EconMatters (2014) “European Bond Market: Bubble of all Bubbles!“, Global Market Economics Matters, 27 August.
European Bond Rush
Right now investors in European Bonds are running over each other all in an effort to front run what the Big Banks have been begging the ECB to begin a bond buying program similar to the United States’ QE bond buying program.
Tourism has its Limitations
It is hilarious as European yields are already ridiculously low right now, how much lower do they think these yields can go, and if they could go measurably lower what difference would it make, obviously low yields and borrowing costs aren`t what troubles Europe right now. It is the fact that these countries have one business advantage on a global basis, tourism and that is it. These countries that make up the European Union are basically socialist stores of historical wealth, outside of Germany, they just aren`t competitive on many fronts compared with the United States, South Korea and China.
Big Banks Begging for more Central Bank Handouts!
But let’s be honest the ECB doesn`t need to buy any bonds, the banks are just begging for more handouts of cheap money, and more government programs that they can take advantage of like the primary dealers did with the Federal Reserve`s QE stimulus program. It is all about ‘gaming’ the system, especially when it is too hard to actually do some research – figure out markets, and strategically differentiate between good and bad stocks, asset classes, and investment themes. Just beg the Central Banks for more “stimulus” that they can front run, or game the financial system for risk free returns that takes no real market skill whatsoever.
Big Banks Should Be Begging for Structural Reforms by Governments!
The big banks should be putting pressure on the governments to overhaul their noncompetitive business practices in these European Countries, they should be begging for structural reforms in these countries. However that would be much too hard, when these banks can just beg the ECB for more cheap stimulus programs, like that is going to help any more than the 15 basis point current borrowing costs in Europe!
Mario Draghi even alluded to this in his Jackson Hole speech last week, that he can only do so much for what ails Europe, and the real solution for European growth must come in the form of structural reforms, and making these countries more competitive like South Korea, China and the United States on a global competiveness scale; shoot even Mexico is starting to get their act together compared to Europe.
Relevant posts:
- Gennaioli, Ν., Martin, Α. & Rossi, S. (2014) “Banks, Government Bonds, and Default: What do the Data Say?“, IMF Working Paper No. 14/120, 08 July.
- De Grauwe, P. & Ji, Y. (2014) “Disappearing government bond spreads in the eurozone – Back to normal?“, Economic Policy, CEPS Working Documents, 14 May.
- Frankel, J. (2014) “The ECB Should Do QE, Mario? Buy US Bonds, Not Eurobonds“, Opinion Article, VoxEU Organisation, 24 March.