Tuesday, March 8, 2016


I'm really not sure why central bankers feel compelled to open their mouths even when there is nothing much good to say.  Even the supposedly smart ones like Mark Carney, resident Canadian hired help at the Bank of England.  As we used to remark in a derogatory sense, "Said a banker in the City late last night...(you see, one NEVER found a banker in the City late at night unless he was very, very drunk), Mark said late last night that the Old Lady would be flooding the country with Pounds in June just in case the British people got the vote on Brexit the wrong way 'round, which in his learned opinion would prevent panic.  Well, no Mark, let's not worry about panic.  What you just did is to reinforce the belief that Brexit is a REAL possibility in the minds of the Mandarins which is precisely the opposite of the view that HM Government wishes to present.  And oh, you don't flood the country with currency right now, you bleed it out until it is really needed (if it ever is) or perhaps you missed the point of if Britain goes, it is because of the will of the people?  A wonderfully intelligent thought: "Let's vote for this and then PANIC!"  Ye Gods...

By the by, this is sure the time to be adding to the glut of liquidity that's out there as if we haven't learned that liquidity, like cash, is fungible.  I was reading somewhere the other day that there is something like $300 Trillion of debt in the world.  The U.S. itself accounts for about $20 trillion of that number.  Now little Paulie Krugman will tell you that's no big deal because we own the printing press and everybody wants to buy U.S. debt but of course in these times that's because there's nothing else to buy that has any yield and if you keep buying the same thing it's price is going to go up while it's yield goes down.  And eventually that, too, stops.  But it's out there and in theory it has to be repaid which means you either leave it to inflation or start selling assets.  But because in part of the liquidity sloshing about, there is no inflation, so where do we go from here?

Which brings us back to the ECB on Thursday.  Mario is probably even in a worse spot than the Fed because not everyone in his circle of shareholders is on the same page.  And yet, voters are demanding that something be done so I suspect that we will get more of the same but with a heavier dose of rate cutting in an attempt to disprove that history that has been written over the past few years.  In theory, that knocks the hell out of the Euro and one would have thought that the decline would have been anticipated in recent trading, but that really hasn't happened.  Perhaps it is because a Fed rate hike has been completely discounted not only for March but in some quarters for June as well, and yet the spreads between the Note and Bunds are so outrageous the trade seems to be as clear as...mud.  At that highlights another problem.  None of us are investors any longer, we have been forced to become traders unless one has the stomach for equities which a lot of people do not--and should not--have.

Then again, we all could be China which yesterday reported a drop in exports year-on-year for the month of February of 25%  Astounding.  Guess what the government is going to do?  Why print money of course which will have the effect of cratering the Yuan, which will undoubtedly lead to competitive devaluations in Asia where if memory serves, there is a hell of a lot of debt outstanding...in dollars, Euros and whatever.  Reserve currency, indeed.  Thank you IMF for once again proving how truly useless you really are.

More tomorrow.

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