EurAnalysis

Nooooooooooo

1.39xx

ADD: We'll probably get it tonight or tomorrow. As such I will probably go into the weekend with a short position unless some G20 development scares me off.

I think some traders may watch Canadian data (emploment change) - cause recently it was very good, and in correlation with over-the-expectance NFP. So if we get good CAD data, some may think that NFP is going to be green again. An this reasoning is not completely irrational, both economies aren't too distant after all.

But important think to stress is, that now the expectations for the NFP are high. Dunno, if ppl are as cautious as I am, but I would not expect so high NFP. so NFP slightly below expectations may be not-so-bad. Obviously, if we get '0' again

EUR showed the potential to fly high, but being so high still should be considered illegal but after she drops confirming the 3rd Elliot wave, I will be looking for her to fly like a G6 again But that is quite far future...

Not so fast with that gdp predictions guys.

This little rate cut may have the very simmilar impact like Bens QE in lesser scale. After QE, no GDP arised, because no consumer spending arised and companies didnt employ more people.

First can be run to assets, then people (companies) may withdraw or borrow money, but not for spending. They are still debted and still dont believe in EU safety. Maybe they will be paying their debts, maybe they will hide money under the pillow, but I dont think any GDP coming.

Companies wont employ more people for those few extra money they have now, they will keep it awaiting the crash. Same what happened in US.

Maybe I am wrong, but this aint any big help. It is a little help and I consider it a good step in current circumstances, but it wont help.

T.

Matters not, Euro will still go down.
It has not gone down yet only because it is a relative thing. Re-positioning taking place and a huge money flow from USD to risky assets.
However, despite the rush to risk, the Euro has not rallied.

Look at the attached futures chart and find where the EUR is in relation to all the other risk assets. It is right at 0.0 along with the USD

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Mostly I Agree with you.
Companies will not hire and they will not spend (yet)
Consumers will not spend either (yet)
However, if G20 meetings produce something positive, things will change.
Mind you, Euro will still devalue. It has to in order for the economy to kick start again, and as it starts to devalue, you will see more money flowing out of fixed income and into riskier assets.

What I don't get, is why are rate cuts = risk on? Rate cuts tell you there are serious problems in the economy. Draghi cuts rates unexpectedly and leaves room open for more while saying Europe is heading for a recession. How the hell can that be risk on? Only for the stock market and normally short lived.

You mean, it will start behaving like a safe haven, risk-on = EUR down But I don't think risk-off could drive it up... so it should be called stone-behaviour.

Like Yoda funding EFSF for 10% IR? Very positive indeed.

Anyway, I am looking forward for G20 outcomes as well. I totally dont know what to expect. So I dont expect nothing at all.


I am with you. Lets bear this crap down from 3894 - 3936 zone.

T.

I think you may have taken my statement and applied it to your longer term outlook.
Just to be clear, I am only referring to this week... Maybe even just today. It all depends what comes out of the G20 meetings.

It is just a different point of view. Different theory, different timeframe, in which you are right. You are talking about market expectations, and this statement definitely tells EU is in trouble. Nevertheless, in the meanwhile, money seeks yield in riskier assets.

Btw: Those assets dont have to be in Europe because of these expectations. This rate cut may just boost asian markets from EU cash.

T.

Not quite. Risk on will still move funds from USD to riskier assets so USD negative. However, not necessarily Euro positive. So, the impact on EUR/USD will be lessened. In the meantime, money will slowly trickle out of EUR to higher yielding currencies like the Aussie and other currencies with higher rates.

ADD: This has a similar effect to QE because there will be lots of EUR supply as investors exchange them for foreign currencies in order to invest them in foreign denominated risk assets.

Okay so the following is crystal ball stuff and anybody who takes a speculative trade on it, does so at his/her own risk.

Later today, the Greek PM together with the opposition leader will make an announcement that they have reached a deal and scrapped the referendum, will accept the bail out pkg and will call an election at some point in the distant future. The meat and potatoes of the deal will most likely include the said future election plus some concessions to the benefit of the opposition party.

I wonder, If the other will keep up with EZ in "lower down rates" race. In order to ensure price stability, lower fixed income instruments yield, so the riskier asset prices fly sky high. Wait... No, It's not like it was supposed to be...

On the other hand, big yield on fixed income would cause most money to sit frozen in one place... Not too good as well.

Oh wait a minute. Anything governments and CBs do, world is doomed... wow. Better start digging my private anti-nuclear shelter then.

A lot of chatter too about repatriation of Euros to brace for a Greek shock. Euro positive.

Markets taking rate cut and Draghi as a positive. Rate cut is something the markets have been screaming for for months. Draghi is being well received for his opening performance by the media.

Hope everyone is hanging in there. Be careful. Today's whipsaw, I got my azz handed to me and wiped out all of Monday's gains. Probably end with a loss this week

^^^^^^^^^^^^^^^^

I am still calling for the Euro between 1.2000 and 1.2999 by 31st December
Over the next several weeks, it will all come to light.
I may end up being proven wrong about this, but that is where everything is pointing right now.

I go with what I see today. If tomorrow offers a different picture, I will change my sentiment.

There are benefits to remaining flat after you earn your week's gains in one day.

Confucius says: "Man with hole in pocket feel cocky all day"

What are the chances tomorrow will yield a different picture?

I wish I were an economist and had loads of time to do nothing but spend time researching my theories and putting the facts and figures to them that I feel would bolster my argument.

But this is where I think Benny and all the central bankers are really screwing it up and it should be right in front of them. But they are so married to multipliers and theories that they can't see what should be obvious.

Are you really going to make a business decision to expand, or build, or do anything based on .25%? .50%? It is possible that the interest rate environment might make a project or plant expansion or other investment versus another look more appealing. But lets say the Fed cuts from 5% to 4.5%, I think it is completely different than when you go from 1.5% to 1%.

Why?

Because at 1%, or 1.5%, interest isn't that big an expense or reason to do anything. When they cut from 5% to 4.5% however, it means they still have 4.5% to play with. At 1.25%, how much ammo is really in the gun? Or with the Fed, basically 0% and they are trying to invent new ways to say that interest rates are the deciding factor. I think rate movements by central banks are of less and less impact the lower rates are on the whole.

I remember like it was yesterday how THRILLED my family was when I found an 8% mortgage at a fixed rate in the mid-1990's. It was fantastic, going to save the family thousands per year. Then I started thinking about this yesterday, suppose we had grown up in an era where my parents had been able to get a 4% mortgage? Wow, what a difference that would make. But now, if you aren't buying a home with 4% interest rates, are you really gonna get excited and buy one because the rates have dropped to 3.5%?

The real estate run up was fueled by rates that looked so unbelievably low, combined with ever appreciating home prices that made it look too good to pass up, and the lower rates didn't mean a lower payment, they meant you could get an even bigger house.

So now you know rates are not likely or really even possibly going to go much lower, there is just no margin left and the appetite for MBS only exists at the Fed. You are being told home prices may not go up substantially for 10 more years. Probably wrong, but the prevailing wisdom will prevail, just as it did when people thought prices would go up forever with cheaper and cheaper credit. Why the hell would you all things being equal buy a house?

The second long term problem with buying a house, is income mobility becoming a requirement. The odds you will live in that house long enough to recoup the purchasing and selling costs plus upkeep, unless you work for government which is massively cutting back jobs and likely to continue to do so, are not good. If I might need to move in a few years to get a better job, or even just have one, who wants to be strapped with a house you can't sell?

So while real estate dominated US and even European economic expansion over the past 30 years, and thus markets and economies could easily be manipulated by interest rate adjustments, it isn't going to work that way any more. Add in that rates from here over the long term really can only go up, and that any QE 1, 2, 5, 86, is really only printing money and deflating the real value of all assets, then the tricks of the past cannot work as intended.

The real risk on/risk off scenario is political going forward. Greece and Europe's problems are fiscal in nature due to over committing in the social contract, and the US isn't far behind. Only bringing the taxation, government spending equation back into equilibrium in an environment with long term lower taxes and much lower domestic entitlement spending can possibly set the stage for economic growth in a global, mobile environment.

The idea that somehow we can keep these "safety nets" and benefit packages where they are for the long term is simply not sustainable for any economy, and the idea that if the rich few simply pay a little more we can sustain most of it is insane.

Countries are competitors. If you need proof of tax rate and regulatory flight, you need only look to the US. California and NY are dying, along with nearly every other "Blue" state while the "Red" states in general are doing much better. Companies and people are leaving states that keep raising taxes and producing ineffective government. The same is the case with countries now. The US lost the 80's and early 90's when Bush Sr. and then Clinton increased corporate and personal income taxes. A technology boom hid it temporarily, but now companies have fled to easier/cheaper places to produce their products because globalization makes that possible.

What the world really needs is not markets to capitulate, but governments. Capitulate to the idea that they much get much smaller, do much less, and take much less while producing an inducement for businesses to want to be there.

I think the US is closer to this than Europe, thus the real risk is that no "traunches" or bail outs, or other manipulations, without the structural reforms that Draghi spoke of today can ultimately prevail. The rest is kicking the can down the road and hoping a miracle of economic growth that policy makers have not the will to produce will occur against logic. And it won't.

I think referendum on, referendum off, rate cut, this news, that news does move markets for a moment. But then, they look up from their newspaper or computer screen and see the same macro landscape that hasn't been addressed. I mean, so no referendum....yea!!! PapaSmurf resigns....yea!!!
Then what?

The opposing parties in Greece like the deal even less. The only thing that makes the economics of the bailouts work is economic growth...EuroZone heading for a recession which makes the needed bailouts ultimately even bigger, and a smaller pie to get them from.

The 4th quarter is always dicey with an upward bias, but sometime between now and March it is going to get REAL ugly with the possibility of both Europe and the US heading towards or in another small recession. Numerous banks will either have to be nationalized, sold off, or allowed to fail as sovereign debts overwhelm countries ability to keep up with entitlement growth up against negative to zero economic growth.

The short term volatility of currency trading makes it harder to really play this trend long term, but little by little you can do it. I am trying. I know markets will go where they will at times, but like all things, physics will eventually win out.

Macro picture? Slim to none