ECB Intervention Comment Du Jour: "Classic Banana Republic Banking"
Today's move can be summarized in one word: euphoria. The same euphoria every previous instance of central planning intervention has engendered, only to fade days, weeks or months later. But for the time being it will suffice, and send the S&P to fresh post 2008 highs. In the meantime, below is the definitive note summarizing what has just happened, courtesy of Pierpont Securities via Bloomberg.
- ECB Plan "Classic Banana Republic" Banking: Pierpont
- ECB’s outright monetary transactions (OMT) indicate that the central bank “will underwrite the profligacy of peripheral Europe,” Pierpont Securities strategist Stephen Stanley writes in note.
- OMT program will lengthen EU’s “march to insolvency,” raises the odds of a bad outcome
- Sterilization ensures program isn’t inflationary in short-term
- OMT will attempt to transfer wealth from wealthy countries in Northern Europe to the Southern nations, who have “squandered” their wealth
- Transfer of wealth is what Germany and Merkel have refused to do
And, we should add, once the Greek realize they were just swindled by the ECB's refusal to implement retroactive pari passu status on the now-defunct SMP program, in the process preventing the reduction in Greek debt by tens of billions as it gets the same treatment as all other Greek debt as part of the country's recent restrcuturing, the political upheavals will return.
But for now, as said above, we have euphoria. Enjoy it while it lasts.