Monday, February 20, 2017


or Vice President Day as the case may be as Michael Pence delivered one of the toughest policy speeches in a long time in Brussels at the NATO summit in Brussels this afternoon.  In short, Pence repeated his boss' admonition to the NATO allies to pay their "fair share" in front of all of Europe and repeated it when questioned.

Why is this important?  In this as in all other things is would appear that this administration's method of negotiation is going to be, "what you hear is what you get" with Europe as with everybody else, marking a dramatic change from Il Duce's approach as well as the approach of most prior administrations.  Now defense policy is one thing: frankly, I think the less chance of misunderstanding the better but when it comes to finance, the dance of the seven veils isn't always a bad thing.  Here's why.

The greatest element of international finance these days is the explosion of cross border trading in practically every financial instrument of any importance and is addition, instruments invented simply to act as trading vehicles, having no other useful purpose for their existence.  Certainty may reduce the opportunity to make a very handsome return on a thoughtful (that means speculative) risk position but it also encourages far larger positions and leverage in order to make profits.  Further, underlying conditions change rapidly.  Changing positions to reflect changing conditions is always harder when the wiggle room factor is zero and if we have learned one thing over the past few years world financial conditions can change in a New York minute.  Memo to President Trump on Your day:  want to see global financial conditions change?  Bugger up this promised tax reform you will see a beaut.  Markets don't like uncertainty but it sure has hell keeps them honest.  What they hate even more is a promise that isn't.  Then again, you have half of Goldman Sachs in your administration.  I guess I should feel safe.

Anyway, while we were trying to get this house in shape, Janet was up on the Hill sounding rather hawkish and why not?  Going where the market wants you to go is a rather good strategy and having no further political objectives you might even get reappointed.  Now all you have to worry about is the dollar going through the roof but that's the worry of the Goldie Guys so it's clear sailing to a gentle, regular increase through year end.  Sit back Bubbala and enjoy the ride which of course will be made easier now that Big Danny I gone but then you have to start worrying about who's next.  Lael Brainard I'm sure; this Washington is not the place for her.  The Great One?  I hope not but Stanley may opt out.  Then again she still has to deal with the Kardashian of Central Bankers up in Minneapolis who last week proclaimed that banks needed 20% in capital.  One assumes that like utilities, he's prepared to guarantee banks a return on the same.  Then again (again) perhaps we should just recall the only really bright thing that Big Danny ever said when he proclaimed the the most important job of the President of the Minneapolis Fed was to keep the parking lot and sidewalks free of snow and ice in the winter.  Then again, the Minny Fed has underground parking.  Maybe it wasn't so bright.

Good to be back.

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