All eyes are on Mario Draghi, chief of the ECB, as the ECB meets on September 6th in order to deliver the biggest disappointments to investors yet. Most bullish pieces of feces hope that the ECB will announce details on the rumored bond buying program and all hopes for the Euro cling to that. Nobody really cares about a potential rate-cut as everyone expects Draghi to announce what they want to hear.
Those hopes have pushed the Euro higher for the past two weeks as investors as well as traders decided to ignore all the warning signs which is why the next few weeks will wreak havoc on most portfolios. The markets have never had higher expectations then now on the ECB to announce a detailed plan on what most market participants idiotically believe would be beneficial, but will have a devastating impact in the real world.
On one side we have the Eurozone’s next troubled twins, Spain and Italy, beg and pressure the ECB to lower bond yields in those countries on the other hand they do not wish to subscribe to the tough restrictions.
Draghi also creates more and more tension between the ECB and the Bundesbank. Jens Weidman, chief of the Bundesbank who took over from Axel Weber, threatens to quit his post at the ECB should Draghi push through with his bond purchase plan which he and the Bundesbank strongly oppose and view it as state financing. Axel Weber quit over disputes with the ECB’s handling of the debt crisis and Weidman would be the third German who would quit over disputes with the ECB.
Even if Draghi would announce his ridiculous bond buying program he can’t do anything until sovereign members will ask for a bailout and assistance which would tie them down to adhere to tough restrictions imposed by the ECB. Spain as well as Italy refuse to make a deal with the devil and therefore the ECB would not be able to step in despite its bond buying bonanza as it would violate the rules it puts in place.
Angela Merkel seems to break ranks and puts all her hopes on the ECB even as her finance minister warns on such a foolish move. Merkel became Draghi’s biggest supporter and claimed that bailout funds are not going anywhere which she may view as a sign of stability as well as support, but in simply shows that the debt crisis is much bigger than some may have anticipated and that there is a drastic amount of desperation in the air.
The Germans are the biggest contributors to the Euro and it will be vital to have their support before they decide to abandon no just the ECB, but the Euro altogether. Draghi needs to walk a fine line in order to please the Germans and not rattle the markets. The ECB are meant to be independent, but it is clear that the ECB is nothing more than the female canine of Germany as well as the markets.
Nobody knows what exactly Draghi will say on Thursday, but one thing is sure: He will deliver a disappointment which will rattle the markets to the max. Tread carefully until then or be sophisticated and set-up your portfolio for a crash which will last for an extended period of time. We saw the highs for the year. We actually saw the highs for the rest of the decade. Honestly, we saw the highs for the rest of the century when it comes to the S&P 500 as well as all the other benchmarks.
