At the Rock Concert (as suggested by Carter) the headliner, Mario Monti, came on and bombed. I don't know why he bothered as he had nothing to offer and didn't even drop the discount rate which was a no brainer. Markets reacted accordingly but quite frankly, not as badly as I had expected. It's August and nobody's home but you can push a "sell" button laying on a beach anywhere these days and that didn't happen to the extent I thought it would. Especially in currencies. The Euro closed at 1.2183 which was down .0048 and is undoubtably headed towards 1.1800 or lower IMHO but let's look on the bright side: that was the level that was predicted when the Euro made its debut so what have we lost? Ok so it did go 0.89 at one point years back but think how happy the German exporters will be if history repeats itself.
And speaking of Angie's mob, it is best to understand I think that Sr. Monti had zip a week or so ago when he talked in those "whatever it takes" terms. Why he did it I'm not sure but it looked like he was trying, by himself, to put The Boys from Berlin in a corner. Admirable, but risky and not terribly smart. They simply said, "Nein." Imagine, they didn't even listen to The Suit who was right in Monti's corner. Shocking. Unfortunately, what he is now left with is...well, niente. He tried to play a weak hand as well as he could and the Germans called his bluff. Is there a back-up plan you ask? Frankly, I don't know because in the manner and to the extent in which Monti was shot down behind the scenes indicates that the Germans have their tails up and the wind behind them. They want tribute from those that want their money in the form of control over Euroland finances; nothing less. I see very little wiggle room in which to deal with their position. Spain--as they are in the eye of the storm--may be forced to surrender which will undoubtably bring down the government and usher in a period of chaos. The next month should tell.
Monti, as smart as he is and he is very smart, occasionally says some really silly stuff. He indicated today that he was prepared to stabilize or reduce long term rates for Spain and others through secondary market purchases of the long dated bonds. That works when that is all there is but when faced with a huge supply of new issues before the year-end, one has to wonder what would be the result of an exercise such as this if undertaken. If the market knows the ECB cannot participate in the new issueance directly the "on the run" is going to yield more than the secondary market price if it can be priced at all. That suggestion didn't help the credibility of the ECB one bit.
It hasn't been a good week for anyone on either side of the pond and the jobs number comes out at 8:30 tomorrow. A stinker will really top it off so hang on for what could be a wild ride. We'll be here.
Clearly the audience didnt like the show, but im wondering if this is more like Dylan getting boo'd thevfirst time he went electric.
ReplyDeleteIt seems to depend on which definition of the word "may" you use. If you read "may" as "is permitted" perhaps the statement is more positive than the market believes. The key line:
The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission. Over the coming weeks, we will design the appropriate modalities for such policy measures.
So the ECB "is permitted" to undertake unserilized outright OMO, and "will consider" non-traditional purchases by Sept once Spain asks for help.
Lets also remember that Paulson had his bazooka for two months before he pulled the trigger. Draghi has cocked the gun, told the Bundesbankers to stuff it, and basically dared Merkel to fire him.
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