Many readers have e-mailed, “Where is the blog?” During the recent summer doldrums and the central banks in “control” of prices, there is not much to write about. Rehashing old stale stories to fill pages fails the test of qualitative analysis. The markets are so bored that the fabricated controversy of who might be the next FED Chair keeps the talking heads, well, TALKING! I was going to leave this nonsense alone but I will respond to several e-mails with this brief opinion:
It seems that the wall street backers of the Democratic Party would like to have a friendly face as the Fed Chairperson since they feel under siege by the likes of Senators Brown, Warren, Vetters and others and fear that populist support will mean tighter regulation of the large banks. It is certainly the case that Larry Summers has been a friend of Wall Street and what is commonly referred to as the Rubin wing of the party. The question is: What does the Obama White House favor? The election is over and the need for Wall Street money for President Obama’s campaign is over and it will be up to the next Democratic candidate to tap the Wall Street pool of liquidity. In a very Machiavellian sense, it seems that the Obama White House tossed Larry Summers’ name out to the public in order to destroy him.
Many of Obama’s most ardent supporters are very anti-Wall Street and as an added bonus would like the Fed’s key post to go to a woman. The backlash to Professor Summers is great and allows the Obama team to simply say that a Summers appointment would be unacceptable. There is nothing strange about this approach from the White House as there have been several announced appointments that were jettisoned when the persons were met with popular backlash. It seems that the White House came not to praise Summers but to bury him with popular backlash as the weapon of choice.
***The markets have been very quiet but that ends on Wednesday. This week we have an FOMC announcement but no press conference. Thursday will bring the interest rate statements from the Bank of England and the ECB with a Draghi press conference to follow. Friday brings the U.S. unemployment data, which may create the most volatility of the week. I would be surprised if the ECB or FED would to announce any changes that would impact markets. It is quiet and summer markets are notoriously illiquid so why create a possible violent market response? The BOE may be different as Governor Carney promised to explain possible use of thresholds for enhancing the BOE‘s future actions, but he would do well to wait until the return of greater market liquidity. As the song goes, “sit down, sit down you are rocking the boat.” To all the central banks: SIT DOWN and REMAIN SEATED.
***Two weeks ago the EURO was under threat as the Portuguese 2/10 yield curve was dramatically flattening in the face of a potential funding crisis for the Portuguese government. The euro has recently made new highs and stabilized and the Portuguese 2/10 has reverted back to 277 basis points positive after dropping to 125 basis points on July 15. The funding crisis is over (for now)! Another reason for ECB President Draghi not to rock the boat on Thursday.