Wednesday, August 30, 2017


The Wall Street Journal had the same take on My last post on Monday with a different perspective.  The leading article was bemoaning the fact that both Stan Fisher and Janet Yellen were in the legislative business having both strongly warned about refining Dodd/Frank except perhaps for a bit of tinkering with the Volker Rule.

Now I have all the respect in the world for the editorial board of the WSJ, but come on guys, let's move back to Realville.  What do you expect from a bunch of beaurocrats...very smart beaurocrats mind you...who for the last  God knows how many years have been given a free ride on all things economic through the damn near complete abrogation of the Congress' fiscal responsiblities.  If you have been placed on the top of the hill you ain't Colin' down.  The view is good from up there.  Don't blame the Fed, blame the politicians.  The Fed is composed of human beings (surprise!) with all the foiiablies of humans.  Don't like it?  Tell your pol friends to start doing their job.  If they don't don't complain.

Anyway, having gotten that off my chest, a review of the past couple of days.

The economic data today was  surely surprising.  The economy is the second quarter grew at an annual rate of three per cent. Why? How?  To be honest, who knows?  There are explanations and concerns that this is not sustainable, which maybe true, but there are a lot of smart people scratching their heads today.  More surprisingly, to me at least, was that despite hurricanes, riots, the Little Fat Porker, Congressional disfunction and every thing else swirling around out there, consumer confidence came in at the second highest number in years.  What's going on?  On this one I return to what we observed on our road trip; every one seems to be hiring and with jobs, comes confidence. Yes, there are the usual load of bed pans and burgers but there's real stuff out there even in the fly-   over zone.  In our town there has been a tremendous resurgence in the downtown which is not exactly  Battery Park.  But $400.000 for a three bedroom out here is mucho dinero me amigo.  Something is going on and one can only hope it continues.

On a global note, despite all the good news, the dollar continues to head south.  The Euro hit 1.20 today since...well...I can't remember when.  One thing I can't understand is whilst the currency weakens the ten year touched 2.10% briefly yesterday.  Any help out there?  It honestly makes no sense but these are strange time.  Of course the strength of the Euro is making life rather for Sr. Draghi and his conviction that continued QE is the way to go.  In theory, the plan should strengthen the long end and weaken the short end: nope, it's been the other way around.  And now he's running out - of product.   Perhaps approach the pols to go further into debt?  Just kidding...then again, that just might work.

Friday, August 25, 2017


They have all ganged up on me.  Janet, Mario, the whole monetary mob at Jackson Hole.  Janet is happy; Mario sounded really happy.  Nobody sending any kind of signals of worry.  If you take this meeting on face value--and there is no reason not to--the punch bowl will be refilled forever.  Which means that there is nothing going on, which means poor Charlie  is in deep doo-doo and may have to shift over to a political blog for which there is of course a tremendous need..........Not going to happen.

Somewhere, deep down for no other reason than gut, I still think the Fed is going to move before the end of the year but I must admit the confidence level is considerably lower.  On a grander scale,  I'm afraid that the administration's fiscal agenda is dead as today's central bank positioning will relieve any concern on the part of politicians for meaningful tax reform.  If the economy is as strong as believed, the view will be--all politics being local--take no risk and assume the tide will lift all boats. Of course if the nature of the congress changes...well, worry about that when it happens.  I'm not real confident about that scenario either.  More and more, risk seems to as being defined in global, political terms.  Perhaps that is the right outlook.  Why should I worry what with the Premier league in operation and the start of the college season next week.   And of course it's still georgeous out here but prayers for our countrymen on the Gulf Coast. This is going to be bad, gang.  They are going to need all the help they get.

Great weekend.

Thursday, August 24, 2017


At the start of the year I was pretty convinced that we were into a new paradigm in regard to controlling interests affecting global economies.  I'm less convinced today.  It is true that we are witnessing what appears to be, for the first time in a long time, a lock-step move--upwards by the way--in global economic development but not because of fiscal or agreed economic reassessment.  The controlling modifier in all regions is Central Bank activity, or lack of the same, with the slight and rather hesitant exception of the Fed earlier this year.  But the ECB or the B of J?  Or for that matter the Bank of England?  I think not ol' so, we rather like it where we are.

Consequently, the only game in town is Jackson Hole and tomorrow is the day that has dominated talk all week: what will Janet say?  Who knows. This situation is so fluid and so dominated and influenced by politics I suspect that Janet is probably not exactly sure what it is she should say.  Then again, does she want another term as Chair, and if she does what does she say to convince The Donald that she deserves one?  As to that, like everyone else, I'm sure she has no clue. But the world watches and waits as shall we.

Whatever happens I am afraid it is looking more and more as though the next couple of years, at least through the next U.S. Election cycle, that is is the Central Bankers who hold the Trump. Cards...every pun intended.  This, IMHO, is not a good thing despite what has been so far this year a rather successful turnaround, especially in Europe.  Does anyone really believe that the elected heads of the governments of France and Germany wield more influence over the European economy than does Mario Draghi?  And in the U.K...well, perhaps it would be an easier question if one could determine just who it is the political leader of the U.K.  To say that Ms. May has been a bit of a disappointment....well we are British you know a prone to understatement.  Americans just might call her dim.

So we await The Janet.  At 2.19% it is too low you know.  There's a lot going on out there and somebody, hopefully it's Ms Yellen, had best start shooting in front of the duck despite the seemingly begine inflation data.  Perhaps we'll have a better handle on where we go from here this time tomorrow...or not.  Anyway it's still a wonderful summer in the Fly Over Zone.

Monday, August 21, 2017


Ten days and about 2500 miles later.  It started out as a simple drive down to NorthCarolina for a wedding but...developed.  This is a really big, beautiful country. We had never seen the Smokey Mountains;  Wow!  Friends all along the route who were needed to restore confidence as T & S managed to remind me for at least 2200 miles what a lousy driver I am.  She says she's still surprised she made it home alive.   One of these days......

A couple of impressions:  it doesn't appear that the part of the nation we visited is in imminent danger of revolution, civil war, Nazi takeover or anything else for that matter. As a matter of fact the one thing that struck me throughout the entire trip was the presence of "help wanted" or "now hiring" signs.  It's been a while since I have seen so many; it was truly remarkable which is what we did on a number of occasions.

The second thing is that there is very little sign of economic depression, at least in places like Charlotte which admittedly was hosting the PGA last weekend.  The joint was jump in'...really jumpin!  And along the entire route concern over the spending of money didn't seem to exist.  From what we could see the attitude out there is clearly different than a few years ago.  Same here in the Flu Over Zone.  It was kinda fun and refreshing.  I had to read the NewYork Times today to realize that it is all a myth and that we are really doomed.  Oh well, back to reality.  I could I be so foolish.

Monday, August 7, 2017


Remember the London Whale?  He was the guy who managed to double down on a bad position and lose J.P. Morgan about a gazillion a couple of years ago.  Ok, bad things happen to good guys and even jerks but the ballon really went up when Jamie the Greek poo-pooed the whole thing with what amounted to "a billion here a billion there moment, who cares."  Red meat to the thugs that ran the Justice Dept and the Financial overseers. penalties, fines, law suits and...wait for it...criminal prosecutions!  The World's greatest Asst. Attorney General, Preet Baharra was all over this one.  He was going to take down the Whale, the Greek and J.P. Morgan Chase itself.  'Ol,Preet was going to be bigger than the biggest Sacred Cow you ever did see.   So he did what any good prosecutor would do.  He flipped the supposed head perp in order to spear bigger fish...and then Trump won.  Bye, bye Preet, but in the meantime, the Whale skates, rolls over on his two off-siders and the prosecution begins. But there were a couple of problems right from the start.

Preet had convinced the Whale to admit to all the bad things that had been done but then some kill-joys starting asking whether these events were crimes or acts of stupidity.  Then of all things the bad guys decided to hire some pretty good counsel who were becoming some real pains to the new team in the Southern District and just last week the Whale decided that his guys didn't have anything to do with the bad stuff at all; the real blame was with Jaime and management.  And he went public.

Now I happen to think that the Whale had this in mind all along and flat suckered Preet & Co. not that I have any evidence to support that theory but simply because I detest Preet and the slugs to whom he reported.  But in the mean time, this exercise in arrogance has cost the shareholders of J.P. Morgan billions and as of Friday, his successor dropped all charges stating that the case...if there ever was a case...was unprovable. And the taxpayers, along with a half dozen other cases that have been thrown out or reversed, millions.  Of course Preet and his mob where paid millions in bonuses as well.  Who said thuggery (no pun intended) doesn't pay?  No one I guess.

Second thought: the continued slide of the dollar especially against the Euro.  I can't figure that one out.  The common theme has been the solid performance of the EU economy but if one actually looks at the numbers, the U.S. Economy is (surprisingly) doing just as well if not better.  American exports have never been that good for the Euro.  American technology is becoming more and more dominant.  Trump may be a complete jerk but as William Jefferson put it, "It's the economy, stupid:" jobs are up as is pay, unemployment is at record lows, confidence numbers are sky high.  This keeps up, the guy is going to be hard to beat in mid-term elections despite the predictions of t he experts...and we know how right they have been in the past.

So, is it monetary policy?  Today, the buzz word was "two and through," in so far as Fed was concerned.  No tightening, low rates; but our ten year as opposed to the Bund right now?  Hell, if that was the standard it's own dollars all day long.  Besides, there WILL be another rate increase this year.   So why?  If anybody can help me out, let me know.  In the mean time, I'll just keep thinking.

Tuesday, August 1, 2017


Not nice I know but sometimes you simply have to give in.

Goldman Sachs showed up at the bottom of the fixed income list today.  It's pretty clear they misjudged the--at least short term--the direction and disposition of the business much to the benefit of the Two Morgans and Citi.  Happens in the best of families.  Wholesale distress at Goldie; firings, departures, finger pointing, etc.  And, according to sources close to the situation who spoke under conditions of confidentiality, a movement for a charm offensive with their best clients.

Many years ago, we shared a client with Goldman.  Big name, big money.  Goldman put forward a very, very complex financing/risk management program.  It made sense to the client who showed it to us but didn't try to shop it.  Good client.  They engaged Goldman but not before having a conversation that sort of went like this:

"Look, we're going to do this but I know you're screwing us. It's not going to make a difference...we're going to do it with you.  But you have to tell us how you're screwing us because we can't figure it it out."

Goldie did and did the deal.  Years later, one can't help but smile.  They were goooooood.

Friday, July 28, 2017


LIBOR.  No More.  Banished by 2021.  It's like haven't your girlfriend announce she's leaving.  To be replaced by...well, we're not sure about that.

In one of the greatest cynical,acts of all time since Looie shut down Rick's Cafe Americain, the banking authorities in England has determined that the City could no longer support the touchstone that for the last 50 years has been central to international credit and today supports probably $500 TRILLION of financial transactions about which we have knowledge.  More?  Probably.  The reason?  Sacre Bleu!   There might have been some messing with the rate!  Les Banques Horrible!  Of course the buggers knew nothing of this...why they all thought that LIBOR Was the perfect lending rate.  Of course they were the only ones.

We've gone over this ground a number of times but you really have to stand in amazement and shake your head at the latest attempt on the part of beaurocrats and overseers to reinvent the wheel.  A short recap.

LIBOR came into existence to support the growth of syndicated lending simply because no bank would trust another bank to set a borrowing rate on its own.  NO BOD EE thought it was accurate to any degree as reflecting a universal lending rate among "First Class Banks in the London Market..." as was the definition of LIBOR.   Indeed, in scouting for quotes among syndicate members, upon the entry of Japanese Banks, one ALWAYS asked for a quote from a Japanese syndicate.  No Japanese bank could ever borrow dollars at at level equal to, say, Morgan Guaranty, and you would therefore get a higher quote from the Japanese reflecting it's cost of funds (or a tad higher) meaning that the definition itself was a fraud.

Yeah, in more recent years as other, internal, products developed, bad actors undoubtably did collude to try to enhance internal positions but as of this date I know of no successful suit by a borrower or a holder of any instrument whose return was determined by LIBOR who has successfully recovered either damages or losses as a result of collusion.  Who was hurt?  The institutions and their shareholders who were perhaps duped into paying higher remuneration that deserved to dishonest employees.  And who paid the price?  Well, the institutions and the shareholders of course as a result of regulatory shake-downs measured in the billions which were based on absolutely nothing even remotely resembling actual loss or damage.  Oh yeah, there is some poor guy from Citi doing an 11 year stretch for being the "ringleader;" not another person has been incarcerated.  And now ends LIBOR.  Finito.  WE have done our job.  WE have eliminated the problem.  WE will build a greater system.  WE cannot longer be blamed for whatever happened that got politicians mad and which no one understands to this day.  WE are safe.  Of course there will be no more prosecutions.  We got lucky with one; let's not press our luck.  On top of that it might cause people to remember.  Pity the British Bankers Association had to go.  The dinners were always grand, but that's progress.  Oh Clive, another large Malt piece of ice.

Greatest weekend of the year...have a good one.