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QE is here to stay. . .
. . . said Mario Draghi, ECB president, in a speech to Wall Street investors in New York Friday.
Only the day before, the ECB had announced its QE plans for the Eurozone, which investors immediately deemed insufficient and stocks declined.
Rushing to defend his plan for further money creation and asset buying, Draghi made some really strong statements that indicate just what a strong grip Keynesian thinking has on the establishment.
” no particular limit to how we can deploy any of our tools,” which may mean that the ECB will print euros to buy private issues, stocks as well as bonds.
“no specific limit” as to the how large the ECB balance sheet can grow, which many analysts believe could become bigger than the Fed’s $4.5 trillion.
To emphasize his commitment to QE, Draghi said the ECB has “the power to act, the determination to act and the commitment to act.” Basically, he said, “Make no mistake. We will print all the euros we deem necessary to stimulate economic activity.”
Meanwhile, Wednesday, Fed Chair Janet Yellen, testifying before a House/Senate joint economic committee, strongly indicated that a rate hike is likely in December. Stocks collapsed the following day, with the Dow Industrials registering one of its biggest losses of the year, down 252 points.
However, the next day, which was Friday, the Industrials rallied 370 points. For the week, though, the Industrials were down slightly.
I somewhat dismiss Friday stock rallies because that is the day the Plunge Protection Team is notorious for making purchases to “paint the board” going into the weekend.
Often (nearly always?) overlooked is action in the Dow Transportation average, which fell 144 points on Thursday but rallied only 69 points Friday. To be remembered is that transportation companies carry and bring to the market the goods manufactured in the US.
It has been a year since the Trannies last registered a new high (now off 1,300 points from last December’s high of 9,257. Further, the Industrials are 500 points below their May high of 18,381. It appears that stock investors are not buying into the Fed’s plan for raising interest rates.
If the Fed does hike rates at this month’s meeting, stocks could decline in a big way, which would be positive for gold and for silver as investors look for alternative investments.
Source: http://www.cmi-gold-silver.com/blog/ecb-qe-european-central-bank-quantitative-easing/
