Moving from being a investment strategist to a startup founder next week, here are the thoughts on all of this sent to clients earlier.. "As widely expected th

Moving from being a investment strategist to a startup founder next week, here are the thoughts on all of this sent to clients earlier.. "As widely expected the ECB has moved to negative deposit rates in the latest attempt to look useful. We haven’t seen this happen in many places, but aside from Switzerland, which is always a bit odd, one of the more interesting instances was Denmark back in 2010 when the DKK peg to the Euro was under pressure as investors bailed on the EU. The result of this move was telling, in that rather than forcing the banks to lend more to mobilise reserves, Danish banks took a kicking on margin expansion and lending collapsed even as deposit flight occurred. It did stabilise the DKK exchange rate though, allowing it to depreciate gently. I think a similar motive is behind this move, primarily to help out Germany where disinflation is very much in place and the surprising strength of the Euro, which I noted last year was due to its assumption of old-Yen like qualities, particularly at a time of taper tantrums, is starting to drag on exports. It will be interesting to see what happens here even as Spain and Ireland enjoy their ability to borrow money even more cheaply than the US (really, check the 5 year). My feeling is that it will be difficult to actually devalue the Euro significant from here, particularly as the Eurozone as a whole has moved into an export surplus as peripheral deficits have collapsed on falling demand, offsetting the German surplus handily. A fall in the recently recovering M3 is also likely and the lower-for-much-longer policy of the ECB will look particularly attractive on the fixed income side for those wondering if the recent rally in US bond yields is likely to reverse - duration in bunds looks less painful than in US govvies. Money market funds also look quite weird in this environment, with 800bn Euros or so in these vehicles about to break the buck with German 2yr paper still positive.. For now.. As such, I think the Euro may well continue to strengthen after a bit more downside, thus weakening the dollar, EU bank lending will roll over further along with margins and economic malaise is likely to filter into Germany as macroeconomic imbalances extend and disinflation continues, particularly if my negative view on energy prices is correct."