Notes From Underground: ECB, Political Pawn?

Warning: There’s a great deal of colorful language in this very important discussion regarding the nomination of Christine Lagarde to the post of European Central Bank president. This is another political move by the EU elite to avoid placing a German at the helm of the ECB. Jens Weidmann may be a tough choice but Lagarde is preposterous, as Jean Claude Trichet might say. If you thought Mario Draghi was a politician and a dove by design, Lagarde will make Draghi look like a HAWK. In my opinion, IMF Director Lagarde has been and remains the ultimate politician. The role she played in the Greek bailout was pure politics and the price paid by the Greek citizenry has been steep. All in an effort to bailout many European financial institutions. Ask Yanis Varafoukis what he thinks of the Lagarde nomination.

The question that will plague investors and financial analysts is: What was the political trade that France made in an effort to secure the ECB leadership for another French-picked politico? Yes, the Germans were able to insert the current German defense minister Ursula von der Leyen as the new president of the European Commission. The Financial Times is maintaining that outcome of the appointments was an unmitigated success for French President Macron.

On Wednesday, the Italian 10-year yield dropped as Brussels announced that Italy had met the EU budgetary demands and would not experience the dreaded “EXCESSIVE DEFICIT PROCEDURE.” That would’ve resulted in possible monetary penalties for Rome. Did the Italians get relief from Brussels by not standing against the Lagarde nomination ?Whatever nations were promised political favors for not opposing the high level appointments coming out of the EU meetings?

Last week the FT ran a story titled, “Macron Mocks Weidmann in Blow to Germany’s ECB Hopes.” Note the biting sarcasm of the Bundesbank President, who said:

“I am very happy that the members who at the time strongly opposed, and who even took legal action against the decisions of Mario Draghi, against OMT, against all the mechanisms put in place, have been converted, perhaps belatedly, but with gusto.”

This is indeed high level mockery of a highly regarded German civil servant. Macron needs to be reminded that it is the German credit card that allows the French 10-year debt to trade at an INSANE NEGATIVE 10 BASIS POINTS.

As we at Notes From Underground have discussed for several years, the efforts of the Draghi promise to do whatever it takes to preserve the EURO resulted in a massive QE program and a massive aggregation of EUROPEAN sovereign debt onto the ECB’s balance sheet. The buildup has been devoid of any EXIT strategy. I have argued that the ONLY WAY OUT is through the establishment of a EUROBOND by synthesizing all the holdings into a single debt instrument.

Draghi’s recent speech in Sintra, Portugal was to ensure that the next ECB president would be locked into QE for far longer, fearing a Weidmann appointment. Now that the master politician Lagarde is Draghi’s heir apparent there is no concern about ending the European QE program or negative interest rates. In my opinion — as I discussed with Rick Santelli on Wednesday — is that the thinking in Brussels is that Lagarde has the political heft and international respect to be able to bring the eurobond into fruition.

Click on the image to watch me and Rick discuss the Lagarde nomination.

Along with the effort for fiscal harmonization, listen for Lagarde to explain that without a EUROBOND then an alternative policy program will be the development of an EU-wide transfer union in which funds created by the ECB will be distributed to those European economies in need of fiscal stimulus or genuine debt relief. Either way, all roads lead to Berlin. We have yet to hear from the Germans, but we will be listening.

In response to the Lagarde appointment GOLD rallied. President Trump even tweeted that he was concerned about efforts to weaken a nation’s CURRENCY by continued monetary easing. The Reserve Bank of Australia even lowered interest rates on Monday night, even though unemployment is at record lows. On Friday we get a view of U.S. and Canadian unemployment data. As usual, the average hourly earnings will be crucial with the consensus for a 0.3% increase.

But with the ECB setting global low interest rates, the Fed cannot afford to be data dependent without irking Trump with a stronger DOLLAR. Well, at least enjoy the stock market rally as global central bank policies levitate myriad asset classes.

***In addition to the CNBC spot with Rick Santelli, I am attaching another podcast with the WhiteWave trading group. I will be on hiatus for the next 10 days or so, but I will be active in the WhiteWave discussions. I advise all my readers to register for the financial and political analysis as it is a very high level, though sometimes off-color. Also, make note: On Tuesday, July 9, I will be doing a Financial Repression Authority podcast with Peter Boockvar and David Rosenberg.

Click here to listen to the discussion.

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14 Responses to “Notes From Underground: ECB, Political Pawn?”

  1. Judd Hirschberg Says:

    Thanks Yra, it’s always great when you come into the room. Your grain trade was awesome! All are welcome to sign up for a Whitewave trial by going to and sign in on the homepage with an e-mail and name.

  2. mimi r Says:

    why doesn’t rick give you a chance to finish your thoughts?! you’re so cool about that. always impresses me! m


  3. Nathanel Serebrenik Says:

    At the moment I dont actually believe there is a “whats next”. This loop seems to be in order for the next decade at least. QE, more QE and no government/polititian giving a damn about it.

  4. Bojo Says:

    Lagarde, Leyen, and Michel have all come out of the blue. The three names were not on any list before negotiations, but all three names were on the list of 2016 Bilderberg conference participant (look below). The same as Macron, Monti, Gentiloni, Enrico Letta etc a year or two before they became President/Prime ministers.. all served to the people as a cookie fallen from the sky, most notably Macron – after the media murder of Fillon.
    But also, the European Parliament is obsessed with wanting to show it has some real power, so they can’t wait to cause some trouble with the nominations, especially the Socialists and the Greens.

    • yraharris Says:

      Bojo—I am not a believer in conspiratorial theories of such a grand scale but this list is the same type of preserve that has made the davos crowd such a poisoned chalice—and the more disturbing element is the journalists who are invited to participate and therefore tainted by Chatam House rules and their desire to be invited back—compromised to the nth degree.Now take a good look at the roster of the G30 and be bothered further

  5. Asherz Says:

    Yra- Lagarde, Weidmann, makes no difference. The ECB presidency is on automatic pilot. The policies are beyond the point of return. There is no exit or Stop the World I want to Get Off. What could a German Hawk do? Stop the next QE? Raise rates? The House of Cards is up to skyscraper heights. And any attempt at a rational policy would bring it crashing down precipitously. See December 2019 and the Powell Volte Face. So equity markets make historic highs as the global economy slows and debt keeps piling up.
    I was asked yesterday by a happy momentum player how I thought the market’s levitation would end? I responded saying, With an Event.
    When that will happen no one knows. But the effects will also be historic. And the millennials who favor Socialism even though they can’t define it may get their wish.
    Greenspan and his cohorts and Draghi and his successors will be the ones who brought down the greatest economic experience in the history of mankind. Central Banks that were created to smooth out fluctuations will be the ones that will have overturned the apple cart. Apple for a nickel anyone?

    • yraharris Says:

      Asherz–but as wolfgang Munchau pointed out onMonday and the article was a plant by someone he had access to—-Lagarde gives hope to Macron to get a banking union and a Eurobond which will bring the entire burden down on German citizens who will either walk complacently to the debtors prison or rise up and throw off the yoke of EU repression—how is that for an event.But your summation is point on and reflects the tragedy/comedy of history–it may not rhyme but Macron’s desire to play De Gaulle in this restaging of Les Miserables is like having Tom Cruise replace Sir Laurence—-algiers,suez,dien bienphu—-when will the arrogant ever learn

      • asherz Says:

        Yra- As Jay Powell defiantly proclaims that he won’t leave if Trump asks him to quit, but in another breath goes on bended knee assuring the world and the White House that he is a good boy and will lower rates come month end.
        Rest assured the Burghers are in no position to play Samson. tearing down the columns and bringing the Temple down on their heads.
        We have been led by a bevy of Lilliputians for over three decades proclaiming “helicopter drops” of money and “whatever it takes”, as the savers and retirees pack groceries at Publix in Deerfield Beach… while the leveraged hedge fund managers fly their Gulfstreams into the Hampton airport.. Lagarde is only the latest example who fit the Bard’s description in the Scottish king’s speech, in her 15 minutes of fame.

        Life’s but a walking shadow, a poor player,
        That struts and frets his hour upon the stage,
        And then is heard no more. It is a tale
        Told by an idiot, full of sound and fury,
        Signifying nothing.

      • yraharris Says:

        Asherz—as I watch Powell I am reminded of something I heard from my friend CBR about NBA superstars who don’t want the ball at crunch time–Scottie Pipen came up with a migraine–think of Bernanke throwing up a brick when met with the taper tantrum[a horrible mistake] and now Jay Powell pivoting as the temperature was turned up on the low vol selling programs back in December—these are not ready for the prime time.Also,me believes that Powell has one goal —-steepen the curves especially when he was asked a few times about the growing debt problem in the US–he maintained that there will indeed be a reckoning but just like us he doesn’t know when–If Bernanke had the courage to act he would have proceeded with the taper—-oh well there will always be another counterfactual

  6. Richard Papp Says:

    For those who do not know what Asherz is talking about read some Russell Napier. You can go thru his text “Anatomy of the Bear” or just go to You Tube for the short version.

  7. Rohr (Alan Rohrbach) (@MacroMeister) Says:

    Hi Yra-
    Excellent perspective that was only passingly referenced in a tame Thursday ECB article: (my markup.)
    And this ought to set up a real confrontation with the German fiscal hawks. Yet the real problem remains the overall European/Euro-zone tax and regulatory environment. As Ben Bernanke and the US political class proved, it doesn’t matter how much QE of even fiscal stimulus is applied unless regulatory hurdles and overall taxation rates are reduced. It’s about the velocity of money, not the size of the monetary base.
    Amidst all of his foolishness (and even offensive expressions at times), that was Trump’s genius.
    What is the chance the EU will even suggest any tax or regulatory reform at the same time they are trying to convince the UK it should not leave their most excellent system?
    I think Slim just left.
    As always, looking forward to more-

  8. yraharris Says:

    to all readers–it didn’t take long for the voice of the EU to state the importance of the appointment of Lagarde—I am posting the link for all to read—-

  9. yraharris Says:

  10. Chicken Says:

    Ugh, we’ve come to pump you up (again). Last I checked, the definition of unicycle specifies a single wheel.

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