Notes From Underground: Yra Offers a Modest Proposal

First and foremost: This week’s postponement of the unemployment report has provided me with an idea. Because of the fear of data leaks from the sequestered media and the influence of high frequency trading and headline algorithm readers, I HEREBY PROPOSE THAT ALL GOVERNMENT DATA RELEASES SHOULD TAKE PLACE ON SUNDAY MORNING, OR IN THE SPIRIT OF PAUL VOLCKER, SATURDAY EVENING. By releasing the Federal data on the weekend, market participants and journalists could analyze the data and do their releases prior to the Asia openings on Sunday night. This would make the markets more efficient but of course less volatile. I know it will mean less opportunity for the high-speed correlative traders but the result would be to provide the markets with more causation and less correlation and hopefully return a modicum of trust  to the retail trader who appears to be missing from the present market environment. Just trying to bring some sanity to the madness that currently exists on a day-to-day basis. The closing of some government functions may allow some thoughts on alternative ideas. Just thinking outside the beltway.

***Tomorrow the ECB will announce its decision on interest rates. This is usually done on Thursday but for some reason this month it is a Wednesday release and is also followed by a Mario Draghi press conference. Consensus is for the ECB to hold interest rates at 0.5%. The press conference will be at 7:30 a.m. CST and with all the political turmoil in Italy and the U.S., President Draghi should be able to maneuver his way through the questions with the greatest of ease. There will probably be a question about a new LTRO program as Draghi broached the idea two weeks ago. The ECB president will say that it is a possibility but the ECB will await further analysis of European banks  and the ASSET QUALITY REVIEW that is to be done. The Italian political mess has been dissolved as Silvio Berlusconi seems to have alienated many in his own party. Italian 10-year bonds had a strong rally as it appears the present coalition will hold in spite of Berlusconi’s effort to hold the country’s credit markets hostage to his desire for legal exoneration. Mario Draghi will have to postpone any policy changes until the fog of madness clears from Washington … steady as she goes. The only problem for Draghi is the continued pressure from Bundesbank President Jens Weidmann.

In today’s Financial TImes, President Weidmann has an op-ed piece, “Stop Encouraging Banks to Load Up on State Debt.” Weidmann is trying to protect the ECB from having to monetize the debt of Europe’s weak sovereign states for many banks are loading up on sovereign bonds because of their low-risk weight under Basel rules. By treating government bonds as risk-free, the “more vulnerable banks are, the more they expose themselves to sovereign debt.” Thus the banks and sovereign states are so deeply connected that the failing of one results in the systemic risk from the ultimate daisy chain of debt. The issue of state debt on the balance sheet of regional banks is what has prompted President Draghi to initiate the LTRO discussion again. Weidmann wants the ECB to relinquish its position as the guarantor of European sovereign states in violation of previous agreements.

***In Japan, Prime Minister ABE confirmed the previous agreement and moved to raise the consumption tax to 8% from 5%. This was widely expected but the stimulus package ABE put forward was toward the high side of 5 TRILLION YEN and maybe even a little higher. There will be continued debate between the PM and his coalition to the details of the stimulus. Will it be a corporate tax cut, tax cuts for home loans and how much for public works? If a corporate tax cut is approved it seems that it will be coupled with some agreement on increased wages for Japanese workers. ABE is pushing for Japanese workers to have increased spending power to lift domestic demand. The uncertainty caused the YEN to rally and the NIKKEI to stutter. The ability for PM ABE to parlay his popularity into a successful policy will be the issue going forward. The corporate tax cuts seem to be the major sticking point as some legislators are vehemently opposed. Look for the stress on wage increases to be the bargaining chip.

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9 Responses to “Notes From Underground: Yra Offers a Modest Proposal”

  1. Mark Says:

    The Wall Street/banker lobby will never allow it. Such great ideas and solutions are proposed for our country that go nowhere because the status quo power would lose money or control in the process.

  2. ronald ferrill Says:

    Wow! Quite a bit of content here..

    Had to laugh to myself as I thought about the the Government statistical reports (oops, DATA reports) being released on “Saturday Night Live”.

    With respect to the ECB banks, I had a question enter my mind regarding monetization of sovereign debt by ECB countries. Is all debt in Euro-lands in Euros at the same value? If not how does the ECB “normalize”, if that’s the right word, the value and does inflation hit all ECB nations at the same rate? Or, am I just too ignorant of the concepts here to bother with (it’s ok, I understand that this is not an intellectual strength of mine, and not as self-aggrandizing as POTUS)…

    The path Japan is taking has interested me. Doing the combo of taxes and easing is an approach I haven’t been able to quantify. Maybe that’s the idea – keep people from understanding what’s going on, and if it works nobody will care, if it doesn’t work or has terrible unintended consequences, nobody will be able to blame it.

    Hmmmm….. another conspiratorial thought … starting to worry about myself. At least I’m not in the Raskolnikov vein of nutcakes.

  3. Mario Says:

    Send me the best of the best. Mario@vfund.com. I know i have capitalized on the thoughts and words of the Underground. Share with me the ones that have stuck out.Thanks

  4. Chicken Says:

    Interesting that TBTF bankers came to the rescue, considering Summers was their man.

  5. arthur Says:

    very interesting… about Spain/Europe http://www.ft.com/intl/cms/s/0/4a56f51c-2b60-11e3-bfe2-00144feab7de.html#axzz2gb3E9cSd

  6. Chicken Says:

    PIIGS are flying!

  7. yra Says:

    Chicken–PIIGS are flying as the headlines continue on about large hedge funds and private equity groups purchasing Greek Banks and other battered assets.

  8. yra Says:

    Arthur—that indeed was an interesting piece on Spain.Again.I hope the revival is genuine but I will wait until the unemployment rate begins to recover before buying into the stock story.The currency issue is much different and is as much about the U.S. and the end of the LTRO programs providing a positive platform for the currency.However,a EURO appreciation will not benfit’s efforts at exports.And as Michael Pettis would probably warn,if Spain improves without an increase in wages,it will be a very shallow and hollow recovery

  9. arthur Says:

    v interesting, thanks… So THE BEST case scenario for Spain is (probably) one of slow recovery, a gradual reduction in unemployment and—eventually—a slow decline in government and private sector debt.

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