The Immediate Results of QE2 And the ECB Meeting

Thursday, November 04, 2010

Monsieur Bernanke and Mister Trichet have been at work. While the Fed takes action by digitizing another $600 billion the ECB remains on autopilot and leaves interest rates unchanged while continuing its government bond purchase programm.
Here are the results of the actions of the high priests of forever expanding debt:

GRAPH: Gold is only short a few bucks from its record high of $1,388 reached on October 14. Expect another upleg towards $1,500 in the next big move that is guaranteed as the world's prudent investors flock to the truly global currency of the past 2,800 years.
GRAPH: Silver jumped to a 30-year high at $25.38. It is certainly only a coincidence that the metal soared on news that JP Morgan and HSBC were served with a racketeering lawsuit (after goldbugs had been crying foul for years and were ignored by both the CFTC and the SEC.)
Regarding the monthly ECB council meeting there was nothing said that was not said before. ECB President declined to comment on the only interesting question asking about the ECB's view of the Fed's QE2.

Nowotny Slipup: ECB Also Considers Economy In Its Rate Policy
ECB governor Ewald Nowotny had a slipup when appearing before the finance committee of the Austrian parliament on Wednesday. According to a (German language) release from the parliament, Nowotny, governor of Oesterreichische Nationalbank (OeNB), said the ECB would remain on a course of low interest rates due to the weak economy in the Eurozone and low inflation expectations. Experienced observers may only yawn about this. But it is notable for the fact that ECB president Trichet has been pointing out at almost every monthly press conference that the ECB follows only its single mandate to keep inflation in check and does not regard the state of the economy in its decisions.
Forget that fairy tale about politically independent central banks which is also proven by the fact that the ECB monetizes the debt of all Euro members with spreads surpassing the 300-bip mark.
This was always difficult to believe as government heads and finance ministers have only one real fear that tops all other fears: Higher interest rates would bring down their deficit spending policies and turn into an economic free-fall.
We are not yet there. But seeing the big majority of countries worldwide running unsustainable deficits higher interest rates will be in the cards for 2011 as investors will scrutinize the large crowd of sovereign borrowers and hand the money to those with the most reasonable risk-reward profile.
See the race for new funds escalate after Q1 2011.


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