Wednesday, December 9, 2015


The scenario remains the same as it has for a while now and I have no idea how to change the commentary.

The DOW today went through and almost 300 swing which about the six or seventh trading session in a row where the swing has been more than 150 points.  Sales of the ten year went well causing (to an extent) the dollar to weaken against the Euro to 1.10 in the face of the near-certainty of a rate hike next week.  From what I understand the "short Euro" trade has not completely cleared...or the level of disbelief is so great(or maybe the computers went tilt)...that continued losses must prevail.  I guess the pure trading houses love this stuff but it is sure unnerving to me.  I suspect the squeaky bum factor in the  high yield market must be off the charts but if you are in that business I suspect it's just part of the rush.

I was speaking to one of my buds down around the West Texas Town of El Paso this morning.  His business is leases and he's down about 75% on an income basis.  'Course he also has about a gazillion shares of Exxon which is still paying a dividend so he's not in too bad shape himself, but the horror stories he has are quite something.  Says it's worse than the late eighties.  I was in Midland in 1987  visiting the grave site of a wonderful lady who died way before her time which was the place to be as the entire city looked like a ghost town.  If this is worse...well, I can't imagine what things are going to look like in six months because the oil (and by extention, all commodities) situation doesn't seem to have a reversal dialed in.

The next spot that has got me concerned is financials.  The trading results for this quarter are going to be awful I suspect, but there is another more macro kind of thing going on.  A few days ago we commented on the strange result that has been obtained by the QE process in this country.  An important part of the strategy was to steepen the yield curve but the exact opposite has occurred; the curve flattened and continues to flatten.  Despite what the talking heads have been telling you about how great a tightening by the Fed will be great for the banks because it removes uncertainty, blah, blah, a flat yield curve is a killer for the banking business especially those who are still engaged in what we old guys refer to as "interest-differential lending," or to make it more clear the strategy of borrowing short and lending long.  Margins disappear and with them profitability which, coupled with the catastrophe in the capital markets and stifling regulation (which is part of the cause of the catastrophe) makes it a very bad year for people like Mrs. Morgan's little boy, J.P.

So what, you say.  Well perhaps, but I still believe that banks are different only because they are viewed differently by the public.  Perversely...well, perhaps not...though there are constant cries of "Greed" and "Theft" egged on by the Great Unwashed in the halls of Congress, the public still believes that banks should make money and when they don't...We don't want another loss of confidence in the financial system.  In times like this a healthy dose of confidence-building may be needed.

Anyway, that's all I can think about saying regarding present events.  However, if you would like an interesting look at the one of my favorite guys, Big Danny Tarullo, there is an excellent story on him and his bastard child, the "stress test" in yesterday's Wall Street Journal.  There are no words.

No comments:

Post a Comment