The ECB Goes Full Bananas
Equities start the day higher as the ECB goes full bananas. The long, long awaited announcement of QE from the boys in Europe finally came this morning and Twitter rejoiced. “Here we go baby #stocks” / “Super Mario saves the world #Bowsersucks” / “Bazooka this! #weaponsofmasspurchasing.” Now there’s a million places you can go to read a detailed analysis of what policy is being implemented here, and there are people 32.8x smarter than me that will dissect this thing a million ways and tell you why it’s important to the world. So please, dig thru Google and Bloomberg and the WSJ to find them. But here at Baird evening recap we’re going to sum it up this way: The ECB is gonna buy some things and dump them into their savings account in the hopes that they get a result similar to what happened in the US. Does QE stimulate an economy? Not really, most of the white papers you read on the topic say it doesn’t. So what’s the point then? Why even do this? Honestly, in my humble opinion, I think it’s really just about sentiment. Get people thinking you are doing your best to keep the house from burning down and maybe they’ll go out and buy new furniture and a fish tank. Does Sovereign QE really solve a pressing problem in Europe? Probably not. That being said, the Euro is coming apart at the seams, something has to be done. Structural reforms seem a country mile away so why not try and replicate what Ben and his Motley Crue accomplished across the pond (oh…. yea…. kickstart my economy). Let’s see how US markets reacted shall we?
After the open we actually saw stocks fall along with the Euro. I’ll tell you what, I’m salivating to see my clients in Milan right now: you get a handbag and you get a handbag and YOU GET A HANDBAG. Wait… where was I…oh yea stocks. The S&P sold off for the first 15 minutes of the day in classic “sell the news” fashion but found a bottom around 9:45am and proceeded to churn higher. By the way, if your plan is “buy Europe because QE is good for stocks” then I’d like to remind you that it took what…3 different iterations here in the US to gain significant traction? Yes, buying $SPX in Nov 2008 when Bernanke started shopping would’ve made you look like a genius but you had to endure lots of pain and questions about its efficacy. I wouldn’t expect a rocket ship out of the CAC / DAX / MIB here. Financials led the way because if you’re talking extraordinary monetary policy you’re talking banks. Other winners were AVP +14% (takeout chatter), LUV +8% (airplane fuel is cheaper than artichokes), EBAY +7%(laid off a bunch of people, you know how Wall St loves that), and UNP +4% (earnings). Losers were FFIV -10% (earnings), XLNX -6% (earnings), DFS -5% (earnings), and LE -17% (I guessed they reached it?) *will anyone get that joke without looking up the company. I say no* By lunch we sat on 2,048 up 0.8%.
The final hour saw liftoff as sentiment around the ECB decision turned decidedly positive. When the bell rang we landed on 2,062, up 1.5%, putting us back in green numbers for 2015. So how now brown cow? Whats the play? You know what, here’s the play: it’s a bull market until proven otherwise. Cliché as all heck but what else is there to say. The baton of stimulus just landed in Europe, a bit groggy, but ready to attend client meetings with a smile. You stick with this market, ignoring the random noise, because what’s the alternative. You gonna fade another Central Bank hell-bent on fixing things? Good luck.
Final Score: Dow +1.5%, S&P500 +1.53%, Nasdaq +1.87%, Rus2k +2.06%
News Highlights:
- Succinct Summation of the Day’s Events: Draghi rings the bell on European QE. Round 1, fight.
- Josh on today’s decision: “As for the question of whether or not it will “work”, the answer is that it will not “work” on the economy, although it will probably have an impact on the markets. This would be in-line with the US QE experience and the Japanese QE experience. In reality, only time works on the cycle. But assets can be juiced and bubbled with QE, almost at will. The problem is that the transmission mechanism whereby gains from an asset bubble translate into actual gains for the economy is far from ideal and is barely effective. Consider: The US needed three and a half rounds of QE over the course of 6 years and even now the benefits for the average worker or business are still debatable”
- You know what….those bull markets sure look longer than our current one huh?
- I’ve been wondering for days what consensus is for bond yields. At one point “higher yields” WONT be consensus because everyone will have given up trying to call the top in bonds. Have we reached that yet? According to this no, which bums me out.
- I don’t see what the problem is, these all look safe to me.
- Things Michael should’ve invented #59. And yes, I bought one.
- You want to be bullish? Here, read this link and tell me you aren’t bullish. For just the fourth time in over 50 years, the S&P 500’s dividend yield moved last week above the yield on the benchmark 10-year Treasury note. If history is any guide, this means 2015 could be a very good year for the stock market.
- You think that’s a pool right there? Man I’d swim in it either way.
Remember that ice bucket challenge thing? For tonight final link I’m bringing it back one last time…with a slight twist.
https://www.youtube.com/watch?v=UnGUBi3BFH4
Have a good night.