Stocks got a nasty jolt this morning when the ECB took a step into the unknown with a continued push for negative interest rates in the EU. 6 years ago when things needed a jolt I can see the Monetary Priming have a material affect that was so lacking in the 1930’s. Now that we are in round 6 or 7 the diminishing returns are in. Volatility got a massive bid up.
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“Greece’s Creditors Set to Throw Down Gauntlet With Proposal for Bailout Deal” WSJ
So this is the final hour and Greece is going to get a take it or leave deal to stay in the Euro Zone. The months of time wasting and theatrics by the left-wing Syriza party is set to end. If the selloff in bond prices is any indication, the young Greek government will take the deal.
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Stocks made a little run down today on bad UPS earnings and some worries about the weekend vote in Greece. If folks are paying up for SBUX coffee, things cannot be that bad so we will blame the Greeks. Even after the ECB made their made policy announcement the Euro continued to sell off. I guess the question is why would you buy European sovereign debt? Spain yields nothing, you have to pay the Germans and Greece is always on the brink of default. The 10 year Treasury is still looking pretty good even after the dollar rally.
2015 is starting off as the year of many swings. For all the big daily moves in 2015, equities have not really gotten anywhere. The post-FOMC rallies are fueled by the notion of lower rates and we run. Then the sad realization of why we need lower rates hits and we sell off. The only think I can say for this year is that the swings are solid and VIX is off the basement floor.
The current confluence of issues is the Ruble (Poor Vlad!), emerging markets and oil. News in the USA after the Senate passed the spending bill is actually quite good. Good numbers and low oil prices should set a nice stage for 2015 except you would not know it from the drop today.