This morning, Mario Draghi fired this century’s “shot heard round the world.” Finally, there is an admission that the ECB can twist its rules to resolve the European crisis, which could lead to a permanent solution to the debt issues. Here are Draghi’s own words.
Financial markets rallied around the world Thursday morning after European Central Bank President Mario Draghi declared, “the ECB is ready to do whatever it takes to preserve the euro…and believe me, it will be enough.”
Out of the blue these words arise, but not to the surprise of many, especially me. It has always been clear to me that allowing the Eurozone and the euro to collapse would do such long-term damage to both Europe and the global economy that the political and financial powers could and would not let it happen.
By suggesting that rising sovereign bond yields could “hamper the functioning of the monetary policy transmission channel,” Draghi seemed to identify a loophole that will allow the ECB to act more aggressively to address the crisis, including a Fed-style round of quantitative easing. To some market watchers, this is the “big bang” out of Europe that could mark the beginning of the end of the crisis.
Just as the “shot heard round the world” launched a revolution, Draghi’s words launch a revolution in thinking about the role of the ECB. Germany may yet fire back, but the volley will ultimately fall short of the mark, unless Angela Merkel wants to see the Eurozone experiment fail, which I believe she does not. Despite the mixed metaphors, it is fair to say Draghi’s words today are big …
As a follow up to my discussion of the great US economic transformation, it is important to point to the most obvious transition in that transformation – from old dirty energy to new “green” energy. True, I talked about natural gas, which is, arguably, green, but it is not new. Actually, neither is solar power, as it has been in use for millennia. The difference is technology, and in that area, solar power has taken a public relations beating. Remember Solyndra? Well, forget about it because it is all about capitalism, ultimately, and in that reality, failure is just a part of it.
The solar industry has done a spectacular job lowering costs in the past three years, slashing per-watt costs in half. But that price free fall, driven by the massive scale-up of Chinese manufacturers, has put dozens, if not hundreds, of solar companies on the endangered list.
As the solar-power industry shapes up, failures will occur. In pure Darwinian fashion, the most adaptable will survive, and those that do survive will begin providing affordable technology that will move the world from the old to the new. The transition will take time, but it will come, and it will come much sooner than the most die-hard bears believe. You, however, need to think opportunity, and you need to find it as many of the survivors will be making both money and profit.
And, as the banking industry continues to repair, so too will the housing industry transform …
As home prices rise, more banks and underwater sellers will enter the market, forcing prices back down for a cycle or two. The effect will be a reduction in the shadow inventory.
Trade in the day; Invest in your life …
