Notes From Underground: Cramer, The Running Dog of the Governing Classes

The potential for a big market-moving story was in the works but the usually aggressive, boisterous Jim Cramer, in his interview with Treasury Secretary Timothy Geithner, resembled a tea party at an American Girl store. It seems that when Cramer fears being audited he goes quiet. The questions about Europe were milquetoast, leading to ridiculous answers–“I am sure Europe will be there in three years.” It proved to be worthless and provided little clarification on the issues of “THE TWIST” and how the U.S. was going to act in concert with the Europeans to help resolve the effects of the severe credit crisis that is impinging global financial institutions and certainly European economic growth.

The U.S. has been missing in the European discussion. Is this because the U.S. did not view Europe as a big enough threat? Does the U.S. have a view on the Chinese efforts to buy influence in Europe by throwing around its DOLLAR reserves in a very BUFFETT-like fashion? The eagerly anticipated interview turned into another round of sycophancy as the established media again seeks to curry favor with those it deems to be powerful and therefore untouchable.

Quick Hitter #1: This afternoon the RBNZ announced their OIR and decided to leave lending rates at 2.5%. Alan Bollard, Governor of the RBNZ, cited the weakness in the global economy and the strength of the New Zealand dollar as the most significant reasons for holding rates steady. “However, the outlook for NZ’s trading partners has deteriorated MARKEDLY. There is a real risk that global economic activity slows sharply.” The high level of the NZ dollar is having a dampening influence on some parts of the tradable sector and on imported inflation.

The RBNZ‘s statement is very clear and heavily oriented toward the global economy, which makes the DEVELOPED NATIONS on the PERIPHERY so very important to understanding the state of the world economy. In capitalism, everything of significance happens on the margins which is why I try to keep NZ, Canada, Australia and others on the radar. Also, do your technicals on the KIWI AND THE KIWI CROSSES TO DETERMINE IF THE NZ DOLLAR HAS BECOME OVEREXTENDED in the rebuild of New Zealand after the Christchurch earthquake.

Quick Hitter #2: If the FED and Treasury decide to embark on a “TWIST” of the curve what will the impact be on the BOND MARKET? The 30-year BOND has maintained a bid as many in the market are assuming that with the 10-YEAR NOTE trading at 2%, the FED will look to the 30-YEAR where rates are 3.33% and push hardest to drive the longest tradable instrument lower. There will be interest in selling the LONG BOND when the FED decides, but I caution that if the FED “TWISTS” the longest end, a CONVEXITY PROBLEM is going to arise for mortgage holders.

This will also be a problem if the Treasury were to do a massive REFI. Holders of RMBS will be awash in money on a massive REFI program and investors will have to rush to lock up rates at whatever price available, thus putting even greater downward pressure on yields. The TREASURY market is badly disoriented by the QE programs and now the introduction of the “TWIST.” Let the situation clear before being committed to any shorting of BONDS. There will be a time to short the DEBT of the U.S. but let the technicals be your guide.

Quick Hitter#3: A very good article on BLOOMBERG by Yalman Onaran, “Deposit Flight at European Banks Means Risk Piling Up at ECB.” The article details a very large problem in Europe. A problem further compounded by the actions of the Swiss National Bank. As Europeans in the PIIGS worry about their domestic banks, they take their EUROS and place them on deposit at banks in stronger financial positions. It was the effect of the inflows from the PIIGS that drove the SWISS FRANC to such dizzying highs, forcing the SNB to act to curtail its appreciation. As the banks in Greece, Italy, Spain, France and Ireland need to raise cash they exchange sovereign bonds with the ECB, thus making the central bank the ultimate holder of questionable collateral.

The more runs on banks, the more collateral the ECB is forced to accept. As Desmond Lachman points out in the article, “IF there are sovereign defaults, the ECB will be left with the garbage that has been accepted as collateral. It’s putting EU taxpayers’ money at risk in a very non-transparent way. But there’s no alternative. The ECB is the only game in town.”

What is happening here is that Germany’s hand will be forced to support Europe by underwriting the ECB. The longer the CRISIS plays out the more sovereign collateral will be placed on the ECB‘s books–fiscal centralization by stealth. The quiet bank runs have lead to the call by Christine Lagarde for Europe to recapitalize its banks. As banks need liquidity it is the ECB that provides, but will the Germans agree to be the GUARANTOR?

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4 Responses to “Notes From Underground: Cramer, The Running Dog of the Governing Classes”

  1. larry Says:

    What do you make of the following observation: From the start of the gold bull market in 2002 until the failure of Lehman POG and NZD showed little if any correlation (sometimes even being negatively correlated). Since then, however, the two prices have moved in lockstep. Does this reflect a change in how the market is viewing GOLD or how it is viewing NZD? Or is it is simply evidence of another “fat tail”?

  2. Scott Slutsky Says:

    Nice piece Yra, now let’s see if Geirhner cam sell the US playbook to the Europeans


  3. rohrintl Says:

    Sycophancy indeed. And it’s a sign of the times that the US Treasury Secretary is being interviewed by who? A short-term trading guru? We could ask what that’s all about, but I think it’s clear (as well as sad):
    In the wake of the death of well-respected skeptic Mark Haines, CNBC is panicked over a lack of a credible early day presence. The Geithner interview is another aspect of the attempt to raise Cramer’s standing… but then he goes off into the ‘lightning round’, where he’s going so fast he might as well be speaking in tongues. How do you provide gravitas to that sort of nonsense?
    Softball questions in exchange for the ostensible enhanced standing; that’s the tradeoff we all watched yesterday… what a joke.
    Adding to the bigger canard: Each of the bond support programs has… hurt the bonds and seen inflation of risk assets and equities. Of course, that’s because free money is only willing to speculate on short term returns while there is no way to sensibly ‘invest’ in the real economy right now… thanks to the statist approach of Washington DC.
    And you have been dead right Yra that this is not a big problem for the Fed, because (as you brought to all of our attention) Ben Bernanke already provided the ‘portfolio channel’ cure to damaged pension investments earlier this year; and he’s not running for re-election anytime soon; if indeed ever.
    Yet, that leaves a bit of a mystery: even as he lately says (at long last) the US economic woes are a creature of Congress and they’re on their own to tame it, why would he put the Fed at further financial, reputational and political risk by collaborating in another form of liquidity infusion that’s unlikely to help the economy? Lower rates won’t help folks whose mortgages are under water.. so what?!

  4. Let the feeding frenzy begin. « Tracking Precious Metals Says:

    […] Notes From Underground: Cramer, The Running Dog of the Governing Classes <- Ouch. […]

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