Steen's Macro Brief: The week that defines all weeks to come

Well, this week-end we had another exercise of extend-and-pretend with absolutely no new solutions on the table:

 

-          Germany rejects using ECB to life EFSF:  Germany rejects using ECB to life EFSF

-          Greece holds emergency meeting and the rhetoric gets tougher: Greece

-          Obama to propose “Buffet tax” : Buffet tax

 

And a little known fact: The 22. September is the day recognized by the legendary trader W.D. Gann as the most likely to reverse than any other day of the year. Today is the 19^th J  (Click on 22 September for link to article)

 

Later today I will most likely initiate a net short from net long in the Strategy Advice – the point of no return is here – Greece will escalate still with the a last minute rescue the most likely, but between now and the installment paid out in October we have major risk.

 

Looking forward to the FOMC Tuesday and Wednesday one needs to realize that there is big expectations – looking at a chart it is clear that the ‘expected’ new measures has had an impact:

 

          Source: Seekingalpha by Eric Parnell

 

The expected announcement will include: Operation Twist, something we have talked about since May, where you extend the maturity of FOMC holdings by selling more in the short-end and buying more in the long-end – The most likely sector (buying) being 10-30 years. This is a monetary experiment repeated from the 1960s where it by the way led to the “great inflation” of the 1970s – but Bernanke has already said in early academic papers that the reason for it failing last time was: too small in size and with no pre-announced target for interest rates. The usual approach from Fed and the Americans – if it does not work, it’s because it’s not big enough! J

 

The market is prone to underestimate the willingness of the Euro-zone to make things work – this week will tell if FOMC comes to rescue or we start the hard part of Crisis 2.0 – the deconstruction of capital needed to create the political will to do proper economic- and political changes.

 

Safe travels,

 

Steen

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Economist

 

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