sabato 5 dicembre 2015
A tale of two narratives
(...una cosa sbagliata non può finire nel modo giusto. Da Charlie Brown ricevo e volentieri pubblico...)
This week two market narratives were challenged: the narrative of Draghi always overwhelming markets with policy moves and the narrative of Yellen being strapped down and ready for a rate blast off.
Draghi under whelmed markets (and the Euro took off), and Yellen started speaking of a "dollar drag" on the rate blast off.
I would bet not one but two cartons of Cartize Prosecco we won't get appreciable divergence in 2015.
Eavesdrop on girls in the powder room and you'll discover (perhaps to your dismay) that size does matter. Read Alberto's work and you will discover (perhaps once again to your dismay) that exchange rates also matter.
Germany has started two undeclared devaluation wars : one against the rest of the world (via Euro QE whose only true effectiveness rests in devaluating the Euro thus making European goods more competitive in the US and elsewhere) and one against its Euro partners (via internal deflation and wage compression). The ECB is the weapon used to wage the first war, the European Commission to wage the second.
That directly challenges American supremacy in the global monetary game and also hampers American plans to normalize the US financial system which has been doped and warped by massive doses of QE since the Lehman crisis.
I would like to add that whatever the US does it will end up on top. If it does nothing (or very little) in terms of provoking true divergence, it will bust the German devaluation offensive. That will make it even more imperative for Germany to toughen its aggressive internal devaluation strategy vis à vis its Eurozone neighbours ( a million refugees are a good enough ammunition reserve for that). If the US does hike, it will draw massive amounts of savings from Germany thus fostering the vicious deflationary cycle in Europe (which feeds German surplus), and the effects will be identical. It is noteworthy that whatever happens, highly leveraged and interconnected European banks will face ever greater insolvencies while Euro QE - which is 80% guaranteed by national governments - will pile more and more potential tax burden on single European states, including southern states and France, i.e. states whose public finances are already strained in an effort to support lagging demand. That will all lead to a chaotic financial crisis in Europe and to the demise of that would-be reserve currency which is the Euro.
You can't expect to beggar your own family and also be strong enough beggar they guy on the other side of the street. But Germany's business élite, quote obviously on an insane power trip, is wanting to do just that.
There is nothing original or canny in the above. I just wanted to put "divergence" in the picture frame, where it fits perfectly.
Addendum for the Italian reader: ajutame a ddì "nun hai capito un cazzo"! E pensate che c'è gente che paga per leggere queste scemenze...