ECB Rate Cut: Charging Banks To Hold Cash

As we manage the breakout in the Semiconductors, the recovery in the fallen momentum items and a general return to a market melt up scenario, let’s again thank policy making for the global – not just US – stock market party. The ECB cuts rates; click graphic for full MarketWatch story…

“The European Central Bank reduced interest rates Thursday and installed a negative rate on bank deposits for the first time in its history, as officials scramble to keep ultralow inflation from gaining traction and derailing the euro zone’s fragile recovery.”

“Ultra low inflation”?  Should that not be something desirable?  Well, as in the US, not in the Age of Inflation on Demand.  These creeps have got market participants so brainwashed as to believe that there is such a thing as low inflation (read: deflationary pressure) being bad.  It is only bad because decades of levering up inflation have made it bad.

The issue is that it is a system that lives on inflation and when asset markets go, the whole thing goes because it is so intimately tied to policy, debt and the distortions that keep growing.  Here is what the Spanish 10 year bond thinks about the action…

Source: Bloomberg

Mmmmm, got to get me some of that PIIG(S)!

Spanish 10 year yield from Bloomberg

European policy is not only punishing saving, but much like the effect on junk bonds in the US, is also aggressively encouraging speculation in the lowest quality areas and a chase for (rapidly diminishing) yield.

Back at home, we again marvel at a chart I  keep front and center as we go forth into speculation.  It provides stunning perspective on the bullish proceedings.

So again I ask you not to fight what is, which is bullish, but please spare me the ‘Bernanke saved the system’ crap.  I intend to do what ever the market instructs and make hay here if and as applicable.  But when speculation ends, it is going to be a hard landing and the US Fed, the ECB and a host of others are going to be looked back upon one day as having enticed a world full of naive players back into the risk pool.

See all those ads on TV lately?  The ones with various pre-retirement couples?… “We felt better holding onto our money… ”  “Hmmm, we shouldn’t wait anymore…”  “I mean, we need to invest again…”  “We just need to find the right thing to do…”

Don’t worry folks, John Hancock’s got the solutions.

These commercials started coming out 4-5 years into a bull market.  These are the people who would drive the manic blow off if that is what is in store.  Yes, Bernanke is a hero.  Draghi is a hero.  They’re all heroes, the whole lot of ‘em.