Notes From Underground: Japanese Elections, Italian Banks and May Day in the U.K.

Just some summary points as this year the summer doldrums will prove to be anything but:

1. The Japanese elections for the upper-house unfolded true to expectations but the impact of the win for P.M. Abe will take time to play out. There are winners and losers in Abe’s victory. One of the losers could well be the prime minister as the final results do not provide enough margin to pursue constitution revision because the LDP does not have enough votes without the support of its partner Komeito. More importantly, the TPP (TransPacific Partnership) may not pass because of several opposition victories in the rural prefectures. As Tobias Harris maintains, the “bleak outlook for ratification in the U.S. … the {Japanese} government will have to decide whether it is worth expending political capital on an agreement that may not come into force.”

So as with Brexit, the Japanese political situation is in flux and nothing is certain as far as policy. The financial news was abuzz with reports that Ben Bernanke would be meeting with the BOJ and MOF to discuss some type of policy actions. Helicopter money drops or what we know to be ramping up fiscal stimulus through direct money deposits to Japanese consumers. We will have to await any announcements but the Japanese will be careful because many of their fellow G-7 partners have advised against currency actions to weaken the YEN. The recent concern about Chinese actions in the China Sea will ensure that all actions are well measured. As we saw last summer the Chinese Government will respond to any and all actions that it deems a provocation. The YEN weakened today in anticipation of some large fiscal stimulus, or maybe it just corrected the initial response to the U.S. employment data.
2. The Italian banks were again under the microscope as Prime Minister Renzi pushes for some type of bank recapitalization that does not involve the BAIL-IN of retail bond owners and small depositors. If Italian mom and pop investors are forced to accept loses to bail out the Italian banks’ non-performing loans the Renzi government will be susceptible to ouster or at least embarrassment in losing the October referendum on Constitutional change involving the Italian Senate. Nerves are frayed in Europe over the Brexit vote, which will result in Renzi trying to blackmail Brussels into a very lenient settlement. The European elite will not wish to have another major European state be rocked by political uncertainty. The ECB was busy today as the ITALIAN 10-year notes were the target of its QE purchases. Any investor purchasing “questionable ” Italian debt for 1.15% better believe in Richard Dennis’s SLOWER FOOL THEORY.
3. Wednesday is May day in the U.K. as Theresa May will become the new prime minister. I don’t know enough about her to venture a financial analysis but of this I am certain: The opiners on Brexit’s impact have been proven to be stale thinkers as Cameron and Chancellor Osborne are gone and the Brits can get on with trying to move forward. May was actually a supporter of the REMAIN group so her election by the Tories should not be deemed inconsequential. May has already suggested that Article 50 will be invoked later rather than sooner so the uncertainty as to outcomes will drag into next year. This is not necessarily a bad outcome because France and Germany will be having elections next year and will not wish to embark upon any policies with high political impact. Also, for those pundits warning of a catastrophic outcome for London’s financial industry: Why would any financial institution be quick to move headquarters to Paris or Frankfurt for Chancellor Merkel and Socialist French President Hollande have been aggressive promoters of a Financial Transaction Tax (FTT)? Why be trapped in the clutches of the revenue hungry authorities of Germany and France? It was not long ago (1999) that German Finance Minister Oskar Lafontaine voiced harsh of financial speculators. In 2005 SPD Party Chairman Franz Muntefering referred to foreign financial investors as LOCUSTS. Be careful before rushing for the exits of a lightly regulated London to enter the clutches of those whose past history with capitalists is suspect. Jamie Dimon, what say you (as you pull up stakes)?

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6 Responses to “Notes From Underground: Japanese Elections, Italian Banks and May Day in the U.K.”

  1. luigi Says:

    yra, great analysis overall, as always.
    as per the btp’s, outlook on italy is always gonna be indecipherable because of the massive black economy in that country plus the gigantic economic power of vatican city. also the huge gold reserves that italy has, will always make her a very solid country under the radar.

  2. Chicken Says:

    May is a Brenenite, smells like a Brexit reversal in the air. Kinda sad to think, really.

    • yra Says:

      Chicken–patience is required but the trading is more because many have realized they may have been a victim of “echoization”

  3. GreenAB Says:

    Yra, you´re showing again your knowlegde of Germany by mentioning Lafontaine and Müntefering. While Oscar quit the SPD soon after he became finance minister and joined the LINKE (wide lefties), there´s still a climate of anger towards banks in Germany. I´m pretty sure that the people will demand a FTT, when we bail out the banks next time. To date Merkel and the CDU make sure that it doesn´t happen. But if RED-RED-GREEN (SPD-Green Party-Linke) can form a government after the 2017 elections, we could see the German government push for such a tax.

    • yra Says:

      Green AB—as always your measured and thoughtful responses are a great addition to the blog.Thanks for all in input over the years—–Yra

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