Draghi & ECB Deliver

It’s a very busy week for the markets and economy coming off the ECB’s long anticipated announcement of Euro QE last week. On the one hand I thought it was smart to leak the $50B euros per month plan so that markets could digest it ahead of the official statement. It was also a great move to then exceed the number that was leaked by $10B euros.

On the other hand, I am not in favor of this piecemeal approach when everyone already knows that $60B euros per month won’t be enough. If Mario Draghi was truly committed to QE and saving the euro “at any cost”, they would have pulled all stops and done the shock and awe of AT LEAST $100B euros per month right away. It would caught everyone off guard in a positive way except for those who are positioned against QE, exactly the folks the ECB is trying to combat. It would have sent such a powerful message to the markets.

Yes, I know. The Germans are ardently opposed to QE. Blah, blah, blah, blah, blah. That may be their public stance with Merkel pounding the table in opposition, but in reality with their export economy on the verge of recession, a weaker euro is precisely what the doctor ordered. As I have long discussed, this is just another currency battle in what some have termed, “a race to the bottom”, meaning that countries are devaluing their way to prosperity. (Insert incredulous look, head scratch and head shake)

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One Door Closes Another Opens

On Wednesday, to no one’s surprise, Janet Yellen & Co. ended the Fed’s 5+ year experiment of purchasing assets in the treasury and mortgage backed securities market, also known as quantitative easing (QE) or money printing. I won’t rehash all of the reasons why I continue to believe this is a misguided strategy, but it is.

Before the ink was even dry on the statement, the Bank of Japan completely caught the markets off guard last night with another ramp up of their own QE, buying more bonds, extending maturities and really ramping up their purchase of stocks using ETFs and REITs. I have said this since Abenomics (Japan’s version of our QE but on steroids) was launched in Japan, this will go down as the greatest financial experiment in history. Japan is going to print until the world runs out of ink!

And the European Central Bank (ECB) isn’t far behind.

Many are left to wonder what our markets and economy are left with in a post QE America. In a vacuum, the end of QE is headwind, however, with Japan going on even more steroids and the Europe about to begin QE, I don’t view it as a negative just yet. That time will come down the road.

For now, my thesis remains the same. Markets gave us a golden opportunity to buy a few weeks ago and I hope people took advantage of that. It was easy in real time and I wrote about the bottoming forming as it took place. The bull market is old, wrinkly,  but still very much alive. Rallies should get more selective from hereon and it will be interesting to see where leadership comes from.

Markets really need to see the high yield sector step up and rally! Odds favor it will.

Happy Halloween! One of my favorite holidays. Can’t wait to take the kids out tonight and then come home for some adult beverages.

Enjoy the weekend and be safe…

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