April 24, 2012 By gpc1981
Yesterday
we discussed the political fall-out for German Chancellor Angela Merkel
regarding revelations that the Bundesbank has in fact
put
Today we
need to consider how those same revelations will impact the Bundesbank
itself. Already we’re seeing its head Jens Weidmann
(also a policymaker at the ECB) taking a hard-liner approach to dealing
Weidmann says not ECB’s
job to tackle
Spain
should take a rise in its bond yields as a spur to tackle the root causes of
its debt woes, not look to the European Central Bank to help by buying its
bonds, European Central Bank policymaker Jens Weidmann
told Reuters.
Weidmann, who has led a push by some policymakers
from core euro zone countries for the bank to begin planning an exit from its
crisis mode, said no ECB policymakers favoured using
the bank’s bond-buying plan to target specific interest rates on sovereign
bonds, and ECB board member Benoit Coeure was simply
stating a fact by saying last week that the programme
still existed.
In a
wide-ranging interview, Weidmann, who turns 44 on
Friday, also said he saw no reason to discuss a third LTRO, the funding instrument
with which the ECB has pumped over 1 trillion euros
into financial markets since late last year.
Weidmann, who is head of Germany’s Bundesbank, which gives him a powerful voice on the ECB’s 23-man Governing Council, spoke to Reuters against a
backdrop of growing tensions in
http://uk.reuters.com/article/2012/04/18/uk-ecb-weidmann-idUKBRE83H0C820120418
Relations
between the ECB and Bundesbank have been
deteriorating for some times now. Disgusted with its monetary profligacy, two Bundesbank officials Axel Weber and Jürgen
Stark, resigned from the ECB last year. Since that
time Weidmann and the Bundesbank
have fired a warning shot across the ECB’s bow.
The plans
have major implications for monetary union, dashing hopes in Southern Europe
that
Andreas Dombret, a key board member of the Bundesbank,
said the body would be given powers
to check “excessive credit growth” and impose “maximum leverage ratios” to nip
economic overheating in the bud.
The Bundesbank will be able to impose “counter-cyclical capital
buffers” on lenders, and use “macro-prudential haircuts” in the securities
markets. It is understood that the menu of new tools will include limits on the
loan-to-value on mortgages along the lines of those used in
The new
framework – introduced by German government in a draft law this week – is
partly inspired by the Bank of
German house prices
rose 5.6pc last year after a decade of stagnation. Officials in
Frankfurt are watching the property data closely, fearing that
“The Bundesbank does not want to be blamed for making the same
mistakes as central banks in
The German
authorities are in effect preparing a form of quasi-monetary tightening to
offset ECB largesse…
“If the eurozone is to adjust, southern countries must be able to
run trade surpluses, and that means somebody else must run deficits,” said Dr
Speyer.
“One way to do that is to allow higher inflation in
The ECB
recognizes a warning shot when it sees one. Indeed, ECB President Mario Draghi knows that if inflation rises in
Draghi Says Inflation Risks Prevail as
Economy Stabilizes
European Central
Bank President Mario Draghi said policy makers are
prepared to act against inflation threats if needed, while assuring investors
that the ECB doesn’t plan to withdraw emergency stimulus any time soon.
“All the necessary
tools are available to address upside risks to price stability in a firm and
timely manner,” Draghi told reporters in Frankfurt
after the ECB held its benchmark rate at a record low of 1 percent today. At the same
time, it’s premature to talk about the ECB’s exit
strategy, Draghi said, adding that the economic
outlook is subject to downside risks and inflation will remain contained in the
medium term.
The ECB is
balancing the threat of inflation in
[ECB
President Mario Draghi] declined to comment on recent wage settlements in
Germany, where 2 million public service workers are set for a 6.3 percent raise
over two years, according to the Ver.di union. It
would be the biggest increase negotiated by the union since 1992.
IG Metall, Europe’s biggest labor union with about
3.6 million workers, is demanding 6.5 percent more pay.
And so the
ECB has found its hands tied: if it continues to monetize aggressively,
inflation will surge and
After all,
doing this would score MAJOR political points for both Merkel and Weidmann who have both come under fire for revelations that
the Bundesbank has in fact put
Against this
backdrop, it’s quite clear that the EU’s banking system remains under extreme
duress. Case in point, European financials have in fact wiped out all of the
gains produced by LTRO 2 in just one month’s time. Small
wonder. When we take a big picture perspective of
Consider
the following:
So we’re
talking about a banking system that is nearly four times that of the US ($46
trillion vs. $12 trillion) with at least twice the amount of leverage (26 to 1
for the EU vs. 13 to 1 for the US), and a Central Bank that has stuffed its
balance sheet with loads of garbage debts, giving it a leverage level of 36 to
1.
And all of
this is occurring in a region of 17 different countries none of which have a
great history of getting along… at a time when old political tensions are
rapidly heating up.
As bad as
the above points may be, they don’t even come close to describing the REAL
situation in
And that’s
With that
in mind, I’m already positioning subscribers of Private Wealth Advisory for the
upcoming EU collapse. Already we’ve seen gains of 6%, 9%, 10%, even 12% in less
than two weeks by placing well-targeted shorts on a number of European
financials.
And we’re
just getting started. Indeed, we just opened five new trades on last Friday.
Already ALL FIVE of them are up in less than a week.
So if
you’re looking for the means of profiting from what’s coming, I highly suggest
you consider a subscription to Private Wealth Advisory. We’ve locked
in 49 straight winning trades since late July (thanks to the timing of our
trades), and haven’t closed a single losing trade since that time. And we just
opened five new trades to profit from
Because of
the level of my analysis as well as my track record, my work has been featured
in Fox
Business, CNN Money, Crain’s
To learn
more about Private Wealth Advisory and how we
make money in any market environment…Click Here Now!!!
Best
Regards,
Graham Summers
Chief
Market Strategist