Out of Europe

Central Banks are tricky institutions. Most people don't understand what they are, what they do, how they came to be and in the case of our own Federal Reserve, do not even understand that the Federal Reserve is about as Federal as Federal Express. There's a reason for all of this deception, there's a lot of great videos on YouTube that explain the concept and origins of Central Banks and the damage they do to societies. Not to mention the secrecy the operate under-again in our own case, the Fed will have their sheets pulled when Ron Paul and the new Republican controlled Congress start their oversight of the Federal Reserve-next year (2011) promises to be a watershed year for the entire concept of US Central banking, it's control and secrecy and it's about time.

However, we are talking about the ECB right now, the European Central Bank who has been busy buying up sovereign debt from mostly the PIIGS (Portugal, Italy, Ireland, Greece and Spain). In buying their debt, which no one else wants to touch, at least not at an interest rate these countries can afford to repay, the ECB has stepped in-similar to our Fed's own Permanent Open Market Operations (POMO)-part of the Quantitative Easing.

In any case, to maintain plausible deniability, as the ECB has been maintaining, they need to unload their purchases to bidders-generally speaking other banks, including Central Banks-remember last week China's announcement that they'd continue to support the Eurozone? That's one example.

This week, the auction to cleanse the ECB's books of the sovereign debt didn't go well, in fact in went quite bad. This could lead to the next round of European Contagion fears and the Euro is reflecting those fears right now as it was trading up this week around $1.3275-a fairly good cushion from the $1.30 level which is widely seen as an important support level. Well in the last 6 hours the Euro has dropped to lows of $130.94, not such a great cushion from $1.30 anymore.

Also remember "normally" a stronger dollar, which happens largely when the Euro weakens, is bad for most investment vehicles such as equities. We're not quite in normal times, especially this week, but yesterday we did see the market bounce back at the same time the dollar dipped-to the minute.

Keep an eye on the situation. As usual, big events are sometimes just one headline away.