Wednesday, December 2, 2015


Janet sounded pretty confident today about the state of the economy and a rate increase.  So confident in fact that she knocked the crap out of the equity market which appears to have finally agreed to believer her.  Funny things are going on.  A good deal of the talk leading up to December 12 was designed to increase the slope of the yield curve by moving the long end out in anticipation of steadily--if slowly--rising interest rates.  Instead the exact opposite has happened with the long end remaining almost motionless and the short end closing in rapidly.  In case you are wondering why, don't ask me but I suspect some of the underlying assumptions for this theory are not quite as sound as suspected, like that relating to an improving economy which is entirely dependent as to how one defines "improving."  If you define it as "it stinks," you are in my camp but I admit there is an argument to be made.  Of course, if you believe that any improvement in sectors such as consumer and autos is merely the result of zero cost of financing, the Fed's move might be questionable.  Needless to say, industrial output which crashed today and cap spending levels which continue to decline belie the "improvement" argument...but then employment number is expected to show a good rise on Friday...unless you are like me who, more and more, thinks the number is crap.

But there are odder things about.  While Janet is ready to raise, Mario is ready to lower...or at least announce QE II as far as the Euros are doubt because his first effort had such a profound positive effect.  Now liquidity is liquidity; if we raise Over Here and they "lower" Over There (the method is immaterial) the effect is going to be pretty much a wash.  Dollars and Euros and Sterling and Yen and now, FOR THE VERY FIRST TIME, the Yuan whip around the world at the push of a computer's button.  In some circles with all of these conflicting economic theories emerging from central banks who keep trying to tell us that they are on the same page may bring whispers of the Joys of Arbitrage and the soft singing of that catchy tune, "Spec u laaaa tion...COME ON! Perhaps the Lords of Finance got it all wrong in 1929 but at least they were on the same page; I'm not sure this mob is reading the same book.

Then again, we have the Brits.  This week they announced, after months of preparing us for the opposite, that all the British banks had passed their stress tests and all was right with the world.  As a result, Smart Mark expressed the view that adequate capitalization was in place and no rise would be necessary.  Hang on.  I just though Big Danny Tarullo had told us a lot more capital would be needed?  I thought we were dealing in a global market place?  The Brits' capital is good, ours isn't and we don't know what the deal is for the Euros yet?  Of course the Chinese system is broke, the Japanese...who knows...and we're all slogging about in the same cabbage patch with God knows how many trillions being transferred and exchanged every day?  But fear not, we have Dodd/Frank.  Is it just me asking these questions or shouldn't I worry as--clearly--there is some great force of Genius and Good guiding all of this.  Anyway, forgive this little outpouring; I collapsed late this morning with the Tripletitis which has yet to leave.  I am mimicking the economy; improving but it's hard to define.  Drink lots of fluids says the quack, quickly adding without mood enhancers.  Yeah, sure.   Post time.

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