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Is Trichet's emergency ECB meeting a bluff?
Darshan Sanghrajka | Feb 9, 10 | 332 Views | Topics: Business
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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8 Comments
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Interesting input from Ashraf Laidi - Chief Market Strategist at CMC Markets - (I have a lot of respect for him - he knows his stuff for sure!). He thinks this is not a bluff and that the strike that is about to break in Greece, would be negative for liquidity - hence the ECB meeting.
I agree there is a reason for it but what I mean is - the timing of it seems contrived. Almost like Trichet is grandstanding via this statement of flying half way across the world -
btw - he tweeted me that response - so am just putting it on here, to give everyone a balanced viewpoint.
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NEW UPDATE:
ECB's spokesman says Trichet changing flightplan from Australia to Europe purely because of logistics
Now do you see why I think this is a game of poker? This sort of confusing controlled output of info - is exactly what you would do in a situation like this. -
NEWS UPDATE:
More news to support my point:
ECB Nowotney on wires. Discusses no bailout clause.
Trichet, ECB...your move made
Greece & Goldmans - your move next
This is getting very interesting! -
NEW UPDATE:
Welcome to the circus. Unconfirmed news out that ECB is willing to help Greece 'in principal' - whatever that means. Portugal's Dos Santos - says he has no idea who said that.
Dow is giving that pattern, that says 'pump it, dump it'. So be careful if you are long here.
This is not only fascinating newsflow - it is comical. Forget the Wall Street casino - Trichet's playing a blinder today. -
Well well well look at my targets above - we got 10149 on the Dow, 1080 on the SPX and 5190 on the FTSE (okay so a few points out) but booom! We hit those and then turned down hard.
Hope you all made some nice money today. -
TIT FOR TAT.
Look do you see how this game is played?
Germany just denied the ECB rumours of a rescue package.
Here is how the tit for tat game works:
Someone at the ECB has obviously used the 'unconfirmed rumours' routine as the first punch. That has killed some shorts. MOVE DONE
Now Greece and Goldmans have to come back with their move - which might be - sell the heck out of the market, to turn that 'unconfirmed' into 'confirmed' by next week. MOVE DONE - the Dow just dropped 100 points from the spike up.
Now ECB - German member, had denied the unconfirmed rumour. So now they're saying - you can sell the crap out of the market but we will not come to the rescue.
Now GS and co have to take this market down to test whether this threat is credible or not.
Beautiful game!
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See you all in the morning. What a day! Hope everyone made some money - the targets were there - the switch was there - you should have made money both ways.
Easy to forget that Trichet is still on a blooming plane during this whole affair! Tomorrow is a new day - let's see what the solution is. I still don't think there will be a solution until next week - this whole thing will be drawn out until there is the best chance to smoke as many Euro and equity bears as possible.
Exciting times.
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