|Dow||-12.52 to 17,900.10|
|S&P 500||-2.42 to 2,071.91|
|Nasdaq||-5.03 to 4,769.44|
|10-YR Yield||-.03 to 2.257%|
|Gold||-$2.50 to $1,206.20|
|Crude Oil||-$0.65 to $66.73|
That’s what drove the markets today without a doubt.
The European Central Bank president, Mario Draghi, has been a huge advocate for easy money policies. In fact, he’s been bloviating for the better part of the past few years about the need to ease policy by any means necessary.
Discounted loans to fat-cat bankers.
Massive purchases of covered and asset-backed bonds.
Verbal intervention designed to devalue the euro currency.
He’s done it all.
Investors are so used to Draghi handing out the goodies that they couldn’t wait to see what he would spoon up at today’s policy meeting. Instead, he served up a nothing-burger this morning.
|The euro had a wild ride this morning.|
He didn’t announce the full-scale Euro-QE that the monetary addicts were hoping for, saying the council would push off a decision until early 2015. That likely reflects German resistance to even more radical measures, considering the ECB is already in the process of Hoovering up all sorts of other bonds with the goal of boosting its balance sheet by another $1.2 trillion.
Yet even as he failed to announce Euro-QE, he did say the ECB was cutting its inflation and growth forecasts. That’s akin to saying “Yes, the patient is getting sicker, but no, we’re not going to give him any medicine for a while!”
Investors were not amused. They dumped the dollar, and dumped U.S. stocks, at least in the early going. As a matter of fact, the euro had one of its biggest counter-trend rallies intraday since Draghi launched his debasement strategy in the spring.
But then in the early afternoon — perhaps after realizing that the only way to keep the addicts upright was to pump ’em full of more drugs — ECB officials leaked to the press that they were preparing a “broad-based QE Package” for the January policy meeting. That would likely include sovereign bonds, in addition to all the other bonds it’s already buying.
So what happened? The euro lost half of its intraday gains, while stocks spiked to an intraday high before settling ever-so modestly lower.
|“I have never seen a bigger bunch of hyper-sensitive policymakers in my lifetime.”|
If you think this kind of craziness makes it look like central bankers have become a bunch of daytraders, you’re right! I have never seen a bigger bunch of hyper-sensitive policymakers in my lifetime. They can’t seem to take the drugs away for even a few hours, and are totally beholden to the hissy fits of Wall Street traders.
It’s a sad state of affairs, but it’s the one we have. So you have to make sure you trade and invest accordingly — and prepare for these kinds of crazy bouts of volatility!
So what do you think about all the Draghi Drama? Are central bankers too involved in market moves these days? Or do you think that corporate fundamentals are more important than central bank proclamations?
Also, would you buy or sell the euro here, based on what you’re seeing and hearing from Europe? Use the Money and Markets website as your outlet because your fellow investors want to hear from you!
|Our Readers Speak|
Yesterday’s piece on Vladimir Putin brought out a ton of valuable insights and comments at the website, so let’s get right to them.
Reader John said:
“I think Putin was well aware that the Western nations would not be pleased, or even fooled by the strong arm moves he’s making now in Eastern Europe. But he also knows that he holds a number of trump cards that will make it difficult for others to stop him — in what now looks pretty clearly like territorial expansion. Among them are:
— Geographic proximity: He is there, close at hand, whereas the Western nations are not
— A high density of Russian populations in targeted areas creating internal support
— The extreme power of the Russian military, clearly without equal after the U.S.
“Although I’m sure he expected kick back and suspected it would be in the form of sanctions rather than direct military confrontation, he may have underestimated the damage sanctions would have on his country’s economy and currency.
“After all, Putin is no economist and he probably doesn’t listen to economic advisors if they don’t support his goals. And I think it’s a good bet he didn’t anticipate the collapse of oil prices, undermining Russia’s financial bread and butter. But given his mindset I think backing down is not conceivable. So he’ll press ahead and try to adjust to changing circumstances with the aim of winning in spite of the economic costs.”
Reader Paul also believes Putin will just keep pressing on, despite economic pressure from the West. His comments: “Dear American friends, please don’t be naive in under-estimating Russia! The imposed sanctions on Russia will only lead to dividing the world, inflicting economic pain on the West as well, and Putin teaming up with China to become the lead economy and block against U.S. and your little European allies. Remember, Russians are great chess players, and unfortunately Obama and his European cronies are not in their league.”
To fight back, Reader Stu suggested that Russia could launch an economic war of its own. His view: “What if Putin sold Russia’s U.S. Treasuries — he could co-ordinate this with China also actively selling their Treasuries as well. Doing so would probably wreck havoc on Western markets.
“Sound far-fetched? So did Russia annexing Crimea. When a dictator like Putin is boxed in you can bet he’ll probably double-down.”
And speaking of doubling down, Reader Chris N. said he wouldn’t be surprised if Putin goes even further. His view: “Putin will be more aggressive in the Crimea. He will probably invade the Baltic States and threaten Poland in order to get concessions from the West that has no stomach for another war.”
Great contributions all around. It’s clear that Putin is bearing a heavy economic toll for his actions, but that certainly hasn’t deterred him yet. Nor is it rebounding on the West … yet. Will that change? Keep a close eye on Europe and be prepared to react if so.
If you have anything else to add, don’t hesitate to do so at the website here!
|Other Developments of the Day|
While we’re on the subject of Russia, Islamic fighters in the breakaway republic of Chechnya attacked several buildings and security forces in the capital of Grozny. Explosions and gun battles reportedly resulted in the death of 10 police officers and nine militants.
Where are gas prices the cheapest? Oklahoma City! Proximity to oil supplies and low state gas taxes have combined to drive prices there to just below $2 per gallon at a handful of stations. Other nearby states like Texas could follow suit soon.
The long, slow bleed continues for Sears Holdings (SHLD, Weiss Ratings: D). The iconic department store retailer is shutting another 235 stores amid losses that totaled $548 million in the most recent quarter. The company maintains that it has enough liquidity to fund its operations, however.
Another day, another protest against alleged police brutality, this time in New York City. Protestors there are angered that a grand jury didn’t indict officer Daniel Pantaleo, who put a chokehold on Eric Garner that preceded Garner’s death.
Until next time,