With the ECB meeting today, the BoE tomorrow and the Bernanke testimony on the US economy Thurs as well, markets again look to central bankers like dogs to pieces of meat. Will the dog get the meat and will it taste as good? That this seemingly endless discussion of what central bankers will now do is clear evidence that most everything they’ve done prior hasn’t worked (for reasons clear to everyone except central bankers). Instead of self analysis though, we’ll likely get more of the same. As I’ve mentioned before, the policy action comes down to inflate (long term pain) vs debt restructuring/writedown (short term pain). This bailout process for economies as a whole also is the issue for troubled banks. Continue to bail them out with taxpayer money or finally have unsecured bond holders take losses? Europe may finally be researching the latter as the EU financial services head said “banks should pay for banks, we are going to break the link between banking crisis and public budgets.” Bank bondholders now finally need to be careful. In the US, the MBA said refi’s rose 2% as mortgage rates moved to new lows at 3.87% but purchases are not responding as they fell 1.8%, down for a 4th straight week.
II: Bulls 34. 39.3 Bears 26.6 v 24.5
With the ECB mandate solely inflation, Draghi started his press conference saying while inflation in 2012 will remain above 2%, their target rate, “inflation expectations are firmly anchored.” On the economic outlook, it’s “subject to increased downside risks.” He said the ECB will “monitor developments closely” and is “able to act in firm and timely manner.” He also said the 3 month term LTRO will continue for the rest of 2012. Bottom line, Draghi didn’t bring the meat the market dogs were hoping for as he seems to be standing pat for now, likely waiting for more stress to envelope before announcing something new of substance.