ECB Move: An Opportunity To Trim International Exposure

The last two days have been very interesting to watch. Interesting enough for us to take the time and post, which has become the exception to the rule. Its seems the duo of Paulson and recently added big gun Bernanke had started to make head way against the dollar/oil imbalances, until yesterday.

In swoops Trichet. Was this the same Trichet yesterday that urged citing the dollar during the G7 meeting and subsequent press statement? The same Trichet that has been harping the US about the low dollar in several noted press conferences. In the past it has seemed that world central banks have worked together. Is Trichet trying to assert the new found global power of the ECB and his speaking platform? Although central banks are-- supposedly-- independent entities, we would argue that they are political entities into themselves.

What does raising a quarter point by the ECB really mean. Higher Euro and higher borrowing cost for our European brethren. It has been our experience that economic growth can fade rather quickly. We think the ECB is about to knock the living hell out the Euro district. Remember, this is a relatively new central bank, as compared to the federal reserve, and a fairly new confederation of nations. We have been contemplating lowering our international exposure (EFA) for some time. Although potentially a bit early, now could be the time to take advantage of Friday's moves to do just this.

Comments

[orca:]

After 10 years of f@#$ed up FED policy the ECB/Trichet is now actively pushing for Bernanke to do the right thing. We in Europe have been hearing about "strong $ policy" etc for ages now and enough is enough. This will become ugly, with either the FED jacking up rates (not likely) or the USD falling rapidly, combined with a commodity price explosion. In Europe we have much more leeway and although crude at $200 will hurt, it will destroy the American economy. And then, finally, you will still be forced to jack up rates, with the EUR/USD at 1,85.
Something else, though related, remember the talk at $60-80 that the Iran-scare was worth at least $20 and that we could spike to $100? Well here we are at $140 and Iran is laughing their ass off. You can thank Bush for "protecting" the US interest in that regard.
The thing with both problems (USD, crude) is that finally you will be forced to do the right thing, but it will needlessly hurt much more then than now. Apparently your leaders don't seem to have any capacity for leading in the right direction, explaining their decisions and sticking to them. Paul Volcker is called for, that's who.
As a European who loves the USA I am completely sick of that spinelessness and wholeheartedly support the ECB, because I am convinced it will be the right decision for the long run. In the meantime we reach for the barfbucket the moment Paulson, Bernanke, Cheney or Bush come on stage. And no, this is not about Iraq, that's another story altogether, this is about cowardice under fire. Boy am I mad. Time now for a cool beer in the sun, tomorrow we have to be relaxed for trading.

2008 Jun 08 10:24 AM

[icandoitdon:]

orca has it exactly right.

the author is typical of american whining that everyone conspires against the u.s.

the is utterly blind to the economically destructive impacts of its foreign policy as set by the congress and executive branch, and its economic policy as set by the treasury and the federal reserve.

spinless is the right word for our government and our federal reserve.

2008 Jun 08 01:21 PM

[optionsgirl:]

You may be right, that it is time to sell some western European holdings and US companies heavily invested in Western Europe. As an American, I am dumbfounded by the dimwit politicos (especially Nancy Pelosi and her ilk) loading up an already stupid rebate program to include every person with his hand out. I also note that the reduction in lending standards was with the express permission of these same politicians.While Paulson talks strong dollar, Helicopter Ben saves the weak dollar and the institutional lenders that created this fiasco. So much for Sarbanes-Oxley and the protections that didn't afford the average investor. Personally, I think we need higher interest rates, or better yet, the demolition of the Fed and encouragement of laisse faire business in the US and around the globe. Long live precious metals and to hell with fiat currency.

2008 Jun 08 02:10 PM

[Reinko:]

Only very seldom you see so much stupidity combined in one article.

Let me only quote:

What does raising a quarter point by the ECB really mean. Higher Euro and higher borrowing cost for our European brethren.

Unquote.

The higher borrowing costs would be fantastic because that means that pension funds could invest for the long run instead of the stupid run on food and commodities.

A higher Euro simply means very good consumer inflation fighting because we still live in a US$ dominated world. Imports are relatively cheap when just 25 basis points will do a good trick... Have the Americans never heard the word 'leverage'?

Don't forget that when the credit crisis broke out the Americans were just so proud when they told that most of that stuff was sold to foreigners?

Lets leave it with that, when you print this article out you will find it is too smooth to act as a proper kind of toilet paper.

2008 Jun 08 07:11 PM

[Melancholy ...:]

Hmm. We all get the commenters we deserve, but wow. Agree with you Keith. It has been most "interesting to watch." Can't say I understand what the ECB is doing. Shooting oneself in the face to spite the big toe. Or something like that. As for M. Tricky, he's French, and well... there's a reason one can't translate "fair play" into French.

Good luck to our European allies with the higher rates (weaker dollar, higher oil prices). Strong medicine sure tastes good. It's almost as addicting as moral indignation.

2008 Jun 08 07:16 PM

[Michael B. ...:]

I wrote an article also dealing with the ECB and received the same anti-US rhetoric in the replies. Clearly there is a large audience caught up in the politics that uses these causes as justifications for their nationalistic or political campaign, clearly disregarding facets of economic analysis that make your point clearly undebatable.

The ECB is straying from its past alliance with the Fed, it appears. Whatever the reason, whether political or out of fiscal responsibility, it is straying. That has implications, however, since we are not isolated economies, and interdependence is a key trait defining our global trade experiment.

2008 Jun 08 10:18 PM

[whidbey:]

We should not take this move seriously - yet. It is a conservative view and it play to the EU fear of inflation, but not overly much. I suspect it will not help the US, but it is not fatal either. Let us indulge our brothers in the EU, I think it will redoubt to our export advantage, and they their employment disadvantage. Low inflation and fewer sales sounds about right. Be patient.

2008 Jun 08 10:25 PM

[icandoitdon:]

"The ECB is straying from its past alliance with the Fed, it appears."

no...i'd say the u.s. is straying from its mandate of price stability. cheap and plentiful credit went a long way toward creating the mess we're in and the fed wants to use more of the same to dig it's way out. this is a failed strategy in the opinion of many, including former federal reserve officials. it might well fail anyway but it will surely fail without the cooperation of other central banks lest the weak dollar go into free-fall.....somethin... we cannot afford to see happen at this juncture.

we expect others to help clean up the mess of our own making and in return we give them what? veiled threats like "you're with us or against us" over a dysfunctional iraq policy from the get-go and the branding of france and germany, crucial allies in the "war on terror" whatever their view of the iraq war might be, as "old europe," as if they're no longer relevant.

you can sugar coat it all you wish, but the u.s. has been its own worst enemy for the last 8 years. once we start making better policy decisions we might garner the respect our leaders think we deserve.

2008 Jun 09 01:17 AM