In the 1970s, National Lampoon wrote a parody of Lord of the Rings, the Tolkien Trilogy that captivated college campuses. In a caustic response to the Tolkien craze, the geniuses at National Lampoon wrote BORED OF THE RINGS. Well it is time to claim that I AM BORED OF THE FED AND ALL CENTRAL BANKS. The repetitive dramas playing out all the over the globe by the unelected academics as they try to elbow aside the Davos elite as the Masters of the Universe. The central banks can claim to be the ONLY GAME IN TOWN but every effort to generate economic activity by lowering interest rates only relieves the voter-elected class of responsibility for creating growth through fiscal policy. Again, the concept of PUSHING ON A STRING WAS NOTED BY SCHUMPETER 80 YEARS AGO. You can stop an entrepreneur from borrowing by raising rates but you cannot lower rates if there is no sense of generating a positive return on the money. And here we are with central banks caught in a global money trap.
Currently, the financial markets are in rally mode as repressed savings seek some measure of return while PENSIONS, SAVERS and INSURANCE COMPANIES have to seek shelter from the game of negative interest rates. This experiment is commented on all day long and I am bored, terribly bored as the continued praise heaped on the promoters of the ever-present counterfactual rubbish. Today, San Francisco Fed President John Williams was paraded out to reignite the possibility of a Fed rate hiked in April or June as it seems the headwinds that prompted Yellen’s dovish press conference last week have abated. Williams is not even a voter so why should we care what he has to say? It’s just more nonsense. The rumors continue to swirl that the G-20 crafted some type of agreement to prevent the dollar from rallying, and stopped other nations from attempting to manufacture the depreciation of their currencies in a contrived manipulation to gain a competitive trade advantage. Again, I don’t believe this story and will wait to see how it plays out during the coming month.
The concept derives from the idea that if the FED raised rates to combat potential inflation, the strengthening DOLLAR would cause havoc for emerging market sovereigns and corporations who have massive debt denominated in U.S. dollars. To prevent a global debt crisis the U.S. will be patient about inflation and other nations–Europe, Japan and China–will not instigate new rounds of monetary stimulus. The ECB was grandfathered in for one last round, which is why the EURO has rallied as the rumor becomes recognized fact. I am not buying this conspiracy until it is confirmed by “data dependency.”
If the EURO and YEN continue to strengthen, the ECB and BOJ will be in a delicate position for if they do nothing then the rumor may have merit. I remain doubtful unless there is an announcement of massive fiscal stimulus, which is beyond the authority of many of those gathered at the G-20. Also, Mario Draghi is left with very little ability to use monetary policy as the well of sovereign and corporate investment grade bonds is beginning to run dry. The only weapon of whatever it takes is the tool of the ECB BUYING FOREIGN-DENOMINATED DEBT and any such announcement by Draghi would be a declaration of currency war. So I remain bored until further notice. Nothing is a POSITION. EVERYTHING IS A TRADE!
***The debt bail-out in Greece is heating up as the IMF presses the Tsipras government to make great efforts to meet the terms of the initial agreement with the Troika. The IMF wants Greece to raise taxes on middle-income earners as well as cutting back on pensions to public sector employees. The IMF should never have been involved as Europe is a wealthy enough entity and the Greeks should have been financed with EUROS. It seems that Tsipras is holding out for better terms as he hopes to hold Merkel and Company by leveraging up its ability to send refugees throughout the EU. For enough debt relief it seems the GREEKS will rent Germany an island to serve as a temporary holding pen.Greece knows that German Chancellor Merkel is a desperate politician as seen from this past weekend’s Kafkaesque agreement with Turkey.
***There’s more proof that the Cameron/Osborne team in the U.K. is aiding the BREXIT vote. Sunday, Minister of Pension and Work Iain Duncan Smith resigned from the cabinet over the issue of the burden placed on the middle classes by the new budget tabled by Chancellor of the Exchequer George Osborne. When I read the budget proposal I thought the Chancellor was politically nuts by cutting benefits to the middle class while lowering the level of corporate taxes. Going into a highly volatile political season as a result of the Brexit referendum, Osborne’s budget was insane. Now a very strong and respected Tory member has resigned from the government and will become another voice for the anti-Brussels coalition. It is difficult to believe that the BOOKMAKERS have the BREXIT vote an even money bet. Well, this should keep me from becoming too bored as the politics of Brexit play out like Downton Abbey. The Euro/Sterling cross will be in the market’s cross-hairs as sentiment readings are relayed on the most recent polls. The cross-rate is currently trading 0.7820 with the 200-WEEK moving average providing significant resistance at 0.7934. Stay patient as the great game rolls on.