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Draghi's "QE Dream" Is Finally Over, And Now The Questions Begin
After over 2 years of dragging, pardon the bad pun, the market by the nose, ever since his "whatever it takes" speech in July 2012, Draghi finally folded and launched QE. This, as Credit Suisse warned last week, and as stocks are starting to realize, may have been the longest "sell the news" build up in history. Of course, CS worded it more poetically: "the QE Dream becomes reality" and far more importantly, as it also adds: "the dream may prove far more powerful as a market driver than the reality."
What happens next? Well, finally some very unpleasant questions will have to be answered, such as this one from CS: "current valuations, however, beg the question of when does the periphery take notice of price action in other markets" and more importantly, "If QE does little to move the needle on inflation expectations, then there will come a point in time when the market questions the tightness of spreads.... we think this question will be asked once QE happens."
Thank you Draghi: the market will finally demand - and get - some answers.
Key sections from last week's Credit Suisse report:
...if the ECB isn't in a position to announce a purchase programme, then at the very minimum we would expect Draghi to firmly keep the QE dream alive. Arguably, as we discussed last week, the dream may prove far more powerful as a market driver than the reality, but importantly as we've seen in recent months, it is very hard to trade against the possibility that QE may well be coming down the pipeline in the near future. So while an announcement is clearly not now expected, it probably wouldn't have a lasting market impact unless the messaging is very muddled.
...
The resilience of peripheral spreads in the latest round of equity and commodity volatility has been remarkable. Spreads shrugged off volatility in 1) EM last year, 2) in crude oil this year and 3) in recent equity volatility. We attribute this to the power of the “Draghi put” and the threat of ECB QE. The question is whether the same phenomenon can continue once the “QE dream” becomes reality.
We expect there will be a tipping point (as we saw in 2013) where negative sentiment in other asset classes (EM, credit, European equities – especially bank stocks and inflation breakevens) will start having an impact on sentiment in the periphery. Obviously, if the ECB delays the QE decision, the feedback loop between the periphery and other risky assets should return; but calling that timing is complicated as we expect that if the ECB does not deliver QE in January, it will still keep the QE dream very much alive and kicking for the next meeting.
The market is differentiating between 1) what the ECB buys versus what it doesn’t and 2) economic versus financial asset valuations. There was a time when weakness in peripheral equities and/or bank stocks would feed through to peripheral yield spreads (see Exhibit 16), almost immediately and vice versa. But the grab for yield environment and the ECB’s backstop for spreads has broken this relationship. Current valuations, however, beg the question of when does the periphery take notice of price action in other markets.
We expect this “tipping” point to happen either when:
1) the ECB does QE but the market remains skeptical of the reflationary impact of QE or 2) the ECB delays QE and the market goes into Greek elections without tangible ECB support. As shown in Exhibit 17, peripheral spreads have diverged significantly from inflation breakevens. If QE does little to move the needle on inflation expectations, then there will come a point in time when the market questions the tightness of spreads. We are not saying that time is now – we share the consensus that ECB QE will initially be positive for the periphery and in fact, below add to our peripheral exposure – but we think this question will be asked once QE happens.
There is even a case to be made that once QE is announced and the exact details on implementation are revealed that the periphery could then become more sensitive to risk sentiment in other asset classes. While the ECB keeps the “QE dream” alive, it is harder for the market to short the QE option, but how and when that dream crystallises into reality will affect the sensitivity of Italian and Spanish yields to other risky assets. We keep our positive view on the front end (i.e., out to 7y) of the periphery, but are more cautious on extending further out these curves.
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P L A C E B O
well if this doesn't sum up the last 20 or so years (at least) of western economies, i don't know what does: "the dream may prove far more powerful as a market driver than the reality."
It was always about the "dream" ....its the "reality" thats the nightmare
QE carnival jumped the pond, I see. Draghi selling some garbage with that line of BS.
It will do nothing, except allow the insolvent banks to unload toxic garbage on the taxpayers. This is not market stimulation.... it is an insolvent bank rescue plan.
Here is the kicker -
Apart from derivatives, I don't think there are enough NPLs in Germany to eat up 13.2 Billion EUR per month for 16 months. No one BuBa would be purchasing DB's derivatives. I mean -- whats the point -- 55 trillion?
QE Frauds... FREE Fiats Money For The .01% ers.
VAN GOGH Paintints To $500 Million!
They could issue bonds for the debt of the Bundesländer and local governments. Besides that the Finanzagentur is rolling over about 160 billion Euro in debt this year alone, probably the same amount next year. There´s still 2 trillion of Germany debt, they´ll find a way.
Draghi Speech: We're fucked. I'm printing. Thank you for your attention.
These measures are hopelessly insufficient. I was expecting significantly more from the ECB, and I'm certain that the measures in this bill simply aren't going to cut it. Europe desperately needs to oil its economy with liquidity programs and end its harsh austerity measures once and forall. Contrast Europe to the US, where austerity measures have been consistently rejected by congress and a series of strong monetary and fiscal stimulis programs have been put into effect. America's economy is growing, while the European economy continues to suffer. When will Europe learn?
Dude, relax. It's only QE ONE. At least three more to come.
More reasons why the Swiss bailed:
http://www.reuters.com/article/2015/01/21/us-china-switzerland-currency-...
Swiss SNB says inks pact for renminbi clearing with PBOC+1 "there's still 2 trillion German federal debt". two trillion ain't nothing. as far as I remember the Länder/local is out of scope/discussion
.
So far we've had words and talking points but until we see exactly how and where they are going to go about throwing this QE around we don't really know how fast or how bad things will get. Spain and Italy will likely get enough to keep them afloat on the shit river, at least until they start hearing banjo's.....
The little boys over at Brown Brothers Harriman FX Department like Marc Chandler are just so happy now. They said the USD was strong and Mario's action today just proves it...until QE4 kicks in.
Perhaps, but America is a bit better armed than most countrys at many levels.
I have only one question for the ECB. Specifically, what will be different this time? All that QE/ZIRP money has simply gone to the bankers, financiers, and politicians while everyone else's compensation/wage has dropped.
Get long guillotines, beat the rush.
But they've got Draghi, sunshine and lollipopos all the way down.... https://www.youtube.com/watch?x-yt-ts=1421782837&x-yt-cl=84359240&v=XQmB...
GOLD Man Syndicate...
Who has the cards? Goldman. Goldman’s got Draghi in Europe, Carney in Britain, Dudley in America – and Israeli citizen S. Fischer overseeing it all at the Fed in DC – and the stupid world, except for Putin, sits and takes it.
I glided my helicopter onto the landing pad at the HQ of World Control, Goldman. Lloyd met me at the building entrance, staying out of the wind.
Good to see you Mr pResident.
Hey! Looks like you redecorated the lobby.
Yeah, we had some spare funds. Come on below to the Office. We have new orders for you.
Yes, sir!
The S&P at 2000 and the 30 year yield hitting record lows.
What happens to the 30 when the S&P hits 1800? 1500?
Fireworks on the way, bitchez.
It's only when we truly take full ownership of how well and truly fucked we really are will we see any real change- till then this is all just noise!
For all Draghi's talk of making the market pregnant
His bazooka just shot out a dream with no seed in it.
As we call it in the UK he is a Jaffa cake
No seeds
http://en.wikipedia.org/wiki/Jaffa_Cakes
Oh, you're such a bad boy William. You knock me out.
CHEERS... LIVE LARGE Oh .01% ers...
"Weaponized Gibberish," hahahahhaha!
I busted out laughing at that one! The bad part about it, is that the ECB QE will have exactly those same effects on the EU Economy! Bring up moar AMMO, Krugman!
Draghi's Dream is over; and now the Nightmare Begins. Stay Tuned.
QE4 on the card.
he's that guy in the schoolyard who talks like he's tough, then gets knocked out in the 1st minute of the fight...
oooo you hear that Draghi, market is saying your mamma dresses you funny
Or he's the guy on the Titanic movie who rallies the band members to continue playing as the ship sinks.
Actually, he's the guy on the Titanic who convinces everyone that if they all pretend the ship is not sinking, none of them will end up in the Atlantic.
It is amazing that mass self-deception has worked for this long.
Drag: Watch out, Bitch, I am firing my Bazooka!
Vlad: You call that a bazooka? This is a bazooka!
Nightmare on Draghi St.
Amazingly, the world is realizing the terrible truth, QE doesn't work.
sadly all too late as the revolution has already been commoditised!
And it only needed to occur and fail 775 times in a row throughout history before the world realised it!
Never underestimate the power of self delusion.
Reality since 2008 has been willfully bent and ignored.
I could have told them that from my village hut in Andra Pradesh.
IMO, they are gonna lose the 1300 and 18 handle on PMs.
NEVER!
Occupytm
You are right..but now the people that know it does not work are going to be the ones getting as much of that free cash as possible before the crash happens....self survival they think.....its stealing in my book....the criminals will win and get richer..
well until the value of their bounty is realized, which is basicaly worthless. as a food producer your dollar aint worth a thing to me.
you aint seen nothing yet
The "market" gains are evaporating away as all this is priced in. Japan is all in, the ECB is all in, BOE is all in, China is all in, it's time for the fed to back off the rate hike talks and start up the presses again.
It does look like equities moved up in anticipation, thus robbing the actual annoucement of its effect.
I'm so excited, I might actually gain .25% on savings while losing 3% to theft.
Gold Bitchez....Take that to the boat
@Rubbish
Sadly Rubbish not many folks out there do the maths.
The only thing folks relise is that they are not wining.
But they did not realise they prob never had.
When they were getting 5% but losing 6% they thought they were wining
yeah like that wasn't predictable- ECB backing into a corner and everyone else clamouring to front run QE.
"it's time for the fed to back off the rate hike talks and start up the presses again. "
THe FED may not need to explicitiy print/QE for a while.
I expect:
1. Fiscal policy will take precedence with or without FED purchases. It's 'legacy' time for Obama. He is going to try to push a bonanza of populist spending measures. Infrastructure, education, social services, diversity initiatives. Whatever shoves money at the political base -unions, bureaucrats, favored minorities- and corporate interests in general.
There is pleanty of demand for Bonds that aren't yielding negative interest rates. Investors and institutions will buy whatever is offered...
2. The FED is still re-investing in bonds as these are rolled over and in mbs as those that are being paid are paid. This is effectively QE-lite. QE has been going on for years and large chunks are going to roll into new duration at even lower rates and higher prices than befor. This is in fact further support at the zero bound...
3. Plunge Protection Team is still in action. This is likely off-balance sheet buying from Treasury.
4. MIC funding is de-facto corporation propping. Waging War with ISIS/ISIL/AL-CIA-duh, etc. is effectively a 'shovel ready project' with suppliers/contractors in place.
5. NSA/DHS/police militarization is another form of un-necessary spending/bloat that injects money to .GOV constituencies and .GOV contractors, and it plays well with a certain sector of the electorate. Expect moar of it.
6. IIRC, the TARP fund is a non-liquidating fund. That money could be re-deployed to prop insolvent and failing institutions or repurposed in various ways. Slushy. I expect it to be deployed on the quiet at the least sign of instability in favored sectors favored by, populated with, owned directly or indirectly, the politicians and highest ranking bureaucrats: such as electric-auto, solar-power, high speed rail, etc...
Based on market response, Mario’s bazooka blast is looking more like a fart in a hurricane.
Now what?
Other than trashing the Euro to gain trade advantage in the next phase of the currency war, with rates already too low, QE can't really achieve anything but an expansion of an asset price bubble.
How many days before Draghi threatens to do more? 8?
No bid.
I'm with Chuck... There is no more impossible to markets anymore!...
And Tom...
tom dWhen central bankers
image: http://images.intellitxt.com/ast/adTypes/icon1.png
are the only ones in the market they will accept any interest since they will just print money to pay the bill. No one for any reason would purchase a negative interest rate without very strange matters like being rigged.
The sad part is as soon as enough of the world wakes up to do something about it the central bankers will just genocide us all.
An idea whose time has come:
http://save.lovetoknow.com/Absolutely_Free_Government_Money
WARNING: It's spam
An idea whose time has come:
Haven't we been doing that since the Fall of '08???
Doh
I love me some egg, bacon, sausage and spam.
http://youtu.be/anwy2MPT5RE
Which would explain why the market has been selling off euro stocks for the past 6 years and why euro stocks have a p/e of 8 versus over 21 for S&P.
Sheer desperation.
Confidence is slowly leaking out of the balloon.
Pretty soon it will collapse.
ISIS will like that!
Great move Draghi! Signed, The Bourgeoisie
This why lying, jawboning, kicking the can always comes first. Because when time is up and actions finally must be taken......they always become disappointed and failure.
Draghi a dud........... Greeks now in the spotlight.
Aha. Now we've found a greater fool than the SNB to naked short PMs.
taxing the public to support privatley owned assets (owned by a tiny fraction) "works" until it doesn't.
Unresolved arson and suicides of those in high places...
Not just for bankers anymore
Not a word of this on the network news casts this week in D.C.!
When 20 ATF agents show up to a house fire, you can be pretty sure that something stinks, somewhere.
I'm so glad SNB decided to cut the tie to the EUR, even if there will be a price on the political side. I wouldn't be surprised to hear that they started -discretely- their own gold repatriation.
This reminds me of an electrical situation.
Current is not flowing well in bank circuits. Frustrated, the banksters go to the power plant and decide, if we increase voltage, it will surely cause the current to flow faster. There must be some resistance we can overcome with more current. So, they incraese the voltage and nothing happens. They do it again and again until Mr Scott informs them they cannot increase the voltage much more or all the banker wiring in the world will blow up.
"More volts," they cry!
And if you intentionally or accidentally cause the short circuit here's what happens:
https://www.youtube.com/watch?v=hFy3jmdhbfI
Hey! I want my free Euros!
The print club grows as Davos exults.
More money for the money managers to play around with in the rich man's casino.
Will it change the course of the poor man's (middle class) economy?
Trickle down is about as relevant today as it was in 2008.
Its a rich man's game and it will continue to be the same.
Davos exults! That says it all.
Meanwhile, in the real economy the energy collapse hearkens to the inability of the real world to rev up real growth.
Will that change?
Why should it unless you believe QE in the USA will ensure sustained growth from now on.
I just have a feeling that there are no more CBs to play this game.
So either it works in the US or it goes bust!
That's how it should be Pax Americana leads; up and down !
Didn't work in the US won't work here. It juiced the stock market w/ leveraged stock buybacks. Did nothing for the shrinking Middle Class in the US.
The acid test in EU is to incorporate structural reforms in each Euro nation to accompany monetary policy. PRONTO.
If structural reforms, tax wise, productivity wise and government spending wise, don't occur to balance budgets and trade balances, this monetary easing is just pissing in the wind.
It may already be too late, but the Euro zone and EU have to move and pronto or the recession becomes depression hey presto.
"The acid test in EU is to incorporate structural reforms in each Euro nation to accompany monetary policy.
If structural reforms, tax wise, productivity wise and government spending wise, don't occur to balance budgets and trade balances, this monetary easing is just pissing in the wind. "
Structural reforms? Fiscal reforms? Balanced budgets?
What the hell are you talking about? This is a WAR.
Global trade imbalances are being used to export deflation.
Currencies are being devalued in round-robin beggar-thy-neighbor neo-merchantilist salvos of savage economic violence.
Debt is soaring.
You can't taper a ponzi scheme, you all know that it's impossible at this point not to have QE, or down goes the whole shebang....
Exactly, best case scenario is being out of town before the jig is up.
More fake money to buy more real title to the 50% of the world TPTB don't already possess.
But possession is 9/10ths and they can't be everywhere. ;)
Maybe Americans are "exceptional..."
Gun sales soar. So does Smith & Wesson stock
By Matt Egan @mattmegan5 January 20, 2015:
The firearm company feels so confident that it raised its sales and earnings targets for 2015 above what Wall Street had been banking on.
The stock surged nearly 20% as investors cheered the news. …
FBI background checks -- the most reliable measure of gun sales -- soared to 2.3 million in December. That compares with around 2 million the same period the year before and marked a healthy increase from November's 1.8 million.
http://money.cnn.com/2015/01/20/investing/gun-sales-smith-wesson/
"FBI background checks -- the most reliable measure of gun sales "
LOL
Backnd checks are not indicative of sales. One can transfer as many guns as they want with one background check. It can, at most, be used as a barometer of total sales.
Exactly.
“The first indication that American gun owners are so terrified of being rounded up or having their firearms confiscated that they’re lying to survey takers is the drastic and inexplicable change in poll numbers over the past few years. Basically, corporate sales records show that gun ownership is at an all-time high in the US. But long-running university and government survey results show the exact opposite - that gun ownership in the US is at an all-time low. How can that be? The answer - 40% of American gun owners just went underground." –Whiteout Press, Jan 30, 2014
I have a DREAM.....and it's OVER!
Between Japan and ECB QE alone, this represents around 2.7 trillion US of new printed money into the system from nothing.
For perspective, this amount represents around a third of the value...something like that...of all the gold ever mined in the history of the world.
'QE is all about 'moving the inflation needle'.....oh fuck of wit ya bullshit.
QE is ALL and ONlY about Central Banksters saving their own sorry asses.
oh, that was just fine... shorted the selloff and then BTFD-ed that shit
The results are in: Just as Lenin sacrificed the small farmers in Russia for the “greater good,” the Bank of England’s plan sacrifices the UK’s savers. Goldman’s Carney’s rationale for confiscating the property of savers via QE is explained here by the Financial Inclusion Centre.
“While there may be many more savers than borrowers, the reality is that most households in the UK have such low levels of savings that higher interest rates would make no real difference to their incomes. If rates were a full 2% higher, the typical UK saver would benefit by 34p a week. The real winners in the savings market would have been the comparatively small number of wealthy households with high levels of savings – but of course the impact on mortgages, jobs, and the economy could have been catastrophic.
“Of course, we have every sympathy for the small number of older people who do rely on their savings to top up their incomes but their needs are best met by special targeted measures not by maintaining interest rates at higher levels which would have a devastating impact on many more households. …
“Remember that part of reason we now need low rates is the massive overvaluation of property and associated debt accumulation which resulted in a huge transfer of wealth to older, wealthy people much of which was monetised into savings. Once they amassed their wealth, did the minority want to pull up the drawbridge by keeping rates higher than need be? We hope human nature is not so bad.”
Mick McAteer
http://inclusioncentre.co.uk/wordpress29/?page_id=546
Money printing worked soooo well for Germany the last time they pulled this shit in the 1920's didn't it Mario? oh wait ... it's different this time. WTF.
www.traderzoo.mobi
pure comedy gold:
when the market realizes this, and when the market does that...
hahahahahaha
lolololololololol
(Maybe OT, but crude at new daily lows $46.20 isn't responding to the Dragh queen stimulus and is just $2 from a new 5.5 year low):
http://www.investing.com/commodities/crude-oil-advanced-chart
"the market" - err., excuse me??
BTW: I've finally worked out how to take my cosmic stash with me when I exit.
PS: If the strikethrough worked I'd be asking why Jesus says I should give out the answer to this ultimate question ("How do I take it with me?") for free :(
There once was a farmer from (insert location here), who was involved in porn films. His mistress had a reputiation of accurately weighing pigs by picking them up by their tails by her teeth and getting the weight spot on. Then one day, the man in charge of weights and measures heard about this practice and decided to investigate. He drove over to the farm and when he arrived, requested that this be scientifically proven.
The farmer quickly responded and send one of his children to summon mother to do the test. The kid came back a few minutes later and told the father, "It will be a few minutes, mom is still weighing the mail man".
Druggy at the controls of QE is akin to a 5 year old at the controls of a 747.
All OK tho.... the plane's on auto.
But will the 5 year old work out how to fly it before the fuel runs out?
wet dream
I have a feeling EURQE won't work.