Thursday, August 18, 2011


The Guns of August began firing today as expected.  The trigger was a completly accurate story on the front page of the WSJ concerning the Ney York Fed and the world's banking system..a story which I hinted at the other day.  Now its one thing for your friend, Charlie, to write about this but its quite another thing for the Journal to headline it although that shouldn't be the case.  My  comments were really informed speculation--been there, done that--knowing how these things work.  The Journal or any decent newspaper can't work that way.  Somebody spilled the beans and the result was to be expected; markets crashed and stayed crashed all day and will stay crashed for some time.

I don't know whether Billy the Dud is in town or out at Amagansett this being August, but wherever he is, he better damn well put out the word that in times like this KEEP YOUR MOUTH SHUT!  God, I know the Euros can't find their asses with both hands in the middle of the Haupbanhoff Strasse at high noon but the New York Fed?  Memo to Bill: if you do nothing else try to maintain whatever confidence is left.  The next thing you do is get Kramer off CNBC in the morning whaere today he simply tried to cover his butt for the mess he made in 2008 and panicked everyone again.  With this stuff he's way out of his league; time to say good-bye.

That's not to say there isn't a big problem.  The Euro banks have stuffed themselves full of as many dollars as they can get their hands on for pure liquidity purposes and the political initiative is dead.  The three states in Germany that are needed to finance this thing have said no way, Merkel is finished politically and everyone knows it and my Really Smart Friend, Larry, told me today that France is the only game in town and that is not very reassuring because the last time the France won anything on their own was with Joan of Arc and we know how that worked out.  He was in the country, drinking one of his really excellent bottles of Barolo and staring at an open ticket to Zermat.  Encouraging, that.

All that remains, barring a real miracle, is the final discussion of who dies in the financial sector and what Europe looks like in six months.  This mob have managed to take what amounted to a 30 billion Euro misunderstanding and turn it into God knows what by a total lack of leadership, intelligence, failure to act and stupid little turf battles between the ECB and the politicians with the pols trying to protect their precious banks who, if the truth be known, are really too dumb to be allowed to survive.  Mind you, our institutions are not the seats of genius, but come on!  You could see this coming for two years and you guys did nothing.  Incroyable.

Economic numbers today were just awful as well.  The Philly Fed report when it came out at 10:00am looked like a bad print.  Housing starts were awful and the jobs picture was not encouraging.  But things really can't be too bad because I guess The Leader is still heading up to the Vineyard for 11 days.  Nice place Martha's Vineyard.  Filled with those middle class folks of whom The Leader is so fond.  Hard working folks with good Union jobs, living in $15, 000, 000 bungalows as should we all.  I'm sure he'll get a lot of good ideas for his jobs speech in September.  What a country.


  1. What do you make of Hildenrath's draw on the dollar swap line with the NYFED on 17 August?

    Makes no sense. The big Swiss have to be swimming in deposits, and 200mm is pretty small. This was the same time the Swiss were trying to weaken the CHF - why not just sell CHF for $? Doubt the SNB would be supporting a branch of a foreign bank from a jurisdiction with its own swap line - they'd tell them to seel their home country CB. Operational glitch at CLS? Bilateral settlement fail (raising the specter of pure Herstadt risk?)?

  2. On the US:

    Philly Fed index printed -30. Never failed to predict a recession when it was below -20. Follows the NYFED Manufacturing survey giving a 3rd straight negative print (think that has always also been associated with a recession)

    However there has never been a recession when there is positive YoY growth in the LEI.

    One's wrong.

    Oh. And Duds was in NJ today. Said there was little risk of a recession. Talking his book.

  3. So I too am feeling quite paranoid at the moment; I sense we are getting extremely close to the end of the saga. Either

    1) The “fix-is-in” and Merkel and Sarkosy just posturing politically in front of a Eurobond solution. This would go with some German press reports that they are considering a eurobond. It might also comport with the Delors piece (Euro and EU 'on edge of precipice,' says Delors) floating a trial balloon in both the Swiss and Belgian press today ( And the VoxEU piece by de Graue (The European Central Bank as a lender of last resort;


    2) Merkel really has decided that Germany cannot\will-not go all-in. In this case how does it play out? The ECB will have to stop buying the peripheral debt?, Greece will be allowed to default?, Italy (or whomever is next) will not be able to refi any debt?, there will be concerns about ECB solvency?, risk aversion will hit highs perhaps not even contemplated post-LEH\AIG?, runs on Euro banking institutions will occur?, US MMMF will break?, we’ll lose a Euro bank and\or insurance company or 2?, a new, smaller eurozone will be formed (which way does France go – Germanic or Latin)?, a euro recession will force additional US stimulus? Global deflation? contagion to Japan as they continually try to devalue?

    The market seems to be betting on #2, I’m more uncertain, though wouldn’t put money against it. Don’t know, maybe I’m just being too dark.

    And if #1 were the case, why would there be reports of additional countries looking for Greek collateral deals? But if #2 were the case, how can the ECB justify continuing to buy bonds? Wouldn't the ECB look to put the risk back on the politicians? And wouldn't the IMF be going batsh!t? And wouldn't Greece just default now?

    We’re in real uncharted territory if #2 is the case. Don't think we can even imagine how this plays out - totally unlike things ever seen before.

    Sorry for so many posts and questions, it's just you are one of the few paying more than lip-service to the risks.

  4. Oh, and read Evans-Pritchard today:

  5. Five in one day! Probably should get my own blog.,1518,781261,00.html

    Germans Don't Trust Merkel to Handle Euro Crisis

    Good news and bad for German Chancellor Angela Merkel: Three-quarters of Germans disapprove of her efforts to solve the problems plaguing the euro, according to a poll released Friday. But at least the French trust her more than their own president, Nicolas Sarkozy.

    A poll released Friday indicates Germans know little about the current euro crisis -- but are overwhelmingly opposed to the way it is being handled by German Chancellor Angela Merkel and French President Nicolas Sarkozy, the two leaders spearheading efforts to solve the crisis.

    The survey of 1,001 Germans conducted for the public broadcaster ARD by pollster Infratest Dimap found that three-quarters of Germans were either not very confident or not at all confident in Merkel's leadership during the euro crisis. Only 22 percent said they had strong faith in her leadership.

    Those surveyed had even less confidence in Sarkozy. While 83 percent expressed doubts in his leadership, only 15 percent voiced approval.

    Indeed, even the French seem to have more faith in Merkel than in their own leader -- and they have more faith in her than her own people do. In a French poll released last Thursday, 46 percent expressed faith in Merkel while only 33 percent did so in Sarkozy.