Draghi is part of something clever
September 13, 2019

Blain's Mid-Morning Porridge

"They live in the sea, eat plankton for tea, oh! bloody great fishes are Whales"

Draghi ain't mad… he's part of something surprisingly clever…

Apologies for late and short comment, but this morning She-who-is-now-Mrs-Blain and I were up before the lark and drove to Snowdonia in properly Welsh Wales, where it's a cracking morning! Looking out over the Mountains.. it's amazing. I can actually see some of them. Normally they are completely hidden in dark clouds and obscured by the rain. Later this afternoon, I shall take a stroll up some of the pointy bits of landscape…

On the way up I had the dubious pleasure of Radio 4. Brexit, Boris and Bercow. Much talk about how the Norn Iron Taliban might compromise on the Backstop in return for discussions on tech border solutions, which was then denied on air. Must be happening then! All these things are no doubt planned to ruin an otherwise promising weekend.

What surprised me listening to the UK's premier national news programme was the complete absence of any discussion on yesterday's critical European Central Bank meeting. For all the complaints the BBC is a nest of treacherous remoaners, if they didn't see the critical significance of yesterday's European Central Bank meeting, then it doesn't say much for their appreciation of markets, economics and politics. They had plenty about the Democrat candidate debate in the US, but nothing on Yoorp.

Yesterday's ECB action was a deeply significant and positive moment. It was part of a coordinated shift in Europe. As a result, I'm massively more positive on the medium- to long-term euro outlook. Sure, there are significant execution risks ahead – especially no-see-ems in the east - but Europe is close to resolving the problem of the UK as a deadweight distraction and hinderance, has dodged a headbutt Italian debt and electoral crisis, and can start to focus on growth.

Don't be fooled by thinking Draghi's resumed monetary experimentation was the main theme yesterday. Europe's Central Bank announced a 10 basis points cut in rates to -0.50 percent and EUR 20 billion of asset purchases per month until inflation takes hold. Plus they announced a series of measures to help banks including new LTROs (targeted longer-term refinancing operations), and a new scale of penalty rates. On the basis these pretty much continue Draghi's "do-whatever-it-takes" approach, a cynical man might question what difference the ECB expect these measures to make in terms of stimulating economic recovery/growth/reform?

That's not the point. Europe is heading down a new road – the fiscal super-highway. Draghi confirmed it when he called it: "Time for Fiscal Policy to take Charge", challenging governments with "fiscal space to act in an effective and timely manner." It's a perfect set-up for his successor, Christine Lagarde, who has but one role: to ensure the politics of Europe fall in with fiscal stimulus. And just in case anyone thinks a fiscal boost = debt crisis, then the resumed quantitative easing programme should pretty much ensure the ECB has the ammunition to cover any weakness in European sovereign bonds.

Strip it to the core, and you could argue all that's really happening is the ECB printing lots of money for European states to fiscally juice their economies….. As I said.. it is clever!

And it's not just the ECB bending over to loosen the fiscal restraints. It's right across the European leadership – Lagarde is but one aspect. The new EU president, von der Leyen, has made clear she's open and will encourage fiscal spending. It's an Italian who has the job of turning a blind eye to fiscal infringement by member countries. Even the Germans are starting to talk about spending. There might be some noise from offended German financial conservatives, but no one is going to effectively push back on a European fiscal reform.

I am so impressed I've just send copies of my recent book, The Fifth Horseman – How to Destroy the Global Economy, to Brussels and the ECB so they can read up on how QE, austerity, regulation and bureaucracy trashed the global economy! It's never to late to accept you might have been wrong…

Does that mean you should keep buying and buy some more European sovereign debt? Yep. Probably.

Out of time, and doing the day job from my brother-in-law's house in Llanrwst (there is a serious shortage of traditional-looking vowels in Welsh place names…)

Bill Blain

Shard Capital





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Blain's Mid-Morning Porridge

"They live in the sea, eat plankton for tea, oh! bloody great fishes are Whales"

Draghi ain't mad… he's part of something surprisingly clever…

Apologies for late and short comment, but this morning She-who-is-now-Mrs-Blain and I were up before the lark and drove to Snowdonia in properly Welsh Wales, where it's a cracking morning! Looking out over the Mountains.. it's amazing. I can actually see some of them. Normally they are completely hidden in dark clouds and obscured by the rain. Later this afternoon, I shall take a stroll up some of the pointy bits of landscape…

On the way up I had the dubious pleasure of Radio 4. Brexit, Boris and Bercow. Much talk about how the Norn Iron Taliban might compromise on the Backstop in return for discussions on tech border solutions, which was then denied on air. Must be happening then! All these things are no doubt planned to ruin an otherwise promising weekend.

What surprised me listening to the UK's premier national news programme was the complete absence of any discussion on yesterday's critical European Central Bank meeting. For all the complaints the BBC is a nest of treacherous remoaners, if they didn't see the critical significance of yesterday's European Central Bank meeting, then it doesn't say much for their appreciation of markets, economics and politics. They had plenty about the Democrat candidate debate in the US, but nothing on Yoorp.

Yesterday's ECB action was a deeply significant and positive moment. It was part of a coordinated shift in Europe. As a result, I'm massively more positive on the medium- to long-term euro outlook. Sure, there are significant execution risks ahead – especially no-see-ems in the east - but Europe is close to resolving the problem of the UK as a deadweight distraction and hinderance, has dodged a headbutt Italian debt and electoral crisis, and can start to focus on growth.

Don't be fooled by thinking Draghi's resumed monetary experimentation was the main theme yesterday. Europe's Central Bank announced a 10 basis points cut in rates to -0.50 percent and EUR 20 billion of asset purchases per month until inflation takes hold. Plus they announced a series of measures to help banks including new LTROs (targeted longer-term refinancing operations), and a new scale of penalty rates. On the basis these pretty much continue Draghi's "do-whatever-it-takes" approach, a cynical man might question what difference the ECB expect these measures to make in terms of stimulating economic recovery/growth/reform?

That's not the point. Europe is heading down a new road – the fiscal super-highway. Draghi confirmed it when he called it: "Time for Fiscal Policy to take Charge", challenging governments with "fiscal space to act in an effective and timely manner." It's a perfect set-up for his successor, Christine Lagarde, who has but one role: to ensure the politics of Europe fall in with fiscal stimulus. And just in case anyone thinks a fiscal boost = debt crisis, then the resumed quantitative easing programme should pretty much ensure the ECB has the ammunition to cover any weakness in European sovereign bonds.

Strip it to the core, and you could argue all that's really happening is the ECB printing lots of money for European states to fiscally juice their economies….. As I said.. it is clever!

And it's not just the ECB bending over to loosen the fiscal restraints. It's right across the European leadership – Lagarde is but one aspect. The new EU president, von der Leyen, has made clear she's open and will encourage fiscal spending. It's an Italian who has the job of turning a blind eye to fiscal infringement by member countries. Even the Germans are starting to talk about spending. There might be some noise from offended German financial conservatives, but no one is going to effectively push back on a European fiscal reform.

I am so impressed I've just send copies of my recent book, The Fifth Horseman – How to Destroy the Global Economy, to Brussels and the ECB so they can read up on how QE, austerity, regulation and bureaucracy trashed the global economy! It's never to late to accept you might have been wrong…

Does that mean you should keep buying and buy some more European sovereign debt? Yep. Probably.

Out of time, and doing the day job from my brother-in-law's house in Llanrwst (there is a serious shortage of traditional-looking vowels in Welsh place names…)

Bill Blain

Shard Capital



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