The word out of Washington about the BUDGET RESOLUTION is that taxes ought to be raised out of fairness. The President of the U.S. is consistently talking about fair. Give up that specious argument. Is it fair that the savers of this country are being punished so as to bail out the WALL STREET TOO BIG TOO FAIL BANKS? Is it fair that an incompetent Treasury Secretary was allowed to obtain the Treasury position even though it appeared that he cleverly tried to avoid paying taxes? Is it fair that the Wall Street banks were bailed out while mortgage paying homeowners were granted no relief against the coming exploding ARMS mortgages that have worsened the foreclosure problems and continued being an albatross around the neck of the economy?
It is time to end the discussion of FAIR and get down to doing what is right. My view is that you can take the 30 basis yield on the two-year note and place it in the trading rooms of the Wall Street banks where the sun doesn’t shine anyway. The low interest rates are leaving me to believe that the best stock to buy is probably SERTA for with the ULTRA LOW RATES and the fears of a new global banking crisis, mattresses seem to be the safest depositories for wealth.
Ok, that is my apolitical rant. As the U.S. budget circus came to a momentary hiatus, Europe reappeared into the center ring and the main act is Italy and Spain. The European politicians were in such a hurry to hit the beaches assured that they had arrested the DEBT CRISIS. Many of the EUROCRATS have forgotten that markets don’t go to the beach and will search for the weakest areas to attack. The arrogant EUROCRATS failed to understand that the markets are going to test the fortitude and pockets of the EFSF. The European bailout fund is going to need a great deal more than 440 BILLION euros now that the Spanish and Italian debt markets are under attack … AGAIN. The Italian and Spanish 10-year notes have gone above 6%, which is causing a new wave of stress.
The fear of a real credit crisis is alive and well and living in BRUSSELS and FRANKFURT. The phone lines must be ablaze tonight as the selloff in equity markets and the rally in haven assets is unnerving global investors. Hey TRICHET, IT IS TIME YOU HAVE EXTREME VIGILANCE ABOUT A COLLAPSE OF EUROPEAN BANKS. Maybe Trichet should raise rates again in the midst of this current turmoil just to exhibit his manhood.
There is an ECB meeting this week, THURSDAY, so Trichet will have his chance, although the DECEMBER EURIBOR staged a strong rally indicating that the market is possibly expecting a softening stance from the ECB. The EURO CURRENCY was again very weak, even against the DOLLAR, as investors were once again buying anything that was considered to be a haven. GOLD and SWISS FRANC were again the stars and the YEN languishing due to concerns about intervention.
The markets were left wondering what tricks the world’s central bankers and financial ministers had in their bag, with the GOLD convinced it will be another massive jolt of liquidity. Will there be a QE3? The FED will wait for this Friday’s employment data. Will the Europeans enhance the European Financial Stability Facility by raising it to more than a TRILLION? If Trichet and company want to calm the Spanish and Italian markets, it will take a massive amount of liquidity to be able to buy up the secondary sovereign debt that is causing havoc in the EUROPEAN BOND MARKETS.
As global economic growth slows, it seems that all that is left is Bernanke’s beloved PORTFOLIO BALANCE CHANNEL. Not a pretty picture as it appears that ECONOMIC GROWTH IS THE MOST TRANSITORY ELEMENT IN THE GAME. Most ominous of all is that the U.S. 2/10 yield curve has flattened so dramatically over the last week as the U.S. 10-YEAR HAS REGAINED HAVEN STATUS. If the BULL FLATTENER keeps on, at least the FED won’t have a problem unloading its TREASURIES. I say that tongue in cheek for the last thing the FED will do is remove liquidity. Bernanke won’t be sleeping well tonight but it won’t be because his mattress is stuffed with CASH.
A quick aside: the RBA held rates steady last night as Governor Stevens, again, cited concerns over the uncertainty of the global economy. The AUSSIE DOLLAR was sold as it seems that the market was expecting some sense of tightening or a more hawkish forward-looking statement. Getting neither the AUSSIE was sold and the fears that prompted today’s equity collapse led to further selling of long-held AUSSIE positions. It seems that the commodity currencies are being sold as fears about global growth begin to increase. Oh well, going to sleep … on the floor.
Tags: 10-yr Treasury, 2-yr Treasury, ARMS mortgages, Aussie Dollar, Brussels. Frankfurt, budget resolution, bull flattener, debt crisis, Dollar, EFSF, Euribor, Eurocrats, European bond markets, Gold, RBA, swiss, Swiss Franc, Trichet, ultra low rates, Wall Street banks, Yen
August 2, 2011 at 9:02 pm |
Powerful and succint analysis, Yra.
To use an old boxing analogy, the only way that this pair (Bernanke & Trichet) of canvas-backers are going to make money is by advertising on the soles of their shoes. The k.o. brothers. Give yourselves an uppercut.
August 2, 2011 at 9:04 pm |
Yra,
Inspired as always! We’ve got a great race to the bottom taking center stage again as the Eurocrats and Americrats show their “one-upsmaship” of ignorance and hubris. This is called “leadership” in the 21st Century.
Kevin
August 3, 2011 at 1:37 am |
Would that Washington had said rather: taxes should be raised because that is one half of the only two mechanisms available to balance the federal budget … the alleged, but clearly untouched, goal of the recent “resolution” legislation.
August 3, 2011 at 2:02 am |
[…] opinion that is very similar to mine on the markets-but funny […]
August 3, 2011 at 5:07 am |
Gold: pinpointing the peak?
August 3, 2011 at 5:08 am |
Arthur,–peak in what–GOLD?If so how do we come to that conclusion
August 3, 2011 at 5:29 am |
From the FT’s Lex blog: http://www.theglobeandmail.com/report-on-business/international-news/global-exchange/financial-times/gold-pinpointing-the-peak/article2116834/
August 3, 2011 at 5:50 am |
Arthur–there is only one top–and I am not good enough to pick it—trade with caution as the move has been dramatic
August 3, 2011 at 7:48 am |
What does it say about congress when they have to establish a “super commitee” to actually craft an all or nothing broad sweeping reform package due to the fact that they themselves fully acknowledge that they have a severe inability to be legislators/policy makers because of politics/re-election cycles/constituents? In my opinion 1/3 of the house and the senate should resign every year for the next 3 years. With an approval rating of 14%…the perversion of the legislative branch of gov’t has gone too far and thus the moral/ethical character of everyone comprising this branch of gov’t has made it a moral imperative that they be removed from office and just maybe some less corrupt, pragmatic, centrist newbies will find their way into office.
As I am reading Richard Koo’s book (per your recommendation) I am continously asking myself, if we fully acknowledged that we are in the midsts of a balance sheet recession that will stick with us for the next 10-15 years…what should fiscal policy look like to ensure that when we do finally come out of it, we will be positioned for greatness? Currently, in my estimation monetary policy is tapped out (and as argued by Richard Koo is essentially a useless tool in combating a balance sheet recession anyways) BUT fiscal policy proposals by both parties seems to be indicative of a longer lasting recession that does little to ensure a strong positioning when we finally do recover.
August 3, 2011 at 11:36 am |
OK. Thanks!
August 3, 2011 at 9:20 pm |
Danny–you said it all.And Richard Koo has provided the basis for a real understanding of where we are at.It is a shame that the politicians in Washington and Europe already know everything and are in no hurry to try to attain any knowledge that may conflict with their hardened preconceived ideas—oh but would you like to buy a 36,000 ticket for my fund raiser.
August 3, 2011 at 10:13 pm |
Danny,
When you finish Koo’s book, pick up Reckless Endangerment. You’ll see the same recycled politics by the same recycled politicians stretching back from the current “Dodd-Frank Reform Bill” to the 1991 Federal Deposit Insurance Corporation Improvement Act, to the 1977 Community Reinvestment Act, and more. Remember, Richard Syron was the president of the Boston Fed in 1992 when the “Mortgage Lending in Boston: Interpreting HMDA Data” paper was published. This little academic self-satisfaction exercise was a strong catalyst in “making homeownership more affordable, expanding creative financing, simplifying the home buying process, reducing transactions costs, …”, in short, making sure that loans were made to many who could not repay them. Isn’t it amazing that the same Richard Syron who was the CEO of Freddie Mac in 2008 as it faced insolvency. But wait, don’t forget Congressman Frank, who in 2005 when asked if he saw any downside to the “homeownership drive” that he was spearheading, responded in classic Barney Frank “frankness”, “We’ll deal with that problem if it happens.”
See, he predicted his own co-sponsored bill, five years in advance of its birth. Resign? That would be too kind for these thieves!
August 6, 2011 at 8:45 am |
Yra writes “Is it fair that the savers of this country are being punished so as to bail out the WALL STREET TOO BIG TOO FAIL BANKS”…but then adds, “it is time to end the discussion of FAIR and get down to doing what is right”.
Yra is a bit unclear. Is there is a distinction between “fair” and “right”? Apparently so, for Yra writes not a few days after this post (in “Mr. Market to Jean Claude Trichet … CAN YOU HEAR ME NOW); “It is always difficult to solve a solvency problem with liquidity, but a huge allocation to the EFSF can at least buy some time”.
So does Yra believe it “unfair” to take trillions from people who have had nothing to do with this debt pyramid and shove it onto the backs of the innocent, all to bail out the bankers? I ask him to clarify, and apologize if I have erred in understanding his opinion.
Cato’s Letters asked the same question as I ask of Yra 300 years ago, in letter #6 (December 10, 1720):
”Shall the bubbles be redressed out of other men’s estates, no way chargeable with the mischief? Or must we prostitute the public honor of the nation to draw in other people (no way concerned) to take the bold bargains of rash men and dupes off their hands?”
I say “no”. Yra says….?