There was a Reuters story yesterday by William Schomberg, “G7 Finance Chiefs to Discuss Bank Reform Push.” Very few people picked up on this but it seems strange that all the sudden a meeting is called to discuss what elements of bank reform. Are they going to try to persuade Germany to get behind the EU push for a banking union and if so why the hurry before the September German elections? The idea of a banking union with resolution authority is sure to be a lightening rod for all the German angst about the bailouts of the peripheral nations. The Reuters piece notes that some G-7 officials are upset that the U.K. called the meeting so soon after the recent IMF talks in Washington. One official said, “I am really annoyed I’ve got to give up my weekend for this.”
Posts Tagged ‘France’
First, the unemployment report offered no surprises as the market was close to the actual release. The real surprise was in the upward revisions to the February and March numbers. The negative surprise was the average work week shrinking by 0.2% of an hour. The shorter work week may be an aberration but it may mean that employers are cutting workers hours so as to keep under the Affordable Care Act mandates, but I caution it is far too early to say that this is definitely occurring. The BOND markets reacted negatively to the “stronger” jobs data and the 10-year note future fell as yields rose by 10 basis points. Investors bought stocks and seemingly sold bonds in a performance of risk-on/risk-off. Again, one day’s action does not a trend make. The pure risk-on/risk-off paradigm has been dormant for quite a while and let’s hope it stays that way.
This is the question investors all over the world are asking after the massive selloff on Friday. I have argued that gold was a tired bull for the last six months and that global equities had replaced gold as investors’ and traders’ haven and store of value. Gold has done yeoman’s work as a store of value in the world of central bank hyperactivity resulting in negative real yields all over the globe. As gold prices have stagnated, investors have sought out other asset classes to supplant the need for increased risk and hopefully positive returns. Multinational corporations with high dividends have become the new store of value and the rush to unload traditional hard assets for productive real assets has gained traction. The Cypriot debacle scared global investors and sent them scurrying from bank deposits to corporate assets, with a higher yield via dividends and possible appreciation. (Especially if the assets are domiciled in a jurisdiction that has a court system that protects property rights.)
Notes From Underground: #Irony … Carmen Reinhart Says “Do Not Take Size As An Indicator of Importance”; Harry Rheems DiesMarch 21, 2013
Okay, you must have some fun amongst the idiocy of the Eurocrats. It seems that the best intentions of last Friday night’s decision to sacrifice the pawns in the game have done exactly what I thought the ill-conceived plans would accomplish. For 10 billion euros of bailout capital the fallout has been large drops in equity values. The capital losses are small compared to embarrassment facing the European policy makers. In a Bloomberg article by James Neuger, “Europe Plays I-Didn’t-Do-It Blame Game on Cypriot Deposit Levy,” it seems that German FM Schaeuble, France’s FM Moscovici, Spain’s FM Guidnos and even Finland’s FM Urpilainen all claim that they were opposed to taxing the guaranteed deposits of under a 100,000 euros. They all seem to point to the ECB and IMF as wanting the “bail-in.” This is a classic example of what my friend Andy Schreiber used to say: “Success Has Many Fathers, Failure Is But An Orphan.” The Cypriot situation is a situation that punches way above its weight. Carmen Reinhart, an economist I cite regularly on financial repression, silenced the talking heads on CNBC when she claimed that, “Do not take size as an indicator of importance.”
In the London Telegraph, it was reported that French President Hollande visited Greece in an effort to show solidarity with the Greek people in pledging to support growth over austerity. The French leader told the Greeks that the French would “help with privatizations, tourism and a public sector overhaul.” Hollande also urged French investment into devastated Greek businesses. In direct opposition to October’s visit by German Chancellor Merkel, the French President proclaimed, “The Greek people have has as much as they can take.” While I would not disagree about the Greek citizenry being pushed to the limit through austerity budgets and tax increases, be assured that Hollande’s public show of support is all about trying to gain as much support as possible in his coming battle with the Germans.
It was only a year ago that the PRECIOUS METALS were laboring under the continued selling of GOLD and SILVER as the John Paulson hedge funds were liquidating long positions to meet the huge amount of redemptions by long-time investors exiting the decade’s best performing FUNDS. In a repeat, Morgan Stanley announced today that it was redeeming its investors out of Paulson’s two largest funds after another year of questionable performance. In today’s world where one hedge fund can hold massive positions, divestment by disgruntled investors can initiate massive corrections. In 1980, when the Hunt Brothers caused great turmoil in the silver markets, they had a mere BILLION DOLLARS to play with (the Paulson funds control close to $15 billion under management.) As traders and investors it’s our job to be cognizant of all the animals in the jungle. When the elephants retrace their steps from the watering hole, small animals can get crushed (Niederhoffer).
Well, Moody’s downgraded the France’ sovereign rating from AAA in what was an obvious bow to reality. MOODY’s, WHAT TOOK YOU SO LONG? This will really be a bitter pill for President Hollande as it was only last week that the “French cock” was crowing about how well the bond markets were evaluating his performance as the leader of France. I reminded readers that the recent performance of the French debt had more to do with Mr. Draghi’s aggressive actions than any policy put forward by the Hollande government.
The key policy maker who raised the issue of the fiscal cliff back in April 2012 has been missing in action from the discussion. It is widely understood that the FED is not supposed to involve itself with fiscal policy, but that proposition was violated when the FED chairman voiced great concern about the failure of Congress to halt the potential drag on the economy. The FED has continually supplied the liquidity as the “only game in town” but it seems obvious that the great enabler of Congressional “benign neglect” should offer some guidance while not overstepping its mandate. More members of the G-20 were out over the weekend warning about the potential disastrous effects of a fiscal calamity in the U.S. on a very fragile global economy. What will it be Ben? I say yes, you say no. Bonds say buy and stocks say sell. Congress says goodbye. Will the FED say hello?
Notes From Underground: Mario Draghi Reveals He’s A Fleetwood Mac Fan; Says GOLD IS A “Mystery to Me”November 8, 2012
As today was central bank day in Europe, both the ECB and the BOE had rate decision meetings and left their current policies in place. The BOE did announce that it was “halting” the expansion of the QE program at 375 billion pounds as it deems the recent increases in its bond buying program to be less effective. Recently, BOE Deputy Governors Paul Tucker and Charles Bean have stated that “asset purchases may no longer have the same impact on the economy as when first introduced.” (Bloomberg) The market had different interpretations as to the reason that why the BOE was curtailing the QE bond purchases. 1. The recent rise in inflation was causing the halt; or 2. the lessened impact of recent QE was going to mean that the bank was going to increase the funding for lending scheme in which the BOE provides incentives for commercial banks to lend more money to small and medium businesses. This is of interest for FED watchers because BOE Governor Mervyn King has been a trail blazer for creative central bank actions and the FOMC may mimic some of the BOE actions to get a boost to a low velocity of money situation.