When the big moment came, Mario delivered.
On Thursday, Mario Draghi, the European Central Bank (ECB) president, announced a massive money-printing (or QE) programme to the relief of bond speculators, gamblers and not a few government ministers.
Draghi is going to print new euros and use them to buy government bonds. That drives the price of the bonds up and makes speculators, and government officials, very happy indeed. Speculators get a quick profit and governments get to borrow money on the cheap.
For Draghi, getting conservative Germans at the European Central Bank to go along with this money-printing programme wasn’t easy. The Germans hate money printing and for years, they’ve been able to block it from happening. But Mario got his way in the end – it would seem that the old smoothie has a sterling silver tongue.
There’s just one problem with this – money printing doesn’t work! No amount of money printing can fix the problems with eurozone economies. Newly printed money won’t end up in the pockets of ordinary citizens. It’ll be tucked away by hedge funds/banks with no productive home to go to.
Today, I’m going to take a break from the charts. I’ve seen too much claptrap in the media about how money printing is going to fix the world’s problems. Today, I want to set the record straight!
Mario Draghi is dead wrong
What makes me so sure that Draghi’s wrong?
Well, there are only a few examples of money printing in modern times. Japan is one of them. In the 1990s, Japan tried its hardest to print its way out of a depression.
But the results couldn’t be clearer – the plan failed totally. Japan is a telling example of how gargantuan money printing and rock bottom interest simply don’t work. Japan’s economy is no bigger than it was 20 years ago.
The real reason the European economy is weak is because social mood is negative. What does that mean? Well, when consumers are feeling perky and confident, they buy more stuff – and vice versa. Since modern economies are made up mostly of consumption, people buying less stuff leads to a weak economy overall. And no amount of money printing can change the ‘social mood’.
Money printing is nothing more than a snake oil remedy. If it did actually work, governments all over the world since time immemorial would have discovered it was the magic solution to wealth creation.
And if money printing worked, trading the markets would be easy. There would be no business cycles, and share prices would rise smoothly. But as a seasoned trader, I know nothing in the market comes easily.
Forget about QE – stocks will be crushed
Everyone expects money printing to boost share prices. In the media, it’s the accepted wisdom. But I totally disagree. Markets have ‘priced in’ all the good news, and are poised to decline very hard. Over time, this money-printing programme will be seen as the last desperate act of an impotent central bank.
Everyone is certain that the stock market is going to keep rising. In a survey of money managers I read recently, not one of them forecast a down year for the S&P in 2015. How’s that for group-think? I will take the other side of that bet, thank you very much!
US stocks are especially vulnerable. The strong dollar will hurt American exporters and in some sectors, like technology, stocks are ludicrously overpriced. Not to mention the fact that a record number of traders are borrowing to buy stocks – not a good sign. The scene is set for an almighty collapse in shares. The oil market is showing the way.
The only way is down.