On Friday, Rick Santelli and I discussed the situation in Europe, especially the FRAGILE situation in Italy. An important metric that needs to be watched is the huge amount of sovereign debt that is “comfortably” sitting on the Italian banks’ balance sheets. Under BIS rules (and other global financial regulations) sovereign debt carries a ZERO RISK WEIGHTING, meaning that commercial banks can hold sovereign bonds and hold no reserves against such an asset class.The Italian banks have been the repository of their sovereign bonds, which makes them vulnerable to a rise in BTP yields as the price drops due to the political concerns involving the inability of FIVE STAR/LEGA to come to an agreement on an acceptable cabinet.
(Click on the image to watch me and Rick discuss the Italian situation)
On March 26, me and Rick Santelli Rick Santelli discussed a few key issues on CNBC (the video is posted below). The final week of the first quarter saw the continuation of increased volatility as the market tried to sort through myriad issues. The influence of budget deficits, peace talks with North Korea, trade issues in the U.S. all creating a sense of uncertainty as global investors are forced to calibrate present positions in regards to regards to potential risk. Chinese growth is meeting expectations even as the XI regime is determined to clamp down on increased debt. The copper market tested the 200-day moving average early in the week but managed to close above it at week’s (even as the metal had a weak quarter).
(Click on the image to watch me and Rick discuss global trade.)
CNBC promoted its interview with Gary Cohn for a couple of days so the head of the White House Economic Council could not have been caught off guard by any questions from the interviewers. Cohn was giving the recent unemployment data a positive spin, but that’s part of his job description. MY PROBLEM WITH COHN’S INTERVIEW WAS HIS PUSH TO CUT CORPORATE TAX RATES AS AN ANSWER TO FLAT WAGE GROWTH. His analysis that lower tax rates equals higher wages is preposterous and reflects the thought process of a Wall Street account executive. In response to David Faber’s query about the tax cut benefiting middle class workers COHN replied: “How does it not benefit the worker?” Cohn answers his own question by building the straw man argument: Any repatriation of foreign profits would boost equity prices as would any cut in domestic corporate taxes. For who owns most of the equity in the world today (another Straw Man by Cohn)? We know the biggest pool of owned equity are the pension funds, especially the public pension funds (fire, police, teachers municipal workers], “… thus we are helping Americans by delivering returns back to them.”
The world is fraught with troubling news of assassinations, terrorist atrocities and confrontation between China and the U.S. But in the financial news it is all about the DOW PUSHING 20,000. To quote Mr. Natural: “What does the Dow 20,000 mean? It don’t mean SH*T.” We become enamored with numbers but in real financial terms 20,000 is meaningless on its own. The U.S. equity markets are enthralled with the possibilities that a Trump presidency will present. Three weeks ago Rick Santelli laid it out very well. He noted if trump was successful in reforming the ACA, realizing genuine corporate and personal tax simplification and reform, and rolling back some of the regulations burdening small and medium businesses the Trump administration would be an unmitigated success. If the Dow is the barometer, then Mr.Trump should declare victory and spend the next four years writing his autobiography.
Tonight I am posting today’s Santelli and Harris exchange (click on the image at the end of the post). (It is with gratitude that I thank Rick and his wonderful producer Lesley McKeigue for they keep providing me a with a platform to express views that are based on almost 40 of trading experience.) The Santelli Exchange has allowed me to meet and share views with some of the most respected minds in the financial community: Art Cashin, Jim Bianco and the list continues to go on and grow. Thank you my readers for allowing me time to deal in dialectic exchange and be challenged in a constructive method to enhance my knowledge. Remember, it is not validation but dialectic that I strive for in Notes From Underground.
Long-time readers of NOTES FROM UNDERGROUND are well aware that one of my key rules about global finances is MONEY IS FASCIST. In an interview with Rick Santelli today, I reiterated my views about how global capital needs to secure stability (hence the idea of money being fascist) as the world’s equity markets suffered from the “new ” uncertainty of geopolitical events over the weekend.
(Click on the image to watch me and Rick discuss the Italian situation)
