Out of the Box: The European Union is Gaming the Financial Markets

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The financial press, and many institutions, and individuals, are highly concentrated on our “Game of Thrones” with China. Make no mistake here, the tariff skirmishes are just part of the overall battle. There is much more going on here besides the wrangling about consumption and goods.

The quotes in the press are accurate, China has the second largest economy in the world, but that doesn’t tell the whole story. The American economy is about $22 trillion, while China’s economy is only $13 trillion. Quite a spread, when you think about it.

Consequently, I would assert, that the American government can withstand quite a bit more pain than the Chinese government. A second issue is real and psychological. “Saving Face,” is not part of the American mentality, while it is a huge part of the Chinese mentality and so the back and forth struggle is part hard numbers and part a question of just how things are done, and then laid out by both sides.

While the European Union is not creating “Pixie Dust Money,” at the ECB, and then buying their own nations’ sovereign, and corporate debt, to purposefully hurt the financial markets, or the United States, that is exactly the “collateral damage,” that they are causing. The nations of the EU cannot afford to pay for their budgets, or their social programs, so the ECB has moved down their borrowing costs to less than Zero, in most cases.

Check out their 5-year sovereign debt yields:

Nation 5 Year Yield
Denmark -0.913%
Germany -0.901%
Netherlands -0.828%
Finland -0.789%
France -0.762%
Austria -0.741%
Sweden -0.737%
Belgium -0.666%
Slovakia -0.529%
Ireland -0.554%
Slovenia -0.529%
Latvia -0.495%
Spain -0.398%
Portugal -0.370%
Bulgaria -0.114%
Cyprus -0.054%
Lithuania -0.019%
The United States +1.37%

*Data according to Bloomberg

Yields in the United States, and the U.S. economy, and the Dollar, are taking it on the nose precisely, and specifically, because of what the European Union is doing. There is no other reason for what is happening here except that the nations of the EU have directed the ECB, the European Central Bank has “NO” independence, to make this “Money From Nothing” and then buy both sovereign and corporate bonds denominated in Euros. Now their budgets can be afforded, as they can borrow at less than Zero, so they do not have to pay anything for them.

In America when we say, “The Land of the Free,” it means one thing. When they say this in Europe, it means another thing entirely!!!

“Half the work that is done in this world is to make things appear what they are not.”
-E.R. Beadle

Mark J. Grant
Chief Global Strategist, Fixed Income
Managing Director
B. Riley FBR Inc.
[email protected]
U.S. 954-468-2366

Information herein is for general use; is not unbiased/impartial; is current at publication date, subject to change; may be from third parties; and may not be accurate or complete. Opinions are the Author’s, not B. Riley FBR, Inc., or their respective affiliates or subsidiaries. This is not a research report or solicitation or recommendation to buy/sell the subject securities. Investment factors are not fully addressed herein. B. Riley FBR Inc. and their affiliates may have a proprietary position in the subject securities. Redistribution/reproduction of this material is prohibited. See additional disclosures at: http://brileyfbr.com/legal/legal_disclosures

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