Submitted by Bill Blain of Mint Partners
Blain’s Morning Porridge – September 20th 2017
“New Car, caviar, four star daydream, think I’ll buy me a football team….”
Will they? Won’t they? I’m not talking about Donald’s playground bluster about nuking North Korea back to the 1950s. Shocking and intemperate. Yes. But, plays to his audience.
Of more import are Central banks and how they wriggle out of their current chains. Will the Fed put another nail into QE this afternoon? We think they will announce the end of coupon reinvestment: de-facto normalisation/tightening. Get on with it! US markets are resilient enough to cope – but we really need to see serious spread decompression between the fixed income asset classes.
As we’ve written before, it’s more a problem for the ECB. They are caught in a horrible decision matrix: the imperative to continue QE infinity to maintain the illusion nothing is wrong, the Germans sticking to their guns about normalisation and no debt mutualisation, and electorates who aren’t anywhere near ready to surrender that kind of economic sovereignty to Brussels.
I suspect the stories about the ECB being split as it sounds off on setting a firm date in October for scaling back their bond buying is a bit of Kite Flying. If they asked me, I’d say bite the bullet and say it’s going to happen. It make Angela Merkel’s job constructing a new German coalition next week much easier, but will just fuel electoral tensions across the various Italies.. (Yes.. I wrote Italies..)
Personally, I suspect Draghi is praying for a crisis.
It would allow him to play his “Kick-the-Can-Card.” Remember he said: “Unless a risk that is not seen today materialises, we should be ready to take the bulk of these decisions in October.” A nice little bond crisis, stock market collapse, or renewed Global Financial Crisis (maybe even some unpleasantness in Asia or Middle East), would allow him to put ...