Janet Yellen and the FED take center stage tomorrow and the consensus is for NO CHANGE. The market believes the FED will be on hold until March. BUT I OFFER THIS: If I was the FED chair I WOULD RAISE RATES 50 BASIS POINTS to take some of the risk out of the U.S. equity markets. The S&Ps are virtually unchanged since the December FOMC meeting but the market’s enthusiasm for anticipated tax cuts, regulatory relief, and possible currency intervention means the FED cannot wait to let the economy run “hotter for longer,” especially because of the 4.7% U3 unemployment level. If Chair Yellen wishes to burst the TRUMP exuberance it is time to move aggressively to stem the rise of a potential inflationary threat.
Posts Tagged ‘Angela Merkel’
I’m still nursing a New Year’s hangover. It takes a long time for the mind to rid itself of all the news the mainstream media deems fit to read. But as the third rock keeps spinning, markets will keep moving and we will strive to untangle the ball of confusion. After today’s tepid ADP data the market has settled into a consensus for 175,000 nonfarm payrolls. Again, I would love to see a number greater than 250,000 just to test the recent market action. BONDS rallied, currencies rallied against the DOLLAR, precious metals are showing early year strength and commodities have held support levels in the age of TRUMFLATIONARY EXPANSIONARY EXPECTATIONS.
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 reverberations from Merkel’s Boner will be systemic in nature. The more I think about the ridiculousness of Chancellor Merkel’s ill-advised comment about not financially supporting Deutsche Bank, the greater my fear of a cataclysmic credit event. According to a recent Zero hedge piece, DB has many trillions of derivatives on its books. Yes, it is notional value but as we learned with Lehman notional value is irrelevant when counterparties to Deutsche’s SWAPS and other credit derivatives demand their collateral back. In today’s shadow banking environment, the rehypothecation of credit through securitized instruments compounds the problems of a default or bankruptcy.
It seems that 108 years is enough time to pass to relive history. For those who are not sports fans, Merkle’s Boner is a famous mistake made by New York player Fred Merkel, who didn’t touch second base and was called out erasing the “fact” that the New York Giants had beaten the Chicago Cubs. The major GAFFE led to the Cubs beating the Giants and the CUBS moving to the World Series where they defeated the Detroit Tigers for their last World Series championship only 108 years ago.
The world has left the economic realm and is now heading into the political, which the Fed’s models cannot weigh because politics are too far complex and cannot be explained by six variables of a perfect free market system. There was a Financial Times article today, titled, “Bond Guru Jeffrey Gundlach: Brexit Not Going To Happen.” In a paradigm of static thought, Gundlach opine that Brexit will not pass in the U.K. for “the devil you know is better than the devil you don’t know. Look at what happened with Scotland. People aren’t going to pull a lever for Brexit, so I don’t even think that’s worth considering in the present time.”
I’ve been staring at this image and keep thinking about the three living Fed Chairmen that sat on the stage April 7 and the fourth that was teleported from Washington, D.C. I was thinking about the replies to weak questions posed by the moderator and better questions from the audience. I thought about the question I would have asked first. I would have asked each Fed Chair what they had thought about the role of GOLD in the post-Bretton Woods global financial system. Ben Bernanke famously opined that he didn’t understand GOLD but seemed very comfortable visualizing a role for BITCOIN. Yellen has never openly stated her concern about the barbarous relic. Back in the 1960s, Alan Greenspan wrote a serious paper for the Ayn Rand society on the important role of GOLD in a global system and more important for the impact of GOLD for a democratic capitalist world.
Notes From Underground: The Emptiness of the Chattering Classes, Opining On Everything With Vacuous ThoughtMarch 14, 2016
The main political news of the weekend was the falling electoral support of German Chancellor Angela Merkel in the three regional elections. The refugee issue continued to be the theme of voter discontent, according to the script presented by the nattering nabobs of nonsense. I have written that the financial repression foisted upon the German saving class was going to be a problem for Chancellor Merkel as insurance and pension funds were being punished in an effort to bail out the peripheral banks and ultimately the heavily indebted governments of the non-German core countries. Unlike the U.S., which has some political input on the role of the Federal Reserve, the German electorate is subjugated to a central bank over which it has no authority.
There is so much in the political realm that proves the concept of 2+2=5. I will continue the analysis of the impact of politics on markets but remember there is so much political tinder that can ignite the fires of market volatility. A quick sample from over the weekend can be found in Europe where local elections in Frankfurt, the home of the ECB, resulted in large gains for the AfD right-wing party. More dramatically, a small Neo-Nazi party won 17 percent in one district. Support for Merkel’s party, the CDU, and her coalition partner SPD, dwindled. This weekend’s regional elections in three German states will probably result in more losses for the Merkel government. Again, as bad as the refugee problem is in Germany it seems that the monetary policies of the authoritarian ECB and President Draghi are causing greater angst among the German population. Negative interest rates in Germany continue to repress German savers, resulting in a loss of confidence in the established political elite.
Let’s look forward to the most important news event: The March 10 ECB meeting.
Super Tuesday has come and gone. Bill Dudley and Lael Brainard have softened their outlooks on U.S. growth and inflation. The G-20 has passed into oblivion. Japanese JGBs were auctioned at a negative yield as investors acquiesced to paying the government for the privilege of owning its DEBT. The Middle East crisis is on the verge of an escalation of the multi-faceted conflict in Syria. Throw in the refugee situation plaguing the European continent (and the fact Germany is seeking debt relief for Greece if it is willing to become a holding pen for Syrian refugees) and it seems that we ought to be singing Barry McGuire’s EVE OF DESTRUCTION. BUT THIS NEWS PALES RELATIVE TO THE RUMBLE IN FRANKFURT NEXT THURSDAY.