Open question to Goldman Sachs: ARE YOU ARROGANT OR DEAF? There’s a story in tomorrow’s Financial Times there is a story titled, “Goldman Sachs Makes Large Donation to Pro-EU Campaign.” It is being reported that Goldman has made a large six-figure donation to Britain Stronger in Europe. Whoever thought this up needs their head examined. There is nothing in the world more TOXIC than the big investment banks. In a potentially existential issue for British democracy, the idea of a large U.S. investment bank playing in the U.K. referendum will stir the anti-EU forces to push harder for a NO vote. The anti-euro camp has many strong, legitimate former officials working hard to push England further from the restrictions of an overzealous group of Brussels eurocrats.
Posts Tagged ‘Italy’
(Will the Collapse In Energy Prices Grease a Cut In Rates Or the Introduction of QE?)
Just some tidying up and refocus on things besides China, Iran and the debt of ingratitude to the fracking revolution. Tomorrow at 9:00 a.m. CST the Bank of Canada announces its overnight interest rate. The bank rate in Canada is currently 0.5% and consensus is calling for a rate cut of 25 basis points to 0.25%. Other market participants are suggesting that BOC Governor Poloz will announce a large-scale asset purchase program (better known as QE). I doubt the BOC will change policy at this time even as the Canadian economy suffers from the severe drop in fossil fuel prices and other commodities.
As Poloz articulated in a speech in Ottawa at a BIS BREAKFAST SERIES January 7 (regarding monetary policy divergence): “It is very important that we understand the reasons for these policy divergences. On one level, they simply reflect actions taken by central banks tailored to their own economies. But the underlying forces acting on the global economy are powerful, slow-moving and affect various economies differently. This means that the theme of divergence – both financial and economic – is likely to remain with us for some time to come.”
The Canadian real-estate market has run hot for too long and even though Canadian banks are not of the sub-prime model lenders, Mr. Poloz will not wish to just continue to inflate property values. It would behoove the BOC Governor to wait to see what the newly elected Prime Minister Trudeau puts on offer from a fiscal stimulus perspective before racing down the monetary stimulus track that many other central banks have followed with no proven success (except for counter-factual arguments).
As the markets are settling into the holiday mood of eggnog and the decorating of Tannenbaums, Germany’s EU partners were castigating Berlin for its continued emphasis on fiscal austerity. The ECB’s chief-economist and executive board member Peter Praet was maintaining that ECB policy would be accommodative for a very long time. This was a shot fired at Bundesbank President Jens Weidmann. Make no mistake about it, Mr. Praet was speaking on behalf of President Draghi who didn’t enjoy being “bested” by Weidmann at the December 3 meeting. The German “block” had raised its concern about more QE and prevented Draghi from delivering what he had previously promised.
And so it goes. As the light lifts off the European “bailout” it appears that most analysts agree that the “Agreement” was a lose-lose for the European Project. The Germans stood firm and placed unduly harsh demands upon the Greek electorate that had the temerity to openly reject the terms of debt resolution. Merkel had favored a real compromise until Alexis Tspiras deployed the nuclear option and went to referendum in an effort to better be able to negotiate with an intransigent Djisselbloehm and his ECOFIN council of Grand Inquisitors (see the Brothers Karamazov). The punishment meted out to the Greek nation is a loss for them but ultimately the real loss will be on Spain, Italy, and, of course France. The Germans have revealed that the use of Berlin’s money to support the EU is going to come at a price and it is the acceptance of an economic model for Europe that is German, its backdrop of course being sound money. Not the strong dollar mantra of the U.S. Treasury Secretary but an actual strong currency, at least until the German financial system enters a fragile state.
Earlier I was rereading a blog post from almost three years ago. I believe it still has great relevancy and gives us all perspective from where we have been to what the next three years may bring. Perspective for a global macro trader is very important for without it traders rush in where investors dare to tread.
First, I will say it again. QE3 is over and the Fed will maintain its “forward guidance” and be data dependent. The next bout of important data will be the U.S. unemployment release on November 7, which buys the Fed one more month of doing nothing. James Bullard painted the FED into a tight corner when he PANICKED and said the FED may want to refrain from removing QE3 while the SPOOs and other equity markets were at a 10 percent correction low. Bullard revealed that the Fed’s REACTION FUNCTION is the equity markets and of course Chairman Yellen’s concern about the lag in wages. The two key variables for the Fed have both been steady since the last meeting. The spoos are lower by 0.75 percent while the September unemployment report showed wage gains had no increase.
Germany was the issue at the IMF and G-20 meetings as all nations suffering economic headwinds delivered harsh criticism of Angela Merkel, Wolfgang Schaueble and, of course, Bundesbank President Jens Weidmann. It was Germany’s continued emphasis on budget restructuring and fiscal soundness that was holding back Europe and resulting in global economic challenges. France can’t grow because the Germans insists on the French authorities bringing their budget down to the prescribed 3 percent of the Maastricht Treaty. The peripheral nations are saddled with private and public sector debt that is not serviceable during times of economic stagnation.
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.
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.