Darshan's Blog

Darshan's Daily Market Ponderings

Is Trichet's emergency ECB meeting a bluff?

Tuesday February 9th, 2010

What are they plotting? According to Australian news, the head of the ECB, Jean-Claude Trichet abruptly left a meeting with other central bankers in Sydney yesterday, to take care of business at an unscheduled ECB crisis meeting (yes half way across the world). You can guess that they will be talking about the sovereign debt issues of Portugal, Italy, Greece and Spain but mainly Greece. You ou have to laugh at how contrived this 'news flow' is. As if he just thought 'You know what, I'll go to Sydney and then half way through the day, I'll remember about the debt issues and fly back for a council meeting!'. Really who are they trying to kid?

Apart from being jet-lagged for the next few days, surely if it is was really urgent then a video-conference would have been more appropriate to hash out the key issues first. Yesterday I thought the world had lost the plot, well today it thinks we are all stupid.

Remember, this is the first unscheduled ECB meeting since 2001. In other words, this is nothing more than a message to the world to say 'We're on the case' but in actuality, Trichet knows that he's fighting an uphill battle. It's just Germany and France holding this whole mess together now. It's Trichet calling Goldman's bluff (yes they're involved on the CDS side of this mess surprise surprise they are able to determine the level of collateral margin that is required by Greece's counterparties).

Sorry as you can see my patience for these games are wearing thin. Also my patience for the way the financial media works is being tested even more. Yesterday I talked about Jon Thain being appointed as CEO and Chairman of CIT - well I asked Tim Weber, the business editor for the BBC - if they were going to even bring up this ridiculous development. At about 5pm (UK), they printed an article. They might as well have not bothered. Here is how the conversation went :

@tim_weber You guys doing anything on Jon Thain being appointed CEO and Chairman of CIT? That's huge - deserves an expose

tim_weber @chiefchimpanzee Yup, we did the story ...http://bit.ly/aXybtj - albeit a bit late in the day

@tim_weber That's it then? One of the biggest mistakes on Wall Street & he gets a late article? Where is the investigative journalism????

I have had no reply yet. I am sure he hates me for always pestering him with requests for some quality journalism. They have the resources - use it! The only way that the banks can be forced to function within boundaries, is if the media takes the fight to them. Not just when it suits them to sell stories but when it makes sense to expose the madness. The public needs to know.

Anyway, talking about the public. Back to Greece. Now things just do not add up here. Over the last few weeks (Remember, I told you last summer that I have a EUR/USD of 1.20 at least by the end of 2010) there have been record amount of shorts on the pair. 40,000 short contracts to be precise. It's almost like it makes sense for those shorts to ramp up the paranoia to profit from their positions. Like I keep saying, this sovereign debt issue is not news. It didn't just appear out of thin air. It's just convenient to bring it up now.

It is clear, that the ECB is waiting to intervene with a solution but only when the Euro is close to a credible support level. That could be another couple of hundred pips away yet. It wants to do this in the most efficient way. So we will probably get more faffing about. It's fighting a massive uphill battle here, so releasing a statement near support is the wisest move. It's obvious Trichet is playing for this. This would fry the shorters and cause the Euro to explode via short-covering. Otherwise it's wasting ammo.

At the moment, the market has taken this 'development' as a positive note and is rising. In particular the Euro is getting a bid out of it. However, could it all be the usual buying of news, selling of the fact, issue? I think it's looking that way. So the note from yesterday still stands. We rally up to about 10150 on the Dow, 1080 on the SPX and 5175 on the FTSE 100. Then we drop to the lower levels mentioned towards 9700 on the Dow, 1030 on the SPX and 4950 on the FTSE.

It's a total joke out there right now they are all just waiting for the right moment to kill the shorts. It's just not there yet. Keep your position sizes small it's dangerous to be in a heavy trade at the moment. If you're in profit, trail your stops.

If you have any questions then do shout.

Happy trading.

Darshan

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