Senior players support Slog view on Draghi strategy and false US recovery

What one tends to get in economics, financial services and fiscal management is first of all some distant rumblings and the odd cloud on an otherwise azure horizon. Then there are signposts, followed soon afterwards by noises off, and bigger clouds gradually covering up the sun which was going to shine forever. Soon thereafter come articles about a wake-up call, and then the signposts become signs. Finally, there is a stage where those using binoculars in the helicopter can see that the horizon is, in fact, a huge cliff-face leading straight to Dante’s inferno below.

We’ve been in this last stage for the best part of eight months now – and not just in the euro – but I got the sense over the weekend (and I’m not entirely sure why) that quite a few important players on this, our shrinking landscape, have three wheels over the cliff – and even they have realised that it’s all over.

Actually, I think the main reason why was a series of conversations during Saturday and Sunday afternoon that gave my phone bill another severe thrashing. The attitudes of key opinion-leaders have been gloomy for some time already, but it was the content – in terms of sheer scariness and variety – that probably gave me the colly-wobbles as I went to bed last night.

I spoke with one sovereign credit guru who was supportive of The Slog’s view about Mario Draghi at the ECB limbering up for some serious QE. “The ECB Council has a big meeting this week,” he told me, “and you can bet the farm that Draghi will either cut interest rates close to it being Zirp for Europe – or start buying State bank as well as private bank junk. In my opinion, he’ll do both.”

Nothing especially surprising in that, but he continued as follows:

“Before the weekend, the were 600 billion bucks parked at the ECB by paranoid bankers. The entire EU’s business liquidity is now f**ked, and I can’t see how Draghi can do this thing on his own for much longer. Berlin has gone kinda quiet, probably preparing for [today’s] Sarkozy meet-up. But they’re just not doing anything. We must now be very close to a major event. I guess we’re pretty damn close to the end here”.

One knows precisely what he means: Mario Monti was in the media again this morning, affirming that the eurozone debacle isn’t really a currency crisis at all…a continuation of the line begun by Leatherwoman last week. One observer of the ClubMed situation as a whole told me:

“The Greek thing is on a knife-edge. It’s moved on from poker to being craps, where everybody needs the last throw to make it work. The lenders don’t believe the Greeks, and vice versa. But this time, I really do think there’s very little cash left in the Athens money-box.” Another senior sovereign strategist said:

“I think you’re right about the banks’ [liquidity] being critical. But look at all the sovereign EU members now looking sick. It could happen first in Spain, Greece, Italy or France. It could stem from the ECB suddenly fighting on three fronts at once. It could begin with a Parisian bank blowing over if the Greek news gets any worse. The person in the street has no idea just how hopeless this is. There may be the odd market rally – but look at the volumes. This isn’t investor confidence, it’s dumb-f**k money dribbling in after some f**k-witted advice from an advisor.”

Oh dear. Armageddon stuff. The light volumes point (expanded by the Wall St Journal this morning) is another sign that, I find, feels like the quiet before the whirlwind. Some of the late 2011 bullish runs really did have some heavy-hitting  smart money piling in – albeit for cynical reasons of its own. Now even that feels too risky to the pros. Somewhere over the weekend (I now can’t recall where) I read an historically potty piece saying there were big stock market gains for those with the courage to get in there now. It struck me as like telling a kamikaze pilot that if he just steered straight for the carrier’s main fuel dump, he could sink the whole kit and caboodle at a stroke. There’s a very good piece at Zero Hedge further confirming this view, by the way. And a former useful Big Apple source on the Strauss-Kahn saga had this to say:

“I did see your piece on the Labor stats, and it’s a view widely shared over here. There is no solid recovery on the way: the smart money just doesn’t believe it. But the scarey thing is that Middle America just might…for the time being”.

Finally, it is indeed very quiet in Germany. The Bankfurt Maulwurf has gone to ground, and my Brussels mole was away for the weekend asking not to be disturbed. Perhaps he’s building a bunker in Switzerland.