The ECB Rescues The Markets – Ep. 133

The ECB Rescues The Markets – Ep. 133


* The U.S. stock market ended the week with a 2-day rally, in fact the Dow Jones closed better than 200 points today, to about 1690
* NASDAQ, even stronger, up 119, closing at almost back up to 4600
* The rally actually began early yesterday morning, and not just in stocks
* Oil had a huge rally, in fact, today alone, crude was up $2.72 back above $30, at $32.25
* What sparked the rally was comments made by Mario Draghi at an ECB press conference that followed their official statement that they were leaving interest rates unchanged - they are already negative
* Right about that time, the Dow futures were already down 100 points and it wasn't looking good for the open of the U.S. stock market
* But then, in Draghi's press conference, he said there was no limit to what the ECB is prepared to do to generate more inflation in Europe
* He strongly hinted that in the next meeting in March, they may announce additional stimulus
* He saw the weakness in the markets and decided to take one for the Fed, because ultimately it's the Federal Reserve who has to come out with the "Whatever it takes" comment" to shore up the markets
* I don't think the ECB is going to be enough, even if Japan joins the party, it won't be a real party until the Federal Reserve shows up
* This was enough to cause a small, short-covering rally
* What's interesting, though, about the Draghi comments, is that he specifically addressed the problems of low oil prices and low food prices
* Do you think the population of Europe worries that food is too inexpensive?
* Is it really so important that gas is more expensive in Europe?
* None of these are real concerns, and the proof is, if they really wanted the prices to be higher, they could just adjust the Value Added Tax to increase prices to exactly 2%
* Why print all this money, hoping that the result is higher gas prices?
* The truth is, the price of gas and food in Europe is not the problem - Mario Draghi knows its not the problem
* He wants to create inflation to prop up the equity markets
* But the press takes Draghi at his word, that inflation is the problem
* Stock prices are the prices they are worried about being too low
* They also want more inflation to mitigate the effect of government-mandated higher wages
* So the one motivating factor behind Draghi's comments was not food or gas prices
* Obviously lower food and gas prices help the European economy
* All the markets went up on the hint that the ECB is going to further stimulate the economy
* That proves that the only reason the stock market has rallied is because the central banks - it's not about the fundamentals
* The Fed will have to capitulate and acknowledge that more stimulus is coming
* The press is focusing on the idea that the Fed will slow down its initial goal of 4 rate hikes in 2016
* But that's not enough
* If the Fed tightens more slowly, and the ECB and Japan are easing, then the story is still about the tighter U.S. monetary policy vs Europe and Japan, which will continue to create the global problem of a high U.S. dollar
* We aren't going to get drunk on Europe's liquor - we need our own bartender pouring the drinks
* Is it enough to get a short-covering rally? Sure.
* Nothing goes down in a straight line
* We don't know that Draghi will actually deliver stimulus in March. What if the price of oil goes up above $40/barrel before then?
* Mario Draghi went out of his way to praise Janet Yellen, agreeing with the Fed's December rate hike decision
* Ironically, the U.S. economy is doing better than Europe, but the U.S. economic data is getting worse, and in Europe it is improving
* By the time all the revisions are done, Our Sponsors: * Check out FRE and use my code LISTEN20 for a great deal: https://frepouch.com * Check out Infinite Epigenetics: https://infiniteepigenetics.com/GOLD * Check out Justin Wine and use my code SCHIFF20 for a great deal: https://www.justinwine.com Privacy & Opt-Out: https://redcircle.com/privacy

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SchiffRadio Podcast Episode 24

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SchiffRadio Podcast Episode 22

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