Wednesday, June 8, 2016


There wasn't any one thing that occurred today that was shocking, but a year from now I want to look back and see whether this moment had any real, lasting effect.

The Treasury's 10 year auction today went just swimmingly.  It was $20 billion and nothing much changed except that it appears to have attracted the highest percentage of foreign bid in history.  The coverage was fine but the participation rate was 73.6% non-American.  The reason is simple.  The 10 year closed today with a yield of 1.70%.  The Bund was at a point in the day yielding 0.035%.  That's right, three basis points.  No maturity up to ten years has a positive yield.  Middle dated Gilts were at 1.24%; the 50-year under 2.00% Surely the 10-year will have to follow suit.  We are reaching a point where it would be far to say that global wealth is declining.

Of course the equity markets are doing just fine with the DOW closing today over 18,000.  It is the only place to be despite record high valuations.  Oil was well up on the day as well as U.S. stockpiles came in lower than expected and more impediments to production emerged.  There is now even some talk in the West Texas Town of El Paso of redeploying some rigs, but huge damage has been done.  The cycle continues.

It is a situation that almost defies an explanation but I guess the World Bank came as close to providing one today with an even more gloomy outlook on global economic development that is not too far from being dismal.  More worrying is the Bank's belief that any shock could put the entire system into recession, and while what that might be was not clearly spelled out surely the British referendum has to be in the forefront of their thinking.  In my view, the Bank is correct but if looking at Europe the more dangerous spot is France, whether the Brits vote to leave or not.  Quietly, and with little notice Over Here, France is facing a crisis such as not occurred in decades.

Frankie Holland's approval rating is somewhere in the high teens.  Unfortunately, his socialist rhetoric that served him so well in attaining the Presidency has come back to bite him in the derriere.  In practise, it hasn't worked (quelle suprise!) with almost 60% of the GDP of the nation being supplied by the government.  Now that's one thing if you're a tiny country like Denmark, but France isn't a tiny country and whilst Denmark and especially Germany have, throughout the past ten years rewritten their labor laws, it's damn near impossible to fire anyone in France creating almost complete job immobility while at the same time one has the specter of the railway workers demanding a 32 hour  work week!  The 35 hours they presently toil is just too hard.  It's little wonder then that a labor tribunal awards 450,000 Euros to the convicted rogue trader at Soc Gen that literally broke the bank!   That, coupled with the dreadful immigration mess and a goodly number of French Muslim citizens living in a state within the State has created the remarkable rise of Madame Le Pen and the Far Right which until the Austrian elections of a couple of weeks ago were given no chance in 2017.  They are now considered almost even money to get enough votes to form a government.  And we think The Donald is way out there?  He's a bureaucrat compared with this gal.

Another problem.  The French have always looked at the EU as the great equalizer.  It never was but it has taken them this long to figure it out.  There is Germany and everybody else.  If the Brits leave, IMHO The clamor in France for a dissolution will be overwhelming and one will be able to write finis to this noble experiment.  It will not and should not survive.  And that, boys and girls, is going to be something to behold.  Tune in June 2017 to see how right--or wrong--I was.

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