Thursday, July 7, 2016


I'm really beginning to enjoy this.  Even took an extra day with the kids but despite a lack of my firm hand, things are going just as I expected.  The Euros are in crisis mode with the ECB of all people calling for the UK to move quickly as to how they wish to get out despite the fact that is obvious to everyone that the Brits have no intention of moving quickly...certainly not before they choose a new PM which will be a woman...again!!! (Don't we look stupid making so much of our situation Over Here?)   It took them about a nanosecond to figure out that the EU needs a deal far more desperately than they do and as every day goes by, their negotiating position improves.  The Euro politicians have buggered this to a fare-thee-well with some real worries ascending as to whether they are going to be able to put the genie back in the bottle.  Meanwhile, the Italians are openly talking about a bail-out of their banking system which, while legal I believe (have to check on that), is certainly not the preferred solution to what appears to be an intractable problem and sent (among other things) Angie off the rails the other day.  But the Italians have a real problem that was once their strength:  like Japan, their voters own the country's debt and in particular, the debt of the banks.  Therefore, if the banks get refinanced, somebody has to pay the price and if that person is Pietro Baccala from down the street instead of some insurance company...well, you get the picture.  Tough call for an Italian politician.

On a broader scale, Europe's worries are having a rather profound effect on global markets.  The rush to safety is palpable.  The 10 year is at 1.33%; the Bund in every maturity is negative; Japan's 20 year turned negative today, and then there's that old canard on which I have been harping: liquidity.

The rush to buy security is a bit different this time.  This is not a trading phenomena; this is a true rush to safety on the part of the buy and hold crowd at precisely the same time that every central bank around--bless their pointy little heads--are trying to pump liquidity into the system in order to spur global economies and manufacture inflation for their wonderful economic models that have been wrong for the past 15 years.  As I have said before, the Fed owns 20% of all Treasury debt outstanding; the ECB more than that...and they are buying corporates as well.  The Bank of Japan...God on;y knows.  The markets are now completely distorted as a result of central bank activity and as the 10 year Note is the touchstone for so many pricing decisions around the world, it is fair to say that no one know what the price of anything should be today.  Sound familiar?  It should.  2007-08 could be described as the greatest credit mispricing in history.  This is a condition looking for a bubble.  One is usually found.  But before that happens, it might very well be that someone needs Treasuries in order to settle something and they will not be available.  If we have a big fail...By the by, looked at the price of Gold lately?  It ain't just me.

Jobs data tomorrow.  There has been a flurry of OK economic numbers in the past week or so, but I am told the good folks on the Street are really concerned about what 8:30 a.m. tomorrow brings.  I f this is another bummer, there could be real fireworks, particularly in light of the fact that the central banks' ammo belts are at bingo.  This number could really be cooked as there is so much at stake.  If not, go long on Sikorsky Aircraft.  Helicopters are the best at dropping money from the sky...and for watching the sun set.

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