Notes From Underground: Putting Significant Stories In Perspective

Just as I wrote in the headline, qthere is a story in the UK TELEGRAPH that the Chinese plan to put forward a 800 billion POUND stimulus program of major projects in the provinces. At this time, the TELEGRAPH is the only outlet with the story and has otherwise not been confirmed. IF THE STORY IS TRUE AND THE AMOUNT IS CORRECT THEN THE EFFECT SHOULD PUT UPWARD PRESSURE ON ALL RISK ASSETS AS THIS STIMULUS WILL BE CELEBRATED WORLDWIDE. THE INDUSTRIAL METALS, WHICH HAVE LAGGED THE RECENT RISK ON PROFILE, SHOULD GET A HUGE BOOST SO I WOULD ADVISE WATCHING COPPER AS AN INDICATOR OF THE VERACITY OF THE CHINESE STIMULUS STORY. Again, IF the story has any veracity all asset classes except DEBT should receive a BID Sunday night.

***European news has been fairly benign as Chancellor Merkel and President Hollande both offered words of caution on the Greek situation and Frau Merkel warned her fellow parliamentarians to WATCH THEIR WORDS ON VOICING OPINIONS ON GREECE. In a show of “compassion,” Austrian Chancellor Werner Faymann suggested the Greeks could be given an extra two to three years to repay any debt provided they were adhering to the agreed upon structural reforms.

It is interesting the FAYMANN, a Social-Democrat, is showing a softer side toward Greece as the leftists in Europe are more pro-growth than austerity. France’s Hollande is desperate to gain allies in his quest to minimize the impact of the Bundesbank, thus push growth over the constraining rhetoric of Jens Weidmann. The Austrian view fits well with the political position gaining strength in the Netherlands as the anti-austerity Socialists under Emile Roemer are leading the most recent polls in the election to take place on September 12.

If the Socialists win and can form a government it would be a blow for the GERMAN AUSTERITY CAMP AS THE DUTCH HAVE BEEN ERSTWHILE SUPPORTERS OF FISCAL PRUDENCE BEFORE ECB BOND BUYING. September 12 becomes a very important day as the Dutch elections and the German Constituional Court will provide a political backdrop for the recent verbal battles between Mario Draghi and Jens Weidmann.

*** Bank of Canada Governor Mark Carney voiced his concern about the massive pile of CASH on the balance sheets of non-financial corporations in Canada. The head of the BOC told corporations to start reinvesting their cash hoards or return the money to shareholders. Carney rightly referred to the cash as “dead money” and would be of better use if returned to shareholders. I have argued for U.S. corporations to do the same and it would be good policy if the U.S. had allowed the dividend tax to be lowered to incent shareholders to demand the stale money be returned to the rightful owners.

The money being put into circulation would be better then a tax cut and although the democrats believe it would only benefit the 1%, I think the reality of who owns the dividend payers is more pensioners and others who have been badly hurt by the FED’S POLICY OF FINANCIAL REPRESSION. As Governor Carney rightly said: “If companies can’t figure out what to do with it, then they should give it to hareholders and they will figure it out.” Carney estimated the unused cash on non-financial balance sheets as $600 billion–huge for a country the size of Canada.

***This week we will keep returning to the Jackson Hole Symposium that begins Thursday night. Many people are making the Chairman Bernanke speech on Friday morning the most important event of the meeting, but I would venture that the FED CHAIRMAN will not offer much, especially if the Chinese stimulus news is correct for that will give the markets some strength and allow Bernanke to proceed with caution heading into the U.S. election. I will say it again: Senator Schumer placed the FED in a very difficult position by calling them the “only game in town.”

Yes, Ben Bernanke is the ULTIMATE 1937er and thus will do all the FED can to prevent a renewed downturn, but politics will provide a speedbump to any FED action. The most important speeches may be that of Michael Woodford and Mario Draghi. Chairman Bernanke speaks at 10 a.m. EST and is the morning opening remarks while Woodford and Draghi are both speaking directly about policy.

1. Columbia Professor Michael Woodford wrote the seminal treatise on contemporary financial policy: INTEREST AND PRICES–Foundations of a Theory of Monetary Policy. The topic that Professor Woodford is speaking to, “Accommodation At the ZERO LOWER BOUND.” This will attract the interest of academics and policymakers alike as the “GODFATHER” lays out his views about how to effect monetary stimulus when rates are already ZERO.

2. Mario Draghi will speak on Saturday morning on Global Policy Perspectives. Look for President Draghi to hypothesize about ECB stimulus and why it is significant to be aggressive and get ahead of the curve. This is of course speculation on my part, but it seems that Draghi will not want to disappoint while the global spotlight is on him. In 2010, Ben Bernanke got a great deal of traction at Jackson Hole by discussing the PORTFOLIO BALANCE CHANNEL before the FOMC meeting, thus letting the world in on the next round of QE. It would seem a most opporutne time for Mario Draghi to again seize the initiative on getting the ECB and Brussels to try to remove the chains of austerity.

Tags: , , , , , , , , , , ,

5 Responses to “Notes From Underground: Putting Significant Stories In Perspective”

  1. kevinwaspi Says:

    Between the ZIRP common among the developed central banks, and now more stimulus, one chant comes to mind (again): “Let the Games Begin” Remember when the economy was something that government measured, instead of tried to be?

  2. algotr8der Says:

    Thanks Yra for the detailed note on the upcoming events. Always insightful.

    I just read the Telegraph story – It seems to me the headline is very misleading, possibly purposely designed to get the *text* mining algos to rip risk assets higher. I don’t see anything material in this story.

  3. yra harris Says:

    ALGO–thanks.The Telegraph piece was a little “lite” and that is why I raised the issue of why no other sources were citing it but I wanted to alert the readers to a possible impact.

  4. Kevin Says:

    From the Telegraph piece “Guizhou, one of China’s poorest provinces, has said it will spend 3 trillion yuan on eco-tourism and creating a series of national parks.” I suspect it is the infrastructure spending plans that are a little “lite”. I particularly liked Guizhou’s announcement, because it is so obviously implausable that it shows up the whole process of province after province announcing massive spending plans for what it is.

    Confirmation of this comes from the A Share index breaking to a movement low today.

    Finally, while the market watches the economic data, I think Ben watches the market. So the S&P500 within spitting distance of a 4 year high and corporates borrowing at pretty much the lowest yields in 40 years is perhaps not the ideal climate to launch QE3. Before Ben takes a big policy risk I think he needs markets to have started pricing in a recession.

    Yra thank you for an inciteful and entertaining blog!

  5. yra Says:

    Kevin–great post and a good insight on GUIZHOU—and on Ben’s view –it is time to take a breath and drink deep of the Portfolio BaLANCE CHANNEL

Leave a Reply

%d bloggers like this: