Bundebank - Major policy shift on inflation ?!?! - And some illusions.

I awoke this morning to the headline – ‘Bundesbank “accepts” higher inflation‘.

If this is the case, and there already seems to be some backtracking on this, the repercussions could be enormous. If this is really true we are looking at the possibility of significantly lower EURUSD going forward, as the ECB prepares to ease the monetary reigns. Thoughts on Bund yields going forward would have to be revised heavily, and almost certainly this would have a knock on affect throughout European financial markets, perhaps some positive some negative.

I have mostly traded Deutschemark and Euro products since the mid-1980s, this has meant following almost every word, letter and utterance spoken by the Bundesbank, German Finance ministry and ECB for many years: – It has long been held that inflation is the sacred holy cow which Germany will never sacrifice: In my many years in the markets I know how much keeping inflation under control means to the Germans, the spectre of the hyperinflation of the early 1920s and the traumatic events around and following this is etched on the German memory and Psyche, I doubt that any German finance or Bundesbank official would ever be allowed to state that the ‘Bundesbank “accepts” higher inflation‘, unless they were accepting that not doing so could have severely dire consequences. – I don’t think this discussion is as cut and dried as it seems, it may be genuine, or it may be a statement out of context, or it may reflect a short-term modification to a long-held belief (Panic).

If it is actually a genuine shift in policy on inflation by the Bundesbank, we would have to accept that this could be the catalyst for some major long-term changes in certain market relationships. In the meantime – here a few alternative headlines which I think would compare to this one in terms of major paradigm shifts.

‘Pope accepts contraception is not a bad idea’.

‘Fidel Castro to allow Mcdonalds CEO to run Cuba’s economy’

‘Richard Dawkins – I was wrong – The world was created by God’.
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Finally as a follow-up to last week’s post titled ‘What you see is often what you 'think' you see, not what you really see!!! ‘ here are some more very interesting illusions form the world of architecture and art.

This first one is from the 'Might Optical Illusions' website. Apparently the building pictured in this article stands perfectly upright, and has the same width of it’s footer, as of it’s last floor.

The following image contains flat drawings by a 17 year old chilean artist/prodigy called Fredo - Follow this link to see more of his incredible 3D drawing.

Have a good weekend - Steve.