Notes From Underground: The World Awaits the State of the Union but it is Sarkozy in Search of A Balcony

First and foremost: My thoughts and prayers go out to  the Russian people as the nihilistic elements of global terrorism crafted its senseless actions on the Moscow Airport. It is not my bullish view on Russia that provokes my thoughts, but rather the ugliness of NIHILISM. Random terrorist acts are to be opposed wherever and whenever they raise its spectre of wanton destructiveness. The Russians will of course respond with a heavy hand for Putin et al care very little about public relations. Brutality will beget brutality. Political expediency will trump all rationality for  neither Medvedev nor Putin will want to be perceived as weak in the eyes of a resurgent nationalistic populace.

As usual, the political elite of Europe will advise the Russians to be gentle and thoughtful in response to the terrorists but the advice will fall on deaf ears. Trouble in the Caucus region is not new news and from a financial perspective the markets brushed off the Moscow terrorism and found its footings. Capital markets no time for terrorist acts in moments of a QE2-led equity rally.

From Europe, President Sarkozy and his finance minister, Christine Lagarde, have been strengthened  enough by the recent rally in the EURO to be able to get on with the more important work of the G-20. I have warned that Sarkozy would use the G-20 presidency as a stage to resurrect his failing political career as French president. Remember, Jimmy Breslin once described Rudy Giuliani as a “small man in search of a balcony,” but he may as well been describing Sarkozy. Today, Sarkozy stepped out onto the balcony and called for a code of conduct to regulate international capital flows. Last week, Sarkozy claimed the G-20 was too large a group to seriously tackle pressing global financial issues. This week it is all about the G-20 role in regulating the problems that plague the global economy.

Does anyone seriously think that the SEC or CFTC would surrender its role to an amorphous world body lacking enforcement tools? Sarkozy wants to ask the members of the G-20 to control the flow of funds that appear to be wreaking havoc on the economic policies of many emerging markets. If Sarkozy really wants to impact the hot money flows, he should call upon the BOE, the FED and the ECB to raise interest rates and make the capital markets of the developed nations a more attractive venue. Promoting a “CODE OF CONDUCT” is merely a euphemism for the need to rein in the investment objectives of hedge funds, private equity groups and, of course, sovereign wealth funds.

The French leader is looking to lock down the global system under a “CODE” of restriction and put the bureaucrats back in charge. It’s just one more effort by the French to thwart the precepts of the Anglo-American capitalist model. Lagarde furthers the idea in a Financial Times article:

“France took over as chair of the G-20 two months ago. It has to create fairer and more legitimate global governance … It has identified its priorities as containing currency conflict, encouraging co-ordination between nations and correcting commodity turmoil.”

Wow, what an activist agenda for a debating society. If the French are worried about commodity turmoil, then start with the Common Agricultural Policy of Europe and then get on the with the terribly flawed ETHANOL program derived in the halls of CONGRESS. Mr.Sarkozy, correct the things you have jurisdiction over first and then come out on the global balcony.

Tomorrow night, President Obama delivers the STATE OF THE UNION and it seems as if the entire address has already been leaked.It appears that the address will be about cutting the deficit, JOBS and AMERICAN COMPETITIVENESS. As President Obama has previously stated, the U.S. is facing its “Sputnik Moment” when it comes to finding its place in a rapidly changing world. I applaud the president for realizing that the U.S. economy needs to be re-energized to meet the 21st century but his leadership will be tested not by the Republicans but by his own party. The president’s own Bowles-Simpson Commission was silenced by left-wing of the Democratic Party and Obama didn’t even try to support the serious work of Bowles-Simpson.

If there is going to be any real attempt at change, leadership will be required and that is what I will be watching for. As far as the JOBS and AMERICAN COMPETITIVENESS, it sounds as if a weak DOLLAR policy will be needed as well as a major overhaul of the TAX SYSTEM. The U.S. cannot become an energized global competitor with mere words. Action will be needed and if the National Association of Manufacturers and others have their input, a lower DOLLAR will be part of the policy. There will talk about EDUCATION and its importance but that is not something that will bear immediate results in JOB creation.

The FED has created the backdrop for a lower DOLLAR. Now the administration will see what it can accomplish. President Sarkozy are you listening? As the markets have reflected for the past two weeks, it is a DOLLAR story as even the EURO found reason to rally.

Is the EURO merely short covering as the world had serious doubts about the EURO‘s survival? The EURO has gained strongly even against GOLD as long-held positions have been unwound. Is the market sensing a weak DOLLAR policy and preparing for its effect? Let’s hear what the basis of America’s competitive rebirth is going to entail. Mr.Obama, you have a bully pulpit rather than a balcony. Use it wisely.

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4 Responses to “Notes From Underground: The World Awaits the State of the Union but it is Sarkozy in Search of A Balcony”

  1. Fred E. Says:

    “The FED has created the backdrop for a lower DOLLAR.”
    A weak dollar policy will engender competitive devaluations and may lead to protective tariffs. We’ve seen that play and know the results. Debt reduction is not on the forefront of central bankers’ agendas, but the debts are not going away. Inflating our way out of that problem will ultimately lead to impovershing their populace.

  2. yra Says:

    fred–point is right on —of course it will play out that inflation will lift all bad debts

  3. Arthur Says:

    Charlie Cook suggests Obama is on the right direction, similar scenario to 1982-84?

  4. yra Says:

    arthur–I just read the piece and I care not a lick about polls at this time.Yes ,the platitudes sound great but as I wrote does he have the leadership skills to do this—-again the left wing has hijacked his simpson-bowles plan and he stared like a deer in the headlights–and if I read one more piece about Bill Daley being a banker I am going to lock myself in a vault.And Immelt signing on —please,go and run GE which has been a very underperforming jewel and don’t forget it was Immelt who said he was going to be moving business out of China as it was too tough to make money.I wish for nothing more then Obama to get it right but I need to see real leadership—remember that Reagan was a Governor of a large state and had executive experience–right now this is all about getting reelected and the Pelosi wing is not going to go quietly.If I hear about Education and nothing about the NEA it will prove that it is nothing but fluff–I guess I am also waiting for SUPERMAN.

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