The various markets are a bit overbought all taking the QE possibility too seriously. In general when everyone ‘knows’ that something is going to take place either it doesn’t or its effects are nil..In markets, ‘everybody’ is always wrong.
What happens next? Big problems are in real estate with foreclosure mechanisms being the same rickety contraption as was the mortgage- origination mechanism.
The underlying problems in real estate are ‘Too Big, Too Fast’. The business needed more than the ‘plain vanilla’ version of mortgage underwriting that reviewed borrowers ability to pay. The business needed to sell a lot of houses right away … before the no- growth people and ‘radical environmentalists’ could put a stop to it. The business needed the volume and the mortgage underwriting scheme was redesigned to allow the throughput of a lot of loans. Securitization allowed for a lot of loans.
Not too big or too fast and the RE bubble never takes place. No bubble and no ‘wealth effect’ of laundered credit.
Everyone in the markets wants that wealth effect which brings us back to the beginning of ‘everybody’ being wrong.
Meanwhile, watching the crude price carefully. High crude prices coincide with articles about economic distress somewhere. Usually, this is unrelated to oil prices per se, but the timing is always a bit to … coincident.
ECB Sharply Increased Bond Buy Purchases In Previous WeekFRANKFURT (MNI) – The European Central Bank said Monday that it purchased E1.384 billion in government bonds in the week ending Friday, October 1.The central bank thus dramatically ratcheted up its purchases of government securities after having bought E134 million worth of bonds in the previous week.The increase in ECB purchasing came as sovereign debt markets were rocked by turbulence stemming from worries about the cost of Ireland’s bank bailout and the size of its deficit. Spreads on Irish sovereign debt widened last week to record highs before tightening somewhat at the end of the week after the government in Dublin announced a new plan for coping with its seriously troubled banking sector.The concerns carried across borders, as spreads also widened sharply on Portuguese and Spanish debt.On Tuesday, the ECB will reabsorb E63.5 billion in cumulative purchases of government bonds via a quick tender to collect one-week term deposits, the central bank announced Monday.The total is equivalent to the number of bonds purchased through the Securities Market Program and settled as of last Friday, rounded to the nearest half billion.
That’s the difference between ECB and Fed is the former is sterilizing its purchases and not creating new euros. Perhaps this is why the euro is at a 6 month high to the dollar despite the Mediterranean countries falling destitute.
OOPS! The Med countries falling destitute is the REASON the euro is doing so well! Less commerce value means more money value.
It’s an iron law!