Mario Draghi speaks, and people listen. Remember the old Merrill Lynch adds -- a Merrill Lynch broker whispers in a crowded room -- and all the well-healed aristocrats sharing the country club parlor or restaurant hush to hear what the genius is saying, toward which stock he is guiding his illustrious and always-fortunate client.
Mario who? Ok, go ahead and laugh now. This man will 'take care of' the European Problem.
Mario Draghi assured the markets yesterday that he would DO ANYTHING to save the Euro and the EU -- ANYTHING. I think that means he will spend every last dime of taxpayer money if he has too. And the market rejoiced, thrilled that he spoke with such command and such grace. THE MAN IS GENIUS, A REAL LEADER! Well, not really. He doesn't understand that taking on more debt during a debt bubble crisis is the wrong thing to do, the worst thing to be doing. (Ok, in his mind it's either face the truth, the DEPRESSSION he really can't face, or to show courage and stern gumption and spit our more lies to make people comfortable.)
So he's lying with style. He's playing the role of the BIG MAN who will save us from the Big Bad Wolf down the road living in the Black Forest.
People trembled. This man is serious! Shorts covered and began to re-think the 'End of the World' scenario.
I read today on CNBC, in huge bold headlines: MARIO DRAGHI JUST PUT A FLOOR UNDER THE MARKETS, PROS SAY.
What does that mean? It means 'pros' are scared -- if they can't convince you to give them your money for investing in the markets they, the "Pros", will gave to go look for a real job in this horrible jobs market.
On Thursday pros quickly covered their short positions after unexpected comments from ECB President Mario Draghi changed the game.
"This caught me completely off guard," admits esteemed investor Dennis Gartman on CNBC's Fast Money Halftime Report.
Draghi pledged to do whatever necessary to save the euro. "And believe me, it will be enough," he said.
"Immediately I sold some of my short positions," Gartman explains. "And after comments like that, you can't cover fast enough."
Trader Stephanie Link agrees that developments are a problem for shorts. And she adds Draghi's commentary isn't the only bullish catalyst in the market. She reminds us that reports earlier in the week that suggested the Fed is closer to QE3. And China appears to be easing.
All told, Link and the other traders believe there's a floor under the market.
Link says the ways to play is to pick and choose best of breed names. "I added to my position in Schlumberger (NYSE:SLB), established a new position in Wells Fargo (NYSE:WFC) and bought Bristol Meyer (NYSE:BMY).
Trader Brian Kelly, founder of Shelter Harbor Capital, agrees but says the way to play is long US dividend payers. (Click here to go to Fast Money's Favorite Dividend Yielders)
But he warns us not to get too aggressive, the road ahead remains bumpy. "Draghi may have put a floor under stocks but he hasn't solved the crisis."
Trader Stephen Weiss, managing partner at Short Hills Capital, sides with Kelly. "You can buy stocks on this news," he admits. But he also says be prepared for a bit of a wild ride. "By making these comments Draghi has now set the bar very high. Now he needs some shock and awe."
"He looked stern and resolute when he spoke," adds Gartman. "But I still have my doubts."
Posted by CNBC's Lee Brodie
You've got to be kidding me!He 'looked stern and resolute'! Oooh! He's resolute. He will spend as much of other people's money as he needs to in order to do what exactly? To destroy all the debt the Euro-world has taken on over the last three decades? No. He's take on more debt. That's the point, isn't it? Take on more debt -- and let the poor people of the world pay both by taking the axe of austerity in government cuts and also pay by taking on more sovereign debt that the poor people will have to repay some time in the future?
Two nights ago, Wall Street Insider, icon, legend, Sandy Weill, shamed by what he sees happening -- the theft of public moneys to save a corrupt Wall Street -- called for the Too Big To Fail banks to be broken up. He said taxpayer money can never again be used to bailout private companies; he called for American banks to be modeled on the regional bank model; he called for the separation of investment banks and retail banks, admitted that the deregulation of the banking industry in 1998 was a mistake; he said investment banks should run ever derivative trade through a public exchange; and he said leverage must be limited by law.
What was the response? Meredith Whitney cried out in horror: "We do not need draconian bank measures at this moment!" The tag-team comedy duo Barney Frank and Chris Dodd both bellowed in horror, winkking to their audience (Jimmy Dimon was in the front table): "The Volcker Rule will protect us! No, nothing too radical as the breakup of the banks."
Why not? Well, Whitney, Frank and Dodd want to step up into Wall Street jobs when they leave Washington. Nothing like a million dollar job waiting to make one become practical all of the sudden.
It's a shame the markets were listening to Weill like they were to that Draghi guy.
One of my favorite writers, Ambrose Evans-Pritchard, British Telegraph, is now almost ready to call out for the 'Weimar Option". I guess that's the option where we absolute destroy the currency, taking no prisoners in the process, but no one seems to notice.
What sent Pritchard over the top? His view of the Richmond Fed Report seems to convince him we need to use nuclear financial instruments to avoid sinking into the inner rim of the Black Hole singularity everyone is courteously calling (in a whisper) "The Great Recession" -- avoiding the word 'depression' out of a sense of good taste or political correctness.
Pritchard shows the Richmond Fed Report charts that show the US sinking into depression again.
(click to enlarge)
Pritchard sees these charts as proof that the world is ending. Hard to argue with him. So what is this "Weimar Option"? Well, it seems that Pritchard and his friends are cooking up a nuclear last hope option, of triggering a new policy which apparently will give us Weimar without Weimar, Inflation with Inflation.
As Britain tanks by 0.7pc in the second quarter (much worse than Spain at 0.4pc), it is worth keeping a close eye on the very ominous turn of events in the US.
The Richmond Fed's twin indices of manufacturing and services - a very good indicator at the onset of the Great Recession - collapsed this month.
They are now falling at a steeper pace than in early 2008. Current activity in manufacturing fell 16 points from -1 to -17. That is a major shock....
The Richmond survey is grist to the mill of bears at the Economic Cycle Research Institute (ECRI) and others who insist that the US tipped into recession in the late spring (under the NBER official definition).
If so, we can all have a ferocious argument - yet again - about what to do next to avoid a global depression (if we are not in a "contained" variant already).
Needless to say, I will be advocating 1933 monetary stimulus à l'outrance, or trillions of asset purchases through old fashioned open-market operations through the quantity of money effect (NOT INTEREST RATE 'CREDITISM') to avert deflation - and continue doing so until nominal GDP is restored to its trend line, at which point the stimulus can be withdrawn again.
And the Austro-liquidationists (whom I love during bubbles, and hate during busts) can all hurl shoes at me.
We can also argue about another sneaky idea. If the central banks are able to buy fistfuls of bonds right now without a ripple effect on inflation - and investors are still rushing into the safe havens, Bunds, Gilts, Treasuries, JGBs, etc - why not just quietly write off those central bank holdings and seize the moment to slash public debt by non-inflationary fiat?
Now it really gets dirty. Weimar without Weimar, so to speak; a victimless crime. I have not made up my mind on this. But the topic is creeping onto the agenda, so prepare a stack of old shoes just in case.
Pritchard is prepared to toss shoes at the Austrians, whom he admires when we are in a bubble but not when we are in a bust. Ambrose: we are still in a bubble. We are not 'out of the bubble' just because you are growing uncomfortable with the results of this bubble-breaking, uncomfortable with the social chaos you are seeing in Spain and Greece and which you see coming to the entire Western World.
Ambrose, this (below) is what a debt bubble looks like. This is the bubble state we are now in, today: in fact not much has really changed since 2008. We cannot borrow more money to make the debt bubble larger because we're afraid of living outside of the bubble condition suddenly. Because we are uncomfortable that the austerity is 'real austerity' rather than just some abstract condition of thought.
You want to borrow trillions more for stimulus -- and then do what: demolish Fed debts when no one is looking. A kind of Shock and Awe approach to deficit spending. Do you think anyone will notice if you wipe trillions of debt off central bank books? Will trillions of dollars of losses not affect the financial markets at all?
The first chart shows America's historic 20th Century Debt Bubbles. The second chart shows that the so-called working down of debts in America is not happening. In fact the debt bubble is getting worse.
Weimar Without Weimar. Isn't that a little like a Housing Bubble the Housing Bubble side-effects? Those AAA mortgage bonds were supposed to take care of all the risk, weren't they? You can't trick Mother Nature, Ambrose. Mother Nature is angry. She wants a real depression with real asset deflation -- AND SHE WON'T TAKE LESS!
We get the kind of leadership we deserve, I guess. We have frightened leadership, leadership which is afraid to look the problem in the eye and tell the world what needs to be done -- afraid they will lose their job if they are honest. Not a good situation. Lies only make the problems worse. Denial is the first stage of the Grief-Surrounding-the-Death Process, according to Elisabeth Kubler Ross. We are still in the denial stage. Make no mistake: the Deflation Cycle is a death experience. Here's what we have to look forward to, according to Kubler Ross:
Five Stages of Grief - Elisabeth Kübler Ross
1 - Denial
Denial is a conscious or unconscious refusal to accept facts, information, reality, etc., relating to the situation concerned. It's a defence mechanism and perfectly natural. Some people can become locked in this stage when dealing with a traumatic change that can be ignored. Death of course is not particularly easy to avoid or evade indefinitely.
2 - Anger
Anger can manifest in different ways. People dealing with emotional upset can be angry with themselves, and/or with others, especially those close to them. Knowing this helps keep detached and non-judgmental when experiencing the anger of someone who is very upset.
3 - Bargaining
Traditionally the bargaining stage for people facing death can involve attempting to bargain with whatever God the person believes in. People facing less serious trauma can bargain or seek to negotiate a compromise. For example "Can we still be friends?.." when facing a break-up. Bargaining rarely provides a sustainable solution, especially if it's a matter of life or death.
4 - Depression
Also referred to as preparatory grieving. In a way it's the dress rehearsal or the practice run for the 'aftermath' although this stage means different things depending on whom it involves. It's a sort of acceptance with emotional attachment. It's natural to feel sadness and regret, fear, uncertainty, etc. It shows that the person has at least begun to accept the reality.
5 - Acceptance
Again this stage definitely varies according to the person's situation, although broadly it is an indication that there is some emotional detachment and objectivity. People dying can enter this stage a long time before the people they leave behind, who must necessarily pass through their own individual stages of dealing with the grief.
We still have a long way to go. The Anger Stage is never fun. We usually designate a scapegoat for the Anger Stage. This sometimes leads to war.
We won't even get to the Depression stage for some time. When everyone accepts the Depression Stage we will be in 2019. The recovery off the bottom is slow and painful.
So, are we going along with the Draghi Rally? Not really. We are taking a few long positions, as we always do during sell-offs. But we're also taking more short positions: SINA, NETFLIX. We're very happy we shorted Facebook, as it is down 10% tonight on earning issues. We're covering a couple shorts: PBTH, ILMN. And we're going long: GSS and WPRT. Oh, we're also selling JP Morgan, not out of hommage to honesty, but because we got a sell signal.
Our CGTS Market Momentum Internal indicators: mixed. Two moved up after yesterday's Draghi Rally. Our most enduring indicator is still down.
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Michael J. Clark, Hanoi, Vietnam