Thursday, January 8, 2015


The eye is lousy so let's see how far we can get.

Equity markets got a big boost today as rumors in Euroland spread that the ECB was about to begin its QE action on a far larger scale than anticipated amidst the latest soothing,  dovish tones gurgling out of the Fed.  It seams to me that Janet and Mario have been talking...a lot...but the real question is whether it is too little too late or given the new world order, is there really a chance they can make a difference this time around.

Sr. Draghi absolutely pulled a rabbit out of a hat last year with his "whatever it takes" talk which infused an enormous amount of zeal in markets driving interest rates down to historic low levels as a result.  But that was then and this is now and I can't help but think the solution to past problems is not applicable to what is being faced today.

In the last crisis, the problem was simple; a lack of confidence in the Eurozone banking system caused in no little way by the overexposure to sovereign debt and the rapid collapse of public finance.  The Draghi "put" was a clever--almost elegant one might say--solution manner in which to reduce fer and tensions without really spending a Euro.  The ECB reaped kudos richly deserved but in retrospect that was an easy solution.  For years credit had been mispriced throughout the international system resulting in a classic banking crisis and central banks are good at dealing with those sorts of things.  First and last one maintains the liquidity within the system and in the mean time restore confidence with words like "whatever it takes."  Works every time.

This is not then.  When faced with the structural problems which the Euro Zone faces today; bloated public sectors, excessive labor regulation, "social contract" excesses, political and financial agreements between very different national groups that require enforcement but for which there is no mechanism and finally a common currency which in very real ways pits one political group against another, coupled with a real global collapse in economic advancement and the absolute collapse of a global energy market, can one honestly ask central banks to cure the ills faced?  I am afraid I don't think that is possible.

I have cried wolf before much to my chagrin,  I never believed that the EU was sustainable and felt even more strongly negative as to the success of the Euro.  I suspect that in the past it was my desire to be proven correct that led my to a few rash predictions.  I had not fully analyzed the risks, a state against which I had cautioned and taught all my life.  I might be wrong now as well but this looks more and more like the perfect storm and in beating against it people are now tired to the extent that I am not sure they care.  Maybe they still do and I am wrong again but I see no easy fixes.  "Whatever it takes" doesn't cure this and it is for sure I don't know what does.

Eye is about gone.  See you tomorrow...oh the wind chill is -23 as a write.  Hope Al Gore is reading...probably in the Turks & Caicos.  Very trendy this year.

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