It was a very big weekend for information leaks that many in the world of policy making did not wish to have spread across the globe. The noted economist Arthur Okun posited that there was a trade-off between equality and inefficiency when it came to providing a social safety net for those suffering from the capriciousness of a capitalist system. In an effort to minimize the economic dislocations of a market economy, the redistribution of wealth through transfers was compared to a leaky bucket in which not all the money would make it to the intended recipients. Okun also posited that in an effort for some amelioration of the pain of economic dislocation taxes on the most successful actors would result in an effort to avoid any wealth confiscation through progressive taxation: “High tax rates are followed by attempts of ingenious men to beat them as surely as snow is followed by little boys on sleds.” (Library of Economics and Liberty)
It seems that what has been to International Consortium of Investigative Journalists (ICIJ) from Panamanian company Mossack Fonseca–also dubbed the Panama Papers–is more than mere ingenuousness to avoid but possible outright fraud and theft that would make a Nigerian Oil Minister blush. Make no mistake about it this is the Davos Crowd at its most nefarious. The leaks could have major political repercussions for it seems that British Prime Minister David Cameron is named as a stasher of cash and it won’t be perceived in a positive way by the British commoner voting on Brexit. Again, there are rules of law for the elite and another set for those struggling to deal with the ill-effects of globalization. I am left to ponder if the object of the Panama leak was the Clinton Foundation because as the names are disseminated it will be difficult to believe that the tentacles of President Clinton’s fundraising have not reached the highest sources of the global money laundering.
The second weekend leak was from Wikileaks and was directed at the Machiavellian ways of the Lagarde IMF. I have written a lot over the last three years how it was a mistake for the IMF to involve itself in the Greek bailout for Europe was a wealthy enough entity to resolve its own issues of sovereign solvency. Greece needed a pay-day loan and the IMF had pockets full of liquidity even as it pushed the U.S. Congress for even more funds. The issue was always a Greek restructuring of its debts or massive losses for German, French, Italian and Spanish banks that had gorged on Greek bonds that were deemed a zero risk-weighted asset.
When the TROIKA used IMF funds to avoid a restructuring, the EU banks offloaded their Greek notes to the Greek National Bank and the ECB. The huge pool of bonds owned by the ECB and the GNB means that European taxpayers are on the hook if the IMF refuses to remain in the Troika and forces a massive debt restructuring, which is why the German Parliament has consistently stated that if the IMF is not involved then Greece will have to default. The IMF plays the bad cop for the TROIKA, something Germany didn’t want to do for the bad image it created by the persistent demand for greater budget austerity for Greek pensioners.
It appears the IMF will use the BREXIT vote to try to get its money back from Greece. The IMF will force a massive debt restructuring in which European Union citizens are forced to absorb losses on Greek sovereign debt. IMF DIRECTOR Lagarde is assuring the EU that the IMF was not planning such a Machiavellian solution but I will remind readers that Ms. Lagarde was previously an international lawyer at a well-established Chicago law firm, which may have done business in Panama. Oh, what a tangled web we weave, when we practice to deceive.
***Postpartum blues from the labor report: It was a solid jobs number on Friday as the worker participation rate improved, bringing more employees to the job market and pushed the overall unemployment rate to 5%. The rise in average hourly earnings was better than consensus forecasts. Many thought that the DOLLAR would rally on any type of positive jobs data but it seems that the market is more focused on Yellen’s dovish speech March 29. If the FED will not be raising rates regardless of the data then we are now Yellen dependent. The market’s sentiment will be found in the yield curves, which OUGHT to steepen if the FED is deemed to be desirous of remaining ultra-cautious because of global headwinds.
BUT THE CURVES ARE SENDING MIXED SIGNALS AS THE 2/10 flattened today while the 5/30 STEEPENED, rising above its 200-day moving average of 138.03 basis points. The DOLLAR also remained soft against the developed market currencies, adding further confusion to those leaning on the data dependent argument. Again, Boston Fed President Rosengren raised the possibility of the FED preempting market sentiment and raising rates more aggressively than the market presently anticipates. This was counter to Yellen’s speech. While the SPOOS broke, the dollar rallied and GOLD broke. The action was short-lived reflecting the diminishing impact of those outside the FOMC Governors. The markets are becoming deaf to the apparent ranting of lunatics. We need more leaks.
The markets are trying to weigh Yellen’s desire to run hotter for longer in terms of potential inflation versus some investors demanding the FED not wait too long to raise rates and fall too far behind the curve. USUALLY the 2/10 would be a barometer of market sentiment but I am considering that the ECB’S 80 billion euros a month of asset purchases is heavily impacted the U.S. 10-year. The compression of European sovereign rates is forcing global pension funds and insurance to buy U.S. 10-years even as the DOLLAR is not performing well. This is a relationship to watch as it can have a greater impact on the 5/30 curve as speculators are selling that which the central bank in Europe is not buying. This is a time to THINK before DO.