The Excrement and The Fan

It seems that we are reaching a critical point with sovereign spreads blowing out and markets beginning to unravel. The ECB will have  a simple choice in the coming days a) buy like mad OR b) allow the system to melt down.

I believe the ECB will choose to buy like mad. Italy heeded the ECB by passing austerity measures and putting Mario Monti in charge. Greece passed austerity measures and backed off their referendum. Everybody did what was asked of them. The ECB has no excuse not to step in. Have a good night.

7 comments:

ichern18 said...

Buy with what money?  If they print the bond market will puke on them, yields will go ballistic, and they are dead.  The only thing the ECB and the FED really have is the confidence of the market that they are capable of doing something.  The market is loosing that confidence.  Everyone is starting to realize that the emperor really is naked!!!

Tsachy Mishal said...

The ECB has been buying, just not enough. Why haven't yields gone ballistic in the US if that is the case? After all the US printed 2 trillion and bought bonds.

Anonymous said...

I would agree ECB will inevitably step in and will step in BIG which can lead to a multi week rally.   But the pattern these past years seem to be to release such news when sentiment is at a bearish extreme..

Tsachy Mishal said...

They happened at times of great stress on the system. They happened to be times of sentiment extremes as well. Right now the system is about to break but we are not at a sentiment extreme. I believe they will do something bigger tomorrow.

Anonymous said...

Would be a nice squeeze with large traders hedged big into opex.  Honestly I don't see that big a fall next few days since they are already positioned for some armageddon

Anonymous said...

Why do you they will do something tomorrow per se? Given how slow ECB leadership has been in the past, it might need some more pressure first?

Tsachy Mishal said...

The funding markets in Europe are worse than they have ever been. I think the situation is already dire. Don't be confused by the fact that the stock market is holding up.