behind the looking glass
The ECB wakes up in the morning and buys $2.5 billion in securities every day.
That is it prints electronic credits, transfers the ledger items to either banks or businesses directly through secondary and primary market purchases.
That is a fancy way of saying the market expects the $2.5 billion buyer and prices good and bad securities accordingly meaning bad is as good as good because the buyer does not discriminate.
This adds up to about $70 billion a month or $840 trillion a year as the crow flies on a balance sheet that is already over $3.5 trillion
For how long ? One measure is when the ECB is the majority, or only, bidder for any class of security as taught in econ 101 : "crowding out" private investment.
Unfortunately this is not classic crowding out because there are no private bidders for securities with negative yields or those for which a price is paid for the privilege of holding
That moment in time for the Fed, the ECB, the Japanese, and now the Chinese is nigh
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And now as the WSJ reported over the weekend, it has become clear that China’s government reined in one of its brashest conglomerates with the explicit approval of President Xi Jinping, "according to people with knowledge of the action—a mark that the broader government clampdown on large private companies comes right from the top of China’s leadership."
The measures, with President Xi’s previously unreported approval last month, bar state-owned banks from making new loans to property giant Dalian Wanda Group to help fuel its foreign expansion.
The cutoff in bank financing for the company’s foreign investments highlights Beijing’s changing view of a series of Wanda’s recent overseas acquisitions as irrational and overpriced. In short, and as noted above, Yuan stability above all.
For the local market, the shift in Beijing's strategy is nothing short of a seismic shift:
“It feels like an avalanche,” said Jingzhou Tao, a lawyer at Dechert LLP in Beijing, who does mergers and acquisitions work. “This is sending a shock wave through the business community.
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