Draghi’s Outright Monetary Transactions Pave the Way for Euro Bonds
After further analysis of Draghi’s speech outling Outright Monetary Transactions (OMT's) and the new word of the day, sterilisation… it is clear to me the statements made by Draghi directly pave the way for Euro Bonds.
Key ideas like defending the Euro at all costs, incomplete fiscal policies and working towards solidarity and European institution building is laying the ground work for Euro Bonds and a much more consolidated Europe where individual governments are losing complete fiscal authority.
What is good for financial markets is a step towards a fascist regime in Europe where votes for local governments become a vote to represent you to a higher non democratic authority created and run by the Germans and a small select group of pro-European people. Who is really in charge? Most likely a small group of European elite who appoint the players at the ECB and other Euro institutions… the people you see in the headlines and even the actual votes on the ECB… just the foot soldiers.
Do you see how financial Blitzkreig is working in the 21st century? Currently if you want a vote in Europe you need to be a citizen of Germany or one of her war hounds, Italy or France. The Axis of Evil has emerged and won again, Germany, Italy and France dominating Europe once again. This is the emergence of a new era, a European Era for sure… but in reality… just another German Era… and this time Germany didn’t fire up one tank. Wow.
So why do I see Euro Bonds on the horizon without any such wording? Well it is a common sense prediction in reality. Like saying you are going to butter your toast or put milk on your cereal. But more than that the big word of the day… STERILISATION finally hit home in my head. When it is a one word ambiguous line put in a statement regarding OMT’s it sounds pretty ridiculous that the word sterilisation is used and not explained. But it makes perfect sense. Sterilisation is what you do to instruments before use them in surgery. So in fact, sterilisation meant for most that these bonds wouldn’t be covered by direct increasing M3 rates/monetization; which in fact they won’t be… but that is not to say that down the road these assets won’t be covered. In practice you sterilise and then cut.. or in financial terms, convert. To what you may ask...? No one has answered this question but I am sure that these will be the first bonds converted to Euro Bonds.
And of course the ECB will have a mandate to print Euro’s against Euro Bonds. But that is an FX related card that the Germas don't want to play yet.
QE3 announced this Thursday? I don’t think so
If you are short the American markets for a 3 to 6 week downside move… I think you are right b/c I doubt you see Ben Bernanke announce QE3 this Thursday or even outline a timeline. Although if you are short... you are probably early... wait until tommorrow to short. Although my short agreement is only for a trade. I a m generally very bullish equtiies since my theory about 'All roads leading to monetaization' seems to be holding true.
Ben’s waiting for the Chinese and a $130B spending plan on infrastructure is great… but not the program that I would expect out the Chinese. I am expecting anywhere from a $500B to $1 trillion dollar program although the wording out of the Chinese today does not hint at anything major yet... especially when the Chinese are indicating that everything is as expected. At the very least you won’t see and move until the new regime comes in and that is still not for another 6 weeks or so. I have said it before and I will say it again, I doubt ay QE stimulus initiatives from anyone until the New Year so I think the markets are leading themselves up to a big disappointment this week.
A big thing why they don’t announce Euro bonds or direct monetization is it gives the Germans an FX card to play at a later date to depress the Euro after jubilation has spiked the Euro up. Also when we are on the eve of major stimulus plans by the American’s and the Chinese… it is wise to let the other guy blink first and design something to react, especially when the Germans seem to be very dependent on a cheap Euro. At this point in time it is who is going to blink first because the guy the goes first most likely has the least effect on downside in currency and from my vantage point that is obviously the Chinese. The Chinese want a low currency, but on the other hand creating policies towards stronger dollar helps the Chinese internal economy which will eventually create much more wealth for Chinese than cheap manufacturer exports.
Analysis on part of Draghi’s Speech regarding Outright Monetary Transactions…
"A renewed intensification of financial market tensions would have the potential to affect the balance of risks for both growth and inflation. "
"It is against this background that the Governing Council today decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area."
"As we said a month ago, we need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area."
This statement is vital to the rest of the case because it is realisation that the Euro creates huge discrepancies between Euro Zone countries.
"We aim to preserve the singleness of our monetary policy and to ensure the proper transmission of our policy stance to the real economy throughout the area.
OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro."
I kinda agree… fears are unfounded about the Euro unless policy makers can agree and it is clear everyone is looking to Germany and German style policies to bail them out. No one wants to leave when Germany says “Hey, I will be your SUGGA DADDY.” For some of these countries, it will be doing a deal with the devil. Like Spain where ideologies are completely different. Ouch.
"Hence, under appropriate conditions, we will have a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area."
Anyone short the Euro after this statement is crazy.
Let me repeat what I said last month: we act strictly within our mandate to maintain price stability over the medium term; we act independently in determining monetary policy; and the euro is irreversible.
Again let’s hammer it home.
In order to restore confidence, policy-makers in the euro area need to push ahead with great determination with fiscal consolidation, structural reforms to enhance competitiveness and European institution-building.
This is another key statement as it is ultimately saying how they are going to get it done. Guess what guys?!?!?! You are losing your fiscal autonomy. Someone else now creates the rules for you. But on the positive side… we are buying all your crap for you.
"At the same time, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines."
But now no more crap b/c someone else makes the rules and you have to obey.
"The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions for our outright transactions to be conducted and to be effective. "
"Again adherence of governments says it all. Govt’s have lost their autonomy to a central power. The ECB. Controlled by guess who? No not the Guess Who, The axis of Evil. Made up pretty much by Germans, Italians and French, although the French are in the doghouse since that brain dead socialist Hollande gained power. "
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