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Draghi Speaks the Truth; ECB Will ÂDo What it MustÂ
Words are important. This is not just a headline,
it is a realityÂ
Draghi says ECB will Âdo what it must on
asset buying to lift inflation
Not Âdo
what it thinks would be the best course for the European economyÂ, not Âchoose the
path of least resistance in guiding the financial system to recoveryÂÂ
the ECB will DO WHAT IT MUST.
As I have written til IÂm blue in the face for the last 10 years, we are
in the age of ÂInflation onDemand©,
24/7 and 365. ÂÂ
do what it mustÂÂ
let that sink in for a
moment.
Japan is trying to kill the Yen, China is dropping interest rates and the
world over we have a rolling inflationary operation that is little more than
a game of Whack-a-Mole. BoJ popped up a couple weeks ago and now this
oneÂ
Source: MarketWatch
US Situation
Transitioning to the country and policy making establishment that has
truly shown Âem how itÂs done over the last 6 years, we view the S&P
500 with its eternal attendant, ZIRP and add a view of the CPI as well.
One message that can be interpreted from this chart is that stock markets
have been used (controlled) as a mechanism for asset owners to keep up with
the reported effects of inflation (CPI). Saving has been disallowed,
legislated by policy right out of the equation. Everybody into the
pool, if youÂve got the bankroll to play.
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We have maintained since the post 2012 lift off of the most intense phase
of the inflated stock bull market that there is and has been no bubble in
stocks (though they have become over valued* even by traditional metrics) but
rather, a massive and ongoing bubble in global policy making.
First Alan Greenspan laid the groundwork and the initial blueprint (asset
inflation), then his inflation operation was liquidated with extreme
decisiveness and now, from the ashes we have a new global asset inflationary
operation born not of good intention or rationally sound strategy. It
is pure and simple desperation. The ECB will Âdo what it mustÂ.
The US Federal Reserve has done Âwhat it must since instituting ZIRP
nearly 6 full years ago and through QEÂs 1-3.
Straw Man
It sure looks like the whole debate about 2015Âs coming interest rate
hikes are another Straw Man stood up to manage market expectations (see Deflationary
Straw Man), to give the impression that Policy Central is still in
control and that they have decisions to make. There is no decision
folks. The inflationary operation, now gone global, is an all-in,
all-or-nothing proposition.
GreenspanÂs inflation ended up being less than nothing. It was
resolved in a sea of debits that assigned negative value to the system.
The ongoing effects of inflation feel good to some people now (especially
those who get to lap up the silver spoonÂs gifts that keep on giving first
and foremost as opposed to those savers and paycheck-to-paycheckers who
just get to suck on ZIRP-eternity) but inflation is never a lasting
benefactor. It is a subtractor over the years and decades as
savings and productivity are replaced by money printing.
We will clip this post here and go on managing the market as always,
taking what it gives, managing against what it is one day going to take and
keep the big picture view in place at all times. That view very simply
is that 6 years on from the US financial crisis (ongoing, though that is an
unpopular notion at this time) a global cadre of policy makers are playing a
transparent game of Whack-a-Mole trying to one-up each other until the whole
thing flushes once again.
* Although it is worth asking the question Âwhat is value today,
anyway? when considering the constant inputs and distortions inflicted by
policy makers. Anyone care to take a guess on that one?
- Biiwii.com
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