Monday, July 18, 2011
"It's a new dawn, it's a new day, it's a new life for me,
Yeah, it's a new dawn it's a new day it's a new life for me ooooooooh,
And I m feeling...errrrrrrr... a gut wrenching panic?"
Now as many commentators to this blog have been kind enough to point out, TMM have been Edward the seconded on their timing of a few pertinent trades recently but accept graciously their bowel toasting. What they do stand fast on though is their decoupling theory. Though the US markets and European markets are both getting toasted they are doing so for their own independent reasons but they do have one important thing in common - the current markets are not being driven by short term economic news, or central bank rate policy or by all the other things that economists are trained to watch and predict. Instead, it now all rests upon that most unpredictable of breeds - the politicians. In the US we have politicians in charge who appear to be happy to pull a nuke at a knife fight and in Europe the same breed are locked in, well , locked in denial. So having learned from the financial crash and from our comments column that your losses are ALWAYS someone else's fault, TMM lay the blame for their losses at the doors of the politicians.
This dramatic swing to political issues is why TMM are so scared at the moment. What "should" have happened, applying common sense and logic, doesn't because some power hungry, seat protecting, blind stupid dum-ass politicians find the ball in THEIR court and rather than kick it in the right direction, squabble over it to the point that it bursts in a game ending BANG. Worryingly, the longer this takes the more national interests condense and scapegoats are looked for. Today TMM hear that Asian names are selling peripheral debt and, if that is the case, it's game-over as the Asian Bid Life Boat turns out to be an Asian "save my own skin" Offer. It's one thing to rig your FX, it's another thing to not be a patient creditor. Last time around China and others got paid out at par despite selling GSEs, but TMM aren't so sure the Europeans are going to see it the same way this time and wish to send them on their way via the barber accompanied with the cry "should never have let them join the WTO" (as far as TMM were concerned open trade, and hence WTO membership, should be prerequisite upon open capital accounts).. But China isn't immune internally from any political fallout either. If the EU does blow up, the politics in Asia is going to be very, very interesting: How smart does currency intervention look when the portfolio starts blowing up?
TMM are coming to cringe-worthy realization that Bill Gross may be right and we may be headed towards a world of yield caps - or wholesale default and disorder. In the case of the former it is abundantly clear that Mr T and the A Team are going to have to give up on inflation targeting in a big way if the Euro is to survive. TMM are with Roy Schneider on this one: "we need a bigger boat" line because that boat has got to fit Italy and frankly it is hard to see that happening while still having a credible inflation targeting policy. Meanwhile the Beard is not in a great position to do anything and can hardly step up until AFTER it all goes to hell.
And what of our old friends the ratings agencies? TMM think they have turned rabid. TMMS worst nightmare starts with them downgrading The London Clearing House or the Mercantile Exchange because that ends with the worst possible outcome - Zerohedge is right about everything.