It is the day before the beginning of the IMF and G20 meetings in Washington,D.C. In preparation for dissecting the communiques that will be released this weekend it is important to digest some of the key data and speeches that have forced the markets to rethink some of its previous certainties.
1. Ben Bernanke announced today that he was LEVERAGING UP his work at the FED and accepting a job as a global macro consultant to the hedge fund Citadel. Two things were required by Bernanke in his advisory role to Ken Griffin’s investment vehicle: A. Past performance was not indicative of future results; and B. Found in the footnote of the contract just below the Sanity Claus was the demand by Mr. Bernanke that remuneration should be in GOLD and not any fiat currency (need a little levity to dull the pain of market swings). We also hope that the employment contract requires the previous chairman to stop blogging.
2. It was rumored that the CNBC interview with Fed Vice-Chairman Stanley Fischer caused the DOLLAR to sell off, the 5/30 yield curve to steepen and the equity markets to rally. In reading the transcript of the interview between him and Sara Eisen, I find very little substance in setting the market tone either bullish or bearish. Fischer’s comments on the DOLLAR were benign as he did not want to criticize the ECB for trying to manipulate the EURO lower. “If currencies move as a result of measures that are clearly undertaken to strengthen the domestic economy,that’s acceptable. If currencies move because somebody’s manipulating the foreign exchange market. But they’re not. This is a side effect. It will have some impact on us. But if you ask whether we would have a Europe that is growing at a reasonable rate and slightly more trouble with the exchange rate, or exchange rate is wonderful and Europe is in the dumps, we would take a growing Europe any time.”
Again, this is a benign view but is out of step with the recent U.S. Treasury criticism of the weak EURO and German domestic fiscal policy. It seems that Vice Chair Fischer in taking a very benign view of the DOLLAR places him firmly in the camp of seeking to raise interest rates sooner rather than later. If the market had really been impacted by Fischer then the DOLLAR OUGHT to have firmed and the yield curve flatten. Something else seems to have been causing the second straight day of U.S. dollar weakness. Not sure what is causing dollar bulls to cover long-held positions.
3. The real significance of the Draghi Glitter Bomb. In the time of populist resentment of TOO BIG TO FAIL banks and the close relationship between the large financials and policy makers, expect more incidences similar to Alinsky-type attack upon the power elites. The attack upon Draghi and the ECB is an attack upon Jamie Dimon and the Wall Street establishment and the continued attempts to roll back regulatory reform. As Alinsky so poignantly espoused in Rules For Radicals: 1. Ridicule is man’s most potent weapon; and 2. The job of the organizer is to maneuver and bait the establishment so that it will publicly attack him as a dangerous enemy. Yesterday’s protester in Frankfurt will echo into the American political arena. (Hillary will certainly have heard the explosion from the Glitter Bomb.) The move to ease the regulatory constraints imposed by Dodd-Frank will have to wait until January 2017 for even the Republican leadership is deaf enough to the fallout from the populist resentment of Davos crowd.
4. The fear of a GREXIT continues to plague the markets. It appears that the Germans are content in letting the Greeks leave the EURO and EU, and test the market’s resilience in dealing with a Greek default. The problem for Europe, though, is that the U.S. administration has voiced its concerns about the potential negative ramifications for a fragile global economy. The U.S. is probably more concerned about Greece turning to the Russians and Chinese for some financial support after a GREXIT and potentially weakening NATO‘s Southern flank. This GREXIT may be economically easy but the politics of it are far messier. I believe that Greece will come to another “temporary resolution” and the needed liquidity will be provided.