So Mario Draghi — formerly of Goldman Sachs — and the European Central Bank Thursday told the markets that further heroin in the form of EQE (European Quantitative Easing) could be delivered in December.
And just this morning China cut its lending rate by 0.25% on slower growth.
These two events sent global stock indices soaring as the Dow Jones index rose 320 points on Thursday and bourses across Asia also went higher Friday in reaction to the announcement. US futures are rocketing 200 points higher on the China news.
Now never let the real story get in the way of a further injection of a trillion euro into the banking system.
You see China’s economy is almost stalled despite the bogus numbers slowing Europe’s in a recession, Deutsche Bank — the largest European bank — is teetering on the brink of insolvency. That’s the main reason for the further easing.
The German bank took a 8 billion euro write down for the quarter, is slashing both headcount and compensation and just named its third CEO in as many years.
So the ECB promise of considering EQE keeps the balls in the air a bit longer, but in no way should be seen as a good thing as I wrote yesterday, unless you are in the market and will sell on any upside movement.
Easing is the opposite of raising rates or tightening money supply. Tightening the money supply implies that the economy is growing and that inflation is a concern. We have not had that situation for over a decade.
China’s rate cut is an attempt to weaken the yuan to strengthen its cratering export levels.
Seven years into this and the central banks are still propping up the banking system with rate cuts and fresh injections of capital that will never get to our pockets is a disaster.
But since stocks rise, people believe it’s a good thing.
Welcome to Wonderland.