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ECB eyes €50bn monthly bond purchases (Claire Jones, Financial Times) This report (4:34 pm GMT 21 January) indicated that a plane to purchase about €50 billion of government bonds a month for one to two years was under discussion but no formal decision had yet been made. A month ago the ECB had indicated the ECB intended to increase its balance sheet be something between €1 trillion and €3 trillion, according to the FT. If the program being discussed were implemented for two years the ECB would just barely get into the bottom of that range. More discussion 'behind the (free) wall'.
Articles about events, conflicts and disease around the world
AirAsia Flight 8501
Market Peek (William Kurtz, email, no url) William Kurtz has contributed to GEI. Kurtz is quite bearish based on the chart patterns he see.
The stock Indexes are at, or very close to, the tops of their respective bounces (i.e., upside partial retracements of their previous declines. The markets probably will be very volatile on Thursday, in anticipation of and in reaction to the expected “quantitative easing” announcement by Mario Draghi, head of the European Central Bank. It should be day-trader’s heaven. One possibility for the NYSE Composite is that it will rise to about 10800 before topping. I will call a top and reversal to paid-up MarketPeek subscribers as soon as I believe that I see it.
ECB Executive Board’s QE Proposal Calls for Roughly €50 Billion in Bond Buys Per Month (Brian Blackstone, The Wall Street Journal) Purchases of government bonds would last for at least one year, increasing the ECB (European Central Bank balance sheet by about €600 billion ($696 billion) in that time. According to this article this will send markets lower as the expectation was for shock and awe but the open mouth condition in this case would be more like a yawn.
ECB move lacks the shock and awe factor (John Auters, Financial Times) Auters feels that the effectiveness of the ECB is diminished more by its transparency that by the size of the QE pakage. Auters indicates that "shock and awe" comes only with surprise and not with moves telegraphed in advance. Auters points out that the ECB may see a repeat of kind of ineffectiveness experienced by Alan Grennspan when he telegraphed in advance that there would be a regular 0.25% increase in interest rates at every meeting for more than two years. What happened to long-term interest rates? Nothing and the yield curve flattened, eventually inverting before the next recession started at the end of 2007.
ECB is about to implement the wrong type of quantitative easing (Richard Werner, The Conversation) The ECB is about to increase government bond purchases, following the lead of japan, and will end up with the same disastrous results: Long-term bond yields will be depressed, the yield curve will flatten and European banks will have no spreads to make lending worthwhile. Econintersect: Is it possible that a flat yield curve does not "predict" a recession but that it (at least partially) "creates" a recession? Werner suggests since the eurozone is already in recession the ECB action may turn it into a depression - again similar to the Japan experience.
ECB will make its announcement tomorrow (Walter Kurtz, The Daily Shot) A major QE program is priced in for the QE announcement coming today and the markets are positioned for it. Below are the net currency futures positions of speculative accounts. Kurtz warns that we could get a disappointment.
Steen Jakobsen Warns "Euro is Not a Good Idea and ECB About to Make Biggest Mistake in History" (Michael Shedlock, MISH's Global Economic Trend Analysis) Mish says:
Saxo Bank CIO and chief economist Steen Jakobsen warns the US is not Europe, the Euro is not a good idea, and the ECB is About to Make Biggest Mistake in History
But Mish also points out that his opinion is that the U.S. hasn't really done much better. The hubris of central banks are that they feel they can break the business cycle and not recognize that "markets need to purge excesses". Mish says that the Lehman failure was a good thing and he clearly believes other banks should have followed the same path to oblivion.
In Switzerland, government bond yields continue to sink (Walter Kurtz, The Daily Shot) Kurtz says to his knowledge negative yields of the magnitude now seen in Switzerland have never occurred before in history. His interpretation is that the market is pricing in deep deflation in the near-term. The 10-year bond is yielding -0.15% and the 1-year an astounding -1.35%.
Other Economics and Business Items of Note and Miscellanea
Milton Friedman Might Have Won the Battle, But He's Losing the War (Pragmatic Capitalism) Hat tip to Rob carter.
Yes, Africa will feed itself within the next 15 years (The Conversation)
Medicaid as an Investment in Children: What is the Long-Term Impact on Tax-Receipts (NBER) Medicaid recipients 1981-1984 have paid an average of 14% more income taxes by age 28 than the non-medicaid cohort members. Also more graduate from college and other factors are better.
Thanks, Obamacare! Health insurer stocks soar (CNN Money)
Is it time to take science out of the climate change debate? (The Conversation) When a debate is really about opposing political values, appeals to science often just make things worse.
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