Thursday, September 5, 2013


No one was particularly thrilled with Mario Draghi today as he kinda spilled the beans on the real state of the European economy in a manner that--ahem--mirrored your humble scribe's view so recently expressed: it's nowhere as good as people believe or wish it to be.  On a positive note, he is prepared to pump out money as long...wait a minute, is that deemed necessary to get things started again.

To reiterate, nothing of any note is supposed to happen until after the German elections, including pronouncements from the governor of the ECB and that is the reason for the mumblings and grumblings following Mario wandering in where angels were told not to go.  I actually think the reaction was muted as most of the continent's attention was focused on St. Petersburg and what new revelation The Leader was to bring to the table as to Red Lines and such.  Eventually, however the true state of European finances is going to have to be revisited and this time not in the light of artificially low interest rates but in one where the burden of b"base" rates if you will is far different than a year ago.

The 10 year closed at 2.96 today but more importantly, the Bund broke 2.00%.  I have been assured by people close to the scene that the Fed is comfortable in believing that it has not lost control of the curve but I'm not so sure.  We have witnessed a 150b.p. rise in under a year.  That is quite extraordinary.  Today we had a mixed bag of economic numbers but for the most part they were positive but in the face of that, equity markets hardly moved.  Certainly there is huge interest in tomorrow's employment number but I think there are more people looking at these bond yields and getting more and more uncomfortable with this dramatic rise.  Now I can certainly be criticized for  expressing concern at these rising rates whilst I had been so critical of the artificial levels created by the Fed's and the ECB's monetary policy--not to mention the BOJ--but as of now there has been no tightening or tapering--take your pick--only talk of the same.  Is the expectation already built in?  Probably to a certain extent but not completely, and what concerns me now is in the anticipated and helpful return to market driven yield curves I, and I suspect very few, have any idea of the distortion the activity of the past 3 years has produced and therefore haven't a clue as to where this thing is going to wind up.  Throw in all the non-financial uncertainties we face, and the future is truly muddled with the potential for a large financial upheaval becoming greater by the day.  Add in the continuing slide in the emerging markets and we could be facing a fall season that is rife with crises.

We're off to the East tomorrow for a one year old B'day party and a week of Grandparent sitting.  The asylum beckons.  I'll drop a note as to jobs tomorrow and try to keep up next week.  Spectacular weather here in fly-over land.  Hope it travels well.

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