I am going to take a well-deserved hiatus but I wanted to list some “quick hitters” on the issues facing the markets in the coming weeks. The Yellen testimony has been digested and regurgitated (ad nauseam) and the bottom line is Chairwoman Yellen is singing from the same hymnal as her predecessor. The stock market investors/traders are comfortable with a known known and as readers of NOTES are well aware markets appreciate as much certainty as possible. BUT I WARN EQUITY BULLS WHO BLINDLY FOLLOW THE FED LIQUIDITY MODEL: Janet Yellen is a labor economist of Keynesian predilections.
Posts Tagged ‘Italy’
The talking heads of financial visual media tried to create a circus around the new Fed Chair Yellen’s first official Congressional testimony. Yellen proved a worthy animal trainer and backed critics and supporters to their corners as she delivered very measured and COGENT responses to her inquisitors. The media was hoping for “red meat” but the Fed chair served up a vegetarian casserole full of nutritional value but nothing for the perpetrators of pabulum to sensationalize. It seems as though Yellen watched tape of Mario Draghi for she knew which Congressional posers needed long, drawn out answers so as devour their allowed five minutes of time. Well done Madam Chairman. This testimony of the Fed Chair, as mandated by Congress, has become about as relevant as the G-7 photo-op. If Congress has questions, put them in writing and establish a record of correspondence and thus a trail of responsibility to satisfy the dual mandate. It was reported that the House Republicans on the Finance Committee was to going to have a second hearing post Yellen’s testimony in which four invited guests would provide a rebuttal of the policy put forth by Yellen.
As the end of September approaches it seems that the global financial markets are again buffeted by the egomaniacs who crowd the corridors of power. This weekend has brought news that Silvio Berlusconi (Captain Viagara) has forced his party’s minister to resign from the coalition government, headed by Enrico Letta. Mr. Berlusconi was angry about losing another court appeal and in reprisal has decided to bring down the government. This will of course unnerve the Italian debt markets and send the Italian bond yields higher. Berlusconi will hope that he can craft a compromise with the government and receive some clemency and relieve him of his continued legal problems. The ability to hold the Italian financial markets hostage to instability is an expensive way to play for a legal reprieve. The U.S. markets are being subjected to a similar sort of hostage taking as the Republicans in the House are looking to negotiate away Obamacare by holding the U.S. debt levels and credit ratings hostage to political machinations. Being sympathetic to the long-term designs of the Republicans I understand there concerns but question their methods. Each time the House Republicans go down this path they ultimately cave and suffer politically at the ballot box. Better to draw up a genuine budget plan and educate the public to the destructive future budgetary problems.
First, I need to clear the air on an issue that is cited over and over, of which causes me great discomfort. In last Thursday’s Financial Times, Robert Pollin and Michael Ash, the two professors who sponsored graduate student Thomas Herndon of UMass-Amherst–and of recent fame for finding the flaws in Rogoff/Reinhart–published the article heard round the world: “Why Reinhart and Rogoff are wrong about austerity.” I am not disputing the results of their work but I am questioning a causal relationship that they note:
Mario Monti upset the Italian credit markets as he announced his early resignation over the weekend. In an apparent fit of rage after Silvio Berlusconi (aka Captain Viagra) pulled his political support from the sitting prime minister, Mario Monti headed off to the opera in Milan and apparently he was the fat lady that sang. It was a Wagner Opera that Mr. Monti saw so it seems that the political drama playing out in Rome is going to be a long, drawn out affair. I believe that the present Italian PM played a political gambit by announcing his early resignation in an effort to reveal the markets lack of support for the return of Berlusconi. As the Italian bond markets sold off and yields on 10- and TWO-YEAR NOTES increased by more than 25 basis points. It seems that there is little support from the financial markets for a return to the buffoonery of a Berlusconi-led government.
Due to the availability of virility enhancers, the Italian political arena is plagued by billionaires who still believe they remain relevant. The ability to sustain an erection does not make you politically astute. Today’s effort by Silvio Berlusconi to undermine the Monti government led to a selloff in the Italian debt markets which caused 10-year rates to rise 13 basis points. Mr. Berlusconi didn’t want to bring the present government down but merely wanted to exhibit his relevance to the Italian political establishment. What the Greek debt problems couldn’t do, a 76-year-old man with a bottle of Viagra was able to accomplish. Elections are going to be held soon and the Monti coalition will be called to account. Now with all the problems confronting the peripheral governments the attempts of a disgraced former prime minister to prove his manhood is just an exhibition of the absurd. Pay no attention to the man with unnatural bulge in his ego.
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?
The loser in Brussels was … FRANCE. The markets were giddy as they drank deep from the KOOL AID spring of separating BANK AND SOVEREIGN SOLVENCY … did this really occur? It is far too early to tell. For all the “PUNDITS” it seems that Chancellor Merkel has capitulated to the needs of Spain and Italy as France cheered on the brinkmanship of Mario Monti. The French, led by President Hollande, has now ended the 50-year-old policy of Gaullism as France will no longer be deemed a responsible partner for Germany as being the mainstay of Europe.
Notes From Underground: A Visit to February 5 (Sometimes A Reminder Is Necessary To Clear The Stain Of Bad Execution)March 15, 2012
The world is carrying on in its design of vast pools of liquidity in a “sea of tranquility” … for the moment. Are Europe’s problems solved as the FRENCH ROOSTER Nicholas Sarkozy has crowed? Absolutely not. The travails of debt plagued economies will begin for the nations living on the IBERIAN PENINSULA. As I have argued for a long time in this BLOG, Spain is a far worse problem then Italy but Italian BONDS suffered as they were the only FUTURES HEDGE AVAILABLE FOR THE PROBLEMS OF THE GIIPS.