Friday, September 5, 2014

A Game of Hot Potato?

The European Central Bank Chairman, Mario Draghi, announced yesterday a surprise rate cut for the Eurozone and the intent of the ECB to purchase asset backed securities much as the U.S. Fed has been doing for years now. This comes at a time when the Fed is expected to be winding down asset purchases (QE2) and to signal the intent to start thinking about raising short term interest rates.

The Euro down sharply yesterday to a multi-month low, along with the Yen. U.S. Dollar sharply higher. This should make our patriots happy.

The intent of an interest rate cut by the ECB is to export the inflation problem that they feel they have.
This is a continuation of the long running currency war that has been going on for the last decade or so, as country after country attempts to devalue the domestic currency in order to stimulate demand for exports and thus create domestic jobs.

Much as a game of "Hot Potato" as everyone attempts to pass the unpleasantness on to someone else.

The U.S. long bonds decline as interest rates rise slightly even as the stock indexes start to sell off.

Some,  David Tepper , think that this spells the end of the long US Treasury "bubble". Perhaps. But not tomorrow. But demand for a Eurobond will continue and the pressure will be on Germany to allow one to be created. And that is where the money will flow, should that happen.

Watch the money flows. 

And the enthusiasm for the US stocks seems to be weak at the moment.

The world would not have this problem if labor hadn't been so weak for so long. All of those trillions getting parked in government bonds by corporations would be in the saving accounts of private individuals and circulating in the economy. And thus the attempts to devalue would have worked long ago and we would be done with this nonsense, instead of trying to stimulate more debt creation on the backs of consumers, along with keeping the stock indexes artificially high because the voters are desperately depending on stocks as a store of "value" for retirement.  But who can stop playing the game? You first!

Control risk,

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