Last week, the European Central Bank's turn finally came to announce large scale quantitative easing.
As the continent witnesses a battle between deflation and attempts at inflation, will it finally be enough?
Europe is following in the footsteps of the United States, hoping for similar "successful" results.
Instead, it's likely to fall somewhere between the U.S. and Japan.
From the Land of the Rising Sun there is precedent, but it's a forewarning.
ECB QE and EU LTRO for Dummies: As soon as you read this explanation, comprehensible to even the dumbest of the dumb, you'll be set to trade initials.
We made 382% gains trading these initials. And there's more: Once we closed out, we re-entered.. and now we're up 180%.
The European Central Bank (ECB) took a dramatic policy leap Thursday morning...
ECB President Mario Draghi launched a quantitative easing program (QE) that will pump hundreds of billions into Europe's economy.
The Swiss National Bank's three-year old franc-euro peg is no longer.
Yesterday (Thursday), the Swiss National Bank decoupled its fixed 1.2 CHF/€ exchange rate. This was on expectations that the European Central Bank will announce a quantitative easing policy in next week's meeting.
Stock market news today, September 4, 2014: U.S. stock futures were up this morning (Thursday) following a mixed trading session in the stock market Wednesday. Apple Inc. (Nasdaq: AAPL) - which accounts for nearly 9% of the Nasdaq - slumped 4.22% yesterday after a possible breach of its iCloud. As a result, the Nasdaq slipped 0.56% (25.62 points).
Stock market today, August 28, 2014: This morning, the U.S. Commerce Department revised second-quarter GDP upward to 4.2% growth, while jobless claims slipped to 298,000 for last week.
Last week, European Central Bank President Mario Draghi affirmed his commitments to Eurozone QE. Despite the optimism, many analysts remain divided on whether the ECB will act as soon as next week or wait until some point in the fall.
The silver price today moved solidly higher in morning trading following some positive economic data out of China.
July Comex silver traded up $0.392, or 1.26%, at $19.73, after the preliminary HSBC China manufacturing purchasing managers index (PMI) for May came in at 49.7. That was up from 48.1 in April, and was the best reading in five months.
The European Central Bank left interest rates unchanged despite slightly lowering its outlook for the ailing Eurozone economy for the remainder of 2013. But, it sees a gradual recovery in 2014.
The ECB forecasts Eurozone GDP will contract by 0.6% this year, down from its March projection of 0.5%. However, it modified its 2014 estimates, predicting a return to growth at a rate of 1.1%.
"Euro-area economic activity should stabilize and recover on the course of the year albeit at a subdued pace," ECB President Mario Draghi said at a news conference.
The region has been stuck in recessionary mode for six consecutive quarters. But Draghi cited improving economic data in May as reasons for not taking immediate action.
"But we stand ready to act, and we will continue to monitor closely all incoming data," Draghi said at a news conference. He added the ECB would remain "accommodative" for as long as necessary.
Draghi also staunchly defended the ECB's actions, saying the bank's outright monetary transactions launched last year were "probably the most successfully monetary policy measure undertaken in recent times."
Draghi said the policy had no negative affect on markets.
"The ECB hasn't done anything to increase volatility in the markets," Draghi said. "If you think the ECB has done anything comparable to other central banks, we wouldn't agree."
After today's ECB briefing, the Stoxx Europe 600 Index fell 0.4% to 294.04, setting it on pace to close at the lowest level since late April. Banks suffered some of the steepest losses.
European bond yields plunged the most in three months, with Portugal taking the worst hit.
Markets rallied around the globe, especially European markets and U.S. markets.
But did you get what really happened?
I know you saw the rally, and I'm sure it lifted your spirits. It lifted mine for about a day - that is, until I lifted up the ECB's skirt to see if their provocative language would leave Europe's knickers in a twist or not.
If you're not the kind of person to look at such intimate things too closely, don't worry. I love all that stuff and am driven to know how all the bits and pieces come together or apart. So, I'll tell you what I saw up there.
Europe's knickers certainly are twisted. So much so that if an ill wind blows, everyone is going to see the naked truth.
Let me show you what I mean...
After the Fed said that the economy has slowed and unemployment remains elevated, but then took no action, investors turned to ECB President Mario Draghi to rescue the euro.
Yet, many economists think the Eurozone cannot be saved.
The Eurozone debt crisis has reached a point where further bailouts will only highlight their inadequacy to solve the problem. But, the countries involved in the crisis have come to the point where they expect further stimulus and will panic if none is given.
We have already seen riots in Spain where the unemployment rate is a Eurozone high of 24.8%, and it's not the only country facing serious unemployment issues. Behind Spain's depressingly high rate is Greece at 22.6%, Portugal at 15.4%, Ireland at 14.8% and France and Italy both with a 10.2% unemployment rate.
The unemployment rate for the Eurozone reached an all-time high of 11.2% in June. The latest numbers show unemployment increased by 123,000 to a total of 17.8 million. That is 40% higher than the 12.7 million unemployed in the U.S. as of the June jobs report.
The youth unemployment rate in Spain and Greece has topped 50% and this adds even more pressure for ECB president Mario Draghi to back up his emphatic statement that "the ECB is ready to do what it takes to preserve the euro. And believe me, it will be enough."
Unfortunately it will not be enough and if anything it will just make matters worse when Greece eventually exits the euro and it begins to collapse.
Asked John: "What's happening to gold prices? Why are they dropping?"
For an answer, I speed-dialed Real Asset Returns Editor Peter Krauth - our resident expert on mining and precious metals.
Peter is based in Canada, which keeps him close to the natural-resource companies that proliferate north of the border. He gave me a detailed and insightful answer to John M.'s question.
And he recommended three ways to profit - including an ETF he says is perfect for first-time gold investors.
To explain what's happened with the "yellow metal" - and to project where gold prices will go next - Peter invented a pricing theory that he christened the "Golden Staircase."
"The bottom line, Bill, is that the price of gold has simply entered a consolidation phase - much like it has done numerous times since it entered this secular bull market back in 2001," he told me.
Gold futures were at $1,662.40 an ounce yesterday - well off the yellow metal's high. Here's why.
"If you think back, when gold hit its all-time high of $1,900 last August, we were in the midst of wild speculation that the U.S. government wouldn't resolve its debt-ceiling crisis," Peter explained. "A deal in Congress was reached in time, but Standard & Poor's went on to downgrade the nation's credit rating for the first time in history. Since then, there's been considerable apathy towards gold by the general investing public, pushing its price down about 13%. What's more, government-calculated inflation looks benign, taking away from gold's luster."
And here's where it gets interesting.
This happened while the European Central Bank (ECB) offered its second tranche of three-year Long Term Recapitalization Operations (LTRO).
The sell-off in gold on Wednesday is a related sign that liquidity is currently in demand.
But you only have to look at gold's big move up since the start of 2012 to know this stage of the move was unsustainable short-term.
It's why investors shouldn't be surprised by the pullback, and should use this latest move down to increase their long-term exposure to gold.
This dip is a buying event and nothing more.
The pullback in the price of gold also hit equities along with bonds and some other commodities.
Even so, it appears that the ECB has provided enough liquidity to fight off the near-term fears.
Once these funds begin to work their way through the system, I believe they will be bullish for commodity prices.
Over time, banks will eventually put that capital to work, with an eye toward generating a positive rate of return on it. One of those avenues will undoubtedly be gold.
Here's why, along with a bit of background.
Even with the European Central Bank's (ECB) recent Long Term Refinancing Operation (LTRO), Greece is still making all the headlines.
As of late last week, a possible new deal has been made in Greece. However, the finance ministers that are responsible for the deal are not sure it will be enough to release the second bailout of Greece.
The ECB has been demanding that debt it bought at a discount be honored at full par value. It is now reported that the ECB will sell these debts at cost, and allow the debt to be retired.
This is a huge first step in the process of getting Greek debt levels low enough to be sustainable.
Yet, we are still well into the second year of this crisis and the market is growing tired of endless European emergency meetings.
It reminds me of the period around January 2009.
The reality is Europe needs to go through a hard, brutal adjustment period, where the weak states that cannot handle being in the European Union (EU) leave.
While a New Greek deal has been announced, few people believe it will be the last deal, or the best deal. That is, if it is even ratified in the end.
"It's up to the Greek government to provide concrete actions through legislation and other actions to convince its European partners that a second program can be made to work," EU Economic and Monetary Affairs Commissioner Olli Rehn said.
The rolling bailout process appears to be set up to happen this spring, as the ECB pumps fresh liquidity into its banks for unlimited dollar amounts. The drain on the balance sheets of Euro banks appears to be ending.
The ironic angle few people are tracking is that U.S. banks have been helping to drive Europe's big banks into this crisis.
Setting the Stage for the Second LTROLet me explain.
U.S. banks have loaned money to European banks via our money market accounts for periods between seven and 270 days on average.
So when you left cash in your money market account, a significant portion of that cash was actually being invested in unsecured loans to European banks in a search for higher yield.
These funds were typically rolled over at the current market rates, allowing Euro banks access to shorter-term liquidity. However, that began to change in July 2011 when U.S. banks started shortening the terms of the funds or flat out began to repatriate them.
This shift by American banks caused European banks to lose access to what they were using for near-term liquidity. European banks were using short-term loans to make longer-term loans to their clients.
The process of paying back their short-term funding, while still holding onto longer term loans has stretched their balance sheets even more.
This reversal of funding caused an expansion of the leverage at the banks, as they have loans outstanding but have to pay back the source of them.
As result of this liquidity crunch, the ECB rolled out a program to allow banks to recapitalize themselves.
It's called the LTRO (Long-Term Refinancing Operation).