Draghi duds out again
by Peter Switzer
We were hoping for a Super Mario fighting performance from the European Central Bank (ECB) boss, Mario Draghi, but it was more of a Donkey ‘Nong’ performance. You can’t use war cries such as “whatever it takes” and then come up with what looks like a wimpy performance.
The market wanted action and it got more words of action, which won’t, in all likelihood, show up until the September meeting of the ECB. The one big surprise, which shouldn’t be ignored, was the fact that the Wall Street sell-off was quite restrained — that’s a good sign but I hope those job numbers are not weak.
If they are, we could have a bad Monday ahead.
Reuters put his words/actions into context, which might partly explain the soft reaction of traders, with a poll of around 50 economists. On his new promise that the ECB is preparing to “buy sovereign bonds on the open market under certain conditions”, he was given a seven out of 10 rating but the scores went from two to 10 out of 10.
The suggestion is that the German Bundesbank is leaning against a more full on solution and that’s not surprising. The Germans really only care about Germany — as Paul Keating once remarked: “If you see a racehorse called Self Interest, back it because you know its trying”.
The Dow lost 92.18 points or 0.71 per cent to end at 12,878.88 while the S&P 500 index gave up 10.14 points or 0.74 per cent to end at 1365, which means that the market is poised to drop if the US job numbers are weak.
So in summary, Draghi may undertake outright actions to buy bonds of the likes of Spain and Italy in the open market and the ECB will “design plans” over coming weeks.
He has bought time but bond players sold bonds and yields of Spain and Italy headed up again. The bond vigilantes are laughing again, but have left a small warning that he might eventually be a force to reckon with but they are not shivering in their boots.
My rating was 4 out of 10 — a fail — and once again the Germans and their silly Germanic ways thinking about Great Depression Germany and the runaway inflation where people allegedly used wheelbarrows of worthless money to buy bread is nothing short of stupid.
Wheelbarrows are not running out the doors of Walmart in the USA following their expansionary policies. The Germans have created the global slowdown as they benefit from the low euro which means their Mercedes and BMWs are much more affordable — and these are running out the door right around the world!
Earlier this week I said it would be a week of central banks and all three — the ECB, the Federal Reserve and the Bank of England — played their usual underwhelming game and did precious little. Only the Fed gets off the hook because it has done heaps. Our Reserve Bank will also do nothing next Tuesday following those retail numbers yesterday, with sales up one per cent in June.
By the way, US factory orders fell 0.5 per cent in June when a 0.5 per cent rise was expected.
For tomorrow’s job number, the expectation is 100,000 jobs and a better number would be good for shares but a weaker one could prove a shocker for stocks.
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Published on: Friday, August 03, 2012
The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.