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Deutsche Bank's Shocking Admission: "QE In Europe Will Be Ineffective"
Via Deutsche Bank's George Saravelos,
Euroglut: a new phase of global imbalances
This report argues that both “secular stagnation” and “normalization” are incomplete frameworks for understanding the post-crisis world. Instead, “Euroglut” – the global imbalance created by Europe’s massive current account surplus will be the defining variable for the rest of this decade. Euroglut implies three things: a significantly weaker euro (we forecast 0.95 in EUR/USD by end-2017), low long-end yields and exceptionally flat global yield curves, and ongoing inflows into “good” EM assets. In other words, we expect Europe’s huge excess savings combined with aggressive ECB easing to lead to some of the largest capital outflows in the history of financial markets.
Introducing Euroglut
The dust is settling on the Global Financial Crisis, and markets are now focusing on the future. One prominent line of thinking is that the new normal is "secular stagnation" - weak trend growth and very low neutral rates. Another view is that "normalization" is around the corner - growth will soon return, and policy will inevitably normalize faster, particularly in the US. In this piece, we argue that both the "normalization" and "secular stagnation" frameworks are incomplete. Instead, it is Europe's huge savings glut - what we call euroglut - that will drive global trends for the foreseeable future. While euroglut seems similar to "secular stagnation", the asset price conclusions are very different and far more powerful.
What is Euroglut?
Euroglut is a global imbalances problem. It refers to the lack of European domestic demand caused by the Eurozone crisis.
The clearest evidence of Euroglut is Europe's high unemployment rate combined with a record current account surplus. Both are a reflection of the same problem: an excess of savings over investment opportunities. Euroglut is special for one and only reason: it is very, very big. At around 400bn USD each year, Europe's current account surplus is bigger than China's in the 2000s.
If sustained, it would be the largest surplus ever generated in the history of global financial markets. This matters.
Domestic policy implications
A domestic implication of euroglut is that FX weakening will not be an effective policy response. Does the euro-area need an even bigger trade surplus? Europe faces a problem of domestic, not external demand. The global environment is hardly conducive to export-led growth either. Japan has engineered a close to 50% appreciation in USD/JPY yet exports have failed to recover.1 This lack of FX responsiveness does not mean that the ECB doesn't care. Absent fiscal policy or other "animal spirit"-boosting initiatives, there is very little left for the central bank than to push yields and the currency lower. QE in Europe will be ineffective, but it will happen anyway - it is the only tool the ECB has to protect its mandate.
Global impact
Euroglut means that as the world's biggest savers, Europeans will drive international capital flow trends for the rest of this decade. Europe will become the 21st century's largest capital exporter. This statement is close to an accounting identity - a surplus on the current account implies capital outflows elsewhere. Our premise is that the next few years will mark the beginning of very large European purchases of foreign assets. The ECB plays a fundamental role here: by pushing down real yields and creating a domestic "asset shortage", it is incentivizing European reach for yield abroad. 3 Think about policy over the next few years: at least 500bn-1trio of excess cash will be sitting in European bank accounts "earning" a negative rate of 20bps. In the meantime, asset-purchases will drive yields down across the board – there will be nothing with yield left to buy. The asset implications are huge:
1. Currency weakness. As equity, fixed income and FDI outflows pick up, the euro should face broad-based weakening pressure. Our end-2017 forecast for EUR/USD is 95cents.
2. Very flat fixed income curves. What will Europeans buy? With the US Treasury - bund yield spread at record highs, US fixed income should be a primary beneficiary of European demand. "Secular stagnation" implies a low terminal Fed rate resulting in low long-end yields. "Euroglut" suggests that the level of neutral Fed funds doesn't matter. If there is sufficient demand for longdated instruments, the US 10-yr yield could easily trade below terminal Fed funds. It happened during the 2000s "bond conundrum", it is even more likely now - global imbalances are bigger.
3. Good EM could survive. The Global Financial Crisis has seen a rotation of current account surpluses away from EM to Europe. At face value, this makes EM more vulnerable. But the sum of countries' current account surpluses is larger now than before 2008, so there is more spare capital around. European current account recycling should mean that the marginal demand for EM assets is likely to go up, not down.
Beyond the Eurozone
Just like China's surplus drove most Asia policy in the 2000s, Euroglut will drive policy across Europe. Two economies are already imposing currency floors to fight off euro weakness (Switzerland and Czech Republic) and one more has imposed negative rates (Denmark). Scandinavia, Switzerland and the CE3 economies are likely to face continued pressure to ease more. All these countries are running current account surpluses, meaning the potential for European capital outflows is even larger. We could see an amplification of Euroglut: most of the European continent could end up with negative rates or FX managed-regimes.
Conclusion
"Secular stagnation" and "normalization" rely on views around trend growth but ignore global imbalances. It is these that remain the most important feature of the global financial system. Europe is the new China, and via large demand for foreign assets, it will play a dominant role in driving global asset price trends for the remainder of this decade.
* * *
Ironic that this report should come out alongside the Bundesbank's comments blasting Draghi.
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Gee wonder where they got that idea??
Yeah, QE is ineffective everywhere.
Printing money does not address a massive debt overhang and bubbles everywhere.
Debt to GDP ratio
The rest of it is Fedspeak BULLSHIT
The Swiss voters get to decide.
http://www.kitco.com/news/2014-10-07/Swiss-Government-Says-Fixed-Gold-Re...
The face jobs on CNBC just flashed a month over month of Germany's industrial output - like it's minus 4%. Germany, beleive it ot not, exports more than the US.. Given that Germany is err was, the only "growth" the EU could boast of, I don't beleive US T-Bill purchases by Germanies central bank is a stratgy Yellen can bet on. I guess final delivery of Germanies gold alleged to be stashed in US vaults will get pushed back to the end of time, or as Hawkins calls it, the "Big Collapse".
Had Maria been on the panel, she would have asked her stock and trade question, "Is now a good time for retail investors to get back in the market?" Ole dependable, triple chinned 80 psi lipped Maria, what would we do without her?
It is a sure bet the FED is now writing naked shorts on non-existant physical. A couple of years ago, according to some FMOC minutes, the FED was shorting treasuries.
When there's is no rabbit in the hat, it's hard to convince, event the dole eyed shabby sheik Wal Mart elite bottom feeding in American consumerism, that a hand full of hot air, held by the ears, is anything moret a hand full of hot air.
Ya see - the problem with the way they've engineered the US economy, is that when you pay IRS subsidies to US corps to set up shop off shore, and then, also pay mom and pop businesses subsidies to purchase from those off shored US provider's, all the the capital is flowing to a very small group of people. THE 1% CAN'T AND WON'T BUY ENOUGH TV'S, TOASTER OVENS AND MICROWAVES TO HELP FAKE THE PRINT.
Like there's no exit strategy or end game. These dorks think they just gonna ride it out - they've completely lost their sense of survival.
However, and that being said, they can afford to eat food that will only make their meat sweet when we roast `em on the embers of a recently hatched phoenix on our spits at oure soon to materialize epochal fat cat roast all you can eat barbecue.
See ya at the party!
Dirty pictures
http://patrick.net/forum/?p=1223928
We're a bunch of douches and we have so many derivatives that nothing can save us from blowing up.
Shocking? It worked in US or Japan?
Define "it worked".
Gold.
Now where is their Army as well?
Inquiring minds would like to know? "How many divisions" (and multipliers) "have you?"
Define who it worked FOR, is probably the right way to look at it. I guarantee you it "worked", but depending on your perspective, probably not for you.
Merkelized.
And the charts are saying the same thing. http://elliottwavepredictions.com/
Market about to plunge about 100 points
this huge surplus however is nowhere the huge hidden debts on the Banks balance sheet which at some stage will be stolen to bail them out?
the problem is not just that there is a euroglut(buy back shares, dummies), there is a dollar glut, also. the real opportunities are in emerging markets from eastern europe to south america, africa and asia but the usa has declared war on the emerging nations and they have obliged. buy back shares.
Pushing on a string.
More like trying to shove a noodle up a wild cat's ass.
Reminds me of the movies when the magazine is empty and they throw their gun!! xD
Draghi realizes now that his gun is suspiciously light, and with only one in the chamber he might want it for himself.
Printing money does not a recovery make.
USA QE this
http://www.showrealhist.com
But it's their turn.
This ponzi can't go on, just like any greater fools market without another major economy destroying its currency.
Is he saying the EU has been sandbagging it? That they're really so rich they can buy up UST from the FED? Good to know.... and this explains the Belgium purchases? But doesn't a true circle jerk take three?
So many questions.... I'm confused!
Waddya mean it won't work? Ben and Janet have been printing away for the foreign banks since 2008... Look how well that's turned out. /s
lol/ So now Douche Bank is tired of playing the Devils' advocate and warning the sheep about the impending slaughter.
Where's Tony Hayward when you need him?
We're sorry for DPing you with a red hot poker for the last (6) years...
It's quite simple really. In response to socialist "you didn't build that" style economic policies, no one invests - so they save/speculate. All the QE in the world isn't going to change that. It's called "pushing on a string."
Where is demand going to come from?
No one says "but European demand will save us!"
This is not a "savings glut" but as with much in the USA a complete and total lack of liquidity.
No collateral.
In theory I can lend against inflation...and certainly into a steep yield curve. But I would first want to see to what extent Government simply "eats up recovery" by being say...Nationally Socialistic.
Of what benefit is it to lend out generally if the only beneficiary is in the end The State?
I would think The DB might opine something in this regard as well.
"When not lending to Germans and Germans only"'of course.
How is one to know when an irrational protuberance has been revealed through the evil machination of Market Force?
Germany since euro inception has been vendor financing periphery to boost its growth.
But that will end ... soon
their vendor financing akin to US with low/no doc mortgage loans last go round. Giving credit to unworthy demand blows up sooner or later
By pushing austerity down other European countries' throats Germany killed people's purchasing power there and so they could not buy more stuff made in Germany. Cheap German Euros lent out to everybody who wanted to borrow made Germany economically dominant in Europe but austerity (along with boomeranging sanctions against Russia) weakened German exports.
yep ... germany been feasting (running surplus) on periphery ... only because toxic dumps like Deutsche Bank lent the periphery money when they had no hope of repayment.
Germany screwed no matter what
"Our premise is that the next few years will mark the beginning of very large European purchases of foreign assets."
10yr yield @ 2.35% looking mighty tasty ... and in an appreciating currency to boot!
Euroglut according Deutsche Bank:
the eurozone produces, exports and saves a lot. Our benchmark doesn't. Ergo it can't be good, can it? Let's call it Euroglut and rant against it
meanwhile please do QE, but no, QE works only like painkillers, but nevertheless it would make us richer, in the megabanks. Our benchmark did QE, four times, so it must be good, so do it
QE will engorge the 1% with even more stolen loot. Moar for the 1% is what's all about. So, it WILL BE effective. Fucking pricks.
thank you for discussing what I pointed out yesterday.
Here : 5296703
http://blogs.marketwatch.com/thetell/2014/10/06/the-euroglut-could-hamme...
Concluding :
Fucking bastards.
No word about capital consumption and misalocation through their corrupt banksters hands.
QE was never effective for anyone but the bankster scum that steal productivity and profits from regular folks who create things. They are talking and talking bullshit about deflation while the falling prices of stuff in shops is are the basic and essential things in every market economy.
The current financial system is a complete fraud, without the knowledge about the banking and economics of the Austrian school there would be hardly any source of serious analytical information about the economics. The youth is taught total bullshit in schools, no common sense, just fucking banksters lies. Fuck.
+1
Based on this discussion, Europe's unemployment and lack of growth are a lack of demand. This would mean tax cuts and supply-side measures would be ineffectual. Wouldn't the Helicopter strategy (ie paying people not to work) help to raise living standards and help keep demand and economic potential more in balance? The article seemed to end without proposing a solution.
Oh bullshit. It will effective alright. Effective at what is another question.
Has anyone noticed the student revolt in HK seems to be fizzing out... Que sabe?
Time for the deer? I think its time for the deer....
Mass immigration puts downward pressure on wages and upward pressure on costs (especially housing) thus reducing disposable income and hence demand. Mass immigration is massively economically destructive but the consequences were hidden for a time by the credit bubble. Now that bubble has burst it will become increasiingly obvious that mass immigration causes a deflationary spiral but unfortunately too late.
It happened because the banking mafia - again - managed to convince TPTB in the west that mass immigration was a cure for problems instead of a cause. They did that because although it destructive for the whole economy in the long run, in the short run it makes the banking mafia richer through both the downward pressure on wages and the upward pressure in housing/rent costs.
How do they feel about the future of money laundering?
And what does this mean ? :
Germany’s Deutsche Bank AG is set to hire Elizabeth J. Ford from Goldman Sachs Group Inc. as its new head of compliance in the Americas region, according to an internal memo reviewed by The Wall Street Journal.
The move is designed to strengthen the lender’s compliance systems, which have been criticised by regulators in the U.S. and elsewhere as inadequate.
Ms. Ford, who goes by the name Jan, will join Deutsche Bank...
Compliance...the word acquires a new meaning.
+100 to most everybody. Excellent comments on this thread.
As with US and Japan QE...that cash will flow directly from the bond market to the stock market...pull up the charts and prove me wrong
Eurostoxx is yielding 3.6% and under 12 p/e...compare that to negative sovreign bond rates.
In other words, these are the currents of international capital flows.
Ah. But QE works in a different way than in the US. In the US the FED simply buys assets from banks. But the ECB's QE is demand driven. And that's the reason why european QE is less effective.
O.M.G.
- And I thought Europe only had a small CA Surplus.
- So, it's Europe now who's subsidizing all the US wars in the Middle East, instead of China.
- then it doesn't surprise me to see that here in Europe, there're LOTS of "unhappy" people.
- Micheal Pettis linked to this article:
http://blog.mpettis.com/2014/10/how-to-link-australian-iron-with-marine-le-pen/