Faber News Flow

It's finally official. QE Infinity is here,   so announced today by Mario Draghi at his final press conference as the head of the ECB. Not only QE, but also joining Turkey and Denmark as the latest countries to cut rates this year. Just today and many more to come. I've opined on the subject quite a bit on twitter already today, but  what happened today deserves some additional points to be made, mainly because of the intellectual bankruptcy permeating our entire market structure. Let's start with the main point: Sven Henrich ✔ @NorthmanTrader Since nobody will say it I will: Launching QE and cutting rates to further negative 10 years after the financial crisis ended is a giant policy failure. These measures never fulfilled the promises made. The construct is held up by crisis intervention measures. That's it. 655 2:31 PM - Sep 12, 2019 215 people are talking about this It's the point critics of these policies have been predicting for years. Permanent interventi...

With the market worried that Mario Draghi could surprise hawkishly in his parting announcement... ... that is how the market initially  interpreted today's ECB press release , which cut already negative deposit rates for the first time since 2016 to stimulate the sagging European economy, but  by a smaller than expected 10bps to -0.50%  while  restarting QE but by "only" €20 billion, less than the €30 billion baseline. However, there was more than enough offsetting dovish bells and whistles, because while the restarted QE (or the Asset Purchase Program) was smaller than expected,  it will be open-ended,  and the ECB will run it "for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates." Of course, the question here is how long can a safe-asset constrained Europe run an "open-ended" QE, and the answer is it depends on what the issuer limit by nation is, wit...

For a few brief minutes it was all going Draghi's way. Unleashing lower rates and QE4EVA sparked buying of bunds and selling of the Euro - mission accomplished. But then the market decided to steal the jam out of Mario's farewell performance and reverse those moves entirely... The euro is suddenly surging... Source: Bloomberg And 10Y Bund yields are soaring... Source: Bloomberg "...you're gonna need a bigger boat..."

While on the surface today's ECB announcement was underwhelming, with both the size of the rate cut (-0.10%) and the amount of QE (€20BN), coming in well below what was already priced in, the biggest saving grace in Mario Draghi's "swan song" conference was that the newly restarted QE would be, in the words of the ECB, open-ended. Which is great in theory, but a disaster in principal for the bond-constrained Europe.  Sure enough, with one of the most pressing questions at today's ECB press conference being just what the open-ended nature of QE means for the ECB's existing 33% issuer purchase limits, Draghi was laconic: the ECB president admitted there was "no appetite to discuss bond buying limits" instead merely saying that "we have relevant headroom to go on at quite a long time at this rhythm without the need to raise the discussion about limits", which translates roughly as " I am punting this most critical topic to Christine Lagar...