Friday, July 21, 2017


I suppose one should simply conclude that Mario just wasn't ready despite his comments that the Euroland economy was robust and the future was looking bright.  Funny, when I was growing up central bankers were viewed as exterminators and the bug they were after was inflation.  Worse than a cockroach, inflation.  Tall Paul, starting in 1979 killed most of Latin America and points east and west for a generation.But by God he killed inflation!  Oh, he didn't mean to wipe out half the world but not even a guy as smart as Volker can always spot the Law of Unintended Consequences at work. But today?  Mario has a strong economy, a strong currency, a tame IMF but what does he want?  INFLATION,  When does he want it?  NOW!   Until he gets it, free money for everybody.  Why, one might ask.

I suppose there are really good reasons for this and in what was an attempt to justify the same there appeared a story in one of our great New York newspapers as to how Sr. Draghi's policies saved an Italian manufacturer of railway cars in a moderate sized Italian city.  The names shall remain unmentioned here.

Seems as though this manufacturer was having a spot of trouble in obtaining financing to supply Ferrovia Della Stato, the national railway of Italy.  Up pops Mario and his plan for quantitative easing and lo and behold the unnamed corporate heads straight to the bond market with the idea that there might be a bid out there for his debt (where did it get that from?).  Corporate gets money, Ferrovia places an order, jobs come back and the town is saved!  What could be better?

Now by this time you know I'm a suspicious sort but in this case there's nothing about which one should be suspicious.  I mean, just because it appears that the lack of purchases might have been caused by the fact that technology had rolled past the Italian cho-cho manufacturer (it had) or that the manufacturer wasn't Italian any more--it had been sold to a Japanese competitor who apparently was on the cutting edge for the product.  Which leads a stinker like me to wonder why the company needed subsidized financing at all unless.........and of course this could NEVER happen in the EU that someone dropped a dime to inquire about the availability of cheap financing if the going broke company in the declining city might negotiate a sale of itself to a White  Could it?  Nah.  So why should I be suspicious?  I'm a troubled person, I really am.

Anyway, it's nice to see that stateism  is alive and well in all corners of the EU.  What would we do without it?  And perhaps we can learn.  Take Solyndra for example.  Governments...even central bankers are not real good at picking winners.  Not even graduates of the Goldman Sachs School of Crony Capitalism like brother Mario but he's better than most I guess.  It was better when all these guys and gals needed to do their jobs was a can of Raid.  When I was very young.

Have a great weekend.

Thursday, July 20, 2017


This was to be a provider of deep insight into the financial future of the Euro Zone following Mario Draghi's press conference today.  He gave the presser: I have no idea about what the hell he was speaking.  I'll spend the rest of the evening trying to figure it out.


Wednesday, July 19, 2017


...but before that, there seems to be no end to this thing.  Equities up again; yields down; weather is great (until tomorrow...mucho caliente).  Despite all that is swirling around the pollsters (now THERE'S trouble) are telling us it's the economy stupid which everybody thinks is good and getting better.  Works for me, but I was really thinking about Asia and in particular Korea and along with that China and what we had discussed a couple of years ago.  A reserve currency.

 The Little Fat Porker is a real problem.  Worse yet the solution to the problem--China--will not, do not even consider CANNOT-- help solve this thing.  One word and the Little Porker is bacon but nope, not in the cards.  Apparently nothing else either.  Forget about sanctions, pressure, harsh words...the Porker could care less.  But on China?  Ah.

Now I rarely get into political questions but clearly, if pressure is to applied to anyone in this picture with any chance--however remote--of success it is China.  And so let's go back in time a bit and revisit the Yuan, the IMF, and the one overriding concern that this blog had at the time.

Your scribe had expressed concern at the time as to appropriateness of the rush to judgment  as to the currency given the somewhat, ah, spotty record of the PRC in regard to manipulation, convertibility, openness, honesty...well, you get the picture...but most importantly was asked the question, "From a foreign policy standpoint do we really want to risk a substantial portion of global trade to be exercised in Yuan?"I think the answer, once one thought about it was, "No," but the pressure and the willingness to bow to the same by the IMF was quite overwhelming.  As was usual, the Obama administration was less than fully involved.

Remarkably, in the intervening time frame all of the conditions  causing the concerns not only remain but in some cases have been magnified.  Had the PRC played a very good hand with any form of skill the landscape today might be a good deal different.  As it stands, the dollar remains far and away the dominant world currency with the Euro solidly in second place.  But had China chosen to liberalize?

The most important point to take away from this both then and now is that because of the currency the options available to the government of the United States are really quite broad.  Access to the financial system of the United States is essential to any internationally focused nation and absolutely essential to any financial institution therein. Even China and  Chinese institutions.   If the solution to the Korea quagmire is through China and if China need be pushed, the pressure will come through the financial sector.  This is going to be very, very difficult as, unfortunately, the Euros hardly feel as threatened by Korea as do we or especially our Asian allies, and it will be a true test of the ability of the Trump administration.  To this point we dodged a bullet as a result of the incompetence of the PRC and the ability of such a regime to conform to required standards.  Luck, however, is not a strategy.

Tuesday, July 18, 2017


We've had a lot of those here in the fly-over zone.  Georgeous.  Don't want to do a damn thing including attempting to write a financial blog when nothing of real importance is happening.  One of my buds from the West Texas Town of El Paso rang up today to add to the mood.

"Charlie, yo'all better tell the folks out there that's it's different this time.  Ain't nothin' to worry 'bout. Nothin'."

 Michael is an interesting and learned guy.  Far as I know the only two W-2s Michael ever earned in his life came from the U.S. Army in fulfillment of his ROTC commitment.  Michael is in the oil bidess.

"Yes sir.  Everything's gonna keep going up.  Ain't no chance of nuthin' goin' wrong."  Nuthin' but geniuses runnin' things now."  And the whole world's safe.  Ya hear. Tell 'em Charlie."

"Where do you have your money, Michael"

"Cash. I've made too much.  Just gonna leave some for the rest of the poor people out there.  Christian thing to do, Charlie.  I'll talk at ya."

I always wind up looking at the phone for a few minutes after Michael calls, trying to figure out whether he's a genius or simply starkers.  Still don't know.  It sure is quiet out there, however, even with the insane goings on over health care with which more people seen bored rather than least around maybe he's a genius.  Anyway, with nothing happening, aside from a real, well-received outburst from Jaime the Greek last week, I started thinking on more global issues.  Korea, China and financing popped up.  Tomorrow.  We'll go over some old ground that suddenly has become very relevant.  Right now, I'm going to sit on the porch, sip on the other half of a Bombay and actually have a Fidelista for the first time in a long time.  It's really quiet.


Wednesday, July 12, 2017


I mean unless you are devoted to another daily Russia Trump conspiracy story, the only real news out there is the Fed.  Janet was up on the Hill today making it clear I thought that this might be her last hurrah.  In the mean time it was about an upbeat report as one could have expected: with the exception of lower than expected hourly earnings and inflation (?), everything is looking good.  Equities responded with another record-setting day and bonds were benign.  Anticipation is building in regard to second quarter earnings even among airlines and especially banks.  The latter bunch should really knock it out of the park as all the stars aligned in the past three months.

But the really interesting event of the week was the nomination by the Trump administration of Randal Quarles as a member of the Fed, as a Vice Chairman and the head of Supervision finally filling the seat occupied by the unconfirmed Big Danny (unconfirmed due to having never been proposed, having no chance of being confirmed, having...oh, forget it).  With all the talk of Draining the Swamp, there is no more of a D.C. Insider than Mr. Quarles.  Bush 41 and 43 insider, Carlyle Group, this dude is Son of the Swamp Monster.  Then again, from what I hear he's not a bad guy with few ideological hang-ups and he will certainly come to the position without the madness of Big Danny and with considerably more real world experience which is exactly what is needed.  Things are looking up all over.  Remarkably, with the headlines dominated by the political reporters, it is surprising to note that The Donald is actually getting stuff done which...without any plan on his part other than some serious serial dumbness...under the radar.  Genius?  Ha!  But it's happening.  Guy's off to Gay Paris tomorrow to meet with the new French Prez.  Not a word among the talking heads about that.   Macron may just find common cause with this guy from the standpoint of attempting to demolish the status quo of Euroland (Germany, if you haven't been paying attention).  Problem is I'm not at all sure as for what purpose.  Allons Enfants!  Could be a good ride.

Wednesday, July 5, 2017


it's always good to get a look inside at the musings of the Fed as occurred today in another release of it's minutes from last month.  Reassuring as well.  Seems as though the decision has been made to reduce the balance sheet from its present $4.5 trillion level and thank goodness the Fed is sure that there will be no upsetting the market while so doing.  Whew!  Knowing that is, I guess we should pay no attention to the movement of 10's all over the world in the past week at the suggestion of what was announced would be announced.  The again, $4.5 trillion are a lot of bonds to be moving around, keeping in mind that the Euros and the Japanese and the Brits have more than that on their own as we keep pointing out and which are going to be moving at the same time.  Look, I certainly hope the Fed is right but.......

From the mysteries of international finance we turn to the Little Fat Nut who shot off what people are calling a game changing missile to celebrate July 4, a G-20 meeting that according to some has the potential of turning into a Brannigan and the mess that is the Middle East...all of which seem to have absolutely no effect on global markets (other than bond yields) as equities slowly reach new highs every week.  I continue to stand in amazement at the seemingly complete lack of concern.  Then again, the Triplets turn 10 in two days so what do I have to worry about.  We're headed off for the birthday party weekend and will be back on Tuesday.  May try to sneak in one tomorrow on The Donald's Excellent Adventure Over There but the bet is nothing happens until he and The Put go Mano a Mano.  My bet is that is anti climatic as well.  The Little Fat Nut?  Ah,  that's a different deal, but not this week.  The the year of its Independence, the 241st. And the Trips in their 10th. Not sure which event is more glorious, but I know it will be a good weekend.

Friday, June 30, 2017


Just a few short comments.

1.  From a regulatory standpoint, the system is in good shape.  Query: do we have the right regulations?

2.  Whether correct or not there are a hell of a lot more regulations with which the banks have to deal.

3.  Regulations in every situation one can imagine will restrict or make more expensive any business.

4.  Regulatory applicability must be examined more closely.  Citibank and the First of Boot Hill belong to different holding companies.  They should be regulated differently.

5.  At the present, the industry is looking more like a bunch of utilities.

6.  What we have seen, as expected, has been the roll-out of plans to return excess capital to shareholders through increased dividends and share repurchases.  Is the repurchase of shares he best imployment of capital?

7.  The answer may be "yes."  Why?  A global economic expansion in developed countries of less than 2%', substantial regulatory limits on the use of capital, substantial reduction on the ability to trade for one's own account, reduction in international business (Big Danny Lives!), increased competition from a mostly unregulated shadow banking business and, yes, the continued advancement of artificial interest rates.

An aside.  Interest differential lending in the corporate sector was never a particularly attractive business, hence the increased emphasis on retail and credit card exposures both of which, however, from a risk standpoint are greatly affected by overall economic conditions.  Enter off balance sheet activities leading to, for example, the creation of assets for resale and the distribution of the same.  But this being the case, under present conditions big is going to be waaaaay better so expect to see a decline in the number of community banks in the future.  Let's hope we see banks in the future.