Super Mario Delivers . . . And Then He Doesn?t
Well that went over like a lead balloon!
European Central Bank (ECB) president Mario Draghi bet the ranch that an aggressive round of quantitative easing would crash the Euro (FXE), (EUO) against the dollar and rescue the continental economy.
He certainly didn?t pull any punches. We didn?t just get one bazooka, we got three.
In a press conference that had the world waiting on pins and needles, the wily Italian announced that deposit interest rates would get cut from negative 0.3% to negative 0.4%. Nope, that?s not a typo.
Central bank bond buying will be ratcheted up from ?60 to ?80 billion a month. Furthermore, the planned life of European QE was extended to April 2017.
And what did the beleaguered continental currency do? After gapping down to the bottom of a multi month trading range, it carried out its large move UP in history, with the (FXE) soaring from $106.10 to $109.70.
Go figure.
Mario Draghi must be tearing his hair out. All of his efforts towards monetary control had the exact opposite of the desired effect.
My European summer vacation just got more expensive.
Some forex participants pointed to Draghi?s ill-advised statement that ?We don?t anticipate it will be necessary to further reduce rates.?
Thanks to my three years of Italian, I can tell you what he really said. ?This is all you?re getting baby. You ain?t getting any more stinking QE.?
A slap across the face with a wet kipper would have been more welcome. So was the crash of the Hindenburg. Thank goodness I only trade foreign exchange part time for laughs.
The stock market didn?t have to be told twice what to do. With volatility that is now becoming all too familiar, it performed a perfect $309 Dow point swan dive.
Of course, I saw all this coming a mile off (I didn?t really), going into the announcement with a quadruple short position in stocks with the S&P 500 (SPY) and the Russell 2000 (IWM).
I though Mr. Mario would disappoint with no new QE whatsoever, thus crashing the markets.
Hey, I?ll take a (SPY) $3.69 move in my favor anyway I can get it. Certainly my many new followers appreciate it.
I stopped at the bank this afternoon to get some cash. The branch manager knew I was an international financial wizard in addition to being the most interesting man in the world, so she asked me how negative interest rates work.
I explained that if you deposit $1 million with a bank at a negative 0.4% interest rate, a year later your deposit would be worth only $996,000.
?Really?? she asked.
?Really,? I answered.
I think the message here is that our lives as traders are going to continue dull, mean, and brutish for the foreseeable future, at least until the second half of the year.
The only way to make money is to trade devoid of the thought process.
If its up, sell it. If it?s down, buy it. Over think things, and you will find yourself in a world of sushi.
