Notes From Underground: Santelli and Harris Down By the Schoolyard

This is the most recent CNBC hit with Rick Santelli as we try to educate the world in another three-minute segment. This unrehearsed spot attempts to dig deep into the financial issues confronting traders and investors. The discussion about France is a continuation from the Notes From Underground post I wrote last night. I stress that the period ahead for Emmanuel Macron is going to be difficult, especially if the center-right wins the Parliament and thus the prime minister position. This summer will be fraught with street demonstrations as the Left moves to prevent any installation of German-initiated fiscal austerity and labor market reform. In typical French political fashion, labor and student groups are warning against Macron governing by decree and bypassing Parliament.

(Click on the image to watch me and Rick discuss French elections.)

There’s an article in Wednesday’s Financial Times titled, “French Unions Move quickly to Resist Macron’s Labour Reforms.” The article lays out how France’s unions plan to confront newly elected President Macron as he already has earned the unions enmity because of his support for the 2016 labor reforms when he was economics minister in the Hollande Government. In making things even more difficult for the president-elect, the FT reported Tuesday, “Merkel Rejects Looser Spending Rules to Help Winner.” The German ruling officials warned that Chancellor Merkel and Finance Minister Schaeubel would not be dropping their opposition to the creation of a common eurozone bond. The FT notes that the CDU party of Merkel would send “… a cautious message suggested Berlin would be ready to allow Mr. Macron more financial leeway only after Germany’s election in September.”

The German Social Democrats are planning to make the upcoming German elections about how to create growth in Europe and will favor allowing an economic reform-oriented Macron the leeway of fiscal stimulus and laxity. The problem for the SDP is that the German citizens are opposed to the creation of a common eurozone bond and Jens Weidmann and the Bundesbank will lead the charge against a German structured securitization of EU debt. This situation is far from resolved and will play out in both Germany and France. An important indicator on market sentiment will be the yield differential between the German/French 10-year yields. Currently the differential is 44 basis points, which is just below the 200-day moving average. The recent correction in response to Macron’s victory needs to  be monitored to see if the market continues to view the French in a favorable light.

***In an effort to monitor stress in the U.S. real estate market I am beginning to watch New York Community Bank. This has been a regional bank that grew itself through acquisitions in the New York area as it bought Astoria Savings. Barron’s and others have noted its elevated exposure to the New York real estate market so if things are not well in Gotham it may indicate stress in other markets. Its symbol is NYCB and is sitting at four-year lows while many other smaller banks are pressing towards recent multi-year highs. This is just another indicator similar to the REITS reflecting possible strains in the financial system as a result of questionable debt.

***Something else to put on the radar screen. I’m monitoring KSU — Kansas Southern Railroad — after the fear of Trump cutting NAFTA. While the stock got whacked, it’s now back above the 200-day moving average. Also, today’s high was 92.89, which is challenging the high of November 8 level. KSU is the primary beneficiary of rail transport between the U.S. and Northern Mexico. This railroad would be a perfect fit with Berkshire’s BNSF. Buffett is sitting on a great deal of cash. Commerce Secretary Wilbur Ross says he wants to make NAFTA better. If Buffett believes it to be so watch for Berkshire to spend some cash. Just putting it out here for commentary and positive investment opportunity … thinking from the Underground.

 

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6 Responses to “Notes From Underground: Santelli and Harris Down By the Schoolyard”

  1. yra Says:

    A CORRECTION;A reader noted that the NYCB-ASTORIA merger never consummated and he is 100% correct.But my error doesn’t change the concept taht a major lender community bank lending in the New York real estate market has badly under-performed the banking index and remains a barometer to be watched.The fact that the deal never realized makes it even a greater issue.—Yra

  2. yra Says:

    Yra–KSU 200 day moving average is 89.22—–that will pique my interest as the issue is to create the lowest risk trade area –it is knowing where I am wrong–the upside will be the easy part

  3. Arthur Says:

    Oh brother… Paul Tudor Jones said U.S. Stocks Should ‘Terrify’ Janet Yellen… And Europe, trigger event? Germany elections? …?

    • yra Says:

      Janet –she has the comfort of her models –like a child with a teddy bear–nothing to be afraid of—-interesting that Bernanke and Company continually fail to discuss the 2010 speech and promotion of the Portfolio Balance Channel

  4. Arthur Says:

    • Yra Says:

      Arthur–a great post –the euro has been an ungemildert success for Germany—those who argue for Germany to pony up to bail out the debt stressed nations have a point but the Germans maintain that it is they that made the difficult choices and thus have been rewarded

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