Thursday, May 25, 2017


"Where the hell you been?"

"The Keys.  Just got back on Monday.  Wonderful."

"You stop?"

"For now.  Told you I was going to. Should have done it a couple of years ago.  This is really Coo-Coo land."  But I still read the Journal and still have the screens although their damn expensive for what I do now but there's some good stuff.  Like today.  Did you see the story on Greek Bonds?"

"You mean the greatest investment in the past year except you can't sell 'em because nobody trades 'em?"

"That's the one!  So tell me something banking wiz, if nobody trades 'em, how do you value 'em?"

"You didn't lose the habit of asking awkward questions down in the Keys did you?  You make a S.W.A.G.--you know what that is right? A Sophisticated Wild-Ass Guess."

"Just like..."

"Yes, just like 2007.  That's what you were going to ask, right?  And yes, they are all being held at cost or better by everybody in Euroland even though somebody tried to blow up the former Prime Minister with a letter bomb today.  And yes, the ECB holds a bucketful, and no, nobody cares."

"Not a short, eh?"

"Not even for a Mad Man."

"Reassuring.  Nothing has changed in five months...hell nothing has changed in ten years!  Except for my gold buddy Trump Who is right where he wants to be, the Biggest Swinging..."

"OK, OK.  I get the picture.  You really know him well?"

"Well enough...from golf, charities.  He gives away a lot.  Should have been a trader.  Biggest set ever.  Problem is he's always all in.  You know you just have to be right 51% of the time.  This guy thinks he's right ALL the time and he scares the crap out of people so they dump the positions."

"So why don't the call him Mad Donald?"

"You know what, Charlie? I don't know.  Maybe because he don't drink.  I don't know. Now The Original...I've been known to have a cocktail..."

"Or six."

"Or eight if the truth be known.  Tell ya what though.  He's got some smart guys around him.  But what the hell do I care.  I bought a house in the Keys."

" You what!  You!"

"Me.  Charlie, this could go either way.  In fact it could go either way about five times!  I can't trade this gig.  Still should be all over the place but like you say, nobody cares.  So Mad Max is no more. I'm becoming respectable."

"It's called age, Max"

"For you, Charlie but not for me! Still have the condo for you-know-who.  She won't make a big move.  Me neither I guess, but I'm done, I really am.  You told me to do it  I owe it to bastard!"

I don't know how to feel about this.  Max is about the last of a breed and without people like him I'm not sure we are better off.  There are things about this's feel I guess the thing that machines do not have.  Max was better than 51%.   Not a lot but when you are you make a lot of money.  Too bad.  Then again, the Keys are great in the winter.  He says it's not big but it does have four bedrooms and fish all over.  My Man Max!bonds

Tuesday, May 23, 2017


Remember quantitative easing?  Sure you do.  That was the last Really Good Idea to prevent financial collapse when you reached a point when interest rates were at zero or below and nothing was going on.  How does it work.  Simple.  You fold the economy with cash by the method of having the Central Bank buy everything out there and anything that can be issued to, in the case of the Fed, over $4 trillion and about half that for the ECB.  In this country we used to have what we called the "Bond Vigilantes" who kept things honest through the operation of the markets, but with the entry of the guy that makes the money, discipline evaporates and as we have seen over the past few years, government is run through "continuing fiscal resolutions"--don't need no damn money!  

So what happens when things begin to look better economically and the reason given for this activity seems to be lessening.  One would think that the activity should cease, right?  Not so fast my friend because it seems that as some of us have been suggesting and as reported in the WSJ the other day it may not be so easy.  In fact, it may be quite difficult, unsettling and perhaps dangerous to markets.  Consider this yet again: $4 trillion is a lot of jack, Jack.  When you start spreading that kind of size in any market there is going to be a reaction, but more importantly, let us not forget that the geniuses that created Dodd/Frank imposed substantial liquidity AND capital requirements, forcing in the first case financial institutions to hold the most liquid of assets...govvies or govvie backed paper while at the same time charging them for the privilege.  Then, just to make sure they got it ALL wrong, you can't trade the damn things for your own account.  Bye, bye liquidity. Now dump a trillion or two...which is why no brighter light like Billy the Dud was heard musing that maybe the Fed will only unload 50% of its holdings as if this bright bulb has a clue as to what the right number might be.

The Fed has a bit of dilemma but at least the assets in question are of similar quality.  Shift thoughts to Over There where the assets held by the ECB are definitely not of the same quality, so, in a far less liquid market even as compared to the compromised market Over Here, who buys what and at what price?  Mario, I suspect, is in no rush to normalize but I'll but a Euro to a Drachma that with the uptick in the economic outlook the clamor from the less concerned, Germany, Netherlands, etc. will begin to build.  Of course, if everybody could just agree to a common fiscal policy and a real central bank....anyway the whole thing seemed like a good idea at the time.  Then again, so was freely operating markets.  The bit about tangled webs wasn't a bad thought either.

Friday, May 19, 2017


Everybody else has decided to write about it so why not me.  CITGO of course the wholly owned affiliate of PdVSA  the national oil company of Venezuela.

Well, maybe not wholly owned.  You see, CITGO is the only thing that Venezuela owns that works and is worth anything, so when it's parent, being broke, needed money to continue to pay the God knows how many political hacks on its payroll and the coffers of the thugs who run the country off they went to their socialist (HAH) buddies, Russia's ROSNEFT, a wholly owned susidiary of Putin & Friends for a bit of the ready.  Sure, says Putin, provided you pledge about 49% of CITGO...not that we don't believe in Chavezismo but oil son, things aren't looking so great right now.

Well, things are looking worse and there is no doubt that at all that PdVSA will default on debt sometime later this year which will no doubt trigger the cross default in the ROSNEFT loan which will result in a payment demand which when not made will trigger a move to collect the collateral which will create an international mess of monumental proportions...assuming the civil was, presently in its early stages, doesn't end the country for good.

What makes this all so great is that CITGO is an American company and if anybody thinks that the Russians have a chance in hell of gaining any control over 39 pipelines and a half dozen refineries in the United States, that person might consider professional help.  By the same token, did the Russians really think they were receiving decent collateral.  Surely, they have top flight advisors (Memo to Charlie: find out who's lawyering this thing for the Russkies).   Can't believe they did, so what do they have.   Welllllll, they will certainly have a claim which if coupled with the other 51% would constitute ownership.  Now if the Venezuelan government could be induced to selling the remaining shares and if the two pieces could be put together some clever young investment banker might make a heck of a fee...or get assassinated in the process with this cast of players.  There sure as hell is a seller in PdVSA and there are probably buyers if...and it may be a big if...the bleeding of CITGO by PdVSA has not wrecked the infrastructure of the company.

Overlooking all of this is the total collapse of Venezuela and the undoubted national default which will occur later this year.  It is a enormous story and a desperately sad one.  If civil war of some sort breaks out there will be involvement with other countries particularly Colombia.  I watched the President of that country rather closely during his visit to the United States this week.  He does not instill confidence in possibly becoming the point man in this looming crisis.  Indeed...well, I shall refrain from political comment even in a country where I once had a deep involvement.  There will come a time.

Have a great weekend

Thursday, May 18, 2017


No presence at all that I have some idea what's going on.  No clue.  Mario says Euroland is locked and loaded.  The Fed is dying to raise rates.  Housing is getting hot again. Banks are looking good, job numbers are up and 90% of the talking heads in the equity business are all long.  But the insanity going on in Washington coupled with the seeming lack of any concern in the Congress regarding the two most important pieces of legislation facing it in years is quite astounding to behold.  It just seems to me that this is a really important moment in time with the opportunity to accomplish great things, but if the administration is brought down and legislation stalls...the exact opposite could occur.  I don't know, I just don't know what to write about or even believe for that matter. 

I just wanted to stay in touch.  It feels like this thing is day to day so maybe tomorrow brings something about which I can comment.  Otherwise I might have to get into the political blog me, not a chance..spoken like a true politician

Monday, May 15, 2017


i was thinking which for me is not always a good thing, but since writing about the possibility of very long date Treasuries a few weeks back everyone has been talking about them as well..

A rather detailed report from a couple of industry groups...two reports, actually...concluded that while there might be interest in dates up to, say, 50 years there would be very little interest in anything much longer as there is really very little in the way of corresponding liabilities.  Which is what started me thinking.  How long has it been since I heard anyone in this business actually speak in terms of matching maturities?  A hell of a long time I concluded.

It was all the rage of course in the time when great reptiles roamed the earth or at least it seemed that way.  Then Mexico does a 100 year sovereign last year and then I remember thinking "whose got the liabilities to match this," and forgot about it.  What's the difference?  Well, might it be that matching doesn't really mean that much when the yield is north of 6% but it becomes real important when the yield is south of 4% which is where the indicative yield was placed by the industry groups?  What they were really saying was that the Treasury wouldn't accept more than that yield which is probably true.  Could it be sold?  Probably.  A bunch of it as well but then we start asking, what's a bunch?  When you're looking at $20 Trillion of outstanding debt....well, you get the picture.  But to fund infrastructure?  A bunch.

The limitation seems to be firstly's too good and secondly, how the hell do you trade the thing with the latter in my mind being more important.  What the industry experts are really saying is how do we make money not whether is makes sense.  And so the reptiles have died and we are at the point where what really counts is who walks away with a pocketful not whether the underlying transaction makes financial sense or not.  At least that's what I was thinking. Maybe  I'm reading too much into this.  As I said it's not always a good thing when I start thinking.

Friday, May 12, 2017


This weekend and it's going to be beautiful her in the Flu-Over Zone.  Spring has finally arrived and yesterday T & S went out and spent half a million on flowers for the new digs.  They're clever they are, every one of them.  This weekend is a free fire zone; they can get away with anything. A wise man will keep,his mouth shut.  I have learned to be a wise man.

Nothing goon' on.  Economic reports Over Here were a bit on the soft side; Euroland looked better based primarily on Germany. Herr Schauble, perhaps with a Pils or two in him, proclaimed that Greece might have a restructuring by the end of what purpose one might ask...but everybody thinks that will be a good thing.  Now if Beppe and his bunch in Italia will just behave...

Actually the only thing that was bad today was the inversion in the Chinese bond market with the five year yielding slightly higher than the ten year.  I know absolutely nothing about the Chinese bond market except that's it's big and a rate inversion is rarely good news anywhere else so I guess this bears watching which I will do.  Problem is I'm going to need some help in explaining to me what it is I see.  HELP!

Finally, in the world of Trump, the shuffle to mass insanity continues.  Today, one of America's greatest newsmen, Bob Schiffer of CBS demanded that Trump must prove to the American people that "these things didn't happen."  I was driving at the time...nearly hit a tree.  How does one prove a negative?  Another thing I haven't figured out.  I guess Mr. Schiffer has.  Memo to Bob: --30--

Love to all you moms out there and guys, don't forget them.

Thursday, May 11, 2017


Of everything.  Politics, that is, the latest being the firing of Comey.  Now I for one think the guy and his butt boy Fitzgerald should have been put in the slammer 10 years ago for the railroading of Scooter  Libby who, while apparently not the neatest guy in the world didn't deserve 2 years for a trumped up charge (no pun intended) of lying to the FBI.  Got that off my chest and the world goes on...unnoticed though it may be.

Big note auction today that stank causing yields to sneak up a bit (long bond was lower) in anticipation that the Fed will get in gear again next month and take the discount rate up again.  Right now, fixed income is not the place to be. And while half of Washington is proclaiming the end of the Republic and very possibly democracy bolstered by the New York Times making up stuff to support the position, very quietly things in the view of a lot of people are looking up; witness the Fed.  Remarkably, and with this I do not agree, Europe seems to have become the darling based on Macron,    better corporate news, the Greeks and the rest of the Euros making nice-nice (we're not too sure about the Germans) and the rise from the dead of DeutscheBank with the infusion of a whole lot of borrowed Chinese Money from a company about whom nobody knows anything.  Of course there comes the realization that the ECB now has the biggest balance sheet in the world, loaded up with Euro Sovereign debt and an unknown amount of unknown corporate fixed rate.  The best line I've heard is, "if everything goes right we are going to be great!"  Ooooooook.

This does bring up an interesting point to wit what happens when the central banks of the world begin to lighten up on their holdings in light of perceived improved economic conditions.  If interest rates are anticipated to rise surely the lightening of balance sheets will have a knock-on effect which leads to the further question of did they wait too long?  Probably if not undoubtably and has been argued here the continued outpouring of liquidity kept the boat afloat and created false readings in a myriad of areas.  There is an extraordinary around of debt out there and the spread between the best rated and the somewhat questionable continues to close or to put it another way a lot of risk is being taken for not much reward...a condition not unlike what led to the great collapse; the mispricing of risk. But as the guy said, "If everything goes right we are going to be great!"  There is no graveyard anywhere in sight but don't stop whistling.