Monday, September 12, 2016

Central Banks: Peaking And Pricking The Bubble

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*There was lots of hope for all that QE.
*But the ECB is not buying what they need. That is causing their economic plans to underperform.
*Japan is also maxed and has peaking hints.
*The US is clearly talking about going the other way and has actually moved to reduce their QE assets.
*This CB created bubble looks like its peaking and could get pricked first by the Fed.




It's been a month since we showed how central bank stimulus was peaking. Central bank stimulus has been a key reason markets (SPYDIAQQQIWM) have held up. As the effects of less and less pumping ability wear off the economies that pumping has supported could begin to sputter. That would leave the world with a lack of ammunition for the next downfall. Risk does appear to be building to an end to the QE (quantitative easing) economic lift. That would be a key risk to markets.
We Take Issue With The ECB Projections
The ECB's goals for returning the economy to steady ground depend on the central bank ("CB") carrying out their plans. If they do not carry out their plans, their projections are not as good, and have downside. In fact, that is exactly what they said last week.
We want to show you now that they are not meeting their projections, and they are talking about downside.
The reason this is a problem is that they purposely had such grand stimulus plans to hit markets with a bang to jump-start the economy. Without that initial bang, the remains are much less impactful. Let's see.
Here's what the ECB said Thursday:
The current projections do reflect the full impact of our March decisions and we will continue with the implementation of the existing programme.
Here we show how their economic projections of course depend on the ECB carrying out their plans.
Meeting their economic projections however require the "full impact" of their March plans. Not having that "full impact" means they likely miss their projections.
What was their "March decision?" They increased their monthly bond buying program from 60B to 80B euros. Remember that was supposed to be monthly.
If you read what they are saying and they said it many times Thursday, their projections are dependent on them carrying out their "full" plans. We will show they are not carrying out their "full" plans.
Read another way if they do not (or really can't) carry out their plans their targets (projections) are fraught with risks.
That's why they said, "Our baseline scenario remains subject to downside risks."
That is clear central bank talk that they see downside (not upside) to their plans. That can not be glossed over.
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