Stockmarket Collapse Got Surprisingly Little Coverage

Something odd happened in the past couple weeks and especially last week. The market was pretty much in free fall mode, something which thanks to central banks manipulating markets we haven't witnessed for a very long time - outside of January spectacular drop that led me to call for something bigger. Yet the collapse wasn't getting the coverage it deserved or that which is usually seen when volatility rears its ugly head in an extended bull market. Case in point, last Thursday. The Dow rallied 400 points, the headline was everywhere on financial websites until late in the evening, but the real news wasn't easy to find if you didn't have your eyes on stock quotes in afterhours trading. Indeed after the close and the 400 Dow point gain, futures cratered on the back of Amazon.com results. Amazon plunged almost 10% that evening in afterhours, and the Nasdaq 100 futures (which trade round the clock) went into freefall, erasing all the gains during the regular session. The following Monday the heavy selling resumed after a brief rally at the open. And it's only since then that talks of a bear market or bigger correction are making headlines in the financial press, although in European newspapers, it hasn't been much of a focus of interest yet. Even central bankers seem to watch in indifference. And that's what has started to worry people. Oh aren't they supposed to "support" the stockmarket (so-called "financial conditions") ? You can bet pretty soon, there will crying for central bankers help. But remember ... They can't do much anymore. They are just about out of ammo ! 

Warning flags may now be long term sell signal

Stocks as defined by their indices have actually been in a downtrend since the top on October 3, the definition of a downtrend in technical analysis is a succession of lower highs and lower lows. The market meets resistance on each rebound and falls again on resumed selling. October closed with an ominous sign on equity markets. The 200-day moving average, which defines a bull market, has indeed been crossed for good. The question is now whether equities can reclaim that key moving average. Today we saw a follow- up to the powerful rebound initiated on Wednesday but in afterhours Apple has disappointed (the  iPhones now at $700-$1000 aren't selling as well anymore, can you believe ?). The stock is taking a 6% hit and took out recent lows. This could signal trend resumption for the Nasdaq. The Composite has fallen 15% from peak to trough. That is a very big move and the damage is severe on the charts (in investors psyche). With the FANG stocks seemingly topping out at least on an intermediate basis, you have to believe the "correction" is not over . At the very least it will take time to repair the damage and the year is likely going to close on a negative note, technically speaking.

                     An obvious downtrend and current attempt at a rebound

 

Crash on World Markets is Starting this Year 2018

 Last month we got what I believe is technical confirmation of the coming crash I have warned about in the past couple of months. To be fair, it's certainly not the first time I call a new market crash, I have warned for several years about a bad ending to the mad central banks' experiments and thought the crash could occur in 2016, until Donald Trump got elected and for purely technical reason I saw at that time a buying opportunity . It was difficult to tell whether this rally had legs and could continue for a few years, or whether it was the so-called climactic run seen before the end of an expansion (the most likely scenario I believe), but after the first quarter of 2018 which saw an incredible January run followed by a no less stunning reversal, the elements of a crash got into place. Sometimes you have strong conviction in a future move, and it certainly feels that way this time. I decided on the purchase of puts on the S&P 500 (SPY, September 18 expiry), something I usually shy away from because buying options goes against the odds (especially when betting on a crash). But time will tell. The trade is already in the money at this point (not necessarily a good thing, big moves tend to involve a bit of pain in the beginning). The position will be closed this summer if the S&P reaches new highs, otherwise it will be held until expiration or until a crash happens.

Janet Yellen who famously remained blind to the housing collapse, left the Fed with words intended to cover her rear end

On the geopolitical front, there have been very positive developments with the Trump administration's great and commendable strides towards some deal with North Korea but also very negative developments with the illegal strikes by Western powers in Syria. On Syria, one can only get the feeling something is amiss. See Senator Rand Paul interview on this, below. It seems Syria is sliding into a simmering conflict between Israel and Iran which is allied with Russia. Israel struck Syria, which got uncovered after some confusion as to whom was responsible for the bombing. A couple days later, its traditional allies strike in a show of force. Now there is increasing talk among Western powers of a new nuclear deal with Iran. This state of affairs is very alarming and of course the concern is no longer the markets and economy here, even more alarming is the fact that there is not a lot of coverage and citizen awareness about this escalation with Iran and Russia .

In the process of the crash, various corporate scandals will explode on the front scene, we have all the classic features of a huge market top 

For stockmarkets though, the main drivers should remain interest rates and earnings outlook. And the picture is not good on the interest rate front, see charts below which show a major technical signal of a trend ending (and reversing). On the macro front, economic data show signs of a slowdown in Europe, Europe is going to get stuck at the zero bound thanks to Draghi & Co who also unleashed a bubble in bonds and RE. We also got some revelations of shenanigans (Facebook and data scandal.) that I sensed coming, and there is more to come for sure. I believe in the process of the crash, new corporate scandals will explode on the front scene, particularly in tech.

We have all the classic features of a huge market top. Autonomous cars and AI  are all the rage, they are going to change the world in the next couple of years , so would the media have you believe. In fact, we are coming to the realization that self-driving cars are far from being fully developed and safe, as for AI, there are also many hurdles to overcome especially if humans want to use AI ethically and for the real benefit of humanity . Were you around at the market top in 2000 ? If so you remember how we were being told new medical discoveries on the human genome were going to eradicate cancer. How alternative energies were going to power car engines and homes, homes were all going to be "intelligent" and there were even some talks of future "flying cars" (yes just like today). None of that happened. Nearly 20 years later, cancer still hasn't been cured (but continues to be a boon for the pharmaceutical industry), fuel cell cars never got developed, homes are still not "intelligent" to the point of being automated and connected to the internet (thank God as far as I am concerned). Yet , remember how those innovations were promised to us within just a couple of years.

The financial elite, and the so-called smart money (if any such thing actually exists) is not unaware of the impending trouble. In fact, even Janet Yellen who famously remained blind to the housing collapse, left the Fed with words intended to cover her rear end. She warned that stock prices were "elevated". Funny how she spent her whole tenure telling us stocks were not overpriced !  Amazing. Amazing too the little private speech she gave after leaving  for a fat fee;  institutional investors got from her firsthand information on the likely future direction of the Fed.

Now the collapse can start in earnest .  

 

                                Chart by Worden Brothers   

                              Chart by Worden Brothers  

World Economy Doomed as Bubbles About to Deflate One after the Other

The end is coming . For world economic growth that is. This predicament characterization will no doubt be laughing matter to many, just like the famous "We are all doomed" prophesized by the respected Marc Faber, but make no mistake economists will soon find out "this time is different" doesn't apply and it is likely that one day we will reflect on the current epoch as one of the greatest manic episodes in the history of finance (and of the world) .

I am going to go over the specific reasons for this call below but let me address the reason for the absence of posts since last year. Obviously if you have visited this blog before, you know that I called for caution for a couple of years already although that didn' t mean completely disinvesting from the stockmarket. Around mid-2015,  it became increasingly difficult to form an outlook for the market with conviction. Other than a systematic approach, I could not see the reasons to be substantially invested in stocks and bonds considering the downside risk. And even with a systematic approach, i.e. trend following , I feared that the risk of a sudden meltdown changed the risk/reward ratio. Other investments such as gold and real estate didn't have much appeal either, especially real estate. So what's an investor to do ? Bitcoin ? (I will address that further below) Take a vacation ? The latter perhaps. And in a way that is what I have been doing. It all came at the right time for my personal circumstances as I was working on a new book. We were invested substantially again since the US election and until the summer of this year but we saw this market as running on momentum. Sure S&P 500 earnings growth has come back but most of that growth comes from the recovery in the energy sector and from tech. It's unlikely these two sectors will continue to drive earnings growth. In addition, current historically high profit margins will not last forever.

 

The Federal Reserve Created a Bubble in Stocks and It's in its Last Climactic Stage : Valuation Metrics at or near Record Highs 

Uninspiring best describes the markets of the past two years whether it's stocks, bonds, commodities, FX. We bought crude oil a few months ago and it has done well but who wants to invest more than 10% of a portfolio in crude oil ? Something feels very wrong with the US equity market which has had a stellar year in 2017. It's not just that it has kept going up ignoring the high valuations and the chaotic news flow from Washington ...  it doesn't even go down any more. This situation has lasted for a long time now, strategists have talked about the ever rising share of passive investing as being part of the equation and  tech stocks such as Facebook or Google are said to have become "low volatility" (safe) stocks. However over the long run that simply can't be and it's an anomaly. Others have even posited that Yellen's Federal Reserve has moved to support directly equity markets (via proxies of course). When the stockmarket no longer has 3-4 down days in a row, the natural order of things has changed because investors' psychology naturally creates some sort of momentum to the downside from time to time. The US stockmarket also registers gains on a monthly basis every time. The charts show a parabolic move for the major indices and especially tech stocks. Speaking of tech stocks, I previously talked about the crazy valuations of a number of well-known hot stocks such as Amazon or Netflix . It's not just tech stocks, the entire market stands at or near record valuations whether you look at the market PE or Price/sales ratios.  Below is the Shiller CAPE (Cyclically Adjusted PE ), we can see historically what happened when it was higher than 30 as it is now.     

 Chart is from Multpl.com

On a price to revenues basis, the US market (remember, it's essentially a proxy for world markets) is truly in nose-bleed territory. There is a recent update on the subject on the Hussman Funds website that one should read to really understand how extraordinarily high valuations are with regards to corporate revenues.

In the past I have talked about the possibility of a gigantic meltup in asset prices, especially stocks, as a consequence of the central banks ' folly (see 2012 post on Gundlach's Kaboom for instance). We may be in such a scenario today and there is a possibility that the market will continue to go higher for 2 or 3 more years for example but such an extreme asset inflation seems to be such an outlandish  development, the stuff of Sci-Fi movies, that I cannot bring myself or anyone to invest on that view. Today's geopolitical landscape makes that bet even harder to contemplate.

 

The Election of Trump is a By-Product of the Federal Reserve Policies

 

From fairly early on in the election campaign we knew that Donal Trump had a good chance of becoming the next US President. In the end the majority of voters don't vote so much for a political program as they vote for body language and catch phrases. Billionaire and socialite Donald Trump who was already a  reality TV star, annihilated his rivals with his debate style, charisma, defense of blue collar workers and promises to radically solve what had been painful and critical issues for Americans (Obamacare rollout, ISIS terror, jobs moving abroad). On the Democratic side,  Hillary Clinton unfortunately had never been an immensely popular person among voters. Trump surfed to victory on the wave of discontent across Middle America. And that discontent originates with the divide created by Bernanke's policies; Mainstreet simply did not get a fair share of the artificial prosperity brought about by the Fed's ultra easy money policy.  I said before that central banks easy money, and the resulting inflation (nowadays in assets) can manufacture new Adolf Hitlers. It's good to recall that Hitler came into power on the back of the Great Depression which was a result of the Federal Reserve easy money in the 1920's, and the Nazis made their first headways during the decadent Weimar Republic where central bank induced inflation and crime ran amok.

         Thank this man for putting 

Donald Trump in the White House

Of course there is  no comparison to be made between fascism and Trump but the outcome of the 2016 election may eventually have comparable consequences. Who knows where the world is headed when a US President trades insults with someone like Kim Jung Un? I will admit that I didn't think that Trump's election and his move to protectionism would cause havoc in the stockmarket like many had warned. I thought there was a chance that the Donald would not be as bad a President as the media kept telling us (the reason to go long stocks was strictly technical though) . It's my belief that the media contributed unwittingly to his success by  casting Mr Trump as the populist villain and systematically attacking him on just about everything. It's a shame because there were a number of things to focus on that disqualified Mr Trump for the role of US President. Not just his egomania and lack of humanity in some personal interactions, but his business dealings and above all the story of his privileged life which should have made him unfit to act on behalf and represent the average American. I would also add his stance on environmental issues. Yet he was elected. Those who thought Trump would prove to be different than during his campaign and a benign protectionist who would pass great tax reforms for Corporate America, missed the mark. Although a tax bill will go through, greatly favoring corporations and the wealthy, it may turn out to be just a sugar high for the economy and so far the Trump's presidency has been rather disastrous with rising tensions in the Middle East and with North Korea (the situation becoming more and more worrying on that front).

Will Trump Be Impeached ?  

 

Democrats are going to try to impeach Mr Trump. It's not a question of if but when. There is of course the Russia probe, which took a really bad turn for the Trump White House with the indictment then cooperation of Michael Flynn. I believe the findings of Special Counsel Robert Mueller, and perhaps Trump's business dealings with Russians, will lead to attempts to impeach him but the latest efforts seem to go in the direction of the "sexual misconduct" accusations. It's interesting to note that the wave of revelations of sexual harassment by prominent men which started and snowballed with the Weinstein story seems to have been very coincidentally -tongue in cheek - moving slowly but surely in Trump's direction as the media digged anew into Trump's past history with women. It's evidence that everything will be thrown at Trump to impeach him (Trump has to the best of my knowledge no history of sexual abuses with women,  let's call him a womanizer, but Weinstein he's not ). Should impeachment proceedings start sometime in 2018 then that would be one of the first nails in the stockmarket' s coffin, Wall Street does not like uncertainty.

Druckenmiller : Central Banks are "Financial Darth Vaders",  ECB Keeping Crooks and Zombies Alive

 

But the real  problems for the market are likely to be  interest rates, i.e. Fed keeps hiking or a natural end to this expansion with central banks stuck at the zero-bound. Like others have said, there are many risks : interest rates, geopolitics (e.g. N. Korea), market risks (leverage, i.e. record debt, new shenanigans reminiscent of Enron and the subprimes, maybe this time in the tech industry), politics ( e..g. Trump's agenda can't get passed and Wall Street euphoria ends in big selloff). That said, with most central banks still cranking the printing press, it's hard to pinpoint the right time to sell and get out. Central banks have completely distorted markets. We live in a phoney economy. One of the most egregious manipulators of markets has been the ECB (read article : "The ECB is keeping crooks and zombies alive"). Yet you can be sure European markets have not decoupled from US equities and they have lagged the US.  

Zombies ... and Crooks !

 

Central banks' free money is, we can see it now, leading us straight to disaster. Bitcoin is the posterchild for this age of insanity. Today's cryptocurrencies are the internet stocks of the late 90's. The folks who buy them, mostly millenials, have little recollection of the internet bubble and in the age of immediacy fueled by frenetic social networks (related article : Facebook destroying social fabric), there is seemingly no limit to where bitcoin price can go. But at some point, and sooner rather than later, it will collapse in a huge crash. Birinyi Associates looked back at previous infamous bubbles, bitcoin is the worst of them all. But what's most incredible is that bitcoin is truly worthless, it obviously can't even serve its purpose as an alternative currency since its value can go up or down 10 or 20% in a matter of minutes. As an investor with an open mind, you could ask yourself whether bitcoin investors see something others don't see. Maybe bitcoin is a safe haven considering central banks are destroying the value of currencies. Maybe bitcoin investors are the smart money. It's unlikely.  For example most of the volume in bitcoin comes from Asian exchanges, so most of the bitcoin trading originates in places where the gambling mentality is deeply ingrained in culture. I once called for bitcoin to be shutdown. But regulators, seeing the growth in bitcoin-related companies did not want to appear as interfering with "innovation". In countries not particularly reknown for their tech industry, you have to believe this business creation has been seen as positive. Switzerland for example has jumped on the bitcoin bandwagon, its regulators have opted for a hands-off approach to the phenomenon.

Cryptocurrencies are a huge and outrageous waste of natural resources

 
But the bottom line is bitcoin 's technology is fundamentally flawed. Bitcoin cannot serve its original purpose of means of exchange, it simply cannot be used as a currency, it cannot be trusted as a store of value either. Whereas the original idea of a "digital currency" could have been beneficial, cryptocurrencies are plain nefarious for society. The cryptocurrency fad which many from media to analysts have exploited to get attention is an outrage. It's not just this new tulip mania  that has blown to $500 billion, (last time I heard), but more importantly it is the huge waste of natural resources caused by bitcoin. One bitcoin transaction uses the same amount of power as what's necessary to power close to 10 homes, it's hugely taxing on the environment and society as a whole. So console yourself if you are not "invested" in this fraud (now I guess I will get death threats for writing that ) .

  

Today's cryptocurrencies are the internet stocks of the late 90's.. Wait... it's worse, way worse !

The Birinyi Associates study



Bitcoin futures are slated to start trading this Monday. Expect a selloff when the serious shorts will start taking positions. So far, shorting bitcoin has been practically impossible or reserved to a select few. That 's about to change !

Some ECB Members Increasingly Uncomfortable With Mario Draghi's Promises

ECB Governing Council member Knot said that further expansion of the ECB asset purchase program will lead to increased tensions over the prohibition of monetary financing as quantitative easing leads to "higher risks of undesirable side effects like bubbles, an unhealthy search for yield, a rolling over of problematic loans, increasing wealth inequality, and an addiction to low interest rates."

Crise prochaine : ce que les gouvernements préparent

Le monde se rend peu à peu à l'évidence d'une nouvelle crise nous arrivant droit dessus. Le magazine The Economist  analyse cette semaine les options des banques centrales lorsque cette crise frappera l'économie mondiale; reconnaissant les résultats décevants des politiques non-conventionnelles actuelles, The Economist recommande que les gouvernements et les banques centrales aient recours cette fois à des mesures extrêmes.  Lesquelles ? Je vais les passer en revue ici en résumé, mais avant toute chose je voudrais faire remarquer que si cette publication bénéficie nul doute d'un suivi important parmi les décideurs,  son équipe éditoriale n'est pourtant pas vraiment connue pour sa clairvoyance. The Economist a pris parti en faveur de la guerre en Irak ( en Afghanistan aussi) qui s'est avérée être une colossale erreur (ou manipulation selon la manière dont on voit les choses), on le réalise aujourd'hui, d'une ampleur telle à menacer la paix mondiale; The Economist a soutenu George Bush et sa guerre contre le terrorisme, et l'histoire dira si le magazine a raison d'être partisan d'une politique de portes grandes ouvertes aux réfugiés du Moyen-Orient (une façon de résoudre la crise démographique en Europe). The Economist prit parti aussi en faveur des politiques monétaires que l'on connait depuis 2008 et qui ont largement échoué en dehors des Etats-Unis. Sur ce dernier sujet, le prestigieux magazine britannique  en rajoute une couche et  va jusqu'à proposer qu'en cas de grave crise les états aient recours à diverses mesures pour créer une panique inflationniste propre à contrecarrer une spirale déflationniste .

Parmi les mesures suggérées on notera :

-un recours direct des états à la planche à billets, l'Etat emprunterait directement à la banque centrale sans passer par les banques, déconstruisant ainsi toutes les lois apparues au cours du siècle passé pour empêcher les crises inflationnistes, phènomènes destructeurs dont les gouvernements sont toujours la cause

- le rachat par les banques centrales d'obligations junk, d'actions (!) et même d'immeubles si nécessaire... Enfin, en bref, les banques centrales rachètent tout ce qui est pourri, et sauvent tous les incompétents

- l'annulation des obligations rachetées par les banques centrales. The Economist reconnaît que celles-ci seraient alors techniquement en faillite. Mais ce n'est pas grave, puisque elles peuvent être renflouées par le Trésor, c'est-à-dire vous le contribuable 

- davantage de recours aux taux d'intérêt négatifs, qui seront également passés aux épargnants, pour éviter les effets de l'accumulation de cash physique par ceux-ci, le cash deviendrait interdit (une idée suggérée déjà par certains Dr Frankensteins de l'économie, Ken Rogoff, Olivier Blanchard au FMI), ce qui bien sûr arrangerait bien les gouvernements capables désormais de contrôler tous les flux financiers, ainsi que jusque dans les petits détails de votre vie quotidienne

- des hausses de salaire légiférées, pour créer une dynamique inflationniste en forçant les entreprises à relever leur prix . The Economist reconnaît que de telles mesures ne s'appliqueraient pas à toutes les économies, mais le recommande au Japon.

De quoi s'inquiéter, voire paniquer en avance, quand on connait le cheminement des idées qui font les politiques. Des économistes en mal d'attention cogitent, et publient, les belles théories sont peu à peu reprises dans les médias économiques et financiers. Le grand public finit par croire que ces experts peuvent résoudre tous nos problèmes. Lorsque la crise frappe, des politiciens désespérés, qui n'ont rien vu venir, reprennent ces idées à leur compte. De quoi s'inquiéter aussi alors que Christine Lagarde qui s'est faite la porte-parole des apprentis-sorciers vient d'être reconduite pour 5 ans au FMI.   

Gold price alert : channel resistance broken as prices skyrocket

Astounding move reflects major technical breakout, yet with banks collapsing it should also alert investors that things are bad. This is a signal to go long like we haven't seen since 2011. Traders will want to see the month end in strength though before adding to this trade.

This Is It ! Stockmarkets About to Humiliate Central Bankers, Coming Crash Could Be Devastating

It's the end of the road for small investors who for several years now have been caught up in the great illusion created by central bankers, they have been "econned" to use a term coined by Yves Smith . The con was that central banks were going to erase all the mistakes of the past by adding zeroes to deposits of financial institutions, and that it would get the world economy out of the mess resulting from their very own policies . The con allowed the financial elite, banks, hedge funds, captains of industry, internet entrepreneurs and the likes to make back whatever they had foolishly lost in the 2008 financial crisis and grow much richer yet , while for the broader population, employment metrics and income growth remained depressed.

Central Banks Out of Ammo

For the past year, the central bankers' grand plan has been unraveling in the most troubling way, but that was to be expected. In their obsession with fighting deflation, they created a new bubble, multiple bubbles rather, which of course will have devastating effects once they burst, ensuring this time a deflationary spiral. First oil prices collapsed with a fatal combination of oversupply -encouraged in the first place by artificially high prices and an oil rush facilitated by cheap financing- then lower demand from China and EM . Then in China, what had to happen finally happened, the stockmarket collapsed auguring troubles for the chinese economy. Emerging markets were displaying signs of trouble long before that new development, the perpective of higher US interest rates - Fed  needing to gain some of its credibility back - then of an outright economic collapse in China have kept pressuring their stockmarkets. Soon after the  early exhilirating effects of Super Mario's QE started to dissipate, and  European stockmarkets too came under pressure. US equities appeared resilient for a while, on the back of a relative economic strength . But finally the S&P started to fall too. A trapped Fed which has lost credibility under Janet Yellen, an energy industry collapse threatening a junk bond catastrophe, an internet bubble all over again, the effects of the chinese collapse, and probably uncertainty about the US presidential election, are the factors behind the weakness in US equities . The technical picture is ugly, across all world stockmarkets. Investors have been warned many times over, now it's coming ... the crash !


  The following charts show the technical damage in Europe: this market is not coming back !

                               IBEX35 Monthly  Chart by ProRealtime

                              FTSE EuroTop100 Monthly   Chart by ProRealtime

Banks got absolutely hammered; this should give food for thought to investors ....

                               Stoxx 600 Banks  Chart by ProRealtime

Why are banks cratering ? SOMETHING IS ROTTEN ...
http://davidstockmanscontracorner.com/the-walking-dead-something-is-rotten-in-the-banking-system/


TOP IS IN ! Record price reached for classic car sold at Paris auction !
 This follows another record for a Ferrari sold in 2014 in the US for $38M !

http://www.bbc.com/news/world-europe-35508378

Janet Yellen failed to raise interest rates while she could,  she lost all credibility when she started to conduct monetary policy not on the basis of the economic data she said determined policy (unemployment rate chiefly) but on the basis of the evolution of equity markets. At the slightest correction in equities, Fed governors would come out cajoling the markets with various pretexts to maintain ultra-accommodation. The Fed turned into the mother of all speculators by banking on ever higher stockmarkets to bail out the economy, that was utter foolishness given the evident frothiness in various segments of the market (e.g. internet,biotechs). With rates close to zero the Fed now has little room to ease again if necessary. Signaling another round of QE is in the cards may not have the effect it had previously, given the ongoing slump in market and economic conditions. For the bursting of a bubble no longer amounts to economic headwinds, it's a tsunami .  

Negative Rates on Excess Reserves and Negative Bond Yields Could Backfire

Other central banks were to pick up where the Fed had left off, or so was investors' thinking. But the world found out that QE and other  unconventional policies didn't work as well outside the US. The BOJ's massive quantitative easing is today deemed a failure http://buy-point.blogspot.ch/2013/04/les-traders-remercient-la-banque-du.html, and the ECB's own massive QE campaign had its effects on equities recently reversed, with the unintended -and displeasing for exporters- consequence of a spike in the EUR/USD rate.  Under political pressure,  Mario Draghi threw the ECB's founding rules through the window becoming a deficit enabler and a money printer of the worst kind , he adopted the same modus operandi as the FOMC, enslaving the board of governors to the markets. Now the ECB is trapped too. Its new policy tool, negative interest rates, is hurting the banking sector and it's unclear whether it will jolt lending to the "real economy". It has certainly failed so far to weaken the euro, which was one of its objectives, EUR/USD skyrocketed in recent days ! There is a possibility negative rates will backfire, with banks margins being squeezed leading to less lending, plus higher costs for customers who will keep more cash at home. Not to mention, that further QE may run into problems if banks prefer to hold bonds rather than cash. One should take notice that banks share prices are collapsing. In similar fashion to other central banks actions, all the ECB did with its various measures was enriching speculators, lending never went to the broader economy, it went to the rich. That's why high-end real estate prices increased, art prices increased while inflation remained very subdued and significantly under the ECB's target. In all likelihood, inflation will stay close to zero for an extended period, because that just what happens when asset prices deflate after a bubble. With that in perspective, an inflation target is almost irrelevant. Europe is going japanese. Actually, it's worse.     

Eurozone inflation, headline and core

Charts courtesy of Tradingeconomics.com