Risky Bailouts and Printed Money. Risk goes on, the risk goes off, the risk goes on and you shake it all about.
After another week of market turmoil, it appears the ECB has and will come to the rescue of Greece and other debt ridden ECB nations. And what better way to save the economy than to just print more Euros. The risk trade has come back after traders last week ran for cover as the uncertainty about the bailout plan kept traders on edge. Now it appears the ECB and global central banks will stop at nothing and break all the rules to make sure that this artificial recovery being created with artificial money continues artificially. The ECB has come out with a 750 billion Euro rescue plan and at the same time they are doing what they said they would not do and that is buying government and corporate bonds. Bloomberg News reports the, European Central Bank said it will buy government and private bonds as part of an historic bid to stave off a sovereign-debt crisis that threatens to destroy the euro. The ECB wants, to address severe tensions in certain market segments which are hampering the monetary policy transmission mechanism and thereby the effective conduct of monetary policy. This is a major about face as just four days ago ECB President Jean-Claude Trichet said bond purchases hadn't been discussed. Not only that, this purchase of bonds goes against the Maastricht Treaty, the treaty that led to the creation of the Euro currency.
Now with the ECB moving to printing money to buy debt, it appears that commodities once again are getting a green buy light. Could the new thinking be, Why not take some risk and buy commodities and who knows, if you lose enough even you might get a bailout if your very own! Bloomberg News says that the ECB is, resorting to what some economists have called the nuclear option, opening up the charge that the ECB is undermining its independence by helping governments plug budget holes. The ECB has printed a floor on commodities as it is a reminder that things like oil and gold have a real value that increases when governments devalue their currency. The spike in global stock and commodities is like a heroin junkie getting his fix after facing withdrawals and now is just feeling euphoric. Of we course we know that it can't last forever no matter how good it feels now. I am not underestimating the power of what the ECB did and the lasting impact that it could have on some commodities. Just that this huge up swing could also offer a great selling opportunity at some point during the day.