To defend the Euro, the ECB now is committed to throw up to $1 trillion at interventions in public and private debt.
What’s next? Direct intervention in the stock market?
Bear in mind when this fails (which I guarantee you it will but I cannot state the timeframe), these clowns will think the reason was they did not throw enough firepower at it.
Step back for a second. The problems are too much debt, too much government spending, and a massively unbalanced global economy. None of these actions address any of the fundamental issues.
Short Squeeze Coming
Judging from the action in futures this evening, shorts are going to be forcibly ejected Monday, perhaps for several days.
This will create a huge air pocket underneath. We saw this action once before, in Fannie Mae and financials.
Flashback Wednesday, July 16, 2008: SEC Restricts Shorting 19 Financial Stocks
Big brother has now decided to step in and force the price of all financial stocks up with this SEC short sale order.
So now the SEC is issuing short sale restrictions on financials because Bernanke says it’s important for them to rise.
I have news for Bernanke and the SEC. This won’t work. China had short sale restrictions on and it did not stop the Shanghai index from falling over 50%. Insolvency cannot be cured by short sale restrictions and many of those companies are insolvent.
All these short sale restrictions are going to do is create a vacuum. Once the shorts are driven out these shares will plunge. And who wants to buy a bond or provide capital knowing or even thinking share prices were artificially inflated.
Flashback Friday, July 18, 2008: Short Squeeze In Financials Continues
Fannie Mae is up another 25% today to $13.66 in the wake of Selective Enforcement of Regulation SHO and Bernanke’s statement: “It’s important for Fannie Mae and Freddie Mac bonds and stocks to rise so they can keep raising capital and aid the mortgage market.”
This move in financials is going to fail spectacularly once the panic buying ends, but for now the bulls are having a bit of fun.
That short squeeze was the beginning of a violent end.
It is a serious mistake to drive shorts from the market. Oh, it can work for a while. In the case of Fannie Mae for a week. Then what?
The hubris this weekend by central bankers is nothing short of amazing.
While the timeframe is unknown, these attempts to “defend the Euro” are highly likely to hasten its demise.
Mike “Mish” Shedlock
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