Thursday, December 8, 2016


You have to admire the guy.  Sr. Draghi pulled another rabbit out of the hat today which in the long run will have no effect upon the overall situation at all but in the short term will keep a lid on things and provide time for the politicians to get it right or wrong depending on one's view.  Mario left the discount rate unchanged and continued his QE program through September of next year BUT he reduced it in size from 80 billion Euros a month to 60 billion.  "It's not a Taper" says Mario.  Well, of course it is but that statement allows anyone to call it what one wishes and solves--to an extent--a couple of gnarly issues for Sr. Draghi.  When everybody else in the world is tightening he can tell the rest of the world, "So am I," but at the same time he can indicate to the Euro Zone that he is fully behind them.  Clever, our ex-Goldman Sachs Man in Italy---oh, you didn't know he was a Goldie?  Yep.  Another one.

There were two other things that Mario did, far less politically motivated but perhaps more important.    Before today the ECB was limited in it's asset purchases by the interests rate on the assets purchased. They could no go below -0.4% which is what the ECB pays on deposits to European banks.  That standard effectively had wiped out any purchases of shorter-dated German paper and making it quite difficult to find enough paper to fulfill the monthly quota with obligations of lesser mortals.  It also created an "ECB Put" which in turn created artificial value in other instruments.  No longer is the thought.  In addition, the minimal maturity of such purchases was reduced from 2 to 1 year.  Clearly, this should afford a greater stock of debt BUT it is also designed to steepen the yield curve with emphasis on the short end which is thought to be a very good thing indeed for Mrs. Monte's little boy, di Paschi and all of his playmates.  Bank shares Over There shot up at the news.  Super Mario.

Of course it doesn't mean a damn thing.  Our German friends would call it a nebelwerfer or fog thrower designed to hind the fact that the banking sector still stinks and the Italian banking sector is like walking into a gas chamber.  But no harm done and whatever buys time for whatever might come can't be all bad.

Of course the real problem is that money is fungible and so are rates which will continue to rise as the euphoria surrounding the prospects of the United States remains in place.  The Euro got hammered again today and will probably approach par in a month.  Problem is I don't know if, in these crazy times, if anyone has a clue as to whether that is a good or a bad thing.  What I do suspect is that there are some bond portfolios that have really been hammered but so far no real signs have emerged.  That could be a major issue if my supposition is correct but for the time being everyone seems very content to simply buy the index.  And I Romani? I have a classmate who happens to be a priest who lives in Rome.  He claims it is his earthly reward although nothing works particularly well  and the garbage men are on strike.  "Must be tough," said I at lunch yesterday.  "Tough," said he.  "There is no such word in Italian.  In Italy one lives as well as one can and is happy to do so.  After all, it is Italy."  I should have gotten him in touch with Massimo a long time ago.  Massimo has lived well, and...then  again...Massimo and a priest.........Quite a thought.

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