Notes From Underground: G-20 Photo Ops Become Relevant … For a Moment

All of the words and photos emanating from Hamburg are figments of the media’s confirmation bias. In Monday’s Financial Times, Wolfgang Munchau had a splendid op-ed titled, “From Brexit to Fake Trade Deals–the Curse of Confirmation Bias.” Munchau calls out the Euro-Japan trade deal headlines for as he points out it was announced on the eve of the G-20 summit in order to embarrass President Trump. I laughed when I read the stories about the aforementioned trade agreement because while EUROCRATS presumed a signed agreement, the FACT is each EU state will have to approve the agreement. So the acrimony from the Euro/Canada trade agreement still reverberates.

The German unions and auto industry will challenge Japan’s easy access to the vast European auto market dominated by the Germans. There are many unresolved issues that still need to be addressed before this trade agreement becomes binding. The Germans will especially be bothered by the recent weakness of the YEN versus the euro as the EUR/YEN CROSS is hovering at the 200-month moving average. The Euro has gained 8 percent against the yen since January. This is the cross-rate to which I have referred to as the Mercedes/Lexus spread as Germany and Japan compete aggressively for dominance in the global luxury car market. As Munchau so beautifully stated:

“The uncritical reception of the EU-Japan trade story is a good example of what psychologists refer to as confirmation bias, a tendency to filter out everything that is not consistent with our beliefs. We believe in free trade, hence, we want an EU-Japan deal to be true. And then we take the fateful step of believing it is, as opposed to calling it what it really is:a shameful attempt at manipulation.”

The entire G-20 conclave was directed at making President Trump look isolated and alone,  as being out of step with the policies promoted by the self-anointed philosopher kings/queens of an imaginary global congress with no powers of enactment.

Promoting Chinese President Xi as the beacon of global free trade is absurd and affirms the whole idea of confirmation bias. Chancellor Merkel used the backdrop of Hamburg as the beginning of her election campaign. In regards to free trade, Germany was given a pass and was not criticized for its massive trade/current surpluses, but it was suggested by the IMF that Germany needs to do more to stimulate its economy in an effort to help the other EU nations increase their exports.

IMF Director Christine Lagarde posited that Germany should increase domestic-based infrastructure spending in an effort to shrink its current account surplus (aka spend more, save less). In a paean to confirmation bias, the post-meeting headlines referred to it as the G-19, indicating that the Trump administration was isolated and alone. And yet the U.S. equity market spent Monday in rally mode indicating that 2+2=5 is with us in a world of fake news and confirmation bias.

*** Following the logic of Germany increasing fiscal stimulus in a time of full-employment and a negative interest rate funding regime, my OUTCOME BIAS is for the DAX to be the star equity performer. If inflation takes hold in Germany — as the ECB maintains at least zero interest rates and some QE — where would a German investor seek refuge? If European growth outpaces U.S. economic performance as some pundits suggest, isn’t Germany best situated to take advantage as the EURO is the currency of all the nations? Spain and Italy may wish to compete outside the EU with Germany but they have yet to undertake the necessary reforms to challenge German productivity and labor.

This is not outcome bias on my part. If the FED begins shrinking its balance sheet, raising rates and reducing easy financial conditions, shouldn’t the European equity markets, especially Germany, provide the most favorable venue for global speculative capital? In reference to Daniel Kahneman, I am not thinking fast or slow, but just pondering the present state of global capitalism. By any measure, the German Deutschmark is the most undervalued currency in the world. The only problem is that it doesn’t exist, not even on SNAPCHAT.

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10 Responses to “Notes From Underground: G-20 Photo Ops Become Relevant … For a Moment”

  1. frank c. Says:

    The G20 meeting in Hamburg was a big “nothingburger”

    • Yra Says:

      frank–yes and especially as ” we held the pickle,held the lettuce nothing special could upset us because the media proclaimed to the 19 –you could have it your way”

  2. Henry Says:

    Great article. The euro rises from 1.04 Jan 3 to 1.14 recently. A confirmation that there is hope in the EU.
    Interesting to see how the USA is negotiating new trade deals. Good topic to write a few notes. Any takers?

  3. ShockedToFindGambling Says:

    Yra, I thought you were bearish Das Dax.

    • Yra Says:

      shocked –the signals I cited made me bearish but here i note it as a relative trade—long Dax and short the SPOS is the way I have been trading it—I am cautious being long only but i think my post tonight indicates I am looking for a rally–many times I seek the best relative value trades and being bearish the NASDAQ signal made me change my ratios to an over all bearish view but more so the U.S. versus other markets

  4. Michael A Temple Says:

    Yra
    Theoretically, the DM exists, buried inside a German bund. Of course, the genie can only pop out of the bottle if the Euro comes apart. The rise of Macron and resurgence of Merkel seems to have put a firm stop to the nationalistic “madness” of politicians such as Le Pen….I guess you could argue that German real estate similarly has the same embedded DM within it.

    • Yra Says:

      Michael–I have stated German real estate as the purpose of that until the bubble pops but I agree with you as does the asset markets and fits my reply to Shocked for the same reason—German industrial assets relative to many other places to put one’s money

  5. David Richards (@djwrichards) Says:

    Insightful post. Sadly, confirmation bias precludes reports of what really happened at G20 and its shenanigans. Another tidbit: Europe is paying Turkey to go along with the Paris climate accord, like how Europe is paying Turkey to ensure no migrants from MENA pass through Turkey into Europe.

    So I’m thinking that Trump was right: NATO is obsolete. Why are you Americans still defending and bearing the burden to defend Europe, when Europe declines to pay costs of its own defense and instead pointedly embarrasses your president while a vistingguest on European soil? Doesn’t matter whether he is unpopular (Jimmy Carter and George W. Bush were also extremely unpopular in western Europe). It’s about the office and nation, not the man. As a foreigner observing from eastern Asia, this looks humiliating to you as a country. Are your politics so divided and toxic now that you have no remaining national pride nor concept of “face” in America?

  6. Chicken Says:

    “The Germans will especially be bothered by the recent weakness of the YEN versus the euro”

    Fire up the Heidelberger Druckmaschinen! Mario can get the job but can he do the job? (Has the euro topped?)

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