Notes From Underground: No Box Can Contain These Thoughts

First let’s dispense with the market data:
1. Tonight at 11:30 p.m. CST the RBA will announce its interest rate decision. The market consensus is for a rate CUT of 25 BASIS POINTS  from 4% from 4.25%. There are a few analysts looking for a 1/2% CUT and from looking at the near term curve inversion that is not a far-fetched concept. The overnight/2-year curve is inverted by 125 BASIS POINTS so a larger cut would help correct this inversion. (Not a bad idea for an economy that is slowing and the Aussie Treasurer has made known his desire for raising taxes to help repair the BUDGET DEFICIT that has arisen during the last four years. An anticipated 25 basis point cut be market neutral while a 50 basis point cut would lead to an immediate selloff of the Aussie dollar. More important will be the RBA‘s STATEMENT as our readers know that Governor Stevens is a very astute analyst of the GLOBAL ECONOMY, so listen for any mention of an AUSSIE FEAR OF A SLOWDOWN IN CHINA.
2. The GERMAN SCHATZ made all-time lows in yield as the rate hit 7.5 BASIS POINTS. As uncertainty looms about the Spanish banks, many EUROPEANS are buying GERMAN-based assets as a near-term hedge against the threat of BANK/SOVEREIGN insolvency. There is no getting away from it: The strongest economy in Europe has a lower 2-year rate than even Switzerland and Japan. Adding to the uncertainty is the news that Germany’s largest union, IG METALL, is demanding a 6.5% raise at a time of economic fragility in the EUROZONE. The union is not out of line as it has been the workers in Germany that have borne the brunt of the HARTZ IV wage reforms instituted under the SOCIAL DEMOCRATIC LEADER Gerhardt Schroeder.
As I argued yesterday in response to Larry Summers, Germany’s labor reforms have been the driver behind the resurgence of its economy and the huge competitive advantage that has emerged in relation to the rest of Europe and the world. A large wage increase in Germany would assuage the markets in the short-term and relieve some of the pressure on the peripheries. THE QUESTION IS AND WILL BE: IS GERMANY AND ITS BUNDESBANK WILLING TO TOLERATE A BOUT OF INFLATION TO HELP EASE SOME OF THE STRESS ON THE PERIPHERALS? FOR GERMAN INFLATION, PLUS PERIPHERAL DEFLATION WILL HELP REBALANCE THE CURRENT ACCOUNT DEFICITS THAT ARE A LARGE PART OF EUROPEAN PROBLEMS. IF THE GERMANS AGREE TO WAGE INFLATION ALL THE FINGERS POINTING AT EUROPE’S ECONOMIC ENGINE HAD BETTER BE FITTED FOR A GOLDEN RING.
3. Returning to the GRAIN MARKETS. In February, when the Chinese vice president and heir apparent to the top political position toured U.S. farms, I noted that it would be bullish grains for the Chinese were going to fill its BINS for fear of a food shortage going into a period of political change. Some analysts are attributing the rally since Xi Jinping’s visit to a supply disruption because of weather in South America.
I would argue that is a demand bull and reflects the market power of a China turning its attention to the necessities of life. Let’s hope for good weather in the U.S. heartland for any sort of drought will send global prices to the highs established in 2008. Factor in the ethanol mandate and the situation for global food is subject to steep price rises. The grain markets will be very volatile as the Chinese pretend that they are not buying. For one thing we know about Chinese purveyors that to not like to race prices higher against themselves. This could be a very interesting summer.
OUTSIDE THE BOX ON THE FRENCH ELECTIONS: Everyday I think about this Sunday’s French presidential elections the outcome grows in importance. WHY? If Sarkozy were to lose, in my mind it will represent a sea change in the political fabric of the European polity. Sarkozy is a disciple of Charles de Gaulle whose policies for France, both foreign and domestic, were to return France to its role as an economic power and diplomatic hegemon. However, after the Suez debacle of 1956 when Eisenhower admonished Israel, France and Britain for their international bravado in seizing the SUEZ CANAL, the British understood their role in the world had changed and it was now the U.S. shaping global policy. De Gaulle understood the game had changed also, but his stance was to keep the U.S. from being the world’s dominant power. Under de Gaulle, whatever the U.S. favored, France was against. France as a participant in NATO … ABSURD.
De Gaulle thought to tie France and Germany together in a unified Europe that could counter-balance the global power of the U.S. The French diplomatic corp with the German economic locomotive. Remember, it was de Gaulle who crowed that Europe was France and Germany. It was also de Gaulle’s  economic advisor, Jacques Reuff, who helped put an end to the Bretton Woods’ world by French demands for U.S. GOLD as they sought to exchange their vast horde of GREENBACKS all in an effort to prevent the U.S. from being the global HEGEMON.
So as the election of 2012 reaches its end, will Francois Hollande defeat Sarkozy and put an end to MERKOZY? The SOCIALIST candidate Hollande seems to be seeking to  diminish the incipient strength of Germany by espousing the belief that France should align with the peripheries and others in pushing for a GROWTH PACT rather than the FISCALSADISM PROMOTED BY THE GERMAN BUNDESBANKERS.
The death of Gaullism will create a period of confusion in a Franco-German-dominated EU. A French alliance with the weaker states would be a major statement about contemporary Europe. With Putin always looking to roil the status quo and Gerhard Schroeder heading NORDSTREAM, the pipeline arm of GAZPROM, Germany’s largest energy provider, the French election looms very large indeed. Russia can become a very significant variable as an alternative to the role that France has played in Europe during the last 50 years. As the SUNDANCE KID SAID: “YOU JUST KEEP THINKING BUTCH. THAT’S WHAT YOU’RE GOOD AT.”

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8 Responses to “Notes From Underground: No Box Can Contain These Thoughts”

  1. huh? Says:

  2. In The News Today « Jim Sinclair's Mineset Says:

    […] More… […]

  3. asherz Says:

    In discussing the advisability of following a “Growth Pact” vs. “Fiscalsadism”, think of the Reichsbank in 1919 vs. the Federal Reserve in 1932. Which poison do you prefer and which ultimately had the better outcome.

  4. Rainer Says:

    There will be wage inflation in Germany a n d France not deflation in France. The core problem of the euro is that there can not be a currency union between this two countries. The euro is too strong for France and too weak for Germany. “To meet in the middle” is a desaster for both countries.

    Please do not forget that the next german government will be “red-green” and they will fulfil every socialist dream of the Club-Med countries at the expence of the german “rich”.

  5. yra Says:

    Rainer–it seems that will be the case at this juncture but much can change between now and the 2013 elections.This is much more an “existential” issue for France —and Merkel will have to make her turn leftward and paint the German deflationists and austerity prone as extremists–will not be an easy task from my viewpoint.And ultimately the FCC will have a voice if there is a move to a EUROBOND

  6. Hank Moody Says:

    I thought Governer Stevens would only move 25bps today, he has openly criticized the housing bubble and to paraphrase has said Australians can’t get rich by selling houses to eachother.

  7. yra Says:

    Hank–that overnight rate to the two year was telling a powerful tale

  8. bob di falco Says:

    the text above mentions Putin, he is merely waiting for a ripe
    moment to bring euroLand into USSR so as to salvage what
    remains of France, then fix the other nations too,,,,, if no one
    intervenes euroLand will go back to the caveman era, if Putin
    he is the only one with a big stick intervenes then euroLand
    will survive and prosper but only as operating members of USSR

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