This Is What Central Bank Failure Looks Like (Part 4)

Tyler Durden's picture

First, it was The BoJ's utter collapse from omnipotence to impotence. Then came the collapse of The Fed's credibility in the short-term.... and the longer-term. And now it is the turn of Mario Draghi's ECB to face total failure, as the European banking system - the prime beneficiary of "whatever it takes" - has crashed back to pre-Draghi levels.



As former Morgan Stanley guru Gerard Minack explains, the most corrosive factor for markets currently is the downgrading of perceived central bank potency.

There are several recent hints of this decline.


Mario Draghi’s ‘whatever it takes’ comment in 2012 was, in my view, the single most important central bank action of the past 5 years.  However, European bank stocks – a principal beneficiary of ‘whatever it takes’ – have now almost given up all their ‘whatever it takes’ gains, despite recent ‘whatever it takes with steroids’ comments from Mr. Draghi.


Likewise, the Bank of Japan’s bazooka now seems to be firing blanks.  The yen strengthened and equities fell after the cash rate was cut below zero – the opposite of what was presumably expected.


Second, the central bank bubble seems to be deflating.   Central banks have long been over-rated in my view; markets seem to be starting to agree.

The equity sell-down is changing: it had been led by economically-sensitive sectors but is now shifting to financial risk ….financial stress is not good for growth.

Some further clarifications from Bloomberg:

Financial markets are signaling that investors have lost faith in central banks’ ability to support the global economy.

And some more:

"The markets are wondering, well, we’ve had these non-conventional monetary policy experiments for the last six or seven years and they haven’t caused a sustainable boost to global growth, so what will the latest moves do,” said Shane Oliver, head of investment strategy at Sydney-based AMP Capital Investors Ltd. “It’s a reasonable question to ask given the events of the last few weeks.”


The notion that central banks and regulators could not act if the financial panic were to turn into a serious threat to the real economy and hence to jobs looks wrong,” said Holger Schmieding, chief economist at Berenberg Bank in London. “Central banks can bolster confidence if they really have to in order to support the real economy.”


"The period of central bank ‘shock and awe’ operations is likely to be behind us," Stephen Jen, co-founder of SLJ Macro Partners LLP in London and a former International Monetary Fund economist, wrote in a note on Friday. "This will be the year that ‘gravity’ will overwhelm the central bank policies," he said, recommending selling equities during rallies.

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Government needs you to pay taxes's picture

Either the markets reset or eventually there will be bankers and politicians hanging in the streets.

silverer's picture

Lol. From "Whatever it takes" to "Whoever it fakes". Best entertainment in years!

cheka's picture

7 years of extend and pretend while enriching the chosen.....looks like a huge success

Going Loco's picture

"recommending selling equities during rallies."

Larf I nearly died.

Oh God this is rich. What idiots they all are.

Salsipuedes's picture

"Whatever it takes..." Here´s WHAT IT TAKES folkspeople.... Ein Kliene Nachtmusik!

Let MOZART in a THUNDERSTORM take your subconscious to the BELLY OF THE BEAST! ZUM WOHL music lovers! 

SillySalesmanQuestion's picture

STFR's. I hope it plunges like the Emund Fitzgerald tomorrow, then we'll have some worried souls going into the weekend...Heh, Heh, Heh.

Goliath Slayer's picture
Goliath Slayer (not verified) SillySalesmanQuestion Feb 11, 2016 10:19 PM

Poof! That's what it'll sound like. Got Gold?

silverer's picture

Soros is trying to blame Russia for everything going wrong in Europe. I thought I remembered that Europe had its own government that made the decisions. Fix blame, not the problem, eh Georgie?

venturen's picture

till the heads of the major banks are either swinging from the light post or in jail...NOTHING WILL CHANGE. They really don't understand the destruction they are causing. I know many of the people at these banks...and arrogance doesn't even begin to explain their ethos. 

matermaker's picture

Of course it's going to go deeper red, tomorrow.  BOJ and ECB have already said they are going more all in much to the shigrin of of banks that are bleeding out.  Yellen spent the last two days telling the world that America is just fine and don't worry... So, you're not going to see the likes of Bullard saying the opposite, tomorrow.  Nikkei is already down well over 800 points again and it's only been open for two hours.  When Europe opens and it is abundantly clear that Austin is NOT sending anyone to the Alamo....  Well, it will be an interesting Friday with no calvary anywhere near.  The thing to watch for is a run on money markets and ETF's.

ebworthen's picture

NIRP was a topic of conversation at work today, and how crazy it was.

The words "Silver" and "Gold" came up.

matermaker's picture

I'd prefer to do things the old fashioned way.  I've enough good tobacco seeds to plant an acre or two.  Lot's of good 40 proof yeast with the sorghum and corn seeds to boot.  All sorts of seeds, actually. Spices like garlic and ginger.   You boys will need to wait a mighty long time for your prescious metals to regain value if and when the currency system breaks down.  Even Napoleon's Army marched on its stomach.  You're thinking the wrong way.  To quote the Kinks, "give the people what they want"

ebworthen's picture

If I had land and seeds I'd join you, best of luck.

Put some profits in tangible metals, money in the bank may not be there at some time.

Yen Cross's picture

  Someone remind me what the definition of insanity is?

  The yen isn't strengthening because of the " safe haven" trade. The carry trade is unwinding.

Bernoulli's picture

I really do not believe chart analysis and all that kind of stuff is too relevant for "predicting" market moves, however, I do see something interesting at the moment.

It's 11:20 a.m. in mainland Europe and the DAX is going up in the shape of a giant "kone shaped spring". It looks like it will massively burst (downwards?) anytime now.

Or maybe it's nothing and I just drank too many beers last night...