Normal Service....

Thursday, February 11, 2010

...will, alas, not resume this week after all, as Macro Man is snowbound in what seems like the third or fourth "Storm of the Century" this year.

It seems as if normal service has at least returned to policymaking circles, where Europe seems to have decided on a "September 2008" response to the Greek crisis: announce a rescue plan before you've decided on any of the details. The limp response this far from the euro is telling, though in fairness Bunds have reacted a smidge more. Still, market reaction is underwhelming, to say the least. "Normal service", indeed.....

Posted by Macro Man at 1:23 PM  

63 comments:

London doing its usual slovenly job with the snow? New York is a mess today, anyone from Chicago or Moscow would laugh at the untidy state of the streets.
If the markets are sharing LB's lousy mood today they will sell the news of the Greek Accord.

leftback said...
1:52 PM  

FFF still see 56% chance of a rate hike on Aug. 10. If "extended period" is taken to mean six months, then this is totally wrong, as the phrase hasn't even been dropped yet. Thoughts?

Anonymous said...
2:41 PM  

Two chances of a rate hike in 2010: Slim and None. Unless you mean in China...

leftback said...
2:57 PM  

More chance of ECB raising rates in August than Fed

Anonymous said...
3:59 PM  

It's all going pear-shaped in Europe, the US markets will probably follow on after we get the 30y auction out of the way at 1pm.

leftback said...
4:13 PM  

No snow in central London - understand outskirts esp north have snow. Of course the damn eurostar will no doubt be out of service for the weekend.

Anyone watch the Vietnamese deval?

Anonymous said...
4:19 PM  

Hope that 30-year auction goes better than yesterday's 10-year.

That said...it seems to be the day for things going pear-shaped; Our Man's boss decided to close down the firm today after failing to raise enough moolah!

Our Man in NYC said...
4:31 PM  

Condolences to OM-NYC. Something seemed rather suspicous when a PBOC Vice Governor insinuated that gold was in a bubble on precisely at the December top.

In the wake of the recent Chinese fusillade concerning dumping US corporate paper, as well as Paulson's opaque comments on Russia encouraging China to dump agencies during the Lehman crisis, one wonders if their new offensive includes buying gold which they themselves helped knock down.

Anonymous said...
5:11 PM  

The Way I see it is that the Greek bailout creates two situtaions.

1. The chances of a rate hike are zero
and that the ECB will now begin a bailout of the weaker members through easy monetary policy.

2. The Euro once considered a hybrid Deutschemark sort of animal is now an Italian lira greek drachma thingi and the perecption will grow that the weaker members are now calling the shots rather than the stronger members like France and Germany.

Upshot... easy money policy puts a flame underneath the French and German stock markets.

Anonymous said...
5:30 PM  

Bad luck OM, but hedge funds are like London buses, there'll be another one along in a minute. Or perhaps three of them all together, in an hour or so....

4.72% yield required to take the 30y down.

leftback said...
6:11 PM  

I stand by my analysis yesterday: while there might be some short term trader jockeying, there are and can only be two long term scenarios for Europe:

1) Greece, Spain, Italy, Portugal, etc are "allowed" to exit the Euro (diplomatically "pushed"?), Germany protects itself and its satellite economies, and France/UK muddle through

2) All of Europe (including Germany) slowly circles the drain and declines into 3rd world status. Greece by itself is too small to drag down Germany, but Greece by itself isn't the problem


The EU "ministers" can make all the pre-announcements they like. It gives them the illusion they are doing something, and politicians like that. Also gives the news media something to report on besides Britney Spears latest antics.

But ultimately, the decision will be made in Berlin. Brussels, Paris, Athens, and London don't have any money and cann't call any shots

I have been reading a few of the more popular German news outlets -- and opinion in Germany ranges from "Greece put this on themselves" to "Britney is re-recording 99 Red Balloons?!?!"

Merkel is reading the same papers and hearing the same opinions. The Bundesbank folks are being far from quiet that a bailout means the German economy and stable currency goes to hell.

The financial markets are paying far too much attention to a powerless facade in Brussels, and not enough attention to the people who must actually implement whatever decision

Gary said...
6:23 PM  

Thanks chaps!
Sadly, I fear Gary's option 2 is the one that Europe seems destined to take.

Our Man in NYC said...
7:07 PM  

OM in NYC:

Sorry to hear of your situation; I fear your firm will not be the only casualty of the failed "bailout" policy in the US.

As for "Europe", I keep saying this but Europe's opinion is irrelevant.

Only Germany gets a vote. The German populace is either indifferent or opposed to a Greek bailout -- but as German's give the matter more thought, they very quickly say they do not want to turn their currency into monopoly money. Bailing out Eastern Germany was family -- Greece and Spain are not.

Merkel will need to overcome that ingrained opposition to trashing the German currency, and explain how Greece et al are going to change their ways -- and not just on paper. That is an insurmountable hurdle, even if the EU had more time (which it does not).

The EU can threaten all they want -- but they can't force Germans to do anything. An EU decision without Germany is like an OPEC decision without Saudi Arabia. It will fool a bunch of dim-witted sell side bankers for a few weeks, but ultimately won't amount to anything.

This "EU" bailout nonsense smells of desperation. Brussels bureaucrats (and Paris) hoping to retain a glimmer of past glory. Prop traders praying their P&L gets bailed out by German taxpayers even though Henry Paulson isn't in a position to do so.

Given the political mood in the US right now, if Paulson proposed bailing out his cronies today -- do you think he would have any chance?

Most humans want to offer a fallen neighbor a helping hand to get back on his feet -- but few want to support that neighbor indefinitely, and that is what the prop traders are hoping for with Greece.

There is no popular support for perpetual bailouts

Gary said...
7:25 PM  

In Greece and Italy, tax evasion is a national past time. Receipts regularly get "adjusted" down even though actual payments do not -- and more often than not there is no receipt at all.

The blizzard in Washington is reminding Americans of what Greeks and Italians already know: most of what central governments do has zero effect on day to day life. This is a bureaucrats crisis, not a voter / taxpayer crisis

The bureaucrats have been ignoring their constituents for decades -- most "EU" governments did not put the EU up for popular vote. They didn't care whether their constituents supported the EU -- and their constituents don't care if (when) the EU dies.

There is no popular support in Greece or Italy or Germany for a bailout.

Washington DC can shut unplanned for two weeks -- not only did the Earth continue turning without them, in fact most Americans couldn't care less.

Many soldiers fighting in Afghanistan have expressed open relief at the drop-off of "tele-commanding" since the idiots -- sorry "leaders" -- can't get through the snow.

When the EU/Euro formally collapse -- neither Greek nor German citizens will care. Only politicians

George said...
7:45 PM  

The only thing I can think of that Brussels **might** do without German permission (again an act of desperation) would be to print Euros like crazy and use those to bail out Greece / Italy / Spain / Portugal / etc.

This would play into Germany's worst fears, essentially forcing Germany to leave the Euro unilaterally -- and leaving the rest of the EU decimated and facing Drachma level interest rates.

In short, an idle threat.

German taxpayers would have to pay for any bailout, if one occurs.

Put yourself in Merkel's position. What German government services are you going to cut? What taxes are you going to increase? We are talking hundreds of billions of Euros -- not a subtle adjustment.

An IMF bailout would require the EU in Brussels to admit impotency and irrelevance. And its not obvious the IMF has enough money to do much anyways (unless Brussels wants to report to Beijing instead of Berlin).

The basket cases of Europe are (in aggregate) too big to save.

There is no scenario that doesn't involve the end of Brussels. The only choice is whether the basket cases fall or whether Germany (and France/UK) go with them

Gary said...
9:25 PM  

Yes Gary, that's what the markets want. Let Daddy EU to print a trillion Euro and make all those nasty debt problems go away. You know, like how uncle Fed fixed everything in the USA.

Anything else next week is going to be a disappointment.

Anonymous said...
9:56 PM  

Anon 9:56 -- it is insanity for anyone with Euro denominated securities to wish for the EU to print money.

printing Euros amounts to ejecting Germany from the EU; the only credit worthy party in the whole place

If you are hoping to be paid back in monopoly money -- your wish will be granted more than you realize

This is the reason why the public got behind the Volcker rule and extra taxes on banks -- bankers are practicing Saddam Hussein like "scorched Earth" policies (and they didn't work for him either)

Go see a psychiatrist before you hurt your clients

Gary said...
10:06 PM  

@Gary 10:06 ... this is Gary 9:25 (who comments too frequently here)

I appreciate that, unlike me, your name might actually be Gary -- but none the less I have been using that ID on this blog. Please pick something else, so people can give you credit for your comments.

I withheld that last scenario until I could put on some (small) hedges against the "scorched earth" policy that some bankers advocate. I actually thought of it more as the bureaucrats in Brussels acting like cornered animals -- but same effect.

First, it was pretty easy to put on the hedges -- too easy. This suggests the market is not looking for that outcome (or the cost of hedging it would have been higher). Given the foolish behavior of EU officials over the years, I still would rather be safe than sorry

Second, while the bureaucrats in Brussels do not like the idea of losing their power, printing currency would have the same effect. And afterward, they will end up "back home" in whatever country after Brussels falls. They will have to live in the scorched earth, they will have angry neighbors who will not accept that they were doing God's work, and they won't have the German taxpayer to bail them out.

The chief potential money printer (Trichet) wants to go back to his home in France -- which will be a much colder place to retire if he is the guy that alienated Germany out of the EU.

Gary said...
10:35 PM  

One of you could be Gazza, or Gary Glitter...

Sort it out, guys, it's very confusing. Imagine being locked in a deadly oratorical struggle with Gary only to be disarmed by a surprisingly sane and supportive comment, from Gary! As if things weren't crazy enough in these days of government arbitrage...

leftback said...
11:01 PM  

Yeah, I agree with leftback

(Gary)

leftback said...
11:25 PM  

So now the FDP in Germany (part of Merkel's coalition) is flat out refusing to back any Greek bailout, no matter what Brussels says.

The FDP isn't leaving any room for negotiations and they did not leave the door open if Greece agrees to austerity measures -- the FDP just said "NO"

Meanwhile, two opinion polls of German citizens say the population is dead set against a bailout

A bailout is DOA

Anonymous said...
12:19 AM  

you guys could all get real google IDs and just use a pseudonym as I do.

Nemo Incognito said...
1:41 AM  

From the comfort of their EZ chairs in Brussles, the EU Clueless **ordered** Greece to cut its budget deficit.

Yep, they "ORDERED" a supposedly sovereign state to cut its spending. That sort of arrogance is bound to get cooperation

Meanwhile, the sovereign state of Greece told workers who had been striking for the last week to get back to work ... and the workers told the sovereign state were to stick their idea and continued striking

The problem here is that the EU has absolutely no legitimacy -- the citizens of the EU never voted for it. The EU can't order anyone to do anything they don't want to do.

Disconnected (and not elected) officials in a far off city are going to roll around in limos and order Greeks to accept auserity measures, and order Germans to pay the bills.... And if you need to contact the officials, they will be on their private planes

Anonymous said...
2:43 AM  

Gary,

Can you tell you what your hedges against the scorched earth policy are?

Anonymous said...
6:48 AM  

when Europeans talk about the US, do we sound as utterly clueless as the reverse? I suspect not, if only because we've a greater imperative to understand what goes on in the US.

-melki

Anonymous said...
9:31 AM  

You mean "Nemo Incognito" is not your real name ..life's so disappointing sometimes ;(

Anonymous said...
9:31 AM  

I d have to agree with Anon (might be me too).

To paraphrase »sovereignty« used by one of the Gary’s many times:

You (Americans) would do well, learning right now from Greeks what is to be done when Papandreou’s (insert into the American language translated corr. names by Google) of this world tell you - that you will be footing the bill.

Just wait for the French act, later on, while learning.

Remember Italy in the 70s? Guess not. Wait for that too.

Now besides the above, what I would consider as an act of sovereignty would look sth like this:

First, ban all CDS issuing, holding and trading for every EU seated bank, FI and any other legal person. Then politely tell Washington you just defaulted on all the turds, stuffed into BS of every European - excluding UKs due to hosting such types as NY Italians who singlehandedly commands the entire FX universe these days - legal person. Then ban every moronic CDS and other turd clearing systems, backed by Fed, operating in or on behalf of Europe. Kick the president out of the ECB for issuing dollars to European banks. Remove the Agencies rating as a precondition for access to ECB funding or any other funding, then leave Greece to default - without even the IMFs, to 1/10th of the previous level - devalued SDRs. Recall all PMs from NY and London at once (hope not you will ever receive them), while issuing all new debt in US dollars.

That would be a start, should EU »leaders« off course understand the UBSs, SocGenss and DBs of Europe (pun to the UKs turd bags intended) as »liabilities« rather than »assets«. Needles to say, so much for the above.

May I also remind you that you were quite capable of performing such acts back in the days when States of the Union did not feel obliged to pass clarifications on their independence from such type of a Union and dealt directly with the old BoE.

Given how busy “modern” Americans are (and how pathetic modern BoE has become), hiding all remaining evidence of illegal fraud and unconstitutional counterfeiting the - in the God trusting - franchise, intentionally perpetrated by owners of the franchise into every off federal balance hole, while financing their flippin of your 401ks fantasy balances - soon to be sequestered into yield bearing turds - and of all those illiquid Greek haha sovereign turds around, all at 0%, you will no doubt fail to notice a tiny sovereign act of European Parliament yesterday, that crack in your 30y bund nor how the reserve index shell game can (not saying it will) be busted by your President receiving Dalai lama NOT in the Oval office.

This is the sorry state of affairs of today’s best and no doubt, brightest FX population.

Till such time (may as well be never), please enjoy the works of your dynamically deflated Larry-Tim duo, flanked by Benankes, Bairs, Krugmans, Pelosis, Paulins, Obamas, followed by many other senate and congress (less one) members… I for one, would take a Merkel / over all the above – at any time.

And lastly, can I apologize to all for all of the above, so we can all get back to trading ourselves into oblivion.

Say shorting silver one other leg down (still best trade of 2010), before your mid election starts peaking-up the pipe?

Anonymous said...
11:37 AM  

I'm very knowledgeable on German Politics ,but the article in the FT today seemed to suggest the possibility that Merkel may lose her coalition altogether if she pushes a bailout solution.
Media being as it is,awful usually, can anyone more informed confirm whether the German political base is vunerable in this case.

By the way why don't the ECB just raise rates 1% right now and drop them again in a month...market pushing this issue would get a surprise don't you think ?

Anonymous said...
12:10 PM  

I should have said "I'm NOT very knowledgeable" ,anyone who is gove a view.

Anonymous said...
12:22 PM  

From my copper desk:
''Short covering yesterday added $400 to an already volatile market closing at 6939. Not suprisingly this settled back overnight to a range of 6868 - 6921 prior to london open.
This range was in tact until the Chinese central bank raised loan reserve requirements by 0.5%. This, almost imediately wiped $150 off the copper price to trade a low of 6720.''
Anyone can comment on that 0.5% raise by the Chinese?

Anonymous said...
12:55 PM  

"This is worse than a divorce - I've lost half my net worth and I still have a wife" Quote from hedge fund manager.

Anonymous said...
1:07 PM  

"this sucker's going down"

Gary, my brothers Gary and Gary said...
1:36 PM  

"Germany is stepping totally on the brakes on financial assistance," said a senior EU diplomat. "On legal grounds, on constitutional grounds and on principle."

Now, if we can just sneak that Axel guy into the sweet spot…

Anonymous said...
1:42 PM  

off-topic but a wonderful read

http://www.guardian.co.uk/politics/2002/jun/27/economy.uk

Anonymous said...
1:47 PM  

http://www.guardian.co.uk/politics/

2002/jun/27/economy.uk

Anonymous said...
1:47 PM  

@10:06 Gary,

Why do you think that the public would support Volcker rule? Given the current political situation in congress, I do not believe that Obama has a lot of chance to pass Volcker rule.

zjin said...
2:11 PM  

zjin: you are very confused

The public already supports the Volcker Rule -- actually it was their idea

Its the bankers who oppose it

Gary the Magnificent said...
3:17 PM  

Anon 12:10

According to several German newspapers (written and published in Germany), their adhoc polls show the German public is against any EU bailout

The CDU (sorry Christian Democrat Union -- one of the parties in Merkel's coalition) has publically stated that they will **NOT** support Merkel if she tries to get German funding for a bailout

Don't know if they would try to vote her out of office -- but they aren't leaving themselves any wriggle room for compromise... "NO!!!!" was the headline in the papers

Whether Merkel is sincere in backing the EU (or if it is just diplomatic maneuvering) is unclear. But there is no support in Germany for any EU bailout

Gary the Humble said...
3:22 PM  

In addition to the CDU, the FDP (I think it translates to "Free Democratic Party"?) has also stated that they will not support any bailout. FDP is also part of Merkel's coalition

A quote from Bloomberg today:

Seventy-one percent of German voters are against providing financial help for Greece, while 25 percent say they are “ready to help Greece with German taxpayers’ money,” according to an Emnid poll of 1,000 people for N24 television conducted Feb. 10 and released today."

25% in favor, but 71% opposed sounds like Merkel isn't going to be able to bail out Greece even if she actually wants to (she may just be posturing / holding out the possibility of bailouts for Brussels on diplomacy reasons)

Gary the Good Guy said...
3:29 PM  

For those looking for a Bbrg story:

Here is a link to the story with the FDP and the 71% opposed opinion poll

There are lots more stories if you can read German...

Gary the Gozarian said...
3:39 PM  

Never trust a naked man trying to sell you underwear...

...and never trust a bunch of bankers/politicians trying to tell you that debt levels don't matter


Sovereign debt -- whether in Greece or Spain or California or Washington DC -- is not risk free. Not even if a college professor promoting CAPM says so a million times

Gary, the long lost brother of Leftback said...
3:49 PM  

Hahaha, what on earth happened here?

Anonymous said...
4:25 PM  

We warned the guys at Goldman, "DON'T CROSS THE STREAMS!!!!" but no... they didn't listen

This city is headed for a disaster of biblical proportions. Some moldy Babylonian god is going to drop in on Central Park West, and start tearing up the city (actually, Sumerian, not Babylonian).

You know, it just occurred to me that we really haven't had a successful test of this equipment.

Why worry? Each one of us is carrying an unlicensed highly leveraged bank -- what could go wrong?

Ectoplasmic residue is the by-product of too many people expecting the other guy to bail them out of their mistakes

Someone blows their nose and you want to keep it?

Yes, and I plan to send the cleaning bill to the Germans. They are so rich they won't know the difference.

I think we'd better split up. Yeah... we can do more damage that way.

(looking at the EU headquarters) I think this building should be condemned. There's serious metal fatigue in all the load-bearing members, the wiring is substandard, it's completely inadequate for our power needs, and the neighborhood is like a demilitarized zone.

Gary, the Stay Puff(c) Marshmellow Man said...
4:54 PM  

Henry: You know Lloyd, this reminds me of the time you tried to drill a hole in your head. Remember?

Lloyd: That would have worked if you hadn't stopped me.

Gary the Gatekeeper said...
4:57 PM  

Goodness me, a cornucopia of Garys - one can only hope that normal service will be resumed on Monday.

LB is inclined to be bearish in light of China's move (predicted by MM) and the possibility of a non-bailout of Greece next week.

leftback said...
5:50 PM  

LB, bearish into a Mysterious Monday? Perhaps J.P. Roth's apparent interventions in favour of the Euro are related to wider efforts behind the scenes to avert a "disorderly" scenario from materializing.

Anonymous said...
6:02 PM  

But which one is the original (if not real) Gary?

Our Man in NYC said...
6:04 PM  

It just occurred to me that maybe the Mysterious Monday is nullified on account of the US holiday. Or does it get pushed back a day? Please help.

Anonymous said...
6:10 PM  

Mystery Monday will play out in the European markets. We are off Monday to play in the snow.

leftback said...
6:12 PM  

Equities taking a sled ride now.

Anonymous said...
6:20 PM  

Sell the German opinion polls today, buy the EU communique on Monday...? Is LB alone in not wanting to play government arbitrage over the weekend? Interesting that the image of Hank Paulson's bazooka made a return to the media. Sooner or later someone's bazooka is going to misfire in a spectacular way.

leftback said...
6:30 PM  

That's what happens when you buy cheap bazookas from China...

Anonymous said...
6:36 PM  

@Gary #2 ... I am going to make a wild guess that you are upset that I asked you to pick a different ID yesterday. Wasn't trying to be difficult, just hoping to avoid confusion

Not a happy day for me; I had to let two people go earlier today. I am sure leftback will scream about this, but Fed Funds are going to be forced upward whether Bernanke likes it or not. The country is simply bankrupt and we cannot afford to subsidize big banks any longer. Whatever Fed Funds used to be historically, they are nothing but a bank subsidy now.

Unfortunately, even if Bernanke gets a clue and raises rates to "neutral", the damage to the economy is already done.

I agree with leftback (I think?) that Bubbles will not lift rates to "neutral", but FF will stay "stimulative" (to banks) for a long time

Regardless, the damage is now done. It will take a few years to fix things, once Bubbles stops his failed policies.

Rather disheartening to hear some media outlets talking about Paulson's bazooka. Exactly how bad do things need to get before the policy of bailing out the stupid at the expense of everyone gets discredited?

I stand by my analysis earlier this week that Germany isn't going to bail out the PIGS -- not even if Merkel promises. There is a small chance that corrupt EU officials will end their reign by printing money for a bailout, and a high chance that the spendthrifts will be forced to exit the Euro and print new currency for themselves.

Here in the states though, we have a very weak president, a central banker that is lost in theory, a rather corrupt Treasury Secretary, and a populace that just isn't going to work 80 hour weeks to prop up the status quo. If Obama raises taxes, people will work even less.

At some point, government will need to get cut back in real terms and failed banks will need to be wound down. We can't keep pretending they are viable when we know better.

In trading, your first loss is your best loss. Hanging on to a losing position in the hope it will come back and let you break even is usually the path to wipeout.

We should have cut our losses on the big banks last year -- we will pay for our indecisiveness

Gary said...
7:11 PM  

"Fed Funds are going to be forced upward"

Perhaps. Perhaps. But you know what happens to the yield curve in a softening economy. The result might be to move money to the long end and take away the conditions that promote banks alleged "return to profitability". I still say they use reverse repo rather than changes in rates, b/c at some point they will have to stimulate again and it's easier to calibrate QE than rate changes. BoJ wrote the book on this.

leftback said...
7:23 PM  

leftback -- I do not dispute your analysis that the economy needs more stimulus, but yours (and Bernanke's) tactics for achieving that are simply not working.

Yes, everyone knows that lowering Fed Funds was the tactic of choice for many years -- back when banks made local loans and limited partnerships traded securities.

I mentioned a few weeks back that Exxon, IBM and Pfizer all pay 3-4% for short term (1-3yr) debt... and they are all much better credit risks than any big bank. Exxon I think is the only remaining "AAA" entity in the US, now that Berkshire is AA? I tend not to trust credit ratings and don't follow them too close, but I think that is right.

Very poorly run banks get to borrow at 0% from the Fed. They got to issue bonds backed by the FDIC (at below market rates). When Warren Buffet lent money to GE and Goldman, he charged 10% (plus calls, since the shares are convertible). That is a MASSIVE subsidy.

Back in the day when banks actually made loans to people this sort of "stimulus" perhaps made some sense. But today, the subsidy is going mostly to prop trading

While good credits like Exxon pay 350bp more than bad banks, small businesses- whether you talk about Sam's Shirt Cleaners on the corner or that small manafacturing facility up the road -- pay 8-10% when they get really lucky. Many are not able to get a loan no matter what the rate.

Vendor financing, at 1.5% per month (18% per year?) has become the default finance vehicle -- and even then vendors limit what they will lend out.

Explain how robbing everyone from IBM to Sam's Cleaners in order to pay Citibank and Goldman Sachs is stimulative?

Bubbles could keep FF at 0% forever and this current system will never produce a vibrant economy.

That is the difference between book knowledge that Bernanke got at Princeton, and real life experience. Sam (the owner of Sam's Cleaners) knows more about real world economics than the entire faculty of Princeton.

Fed Funds at zero is fine theory, but it isn't going to work outside the classroom, and we all know it.

The world went on without Continental Illinois, and we'll be just fine after another big bank collapses, especially since the big banks are not in the lending business anymore.

Not every "Sam's Cleaners" deserves a loan of course, which is why banks need to have real loan officers that go out and learn about a customer's business and understand the risks. Banks don't do that anymore -- the skill set is completely missing from the ranks.

Fed Funds can't be anymore effective at stimulating the economy than the banks are.

And not incidentally, the government needs a broadly diversified portfolio (they call it a tax base) in order to make good on all the Treasury bonds floating around

Gary said...
8:04 PM  

Gary, I am in agreement with all your comments and I think you are correct here, but understand that I am not advocating (Krugman-style) the continued Keynesian helicopter drop response, nor do I support Bernanke's BoJ-style approach. However, and this is a crucial difference, it is true that I continue to base my investment decisions on the expectation that this is what will in fact occur. The economy will slow on its own without any rate hikes from the Fed.

OK?

leftback said...
9:06 PM  

@leftback - I agree the economy will slow on its own without any rate hikes. I actually agreed a couple weeks ago with PIMCO's ElErian that the "economic recovery" was nothing but a sugar high from wasteful government spending.

Bernanke isn't going to tighten because of a recovery that isn't happening.

Bernanke will be forced to tighten because this bank welfare is not "free money". At the very least, it has an opportunity cost. I would argue it has a demographic cost as well.

As Obama is (slowly) learning, and Greece has now been rudely informed -- governments do not have unlimited money. Whatever subsidy Obama gives to the banks involves an opportunity cost -- it is money not going elsewhere... I have no idea whether this dummy can better allocate the money or not -- but it is wrong to overlook the opportunity cost of misdirecting "stimulus".

This matters because the people who are not benefitting from this bad policy get to vote on everything who makes up Congress to whether the Volcker Rule gets jammed down Blankfein's throat

Second, there is a literal cost to zero FF. Lots of people have pointed out that the policy amounts to stealing from savers (of which the country has a shortage already).

By savers, they mean pensioners. People already collecting a pension, as well as those poor suckers who foolishly believe they will one day be able to retire. Haha! Not when your savings are earning 0% while your costs are increasing 5-6%.

Because of the effects of compounding (which work both for you and against you) -- Fed Funds cannot stay zero for an "indefinite period". Pensions cannot have -5% accrual per year (versus liabilities) and work out.

Now, the average Joe/Jane in the street isn't going to grasp accrual rates and actuarial tables. But they do grasp basic math concepts like "I have no money, and no savings"

They also know how to complain to their Congressman. They know they can walk away from their mortgage and stick the welfare company (you call it a bank) with the loss. And they know they don't have to work long hours at a job to pay higher taxes to provide the cashflows for your "risk free" sovereign debt.

Those imbalances are coming to a head all over the world. Ireland, Iceland, Spain, Portugal, Italy ... and California will have to start defaulting on its bills (paying IOUs) next month.

Obama can't bail out California for the same reason Merkel can't bail out Greece... It isn't just California -- Florida, Arizona, New Jersey, Nevada are all in the same boat (others close behind).


In the end, democratically elected governments must tell their constituents to go starve in the street...

...or they must re-allocate welfare checks from 100% banks to something a little more balanced

Gary said...
9:41 PM  

"it is wrong to overlook the opportunity cost of misdirecting "stimulus"..."

.....Preaching to the choir here, old boy.

But there is a mystery here - are you Gazza #1 or Gazza #2? My bet is Gazza #1 (long closely argued commentary) - Gazza #2 prefers the hit-and-run smart-arse one-liner approach of which the blog founder is often such a fine exponent.

So, what if they attempt a lame rescue of Greece and everyone sells anyway? The Titanic didn't have enough lifeboats as I remember...

leftback said...
9:51 PM  

So which Gary has answered my question? If we agree Obama is weak, what is the odd that he can pass the banking reform bill? I suppose that no Rep wants to give him credit on this one before the mid-term election.

zjin said...
9:51 PM  

@leftback -- I think I am Gary #1, judging by the long winded replies I write...

If they attempt a lame rescue of Greece, the smart money will sell Germany (because smart money already sold Greece to the idiots at the banks).

Voters and Merkel's own coalition partners will unwind anything she forces through -- both Merkel and the EU bureaucrats know that.

Obama can't realistically bail out California, because taxpayers in Missouri aren't going to work triple time so the girls on The Hills can enjoy spa time (and its not just Missouri that feels that way).

California spends more than it earns, we are not talking about a temporary cashflow problem. Everyone knows this. If California pays less of its debts, it means someone else has to pay more -- there is no free lunch.

The average guy on the street knows there is no free lunch, even if he doesn't understand all the complex financial securities or Washington DC "math" (which nobody understands because its fraud).

Either 15 states will cease to be and become 3rd world economic disasters -- or else the federal welfare system will have to spread the "stimulus" around more evenly.

No free money there either -- what they give to CA/FL/AZ/etc, they must take away from Citi, Goldman, etc.

That is why FF will not stay zero -- its not tightening, its a share the wealth card from the voters who are paying the banks' bills

Anyway... its 5pm quittin' time in NYC, and "Mrs Gary" wants me to ignore the markets for the next three days

Good luck to all

Gary said...
10:04 PM  

lots of bad things happened on friday. The EU is close to a double dip, Greek data was bad enough to threaten downgrade, China tightened, and Dubai resurfaced - 2014s off 2 cash points, and CDS out to 660bps.

http://ricardianambivalence.wordpress.com/

Matt Johnson said...
10:46 AM  

move in futures last 1/2 hour friday said to be the add of berkshire into index, and now most of the move has been erased on reopen of futures sunday nite
-deacon

Anonymous said...
1:14 AM  

cftc reports showed some big movement, especially the speculators in the oil complex bailing in very big numbers toward a level where the market has bottomed in the past, with the seasonal for crude having it's low feb 19th, and crude usually rolls up into may from there...

gold and silver also showed a big number for the speculators bailing into big commercial short covering on this cftc report... very interesting!

new moon saloon now!
http://breakpointtrades.com/newsletter_images/874_MoonPhases.png

cheers!!
-deke

Anonymous said...
1:22 AM  

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