Notes From Underground

Mick Jagger was prescient when he sang these words in 1973:

You can’t say we never tried
Angie, you’re beautiful
But ain’t it time we say goodbye
Angie, I still love you
Remember all those nights we cried
All the dreams were held so close
Seemed to all go up in smoke
Let me whisper in your ear
Angie, Angie

The German election results certainly moved markets today, regardless of how the vapid voices of the financial media wished to make the narrative about NOKO and the White House dullard who can’t control his fingers. Woody Allen used to jest that he wanted to be reincarnated as Warren Beatty’s fingertips. We can be certain that no one feels the same about President Trump’s digits (non-political joke). The Asian markets were subdued last night as market participants digested the German election, but as Europe began trading the EURO started to weaken against gold and currencies (especially the YEN), while the German BUND rallied relative to other European sovereign notes (although the French Oats did hold up relatively well compared to the peripheral bonds). The selloff of the euro/yen appears to be indicative of profit taking as the Euro has gained 17% against the YEN since the first round of French elections in April.

There were all types of explanations for Merkel’s disappointing poll showing — most pointing at the xenophobia of so many German citizens. The spin by analysts will certainly have a modicum of truth, but I will continue to adhere to the narrative that Macron and Draghi did much to raise the concerns about who guarantees the ECB and the entire European Union. Merkel and her minions have ignored the issue of “taxation without representation” as the rise of Macron in France and the recent GDP growth in Europe provided an apparent invincible combination for a rousing Merkel/CDU victory. This election saw an 8% drop in Merkel’s previous poll numbers. Her coalition partner, the Social-Democrats (SPD) realized a loss of 5.2% dropping to 20.5%. Yes, as Green AB pointed out in Sunday’s post, the CDU/SPD could still create a grand coalition but it would probably signify the end of the SPD as a formidable opposition party.

The bottom line is that Merkel will try to craft a coalition of the Greens, the FDP and CDU with the end result being that Macron/Merkel/Draghi plans for an expedited financial harmonization of Europe will be throttled. Until the political uncertainty is resolved in Germany, MARIO DRAGHI WILL BE THE ONLY GAME IN TOWN. I cannot stress enough that not all central banks serve the same masters of inflation and jobs.

Mario Draghi delivered a statement to the European Parliament economic committee. He included this nugget at the end (emphasis mine): “A SUCCESSFUL CAPITAL MARKETS UNION WOULD ABOLISH DIVIDING LINES BETWEEN JURISDICTIONS,WITH POSITIVE EFFECTS ON THE WAY WE IMPLEMENT OUR MONETARY POLICY. IN THE END, WE SHOULD NOT FORGET THAT A FUNDAMENTAL REASON FOR MONETARY UNION WAS PRECISELY TO FOSTER MORE INTEGRATED MARKETS AND REAP THE BENEFITS IN THE FORM OF IMPROVED FINANCING CONDITIONS ACROSS THE EURO AREA.”

President Draghi quietly confirms he sees the ECB with a greater mandate than inflation. The weakened state of Chancellor Merkel knows leaves Mario Draghi as the most powerful, unelected official in Europe. In an effort to create a EUROBOND, Draghi demands to create a MORE PERFECT UNION, but the German election raises the question of who will pay for it. The ECB will throw more debt on the pile. In regards to Merkel claiming she polarized Germany through the refugee issue I push back and cite H.L. Mencken: “When somebody says it’s not about the money, it’s about the money.”

Tags: Angela Merkel, Bunds, CDU/SPD, ECB, Euro, Euro/Yen, German election, Mario Draghi

This entry was posted on September 25, 2017 at 7:41 pm and is filed under Currency, ECB, Germany. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.