The European Central Bank's statement on Thursday just made my head explode.
Read this: "The Governing Council expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations."
What is this? The "Governing Council"? It sounds like something out of "Star Wars."
And then this:
"As the current drivers of inflation fade over time and the normalisation of monetary policy works its way through to the economy and price-setting, inflation will come down. Looking ahead, ECB staff have significantly revised up their inflation projections and inflation is now expected to average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024."
I think these people have no idea what they are doing. This is Europe's "Minsky Moment." The combination of Russian President Vladimir Putin's aggression and the fecklessness of the ECB and leader Christine Lagarde -- and the decades of poor decisions in Western Europe around power generation -- has produced a really, really, bad scenario.
But how could it be? Where could this inflation be coming from? With a three-quarter percentage point rate hike across the board, the ECB "Governing Council'' is showing how extraordinarily late to the inflation party it has been. The ECB has three main interest rates. As per the ECB's website:
The deposit facility rate is one of the three interest rates the ECB sets every six weeks as part of its monetary policy. The rate defines the interest banks receive for depositing money with the central bank overnight. Since June 2014, this rate has been negative. There are two other key interest rates: the rate for our main refinancing operations (MROs) and the rate on the marginal lending facility. The MRO rate defines the cost at which banks can borrow from the central bank for a period of one week. If banks need money overnight, they can borrow from the marginal lending facility at a higher rate.
So, there you have it. As of Wednesday, there was still completely free money being given away by an extraordinarily powerful central bank. Novelist John Kennedy Toole's world is now upon us. We are truly living in a "Confederacy of Dunces." The ECB has been giving away free money (with negative rates it's actually cheaper than free, although that is a noodle-strainer, conceptually speaking) for more than eight years, but now -- now?! -- they are surprised about inflation.
Damn you, Vlad!
This is really scary and it is time to go into the Evil Empire of Leveraged-Short ETFs to try and profit from the European implosion. These are not securities that I typically buy for my clients. They are names that I usually throw in my Robinhood account for a few days. But this is the time to buy leveraged-short European exchange-traded funds as protection, not just as vehicles for speculation, and I am shopping for my clients today.
So, one of my favorite ETF sponsors, ProShares, offers the UltraShort FTSE Europe ETF (EPV) , a two-time leveraged short play against its underlying index, which is the FTSE Developed Europe All Cap Index. The lead-up to Europe's Minsky Moment has obviously been horrible for the euro, as well, as it has fallen 14% vs. the dollar year-to-date. But I am a stock jockey, and I leave the macro trades to others.
Europe's economy is being decimated. If your company produces houses, cars (I followed the European auto sector for five years for DLJ and UBS) or any other tangible "stuff," your margins are about to be submarined. On that note, this March was not the best time to open a massive new plant in Germany, as Tesla (TSLA) did in Gruenheide, but Elon Musk marches to the beat of his own drummer, anyway.
It's bad over there. Buy some EPV and protect yourself from the idiocy of European technocrats and make a few dollars, while doing so, Cheers!
