Thursday, January 22, 2015


Well, Mario did his thing to the tune of about 60 billion Euros a month until September, 2016 or more if inflation doesn't hit his 2% target.  It's actually a bit less than 60 billion because that number includes the asset purchase and covered bond programs that already exist but who's counting.  As expected, the Euro fell like a rock, stock markets and broad advances and all the world proclaimed that this was the next best thing to sliced bread.  Our global financial universe was once again at peace except that I remained confused as to why the yield on 10 year Italian bonds trade 30 basis points through the 10 year treasury.  Uh?  Riddle me that one Bat Man.

The remarkable thing about this money dump is that it is based upon the belief that Quantitative Easing worked in the U.S. and Japan.  Japanese exports went up because it trashed the Yen but Japan's internal economy didn't do a damn thing because, structurally, it's loonie toons.  When implemented Over Here, the economy was on a long, slow upturn and inflation had already reached somewhere between one and two per cent depending upon who one believes.  Then too, the target was never inflation but job growth which is part of the Fed's dual mandate or so the Fed believes it to be and low and behold, jobs are now right where they were in 2007 which is explained as 16 million NEW jobs created in the past five years. Only problem is the population of the country has grown by 35 million in the mean time.  Such is how we define success.  But back to Mario.

This program was rather carefully crafted to avoid the mine field of Euro politics which can be explained as be The Dutch and The Germans.  Essentially, the program will be run through the individual central banks with 80% of the risk remaining with the purchasers.  The ECB will share only 12% and in regard to EU agency issues there will be full sharing or the remaining 8%.  Angie agreed but Angie was not happy.  So, off we go in March into coo-coo land but every politician in Europe is as happy as a pig in *&^% because the entire mess is on the broad shoulders of the ECB and they don't have to do a damn thing.Oh yeah, Greece doesn't qualify until July because owes the ECB a few billion that they don't have which is repayable in two installments ending in July not to mention the IMF and other assorted creditors.  And in Greece today...

The head of the Syriza, the projected winner of Sunday's elections announced along with his projected finance minister, a committed little Communist whose name escapes me, that they probably will not be paying much of what they owe and screw the EU who wont have the stones to do anything  lest it give the Italians and the Spanish bad thoughts.  They may be right.  Of course if that happens...

But let's say it is all sweetness and light at the end of the day.  Just how is this thing going to play out.
IMHO, badly or at least without much of an improvement.  The liquidity created is coming Over Here of course assuming things don't go to crap between now and March.  The buyers of the debt who will once again be the Euro banks will be looking over their shoulder at a trillion or so Euros owned by something that looks Russian and the last thing they will want are bloated balance sheets and more loans.  No pump priming for them.  Everyone will make believe the Greeks are in compliance and the internal numbers will continue to stink.  But it will be calm, and the markets like calm.  But everyone is saying that it will be a success.  Can Everyone be wrong?  I think I missed something.

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