without an exit strategy?

Sat, 07/28/2012 - 09:27 | 2658810 ihedgemyhedges
ihedgemyhedges's picture

Only time you'll see them in handcuffs is if they hit one of those bondage clubs in San Francisco..........

Sat, 07/28/2012 - 12:29 | 2659031 Careless Whisper
Careless Whisper's picture

calling mister williambanzai

Sat, 07/28/2012 - 09:15 | 2658800 knukles
knukles's picture

Ewwwwwwwwwwww.
OK, OK.  Just take your finger out of there.
I promise to like the Euro.
I promise to like the Euro.
I promise to like the Euro.
I promise to like the Euro.

Sun, 07/29/2012 - 09:17 | 2660085 Winston Churchill
Winston Churchill's picture

Its not my finger.

Sat, 07/28/2012 - 12:22 | 2659014 LowProfile
LowProfile's picture

The EUR will survive, even if it's ultimately used alongside drachma, peseta, etc., due to its 15% gold reserves (marked to market every quarter!).  Iit will continue to function as a medium of exchange (albeit a devalued one, how much depends on whether or not there are bond haircuts).

The USD...  Well, within the US, sure.  Outside, not so much.

I don't recommend holding your savings in either.

Gold will be the big winner in both.

Sat, 07/28/2012 - 12:33 | 2659035 disabledvet
disabledvet's picture

Gold provides NO income. EVER. Up until yesterday "perfect environment for gold." but if the CB'ers altogether just lost control of the long end this past Friday (and market theory dictates they have no "control" of it to begin with) then "gold" could very quickly discover the awesome power of Mr Market...and the obedience...AND DISCIPLINE...that he demands. One word: dividends.

Sun, 07/29/2012 - 17:41 | 2660876 SAT 800
SAT 800's picture

you're disabled, alright. disabled in the head.

Sat, 07/28/2012 - 15:49 | 2659325 Dr. Sandi
Dr. Sandi's picture

Gold is for people who are more concerned with return OF investment rather than return ON investment. These days of inflation and minimal interest, this seems like a sensible strategy to me.

Sat, 07/28/2012 - 20:41 | 2659646 Popo
Popo's picture

No. No. No. Jesus, No. (And I have a lot of gold!)

Gold has its time and it's place and it's time is right now because threats of currency debasement are looming.

But if you're trying to make the argument that gold is always and forever a sound "store of value", go and look at any gold chart please. Gold is a volatile little bugger and it can lose half it's value in a week and stay down for decades. That is no store of value!

What gold *can* do, is provide a safe haven from those who attempt to inflate the monetary base. Which is a serious threat right now. But if you're looking for security from volatility, you've come to the wrong place. And if you're looking for an asset whose value can't be decimated, you're obviously having trouble reading the charts.

Gold has a time and place. I happen to think this is that time. But a safe investment? History clearly says, "only sometimes" -- and it all depends on your horizon.

Sun, 07/29/2012 - 02:08 | 2659928 John_Coltrane
John_Coltrane's picture

The same amount of Gold still buys a suit of clothes, a fine meal, a house, a horse, a hotel stay and anything that existed 100 or 200 years ago.  That's a store of value.  The value of barter/exchange.  Its the only thing that matters.  In fact the same amount of gold buys a loaf of bread 2000 years ago as it does today.

Its as valid a the constancy of the total number of atoms.

Sun, 07/29/2012 - 03:01 | 2659944 lewy14
lewy14's picture

Popo's point is still valid on human timescales. If you rushed into gold in '80, you spent a long time in the wilderness, return-wise.

If I were a tired, burned out vampire who wanted to nap for a few centuries, for sure my gold allocation would be pretty substantial.

As is mine now - risk/return it's not a bad deal (which, given that there's no income stream, is saying something - something bad about financial assets in general). But it may not always be the case.

Unless and until central banks can credibly raise real interest rates into positive territory without cratering what remains of growth and employment, gold will not get hammered. In fact what we've seen is not just short rates but the entire curve submerge below zero real return.

Sat, 07/28/2012 - 14:29 | 2659197 malek
malek's picture

 Gold provides NO income.

In a world with negative real interest rates, and -depending on who's inflation calculations you believe in- mostly negative real dividend "income" rates. Sounds good to me.

Sat, 07/28/2012 - 13:17 | 2659087 LowProfile
LowProfile's picture

 

One word: dividends.

Five words:  What is it paid in?

Sat, 07/28/2012 - 08:28 | 2658767 Precious
Sun, 07/29/2012 - 13:06 | 2660424 JeffB
JeffB's picture

The odds of a politician being a psychopath are much higher than the odds for a businessman, methinks.

At least those in business have benchmarks by which their performance can be evaluated.

For politicians a psychopathic skillset is considered a valuable asset by many.

 

Sun, 07/29/2012 - 11:39 | 2660280 graneros
graneros's picture

Undoubtedly if New York psychologist Paul Babiak had studied politicians instead of businessmen that number would be 24 of 25.

Sat, 07/28/2012 - 21:22 | 2659721 philipat
philipat's picture

It's really quite simple and boils down to "Will Germany put its own future on the line to allow profligate spending to continue in Club Med?".

It's not terribly diplomatic for Germany to say FU but, honestly, if it was your money would you put more of it in? The easiest way for Germany to solve its predicament is just to pull out of the Euro and let the Socialists print to their hearts content.

Sat, 07/28/2012 - 14:56 | 2659226 Anusocracy
Anusocracy's picture

Psychopathy is a spectrum disorder.

They have a high function social brain.

Sun, 07/29/2012 - 02:15 | 2659934 LowProfile
LowProfile's picture

 

Psychopathy is a spectrum disorder.

They have a high function social brain.

So, they are high-functioning psychopaths.

Makes sense.

Sat, 07/28/2012 - 15:00 | 2659244 Fake Jim Quinn
Fake Jim Quinn's picture

They call him "Mario Druggie" for a reason!

Sat, 07/28/2012 - 12:24 | 2659023 LowProfile
LowProfile's picture

Before you junk him, that's a link he posted.  Click it.

Do NOT follow this link or you will be banned from the site!