Wednesday, July 26, 2017


Another one for pity sakes.  That makes Seven on the trot.  And as if to mimic the weather in the Fly Over Zone, the world...with the exception of the press and the Trump administration...continue in this summer swoon.

The Fed did exactly what it was supposed to do this afternoon; nothing.  Back to the beach.  Of course everybody figures that Janet & Co. will begin to taper the QE holdings later in the year (announcement in September, being in November?) assuming that the "data" supports that action.  The Fed pretty much confirmed that today.  Maddeningly, inflation refuses to play along remaining invisible but I suspect that a solution to this when the time comes because there remains a strong belief that "it's the right thing to do".  And yet...

The consumer confidence number this week damn near broke records but the "real yield" on govvies remained low which in other times might have been perceived as a really strong view out there that the economy wasn't real hot and in truth there have been some underwhelming numbers as of late but not this week.  With expectations remaining strong for the Fed tapering the dollar has been in a steady slide since the first of the year but is this really a bearish sign particularly in respect to U.S. Exporters?   I think not, then again if this were the case wouldn't the equities markets be anticipating a slow down?  Another record close today and looking at high yields...equities by any other, Dude, there's a TRILLION AND A HALF outstanding.  Want to worry bout something?  How's that for a start.

Is the Euro Zone in the same spot?  Well, Mario seems to think that the robusto economic performance he talked about is a bit too spotty to tighten up just right now despite the fact that Greece of all people just floated a highly successful 5 year issue--yielding 4.65% mind you--and with a substantial portion reserved for a debt exchange for bonds dated in 2019.   But Greece!  How bad could things be?   Anyway, in the always interesting Heard on the Street column on Monday there appeared an article on the "shadow rate."  Two Chinese ladies have apparently presented a paper gauging at what level rates need be set, using longer dated credit instruments to calculate the real rate at which the ECB's. Benchmark rate need be set to be truly stimulative.  Apparently, the rate is -5.1%

Now I know the Chinese are really good at math and I'm sure the math adds up but come on gals, let's spend a bit of time in Realville.  Full disclosure:  give me the study and a road map and I probably wouldn't understand it, but frankly the argument made that when the QE was undertaken by the U.S. Yields remained relatively low because in the highly integrated markets the yield effect flowed through in the foreign exchange markets rather than in yields as in past years.  So I ask, "what years?"  
The follow-up might be, "who cares?"

It is a fun it.  But I bring it up not for that purpose but as an example of the extraordinary  amount of effort going into explains what remains unexplainable.  We have never, at least not in my long lifetime seen a set of circumstances such as those which have brought us to this position in which we find ourselves...for good or not so good.  The fact is we are in unchartered waters and guessing as to the course to steer.  My concern has always been that coming from confusion and having arrived at a place that has little resemblance to any previous location, might it not wise to perhaps do as sailors have done since the first keel was laid: go with the flow and the tide for a while?
An admission that we are somewhat in the dark might be a good first step

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