The head of the European Central Bank(ECB), Mario Draghi, has been doing a lot of jawboning about how he's going to bring a US style QE program to the EU.
In fact, he's been saying it for years, problem is, nothing has happened.
This is because Draghi doesn't have support of the richest nations in the EU, the northern countries that pay the bills.
Nonetheless, QE addicted investors have driven up asset prices and driven down lending rates to some of the least credit worthy nations in the world.
Right now, Spain pays less to borrow than the UK does.
Spain is an economic basket case, and the UK is far stronger by comparison, thus is the state we find ourselves in, thanks to the misallocation of capital caused by free money schemes.
And after years of promises, it's finally time to pay up for the EU.
Problem is, the expectations are so high due to Draghi's constant overpromising, whatever QE that emerges, if it even does, is bound to disappoint.
In fact, Scott Thiel, money manager at Blackrock, who has been recruited to help the EU design its QE program, said back in November that any investors loading up on Spanish and Greek debt is making a big mistake.
This flies in the face of what every mainstream media outlet is saying, that we can expect a massive QE program that will save the day.
Who do you want to believe? A man who's actually working on the program, and manages 100 billion in assets, or a sensational media outlet's speculation? Not only this, but Germany has explicitly stated that the program will not be designed to share risk, meaning each country is on their own for what they receive, and is responsible for spending it wisely.
This alone should send shudders up the backs of those speculating on an unbridled program which nobody oversees, and is designed to spew money into the markets without a care.
In fact, we are seeing the potential for an enormous crash that will cost these speculators so much money that many of them will go bankrupt.
The matter will only be made worse when even those who survive discover the risk they have undertaken by loaning money to bankrupt countries at the lowest rates in history.
We may have seen a foreshadowing of this when Bill Gross, head of Pimco, the largest bond fund in the world, suddenly left the company late last year.
It turns out that Pimco is heavily weighted in Italian debt at very low rates.
If this QE program disappoints, Pimco will lose hundreds of billions of their investor's cash.
On the contrary, Blackrock, the largest asset manager in the world, and home of Scott Thiel, the man working with the ECB on its QE program, has divested itself of European debt.
Pimco is currently desperate for yield and acting in desperation, while Blackrock is acting with insider knowledge of the circumstances unfolding.
This is an ominous sign for the thousands of hedge funds and money managers who are knee-deep in European debt.
If only they'd done their homework, instead of rushing in, assuming Draghi was able to fulfill his promises.
They would know that Draghi only has so much influence, which is why the European QE hasn't happened, years later.
Germany and its allies have stalled it out, over and over again.
Why? Because they don't want it, that's why.
And if you know any Germans, you'll know they aren't known for their flexibility, or for rolling over when pushed around.
Draghi would do well to study German history and German culture, because he's doing exactly what you should never do to Germans, try to push them around.
Germany may begrudgingly let QE occur, but they'll keep a reign on it, and they'll be looking for every opportunity to regain their foothold, starting with the Spanish election.
Should the anti-austerity party win, you can bet Merkel will view this as an opportunity to show her electorate a strong hand, after conceding to a very unpopular QE program with the Germans.
For these reasons, this QE is fraught with danger, and has traps everywhere.
It will be nothing like the US one, where the market began at a very low point and was stimulated relentlessly by endless QE.
The European market is at all time highs, and this QE is already priced into all asset prices, there's hardly any room to go up, and lots of room to fall.
In fact, he's been saying it for years, problem is, nothing has happened.
This is because Draghi doesn't have support of the richest nations in the EU, the northern countries that pay the bills.
Nonetheless, QE addicted investors have driven up asset prices and driven down lending rates to some of the least credit worthy nations in the world.
Right now, Spain pays less to borrow than the UK does.
Spain is an economic basket case, and the UK is far stronger by comparison, thus is the state we find ourselves in, thanks to the misallocation of capital caused by free money schemes.
And after years of promises, it's finally time to pay up for the EU.
Problem is, the expectations are so high due to Draghi's constant overpromising, whatever QE that emerges, if it even does, is bound to disappoint.
In fact, Scott Thiel, money manager at Blackrock, who has been recruited to help the EU design its QE program, said back in November that any investors loading up on Spanish and Greek debt is making a big mistake.
This flies in the face of what every mainstream media outlet is saying, that we can expect a massive QE program that will save the day.
Who do you want to believe? A man who's actually working on the program, and manages 100 billion in assets, or a sensational media outlet's speculation? Not only this, but Germany has explicitly stated that the program will not be designed to share risk, meaning each country is on their own for what they receive, and is responsible for spending it wisely.
This alone should send shudders up the backs of those speculating on an unbridled program which nobody oversees, and is designed to spew money into the markets without a care.
In fact, we are seeing the potential for an enormous crash that will cost these speculators so much money that many of them will go bankrupt.
The matter will only be made worse when even those who survive discover the risk they have undertaken by loaning money to bankrupt countries at the lowest rates in history.
We may have seen a foreshadowing of this when Bill Gross, head of Pimco, the largest bond fund in the world, suddenly left the company late last year.
It turns out that Pimco is heavily weighted in Italian debt at very low rates.
If this QE program disappoints, Pimco will lose hundreds of billions of their investor's cash.
On the contrary, Blackrock, the largest asset manager in the world, and home of Scott Thiel, the man working with the ECB on its QE program, has divested itself of European debt.
Pimco is currently desperate for yield and acting in desperation, while Blackrock is acting with insider knowledge of the circumstances unfolding.
This is an ominous sign for the thousands of hedge funds and money managers who are knee-deep in European debt.
If only they'd done their homework, instead of rushing in, assuming Draghi was able to fulfill his promises.
They would know that Draghi only has so much influence, which is why the European QE hasn't happened, years later.
Germany and its allies have stalled it out, over and over again.
Why? Because they don't want it, that's why.
And if you know any Germans, you'll know they aren't known for their flexibility, or for rolling over when pushed around.
Draghi would do well to study German history and German culture, because he's doing exactly what you should never do to Germans, try to push them around.
Germany may begrudgingly let QE occur, but they'll keep a reign on it, and they'll be looking for every opportunity to regain their foothold, starting with the Spanish election.
Should the anti-austerity party win, you can bet Merkel will view this as an opportunity to show her electorate a strong hand, after conceding to a very unpopular QE program with the Germans.
For these reasons, this QE is fraught with danger, and has traps everywhere.
It will be nothing like the US one, where the market began at a very low point and was stimulated relentlessly by endless QE.
The European market is at all time highs, and this QE is already priced into all asset prices, there's hardly any room to go up, and lots of room to fall.
Source...