A JACKIE MASON MARKET

Jackie Mason was/is one of the most outrageous, funniest men around.  A rabbi, and a Tamudical scholar, it is never the answer that counts but the question and the discussion of the same.  Jackie could go on for hours and the result to the questions he asks is always, "Who knows?  I don't know."  By this time the question has been forgotten but tears are rolling down your cheeks.

The Fed did exactly what the Fed Was supposed to do and what everyone wanted them to do: raise interest rates modestly and indicate that route would be the one followed in the future.  The reaction? Equities rose as one would expect but so did bonds which is a bit odd. Why?  Don't know.   Janet flat out said the economy is "doing well."  Yield curve didn't move at all at the long end; slipped on the ten year.  Financials were weak.  Howszat?  Everybody is supposedly short bonds, but with this kind of report nothing happens?  Why? I don't know.  Sell the damn things; rates are going up unless there's none left to sell.  Can that be?  I don't know.

Somewhere in this grab bag of goodies it seems to me that there has to be a booby prize called inflation and if there isn't we're looking at a economic sweet spot the likes of which we haven't seen in a long time, but if there is might the Fed be a bit behind the curve already?  And if it is, what happens when they play catch-up?  I don't know.  But the feeling seems to be make hay while the sun shines which, as I keep reporting, is the attitude in the Fly-Over Zone.  Smiles all over.  Donald Trump for King!  I'm not kidding, they love the guy.  Who knew?  I don't know.

Meanwhile, Over There, the Rotterdam Dutch seem to have rejected the nationalistic pleas of the far right with early exit polls showing a plurality for the center right BUT there is no doubt that in order to get that result Prime Minister Rutte had to move considerably to the right in his rhetoric.  Wilders seems to have polled a bit below predictions but he will remain a factor.  The real consequence is yet to be seen and that will not come for another month when the French engage in their scheduled political blood-letting.  If the consequence of forming a government in Holland is stepping aside of Mr. Rutte...well, who knows?   

Anyway, today seems to have been a good day pretty much all around.  We clearly have a burgeoning economy and the terror that was creeping over the Euros seems to have been calmed a bit.  Who knows, maybe we just have to worry about Greece, and the Italians and Angie getting beat and...  Time to call Jackie perhaps.  Maybe he knows.  Idon'tknow.

ODDS AND SODS

Don't know where to begin so probably it's best to start where we left off.

Greek banks are open and Greece apparently has paid what it owes up to this point.  Of course, if you as a depositor need 500 Euros, that may take a couple of trips back to the teller's window or the cash machine, but hey, it buys the Ouzo.  The Greeks can now sit back and watch the Euros tear each other to shreds, agreeing only on the uselessness of the IMF, which has proven to be just that...useless.  Anyway, it's a start but the heavy lifting is in front of the Greek people for if the country is to work at all it will have to change the entire way it works right now, which was always the case but is now the reality.  Forget the debt owed...that will have it's own solution--or resolution if you prefer--it is the restructuring of the entire economy that will occupy the head-lines and dialog over the next six months if not six years.  Greece will have help in this if they so choose for what they are beginning has already begun in Portugal, Spain and Italy...and surprisingly in the north as well.  The times are different and if the EZ is to survive--and that remains an open question--structural change must come.

In that regard, there are "green shoots."  Little Paulie Krugman revealed today in the Times that he is terrified of having been proven wrong.  An all-out assault on the concept of the Euro which in his mind EVERYBODY on this side of the pond knew wouldn't work (he was not particularly vocal at the time of conception, you can look it up) and will eventually kill the EZ.  I mean sez he, look at what's happening in Greece and what happened in the Southern tier and what happened in Finland.  Wait...Finland?   Oh yeah, sez Paulie, Finland is in the tank and it's the Euro that did it.

Now Paulie is right in that the Euro is a lousy idea but it hasn't killed anything just yet.  It's made life harder to be sure but it was not the currency that caused the Great European Collapse (ex Germany) but the systemic structural deficiencies of the collective economies.  These are now being addressed.  As for Finland, Lil' Paulie seems to conveniently forget that the great Finnish success, for the most part, depended on two things; the enormous growth in consumer trade with Russia and Nokia.  Putin decided to invade the world and damn the economy and Apple killed Nokia and everything connected with it.  Steve Jobs...murderer.  But when Paulie starts getting scared thinking that things just might work out without anyone listening to him, it's time to start believing that things just might work out.  Unless, of course that this mob that has a history of trying to kill each other for the past thousand years reverts, which of course is the real problem.  Ain't that the damnedest.

On a darker note, the Federal Reserve today decided that the "systemic banks" it regulates need $12.5 billion in additional tier 1 capital with Morgan leading the way with the need for a 4.5% increase.  They also want to include the capital requirement test into future "stress guesses...ah...tests."  Yes sir re, as if there isn't enough uncertainty in the system, let's create some more.  Now we will have much more on this I am sure but what I've been trying to figure out is would there be enough capital in the system right now if the system hadn't been forced to pay extortion to the Holder Justice Department and every two-bit state regulator breathing over the past 8 years? Just another little something mixed in among the odds and sods in my mind today.

CO-ORDINATION ACROSS THE POND

The eye is lousy so let's see how far we can get.


Equity markets got a big boost today as rumors in Euroland spread that the ECB was about to begin its QE action on a far larger scale than anticipated amidst the latest soothing,  dovish tones gurgling out of the Fed.  It seams to me that Janet and Mario have been talking...a lot...but the real question is whether it is too little too late or given the new world order, is there really a chance they can make a difference this time around.

Sr. Draghi absolutely pulled a rabbit out of a hat last year with his "whatever it takes" talk which infused an enormous amount of zeal in markets driving interest rates down to historic low levels as a result.  But that was then and this is now and I can't help but think the solution to past problems is not applicable to what is being faced today.

In the last crisis, the problem was simple; a lack of confidence in the Eurozone banking system caused in no little way by the overexposure to sovereign debt and the rapid collapse of public finance.  The Draghi "put" was a clever--almost elegant one might say--solution manner in which to reduce fer and tensions without really spending a Euro.  The ECB reaped kudos richly deserved but in retrospect that was an easy solution.  For years credit had been mispriced throughout the international system resulting in a classic banking crisis and central banks are good at dealing with those sorts of things.  First and last one maintains the liquidity within the system and in the mean time restore confidence with words like "whatever it takes."  Works every time.

This is not then.  When faced with the structural problems which the Euro Zone faces today; bloated public sectors, excessive labor regulation, "social contract" excesses, political and financial agreements between very different national groups that require enforcement but for which there is no mechanism and finally a common currency which in very real ways pits one political group against another, coupled with a real global collapse in economic advancement and the absolute collapse of a global energy market, can one honestly ask central banks to cure the ills faced?  I am afraid I don't think that is possible.

I have cried wolf before much to my chagrin,  I never believed that the EU was sustainable and felt even more strongly negative as to the success of the Euro.  I suspect that in the past it was my desire to be proven correct that led my to a few rash predictions.  I had not fully analyzed the risks, a state against which I had cautioned and taught all my life.  I might be wrong now as well but this looks more and more like the perfect storm and in beating against it people are now tired to the extent that I am not sure they care.  Maybe they still do and I am wrong again but I see no easy fixes.  "Whatever it takes" doesn't cure this and it is for sure I don't know what does.

Eye is about gone.  See you tomorrow...oh the wind chill is -23 as a write.  Hope Al Gore is reading...probably in the Turks & Caicos.  Very trendy this year.

...IF YOU CAN'T, TEACHhh

Went over to the U yesterday for a small symposium on Euroland and the state in which it finds itself.  Clueless, except for one participant from the business school who started his career at the Fed.   Long blabbering on the Little Paulie Krugman theory of debt and economic crises: throw as much money as possible at them and all will be well.  Greece and Portugal never would have gotten into trouble if this had been done.  Caused a bit of a ruckus when I suggested that for the purposes for which we were all in attendance Greece and Portugal really didn't count as serious countries, so let's stop talking about their situations.  Didn't realize that one of the panelists considered himself an expert on Portugal and,"...had written many scholarly papers on the subject."  I'm afraid I did:   "As opposed to unscholarly papers?"  Really shouldn't do that with academics; they become incensed.

It is a very interesting exercise, visiting and being exposed to the workings of academia.  The validation of a thesis is the most important thing.  Reality is somewhat secondary.  And therefore, if you wish to prove Keynesian theory correct simply posit the improvements that have occurred since the promise of "at any cost" theory of central banking promulgated by Sr. Draghi a month or so ago.  Such as, "the conclusion of the banking crisis," which of course hasn't concluded at all the fact of which is of no consequence because the claim that it has proves the theory.  For the paltry sum of about 50 large a year, drivel like this is poured in the heads of unsuspecting children and woe be unto he who dares question the ravings of the great professor.   I now have a far better understanding why the same mistakes are made every twenty years or so.  Future generations are not apprised of history; they are taught personally perfected drivel.  They never stand a chance.

Having said all that, the Spanish pulled off a pretty good auction today with an over bid 10 year going off at 5.666%.  Nice improvement due entirely to the Draghi "put."  A fundamental improvement?  You be the judge.  With new estimates of 80 billion Euros in new capital needed to fix the banking system I have my own thoughts on the matter but I am absolutely certain that 80 billion is insufficient in any case.  Meanwhile, the Greeks and the Troika simply can't find common ground and the Greek finance minister is off to consult with his counterparts from Spain, Portugal and Italy.  Can it be long before we hear talk of a "borrower's club?" Probably not.  Of course it make not a lot of sense to have officials in Germany heard muttering that another Greek "haircut" may well be needed.  Once again I ask, "Can't anyone here play this game?"

Finally, job numbers and purchasing numbers released today were not encouraging.  I still don't like what I see.

GOOD OR BAD?

Funny question to ask about 529 billion, isn't it?  That's the number Helicopter Mario dropped into the Euro banks today.  Direct deposits.  Same day funds.  Spend it as you will.   Problem solved or merely an expression of how bad the problem really is?  That's a trillion Euros in 3 months right out of thin air. I must say, the sheer audacity of it gives one pause.  I guess that's what central banks are there for but when I said the Euros are going to bail out their banks I never conceived of such a series of steps.  Breathtaking.

And yet, without growth in Euroland what has been accomplished?  Despite brave talk, Greece is conceeded to be dying, Portugal sees no light ant the end of the tunnel, and as Carter points out in his note today, Spain missed all of it's targets and is warning of more misses in the future.  Will the Finns, he askes, turn a light on the entire mess?  I doubt it.  They will follow their brother states recognizing perhaps that there is no reason for them to play the heavy when their view of the future is probably the future itself.  The next few days will determine whether the Euro banks will begin to engage in the normal funding of the system or will the paralysis continue.  If the decision is the latter the conclusion will be that the can continues to be kicked with the invariable result unchanged.  I think, however, that we have finally reached the end game which has been so long predicted.  Draghi indicated today that he is done.  Whether that is his final word or that he is merely trying to scare the banks and governments remains to be seen.  I think though that he must realize that if this doesn't work then there is little more he can do.

Meanwhile on the political front,  the mutterings between nations continue.  The Suit has once again jumped into the fray calling for trillions in Euros for a higher, stronger "ring fence" to the delight, I am sure, of Frau Merkel whose voters' money will make up the majority of any increase in the bail-out fund, and who has no intention of committing political suicide.  A penny more and that's where the Finns will go tilt not to mention the Dutch and all the rest of that virtuous northern mob.  Mr. Bernanke, in his mandated talk to the Congress today did little to improve upon the mood.  Whilst he held that things were looking better they weren't looking that much better an he expected them to remain lousy through 2013.  The job situation had improved but he reiterated what some observers have been saying for weeks now that the improvement in the job numbers reflects the fact that a whole bunch of people have permanently dropped out of the job search.  Frankly, I don't know who to believe anymore but the mood down at the coffee shop seems slightly up beat.   BUT, petrol hit $3.89 today which I know sounds awfully low to our European friends but is ugly to us Yanks especially in the fly-over zone which is a low price region.  It's a big country and people think nothing of driving 60 miles round trip to work every day  The distances are vast compaired, say, to Europe.  Buses and trains don't work out here.  I know we use a lot but understand, please, the differences.

In that vein, there is a very importand get-together this weekend in D.C. between The Leader and the Prime Minister of Israel.  They hate each other.  Subject: Iran.  This overlay has yet to be factored in regard to the global economic climate to the extent I think it should be.  We should watch this carefully for all the good it will do. And Monday's openings.  As I write the temperature is 16C.  We expect snow by midnight.  Don't tell me things aren't troubled out there.