Mario Draghi's Bold QE, Bank Stress Tests and February Payrolls

Thursday was a fascinating day for the world of finance ad markets (what's left of them), kicked off by the ECB rate announcement and finished up by US bank stress tests, released, cynically, after the close of equity markets.

And, the markets were largely unresponsive to what was happening in Europe because of their anticipatory stance toward the February Non-farm Payroll data due out on Friday.

Consequently, there were no major catalysts to propel markets in either direction generally, though, if one were to believe in the gospel according to Draghi (Mario Draghi, head of the ECB), al of Europe should be celebrating the prospect of EQE (European Quantitative Easing), because Draghi ad his cohorts see inflation rising by 1.5% in 2016 and GDP in the eurozone galloping ahead once the bond flow gets eaten entirely by the ECB.

This view is highly ignorant of facts, despite Draghi and the ECB having access to the best data in the world outside the Federal Reserve. First, the ECB should be well aware that QE has not driven either growth or inflation either in the United States or Japan (where they've been QE-ing it up for 20 years). Second, the amount of issuance of sovereign debt that the ECB proposes to purchase from the various government comprising the Eurozone might cause some significant crowding out of legitimate buyers of such debt.

QE is nothing more than a classic Ponzi scheme, with some big, fat-cat organization - be it the Fed, the BOJ or the ECB - striding atop government cash calls (bonds=debt). The central banks distribute the proceeds back into the system in whatever haphazard ways they can, the usual transmission mechanism being repos and open market "operations" directly to primary dealers (TBTF banks) that ends up in equity markets.

Presto! Government expands, stocks soar, while the general economy flummoxes, falters and fails. As is the usual case with all Ponzi schemes, everywhere and always, the last "investors" are left holding the bags of worthless paper. With the massive bond-buying monetization of government debt, the eventual losers will be regular people, whose pensions will be raided, whose cost of living will be untenable, whose lifestyles will be unstable, whose bank accounts will be bailed-in, whose futures will be null and void.

So, pay close attention to what's happening in Europe and Japan, because it eventually will find its way across both big ponds to the shores of North America. There is no doubt that QE and its after-effects will be crushing to ordinary people. The worst part of the story is that there will be nowhere on the planet to hide.

Well beyond the close of the moribund US equity markets, the Federal Reserve unleashed the current round of stress tests for the significant financial institutions.

All 31 banks passed. Halelujah!

These "tests" are nothing more than job security for CFOs and other executive who hang out in cushy corner offices. They are completely meaningless, especially since bank balance sheets are so opaque nothing of substance can be seen.

As far as the February, 2015 Non-farm Payrolls (due out at 8:30 am on Friday) are concerned, they'll contian the usual lies nd obfuscations that the BLS has become so famous for over the years. Ideally, the US will be shown to have created a couple zillion new jobs, but everybody will know that the numbers are wholly fiction and the economy is on its last legs. Wall Streeters will rejoice and send the major indices into the stratosphere, so that Fed Chair Janet Yellen can echo Greenspan and Bernanke by proclaiming the goodness of the "wealth effect."

Of course, most Americans will hardly notice said effect, as they struggle to make car and tuition payments.

Dow Jones 18,135.72, +38.82 (0.21%)
S&P 500 2,101.04, +2.51 (0.12%)
Nasdaq, 4,982.81, +15.67 (0.32%)

Something is Broken

Ever get that nagging feeling that something isn't quite right, you don't know what it is, but you're sure something important is broken, and it's going to cause problems?

That seemed to be the sense of things today. This marking the first day of the first full week of trading, and, after that spectacular, fiscal-cliff-solution-induced-rally last Wednesday, stocks have been just spinning their wheels.

Maybe it's the end of the holidays and getting back to reality, or, for those of us up in the North country, the dreary, dank, dark and depressing days of winter (only 73 mare days until Spring!), but there's a problem out there lurking that's bigger than the upcoming debt ceiling fight, the next unemployment report or whether we dip back into a recession.

It's the kind of feeling that pervaded Germany during the rise of Naziism, in which people didn't trust each other any more, everybody was on guard against some unseen, invisible, but just under the surface threat.

To put one's finger on it exactly would be a stroke of luck - or genius - but let's take a stab at it.

The house of cards the US has built up after the fall of the TBTF banks back in 2008 seems to be crumbling, and, like a house of cards, it starts at the top, where those on the bottom or even in the middle, can't see the collapse coming.

After the nonsensical debate and drawn-out rhetoric over the so-called "fiscal cliff," congress delivered a solution that was only half a solution, that being the taxation part. The hard part, cutting spending, is still ahead, and anybody who knows anything about how Washington has worked for the past thirty years knows that the congress and the president aren't willing or able to cut programs in any meaningful way.

So, the political structure at the top of the pyramidical structure called our society isn't working, and that's going to cause problems down below. The bankers, politicians and corporations currently at the top of the food chain don't seem to have adequate answers, only mildly appeasing artical solutions and glad=handing all around while the suppress and repress the rest of society. Eventually, one little slip up, one mistake, one good blow of wind from out of the blue takes the top cards off the structure and down tumbles everything into a massive, wrecked heap.

How long can the nation survive with clowns twirling dishes on stoks and juggling balls in the air at the top of the structure? So far, about four years, but it hasn't been pretty. There's just this feeling that it's all going to get worse.

Maybe if we turned Dow theory on its head, and noticed that the transportation average had moved to a technical, secular bear market back in July and August of 2011, and hasn't recovered to exceed the previous highs, and the Industrials since then have made a concerted, upside move based on nothing but short-covering rallies, asset inflation thanks to continual pumping by the Federal Reserve, that would give us all a clue to where things are going.

Or, maybe the Federal Reserve, the OCC and Fannie Mae all settling up with the banks on the first Monday of the New Year is a what? Coincidence? And nobody is concerned?

Maybe it's the breakdown of the relationship between the A-D line and the new highs vs. new lows. Maybe it's the flu. Maybe it's gold being constantly hammered down, or silver stuck in perpetuity at $30/ounce. And, maybe those are just symptoms.

Something is broken, for sure. Nobody is sure exactly what it is, but it could be everything.

Dow 13,384.29, -50.92 (0.38%)
NASDAQ 3,098.81, -2.85 (0.09%)
S&P 500 1,461.89, -4.58 (0.31%)
NYSE Composite 8,636.91, -30.77 (0.35%)
NASDAQ Volume 1,702,506,875
NYSE Volume 3,513,878,500
Combined NYSE & NASDAQ Advance - Decline: 2852-3657
Combined NYSE & NASDAQ New highs - New lows: 286-15
WTI crude oil: 93.19, +0.10
Gold: 1,646.30, -2.60
Silver: 30.08, +0.136