Comment by Phil

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Phil
October 2nd, 2014 at 7:18 am

Meanwhile, what's going on in the markets?

The ECB Rate Decision is 7:45 and official expectations are they hold steady at 0.5% (higher than us or Japan).  Whispers are for a cut to 0.25% and Germany is already negative on their bonds but anything other than a cut is likely to disappoint.  

Even more disappointing would be Draghi not formally announcing those "drastic measures" he keeps promising.  Keep in mind, Europe is in a Recession, this will be their 2nd consecutive declining quarter and that's what a Recession is.  He speaks at 8:30 and he'd better be coming out in one of those suits that are made of money at this point.  



Oh yeah, and it better be made of Dollars because Euros aren't worth much! 

That's one of the problems with stimulus when reality kicks in (ie. when printing money finally makes your currency devalue) – the more stimulus you make the less effective each unit is as the units lose their value and then the print more and they become more worthless and the problem is (going back to Dollars) that the US GDP is $17Tn and the Money Supply is about $12Tn (up from $10Tn a few years ago) and the people's net worth is $100Tn and Corporations are good for another $100Tn so if you print $1Tn, like the Fed did last year, and you knock 5% off the value of the Dollar – then you've lose 5% of the GDP in buying power ($850Bn, but only the half that is our imports) while decreasing wealth by $10Tn – it's a no-win game.  



You can get away with it once in a while but when you relentlessly devalue people's life savings – they do begin to notice!  That's how Japan ended up with deflation – their people are, by nature, savers and their reaction to their wealth declining was to spend less (as everything you buy loses value) and save more and that created a savings glut that kept rates low – no matter how much money the BOJ printed.  



We're different, if you print money, our people will take it and spend it – even if they can't pay it back!   Our Corporations are happy to spend it to because, if they buy their own stock or another company, their earnings go up and the CEOs personally get huge bonuses and they, for the most part, really don't give a crap about the company they run – it's just a paycheck and the way boards fire CEOs – they may as well grab what they can, when they can.  

And, of course our Banksters love it because it generates fees so our lend and spend economy generally responds better to stimulus than Asia or Europe.  It's also because our people are simply worse at math and less economically educated than people in Europe and Asia and they don't understand what's happening to them!  

Buy nothing day is a thing in Europe – can you imagine that happening here?  That's another problem with these attempts to find International solutions to economic crisis – we're not homogeneous enough to pull that off!  

Anyway, today the Nikkei plunged 2.6% to 15,600 – very good for those EWJ puts!  China is still closed for their holiday (and Hong Kong is still a mess with the protests).

Europe is mixed with FTSE, CAC and DAX down slightly, Italy down 1% and Spain down 0.6% – not too bad considering the horrible lead-in they got from us but that's all about Draghi as they are SURE he will save them in half an hour.

Oil just tapped $89 so there's our $500 for the morning – DON'T BE GREEDY.  If it goes over $89, you can play that bullish with tight stops but I think $89 may be a line of contention and we'll go above and below it a lot, and I don't have the conviction to play either side of it so I'd rather not risk it.