This is a tough POST to write for I will criticize a newspaper I have read every day for at least 30 years. (In fact, I still have it delivered on my doorstep and read most of it online in the evening before the hard copy arrives.) The London Financial Times had a front page story, “Troubled Italian Banks Face Fresh Risk of Failing If Renzi Loses Vote.” This is a deplorable headline for it harkens back to the days of the mainstream media warning of dire consequences if Brexit passed and the Trump was elected president. THIS IS SCARE MONGERING. It raises the question: When will the Davos crowd EVER LEARN?
Posts Tagged ‘Hollande’
Back from the spiritual cleanse and I chatted with Mr. Santelli today about volatility as the prairie fires of global politics causes great angst and HEADWINDS for markets. There was nothing new for readers of Notes From Underground as we have weighed and measured many of the issues plaguing the global markets. In this post, I want to call attention to a couple of pieces that appeared in the press Monday night and Tuesday morning. The front page of Tuesday’s Financial Times had a story, “Deutsche Received Special Treatment In The EU Stress Tests Via ECB Concession.”
Increased volatility is not debatable. It will be the outcome of the uneasiness of global politics. It seems that the present state of affairs reflects the vast chasm between those who have benefited from GLOBALIZATION and those who have seen their lives and incomes being disrupted by a world experiencing dynamic change. Brexit was a vote of the nationalists versus the Davos crowd, or those seeking the comfort of the world they know versus those who have profited mightily from the first mover advantage of being prepared for the post Berlin-wall global economy. The central banks’ efforts to prevent a massive liquidation of global assets and harm that would have befallen the global economy as left many participants in a state of financial repression.
Let us continue where last night’s blog ended. This week’s move by the French President Hollande to reshuffle the government’s cabinet should be perceived as a way for France to negotiate for a depreciation in the EURO and an end to the German-imposed conditions of growth through austerity. Prime Minister Valls cast out previous Economic Minister Arnaud Montebourg because his continuous attacks on the Germans’ push for austerity wasn’t appreciated by Chancellor Merkel. Montebourg is a beloved leader of the Socialist Party and has been a close confidant of President Hollande. The change in the cabinet can be disastrous for Hollande’s socialist standing so we must examine Hollande’s political maneuvering as representative of something bigger.
Today the markets received the long-awaited data on the U.S. job situation and the major beneficiary seemed to be the HFT algorithms that had the number two seconds early. The stock indices, currencies and precious metals all reversed early movements and rallied just prior to the public release. Setting aside the trading action, the data continues to reflect a very tepid recovery. Nonfarm payrolls grew by 148,000 making the FED’s September 18 decision look credible. More important, the average hourly earnings grew less than expected and kept the pace of wage growth very anemic. The FED has communicated that it is the jobs rate that the markets should be mindful of when anticipating any future action to raise rates. The FED has told the markets that an UNEMPLOYMENT LEVEL of 7.0% or maybe 6.5% will be a threshold target that could prompt the FED into action.
The most important piece of the French President’s visit to Japan was to discuss a cooperative agreement with the Japanese Prime Minister on the development of new and improved nuclear powered electricity-generating facilities. The Japan Times and Bloomberg both reported that “Hollande and Abe discussed nuclear energy and agreed to promote joint development of a next-generation nuclear reactor as well as to support private-sector efforts to export nuclear power technologies to emerging countries.” Japan’s Mitsubishi Heavy Industries and France’s Areva Corp. are two of the main developers of nuclear technology for domestic purposes. As I have written previously, the issue of nuclear energy is a vital link in the ABE economic plan. Prior to the 2011 tsunami and Fukushima disaster, Japan produced most of its electricity through nuclear power generators. The tragic outcome from the tsunami forced Japan to curtail most of the nuclear generators and become more reliant on imported energy, especially liquified natural gas (LNG).
The German Constitutional Court is scheduled to hear the arguments in the issue of the constitutionality of the ECB providing unconditional funding for the bailouts of European sovereigns plagued with financial problems. The main issue really becomes this: Can the ECB consign German citizens to be the paymasters for the entire European project without their DIRECT CONSENT–or what the highly regarded Otmar Issing rightly called “taxation without representation” in an FT op-ed piece several months ago? Germany’s Constitutional Court sits in Karlsruhe and decides major issues of law impinging on the legality of the BASIC LAW. Previously, the court has held that the sovereignty of the people resides in the Bundestag but has warned that the transfer of German wealth and property to an outside foreign body has its limits without direct consent of the people. Where does the demands of the European Union conflict with the sovereignty of the citizens in determination of German rights?
First, the unemployment report offered no surprises as the market was close to the actual release. The real surprise was in the upward revisions to the February and March numbers. The negative surprise was the average work week shrinking by 0.2% of an hour. The shorter work week may be an aberration but it may mean that employers are cutting workers hours so as to keep under the Affordable Care Act mandates, but I caution it is far too early to say that this is definitely occurring. The BOND markets reacted negatively to the “stronger” jobs data and the 10-year note future fell as yields rose by 10 basis points. Investors bought stocks and seemingly sold bonds in a performance of risk-on/risk-off. Again, one day’s action does not a trend make. The pure risk-on/risk-off paradigm has been dormant for quite a while and let’s hope it stays that way.
The FOMC will release the results of two days of policy deliberations at 11:30 a.m. CST Wednesday and the market is convinced that the Bernanke FED will vote to end Operation Twist but increase FED Treasury purchases. It may not be the full $45 billion but something above $25 billion, which would be in addition to the already promised purchases of $40 billion of mortgage-backed securities (MBS). It will be difficult to continue Operation Twist because the FED‘s System Open Market Account (SOMA) is nearly void of debt of less than three-year duration. Any new FED purchases will have to be with cash resulting in an increase in bank reserves. The result be not be a Maturity Extension Program but a new round of Quantitative Easing. It is doubtful that the FOMC statement will allude to fiscal policy but will just remain true to discussion of the dual mandate.
Well, Moody’s downgraded the France’ sovereign rating from AAA in what was an obvious bow to reality. MOODY’s, WHAT TOOK YOU SO LONG? This will really be a bitter pill for President Hollande as it was only last week that the “French cock” was crowing about how well the bond markets were evaluating his performance as the leader of France. I reminded readers that the recent performance of the French debt had more to do with Mr. Draghi’s aggressive actions than any policy put forward by the Hollande government.