Mama Mia – ECB QE Druggie

Mama Mia… there we go again.

Fed then ECB then Fed then ECB then BoJ then ECB…

And this is what the Big 3 central banks’ balance sheets look like now.


Remember it took 3 QE’s to get to USA today ?

And the Fed’s balance sheet has increased fourfold for a threefold increase in the S&P 500 (from low of 666 to current 2000).

Big, big balance sheets and hopefully all the central bank governors would be retired in a few years to let the next one worry about them. Either that, or the S&P would be at 4,000 and HDB flats will be starting at 1 mio.

I am not here to give you 1,000 reasons why this ECB undertaking will not work because, like my grandmother always told me, what’s done cannot be undone. And we are optimistic people, going along with Abenomics last year and giving it a chance for many months before realising that we were right that it was not going to work but not before cutting out on those USDJPY shorts.

Market talk was that PBOC made the most money from the EURUSD when it last tanked to 1.19 on Greece back in 2010 buying at 1.19 for it to run up 26% to 1.50 in about 9 months.

eurusdChart : EUR/USD 10 year monthly graph

Well, we still have until October for the ECB announcement of the ABS programme and perhaps a couple of months till it is implemented, assuming he finds some last minute succour (excuse my choice of words, but I wanted it to sound like last minute Sucker too) for his act of bravado.

Because if you want to know how much ABS there is in the system, being fully cognizant it was the ABS that brought about the crisis of the century, please take a look at this Citi diagram.

ecb abs

Only 5% of the entire market is ABS.

Is he trying to create a short squeeze ? Support new issuance to meet his demand ? Or create employment for laid off ABS structurers ?

I will not try to understand and take out those HICP charts and project what impact it would make.

I just know that it is common sense that Draghi has just increased inflation overnight by 1.6% because EURUSD is down about that much and if they choose to import from Australia and India, woe betide, it will be even more inflationary.

Didn’t BoJ just use that trick ? Throw in the sales tax and inflation target achieved, back to 1990’s levels.

Japan InflationGraph : Japan CPI YoY

The main thing I gleaned from last night is that the USD strategy is still sound.

The USD appreciated against almost everything except for the CAD and INR. And my DXY target at 84 has been attained.

EUR carry trade also very much alive and we are near the scary 1.28 prediction.

It is a new currency war and money is being devalued again as it has been doing since 2012 when I started writing about the subject.

Stock markets are the main beneficiaries, with more than a handful trading at their highest ever in history in the past 2 days.

stock market highs


Draghi has timed his execution nicely with the end of Taper which supports the case for EUR to weaken against the USD and export deflation and cheaper Mercs and LV bags to the rest of the world while making it cheaper for Li Ka Shing to buy his next power plant in Europe and for others to sell their London apartments for condo in Barcelona.

The money is flowing into Asia as European banks lend at the fastest pace since 2008.

Yet I think we are still headed for a showdown in EM given the reaction of the US treasuries last night and the VIX and our attention swings to the end of Taper next month before Draghi’s ECB drug rampage happens (or not), knowing that he will not have the luxury of 3 times lucky like the Fed.