Submitted by Mark Grant, author of Out of the Box
The Importance Of Being Earnest
"Pray don't talk to me about the weather, Mr. Worthing. Whenever people talk to me about the weather, I always feel quite certain that they mean something else. And that makes me so nervous."
-The Importance of Being Earnest
Today there will be no discussion of the weather. Today platitudes, arcane phrases, vague promises couched in banalities will no longer do. Mr. Draghi has laid down the gauntlet of actually providing a solution for Europe by having the ECB act as Superman, Batman and the Avengers and show up and make the last minute rescue and I fear that anything short of this will now send the markets into a tailspin. Expectations run high, Mr. Draghi may well have over-promised and any sort of under delivery will not be taken well. Today may be the most critical meeting, ever, of the European Central Bank and it is Mr. Draghi’s reputation, the ECB’s reputation that has been put on the line by Mr. Draghi’s bold comments.
This is also a play where it will be important to look behind the scenes. I suspect that the pushing and pulling to determine the lines and the acts of this drama have been frantic and also disturbing. France, Spain, Italy, Portugal, Greece et al are all lined up on one side and I am sure they are besieging Germany, Austria, the Netherlands, Finland et al to live up to their public pronouncements and provide monetary support to bail out the troubled nations in Europe. I would guess that the stress is acute. I think we have reached the inevitable point where Germany and the rest of the providers of capital are either going to begin their downward spiral to an average of funding costs and living standards or the Northern European backs will harden and they will decide that this is a path they will not tread. The ECB announcement today will signal far more than the next line of the European defense in my opinion. Today’s statement will mark just what the funding nations are willing to do or not and just how far Germany is willing to go. In a very real sense it is now Germany versus the troubled nations where any further significant aid will drag down Germany as it helps the crippled countries. You may think of a teeter-totter where any capital slid to one end will have the opposite effect on the other end. In my view we are at a major point of disembarkation and today is the day of decision.
While there has yet been no Lehman moment, some unexpected big bang moment with great consequences, we have had several Greek moments, a Portuguese moment, an Irish moment and a Spanish moment. Today we are going to have an ECB moment I predict that will define much more than Draghi’s brandishing of the ECB sword in a flurry of self-defense. Today you will witness, if you pay attention, exactly where the European Union is headed as defined by its central bank and the use of the EU’s Stabilization Funds. Today we will get some concrete answers and Mr. Draghi will have to do far better than “muddle through” to assure the bond markets of anything.
If normal patterns hold we will run up on the headlines, flatten out in the next few days and then decline once again as people think through the implications but today might not be a day for normal patterns. The rhetoric will be grand no doubt and dressed in its finest regalia but I have a suspicion that this time it won’t be enough. I suspect without real cannons and real bazookas and a massive amount of firepower that words alone will no longer suffice. Today I think will be rather like the Olympics and the famous words often echoed, “Today it all comes down to this” and the “this” will have to be specifically defined and then assessed by market participants.
"I've now realized for the first time in my life the vital Importance of Being Earnest."