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Big Bang or Little Bang to Come From Draghi's ECB Tomorrow Morning?

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Investors are already worried about what the ECB will decide, and tomorrow's announcement will be just the beginning of a long process.

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MINYANVILLE ORIGINAL The markets' -- Dow (^DJI), S&P 500 (^GSPC), PowerShares QQQ (QQQ), and DAX (^GDAXI) -- expectations for monetary moves by the ECB range from moderate to aggressive, but can best be described as "confused." Why, you ask? Because this situation is, punditly put, "multi-faceted" or, in regular human-speak, "very confusing".

The Draghi-led Central Bank will likely lead off with a basic decision on interest rates for the eurozone. Flat or down a bit will be the call, so easy peasy Lemon Squeezy. Then...the hammer comes down or it doesn't.

The potential big moves include sovereign bond buying -- inspiring questions like how much, what duration (length of bond life), at what prices, for how long, from which countries and, most importantly: Will the purchases by the ECB be offset with sales of other assets on its balance sheet? If yes, then this is another liquidity move to keep the eurozone capital market open. If no, then the euro QE One has set sail and the ECB will have joined the US Fed in money supply growth to stimulate its economy, a.k.a., quantitative easing.

And folks, tomorrow is just part one of what will be a 10-plus parter that will include strategizing a number of issues, including a formal banking union, what to do with Greece, seniority of sovereign debt holders, and a whole lot more -- all culminating with an EU Leaders Summit in mid-October. Yeah, mid-October. And it is early September now.

Prediction for tomorrow: Confusion.

Here's an update on last week's Wall of Worry. Scroll down for a text-only version of this story and a description of how it works.





Lloyd's Wall of Worry -- Updated (Text only)

QE: Like that extra slice of pizza that I'm not really hungry for but I eat anyway, can't we have one more piece of QE even if we don't really need it?

US ECONOMY: Driving in first gear. Lots of RPMs, not a lot of speed.

DRAGHI: Big bang or little bang. Your call, Mr. Draghi.

UNEMPLOYMENT: I'm getting tired of writing about unemployment already. On second thought, maybe I should just shut up and write. Just kidding, boss!

INVESTOR SENTIMENT: On vacation. An extended vacation.

HOUSING CRISIS: Here comes another light at the end of the tunnel. Let's hope light No. 4 is the charm.

CENTRAL BANKS: All the leaders are on the beach at the moment. But you get the feeling their chairs are close together and a lot of chatting is going on in between the volleyball games and sand castle building tournaments.

EUROPEAN ECONOMY: The Law of Gravity being what it is, Germany is being pulled into economic descent along with the rest of the European mass.

THE EUROPEAN UNION: Fore! Maybe getting some new members would perk things up here. Hey, Augusta National just accepted its first female members, so anything is possible.

SOVEREIGN DEBT:
What to do with it, what to do with it...? "I can make a broach, I can make a hat..."

SPAIN:
We'll pay down our debt, but not just yet. Olé!
We'll employ fiscal austerity, but not just yet. Olé!
We'll consolidate our banking industry, but not just yet. Olé!

VOLATILITY: Is it possible that "volatility" is not an asset class unto itself? Sheesh, if you can't trade the velocity of change, what is this financial world coming to?!?

HIGH FREQUENCY TRADING:
Lloyd: How are you dealing with the low volume environment?
HAL: Making mental trades. Never send the orders out.
Lloyd: You?
HAL: Yep. Trading with myself.
Lloyd: We humans have another name for that.
HAL: Remember that shrink you suggested--?
Lloyd: I'll get you his number.

CHINA: Making the claim that housing prices are stabilizing if not moving back up. Great, now how about the other 99+ elements of your economy following suit?

STOCK MARKET TECHNICALS: Still working, but just not on a time frame that anyone can figure out. Doh!

GLOBAL ECONOMY: "Got those tank's-almost-on-empty blues..."

CONSUMER CONFIDENCE: Ticks up a bit. Maybe people are getting hopeful that change is afoot and the world is about to become a healthier economic place. And maybe I've lost the few marbles I had left.

US PRESIDENTIAL ELECTION: "Lights, camera, action, hurricane!"

CREDIT MARKETS: Draghi is hinting that the ECB may put a cap on the yields of at-risk countries in the EU. And Chairperson/CEO/President/Queen Merkel didn't swat down the idea. Hmmmm...

THE CLIFF: The Mayan 2012 sorcerers say it's a moot point as it hits after the 12/21/12 vaporization of the Earth.

GREECE: "Time, time, time is on my side, yes it is." Until, of course, it isn't...

ITALY: Best food in the world. Problem is, how to pay for it?

FOOD COMMODITIES: So much for making "hay" while the sun shines. Too much sun is causing a shortage of hay and -- cue the financial markets -- a spike in hay prices.

ECB: "Like watching mice eat cupcakes," to borrow a line from Professor Nick, a friend of mine. Take a big market-stabilizing bite already!



What Is Lloyd's Wall of Worry?
by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
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