WASHINGTON, Sept. 6, 2012 – It’s not like he hasn’t been telegraphing this move for the last couple of weeks or so. But current ECB head Mario Draghi—more or less Ben Bernanke’s counterpart in the Eurozone—announced “an ‘unlimited’ new bond-buying program at a press conference in Frankfurt,” according to CNBC, which also noted “the central bank decided to keep its benchmark interest rate on hold.”
The ECB program has been dubbed “Monetary Outright Transactions”—MOT, for the acronym-happy—which is meant to “focus on the secondary sovereign bond market. Draghi said it was necessary to deal with ‘severe distortions’ in the bond markets,” continued CNBC’s report, which also indicated that “the ECB would only buy bonds with maturities of up to three years; the purchases would be sterilized, i.e. the central bank would mop up the extra liquidity that was created; and the ECB would not have seniority over private creditors.”
“Sterilized?” Kind of reminds you of that old “Nomad” episode (“The Changeling”) in the original “Star Trek” TV series, circa 1967. You know, the one where the allegedly intelligent computer device wanted to “sterilize”—i.e., kill—all “carbon units,” i.e., us. Until Captain Kirk appropriated some surprisingly Spockian logic to short-circuit the program.
In Draghi’s update to “Nomad,” it looks like the junk sovereign bonds are 2012’s carbon units. Rather than burning the stuff, which would no doubt torque off the Eurozone’s Green Meanies, the worthless paper would apparently be ferreted away in some anonymous vault in Brussels, thus removing it from sovereign balance sheets. Or something like that. Who knows?
Quarantining this stuff is a little like how the Fed apparently buried a bunch of bad collateralized mortgage obligations. Is this like “clean coal,” where the actual carbon units get buried deep inside the earth, thus saving the polar bears? If we’re sounding a little nutty here, perhaps we are. Like Tom Cruise, memorably dressed down by Jack Nicholson in “A Few Good Men,” we mortals apparently can’t handle the truth, namely that once again, government bigwigs across the world are essentially using the peons’ money to hide the sins of the politicians and rich dudes who support them. It will get ugly when there’s nowhere else to hide.
Meanwhile, back at the U.S. ranch, jobless claims dropped a bit last week from the usual “adjusted” figures. But it’s all a shell game really. There’s no real job growth in this country once you do all the math, a fact that the Democrats are doin’ the “Sidestep” down in Charlotte this week—their version of it, anyway—while they debate the existence of God and the location of Israel’s capital. We probably deserve this kind of government since we, collectively, have been dumb enough to elect it. But where does the lunacy end? Perhaps with the re-anointing of “The One” this evening. Stay tuned.
Meanwhile, the market heard what it wanted to hear: Euro QE and buckets of it. Now all Uncle Ben has to do is add some more and it’s Katy Bar the Door for this market’s upside.
Or not. Algos are, no doubt, already waiting to pounce on the bulls at the least hint that Republicans will win this fall, allowing Paul Ryan to terminate the endless shell game.
Meanwhile, our bets in silver and gold are looking good this morning, even as our longtime spec bet on Irish-based pharma giant Warner Chilcott (WCRX) is getting flushed down the toilet this morning after a gigantic secondary offering by a couple of big sellers including, gasp, Bain Capital. (The Koch Brothers and Halliburton probably told them to do it.) Oh, well. At least the company’s “special dividend” of four bucks—no doubt meant to pay off the vulture capitalists before they bailed—will break us close to even.
So it goes.
If the market continues to look good, we may have a few more ideas here. But right now, in spite of this nice run today, we remain skeptical. As Warner Chilcott’s recent adventures prove, we only know what we know. And that’s not nearly as much as “they” know, is it?
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
He currently holds positions in several gold and silver ETFs, including IAU, DGP, and ACQ and somewhat regrets the current position he holds in WCRX. He also now holds small quantities of short-maturity German and Italian corporate bonds.
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