It is a great honor to feature another podcast with Peter Boockvar for The Financial Repression Authority. Peter is certainly one of the regular commentators that I watch with great interest whenever he is on Bloomberg, Fox Business or CNBC. I think we cover much of the global financial landscape. While it may run long, it is a lot easier than reading a 20,000-word blog post. Pour the scotch and give it a listen.
Archive for the ‘Europe’ Category
Please Donald, will the POTUS STFU, PLEASE. This is not a political statement. It is free advice because the more you communicate the less impact you will have. You may be trying to use the bully pulpit to jawbone the DOLLAR lower but every tweet diminishes your influence. Peter Navarro tried to create a weaker dollar but you have lessened the impact of his misinformed missives. Historically, jawboning has had a short-term market effect, but your late-night 140 character references are losing the power to persuade. You must learn that words are like your campaign sexual references, less is more. SO PLEASE, STFU.
One of the most important indicators for financial markets is yield curves. They are predictive as they have historically shown coming economic turmoil, or, more importantly, the end of a business cycle. The severity of any recession depends on the amount of debt that has preceded the onset of an economic slowdown. I will remind readers that before the 2007-08 financial crisis, the U.S. 2/10 curve actually INVERTED to NEGATIVE SIX BASIS POINTS. Some financial pundits like to cynically advise consumers that the STOCK markets have predicted 10 of the last 5 recessions, but that is not so with yield curves. The difficulty with the signalling mechanism of yield curves is predicting the time for even during the GREAT RECESSION equity markets continued to rally even as the curve flattened.
Notes From Underground has been concerned that 2017 would be the year of Europe as the ECB’s quantitative easing policy and NEGATIVE interest rates would be an issue for many of the elections taking place this year. The Dutch, French and Germans will hold parliamentary elections. Those following the mass media will be focusing on immigration while NFU will continually seek to underline the importance of the repressive financial policies of the ECB. It is this narrative we will use to take the pulse of potential upheavals to the status quo. There is no doubt that the opposition to President Draghi is growing. In a threat to the Empress of Europe, Angela Merkel, received news that her coalition partner, SPD, has overtaken her party in the polls.
The inauguration is over. Davos is behind us. Let’s start examining the impact of policy and politics as we move forward. The first three weeks has brought stasis for equity markets as the S&Ps have not set new highs since the December exuberance. Investors are beginning to comprehend that the slow-moving legislative process will impede Trump’s efforts for an expedited deregulation and tax reform program. But, if you follow the proliferation of stories about a possible dissolution of the EU, my prediction with Rick Santelli about Europe being the main focus of 2017 is coming to fruition. One wonders what was discussed in the backrooms of Davos that led so many global executives to suddenly express concerns about the increased populism in the Netherlands, France and even Germany. It seems that the Dutch elections have gained a prominent position as a severe test for Brussels-based eurocrats.
This year has been a year of surprises as conventional wisdom-based forecasts have proven to be like oral agreements: not worth the paper on which they are written. The coming year promises to bring more confusion and volatility as the markets are preparing for the U.S. to be a Trumpian utopia of wealth creation. I caution against blindly accepting this narrative for it will not be a U.S.-centric year. Attention will turn to Europe as the political cycle brings elections in the main players. France and Germany are the EU and the rest just the trimmings (so stated Charles De Gaulle). The EU is fraught with problems, so the more uncertainty raises the profile of the ECB President Mario Draghi. Senator Charles Schumer once said to Fed Chair Ben Bernanke, “You are the only game in town.” Well, an ECB with a printing press and no political accountability provides a central bank on steroids. Mario Draghi perceives himself as the savior of the EU project so expect him to be hyperactive in response to any major political changes in France. Greece, Italy and Spain still remain an economic issue so the entire EU financial system will be subject to paroxysms within its debt and equity markets.
In the 1969 cult classic Putney Swope written by Robert Downey, Sr., the film opens with the death at the board room table of the firm’s chairman, Mario. Not realizing he has had a heart attack the sycophants play charades to get at the message Mario is trying to convey, thus asking HOW MANY SYLLABLES MARIO? Tomorrow, the world will be asking Mario a different question. How much QE, Mario? How long? The European equity markets were en fuego early this morning, led by the German DAX, even as the SPOOs were lower to unchanged. There were rumors about a nationalization of Monti Paschi but it seems that the Italians were trying to delay an actual bailout of the troubled lender and wanted more time from the ECB. MY OPINION IS THAT THE ECB WILL ANNOUNCE SOME EFFORT TO BUY FINANCIAL DEBT FOLLOWING TOMORROW’S MEETING. The ECB has avoided buying financial debt in its QE program because it is also the banking supervisor for the EU.
Even though Steve Bannon is no Beau Brummel, the music of this early rock song must be ringing in his ears. It seems clear to all but the dumbest media talking heads that the Bannon plan of Trump’s continued flow of tweeting is an attempt to make sure the Trump team controls the NARRATIVE. (See Ben Hunt’s magnificent piece at Epsilon about the significance of narrative.) This is important for investors and traders because of Trump’s ability to control the narrative makes us all focus away from the most events of the greatest possible consequence. Today, the airwaves were echoing the Trump tweet of the President-elect threatening to cancel the orders for two new Air Force One planes, the President’s personal fleet.
Time it was
and what a time it was, it was
a time of innocence
a time of confidences
long ago it must be
i have a photograph
preserve your memories
they’re all that’s left you [Simon & Garfunkel]
The Mario Draghi brought forth a new and improved standard of “truth obfuscation” at Thursday’s ECB press conference. When Draghi answered a question about the ECB basing its policy on politics he answered: “We are not in a political game.” In his “perception” there is NO POLITICAL WAR BETWEEN THE ECB AND ITS MEMBER NATIONS. This is of course unadulterated nonsense as everything the ECB does is political. During the ECB’s initial state of decision-making, then-President Wim Duisenberg said, “WE HEAR BUT WE DO NOT LISTEN.” The ECB claimed it pays attention to political discussion but its policy is set by objective criteria. Duisenberg brought proof to the nonsense of objectivity as the ECB kept its interest rates ridiculously low to aid the Germans in their cost of financing German unification and making the implementation of the HARTZ IV labor restructuring easier to easier to absorb for the German government. Duisenberg’s policy of negative real yields put severe pressure on the EURO as it dropped in value from its initial price of 117.5 to 82.5 which created credit problems for all of Europe but the Germans. As usual, it raises the question, WHOSE EURO IS IT?