It would be interesting to know what Fed people like Bernanke and Yellen privately think of the ECB. Here’s an interesting story on Draghi (who is actually one of the more competent people over there):
Europe is leading a rout that has wiped more than $5.5 trillion from the value of equities worldwide. While data on everything from industrial production in Germany to manufacturing in the U.K. has contributed to the gloom, sentiment began souring on Oct. 2, when European Central Bank President Mario Draghi stopped short of spelling out how many assets the ECB might buy to head off deflation.
“The shock to markets has been so big in the past days, I have doubt that equities will recover from this very quickly,” Francois Savary, chief investment officer of management firm Reyl & Cie., said in a phone interview from Geneva. “Draghi’s latest communication to the market was a nightmare.”
A few years back I used to occasionally point out how much market wealth could be destroyed by the statement of a Fed official. Of course real economists pay no attention to stock market reactions because everyone (wrongly) knows that stock traders are irrational. I’m tempted to compare central bankers to children playing with matches, except that children rarely do $5.5 trillion in damage.
In one of the most bewildering statements I’ve ever seen Paul Krugman make, he seems to excuse the ECB’s ineptitude:
Europe has surprised many people, myself included, with its resilience. And I do think the Draghi-era ECB has become a major source of strength.
I suppose Krugman’s defenders will insist he meant “strength” being applied in evil ways. If so, I’d have to agree. But most normal people would assume he’s defending the ECB. Unbelievable.
Meanwhile, in the US things are a bit more sane:
Futures pushing higher this morning and stocks around the world stabilizing after a crazy week. Talking-class market watchers are attributing the rally off market lows yesterday to comments St Louis Fed President James Bullard made on Bloomberg TV.
About an hour into the trading day Thursday, with the S&P 500 (^GSPC) at its lows and the smell of fear in the air Bullard took the mic and had his Battle of Agincourt “Once more into the breach…” moment.
“We have to make sure that inflation expectations remain near our target,” said Bullard in reference to the FOMC’s ongoing war against deflation. “And for that reason, I think a reasonable response by the Fed in this situation would be to…. pause the taper at this juncture.”
Just like that feverish selling broke. Bullard’s stirring cry to non-action ringing in their ears, traders began furiously bidding for shares. Yes, a non-voting Fed board member’s oblique reference to the possibility that the Fed may not completely eliminate its now $15 billion monthly QE program this month marked the lows for the correction thus far.
How big was Bullard’s bluster? Based on the World Bank’s estimate of the total market capitalization of US stocks the 2.5% gain in equities just in the States is worth about $420 to $450 billion.
HT: TravisV, J.V. Dubois