The G-20 Shanghai summit was a dud; China’s People’s Congress fizzled (even if it unleashed the biggest iron ore rally in history, however brief); and so – in a month full of expectations for major policy stimulus (which have so far been vastly disappointing), we approach the one event that is most actionable: the ECB’s March 10 meeting and press conference, where expectations are, just like back on December 3, so great – some expect up to a 20 bps rate cut to -0.5%, others expect QE to be increased from €60BN to €70BN per month, yet others believe that Draghi will either extend the TLTRO, expand the pool of eligible collateral or introduce tiering in the negative rates schedule like Japan; Credit Suisse believes the ECB will start buying corporate bonds – that the market’s pent up hope for stimulatory relief can only lead to disappointment, especially after a bear market rally as furious as this.Â
Indeed, some such as SocGen, admit as much: as Michala Marcussen says, “our view remains that monetary policy is near the limits of what it can achieve in isolation; structural reform and fiscal stimulus is required next.”Â
Bloomberg’s Richard Breslow was particularly poetic this morning when he wrote that “meddling with the monetary system had its day. The ECB, and the BOJ, among others, are increasingly looking like one trick ponies. Even if you agree it was a really good trick, at some point it losses all impact on the audience. And that is a real danger as the QE transmission mechanism can’t work if it fails to impress. From Davos to Shanghai we have been treated (tortured) with hearing central bankers talk longingly about fiscal policy. And then go off and ramp up monetary policy. The tact they employ in criticizing their governments is utterly the wrong tack.“
We wholeheartedly agree with this searing observation, because Breslow is 100% correct: even as they blame the fiscal authorities for not doing their job (and the Fed has been particularly vocal in bashing Congress), central bankers do everything in their power to prevent the “risk off” market selloff that could finally force the required fiscal change and awake governments from their stupor. We highlighted this paradox 5 years ago when the Fed was launching QE2 and nothing has changed since even though now both the BIS (whose directors ironically are the same central bankers its economists love to criticize each quarter), and the Davos billionaire set, both agree that central planning has not only gone on for too long, but has lead to unprecedented and adverse consequences.
