After many years of falling short of expectations Mario Draghi and the European Central Bank stepped up big today. Going into the announcement today the consensus expectation was for the ECB to announce a plan to buy back bonds worth 50 billion Euros a month for the next year. The ECB decided to go big and instead will buy 60 billion worth of bonds from now until September of 2016. Markets took a while to digest the news but began to rally this afternoon. The hope is that flooding the Eurozone in cash will help fight off deflation and get the disastrously weak European economy back on track.

The move was pretty well received by many market participants. One could argue that this type of approach Draghi is using should have been applied much earlier, which would have gotten Europe on a similar kind of platform the U.S. was on. It is never too late to do the right thing, Stephen Schwarzman, chairman of the Blackstone Group LP, said in a Bloomberg Television interview today. The Wall Street Journal commented that "If the ECB's new bond-buying program works as intended, it should spur more economic activity there, which should mean more business for U.S companies and possibly more demand for U.S. workers."

Not everyone is so confident that the 1.1 trillion euro program is such a great idea. David Malpass who is the current President of CEO of Encima Global LLC and past Deputy Assistant Treasury secretary pointed out in an editorial in the WSJ today y that both the US and Japan have gone down this road yet there has been little to no growth in incomes or strong economic growth. He points out the Japan has repurchased binds equal to nearly half its GDP with very limited economic improvement.

Axel Weber chairman of Swiss bank UBS thinks there needs to be more action taken to reform economic structure in Europe. At Davos today he said “"I have not seen enough reforms in Europe and the ECB will not fix this issue heavy lifting changes to labor market rules and pension schemes. We need to move Europe to that next stage and if that doesn't happen I think there will always be questions about the viability of the project. Europe has not done enough to dispel these concerns.” Zhau Xiaochuan, the governor of the People's Bank of China agreed saying “"Monetary policy may create room, for a period, for other structural policies to come in, be implemented and do a good job. But monetary policy is not a panacea to reach the target."

I am nowhere near convinced that QE works outside financial markets. I see very little evidence that it creates high paying jobs, sustainable economic growth or anything else that benefits Main Street. It is wonderful for financial assets and I suspect that low rates my help our European stock positions but QE is probably not going to do much for those sky high unemployment rate sin Southern Europe. While I am not a huge believer in QE I was pretty sure that if the ECB under delivered again we would see steep and aggressive selling in European stocks today.

While this didn’t happen it did have me looking for potential bargains in Europe. I screened for stocks that had balance sheets that had a strong margin of safety and were almost cheap enough to buy. It was a very short list. In spite of much commentary to the counter point the truth is that European stocks are not that cheap. We own a handful, mostly banks, and it would take a really steep decline to create a large pool of opportunities that are safe and cheap enough to buy. Eurozone stocks are shockingly expensive given the terrible condition of the economy in the region.

The World Economic Forum is meeting in Davos Switzerland this week and global leaders are a lot less confident about the world than in the past few years. 17% of CEOs questioned think that business conditions will worsen in 2015. Just 37% think conditioners going to be better this year. Dennis Nally chairman of Price Waterhouse Cooper the firm that conducted the survey "The world is facing significant challenges economically, politically and socially. CEOs overall remain cautious in their near-term outlook for the worldwide economy, as well as for growth prospects for their own companies."

One of the more interesting discussions occurred between oil company officials and OPEC officials. Claudio Descalzi the head of Italian energy company Eni Spa (ENI) told Reuters reporters that unless OPEC cuts production to add back stability prices could overshoot to $200 per barrel several years down the line. Total (CEO)Patrick Pouyanne agreed saying “"There is a natural decline of five percent a year from existing fields around the world. That means by 2030 more than half of the existing global oil production will disappear. There is an enormous amount of money that needs to be invested to get another 50 million barrels per day of new production.”

OPEC Secretary General Abdullah al-Badri defended OPECs production moves saying “If we had cut in November we would have to cut again and again as non-OPEC would be increasing production. Everyone tells us to cut. But I want to ask you, do we produce at higher cost or lower costs? Let's produce the lower cost oil first and then produce the higher cost. Prices will rebound. I saw this 3-4 times in my life." Saudi Aramco Chief Executive Khalid al-Falih echoed that saying that although it may take time oil prices will eventually rebound.

Sam Zell chipped in oil recently as well telling Bloomberg that” I think it is important to look at the oil market and understand the disparity between production and consumption is very small, only about a million barrels or day of surplus. A million barrels per day is out of 95 million barrels. Why did we fall 54%? that's because, there was a collapse of financial players in the oil business. “He added “This is a traders driven decline. Therefore, i think it is likely to be much shorter in terms and duration than most people expect. When asked if it was time to buy Mr. Zell said “We have been active in the last three or four months, buying various kinds of oil related assets or gas related assets.”

If you step back to the view from 40,000 feet all the major players in oil and gas are telling you that prices will eventually rebound. Even OPEC, the driver of the price decline are telling you that eventually they see higher prices. Now is the time to be looking for safe and cheap (emphasis on safe here. Rock solid very safe with no question under even the worst scenarios) and adding on further declines. Oil will rebound, it is just a question of how long and how patient we can be.

There some pockets of cheap like select oil and gas stocks and community banks but on balance we do not have a ton of safe and heap stocks right now. Our theme remains cash, common sense and community banks for the rest of the year.

Have great week everyone.

Tim

Going to see these guys play Wall Streets theme song tonight:

https://www.youtube.com/watch?v=lGLTyTkqnmM&index=48&list=PLw-zFQPitE8s1rAJqPqDDt_GFU9S4jAx5