THE TIME IS OUT OF JOINT

I really don't understand what is going on anywhere. I spent the last couple of days looking at the proposed fin reg and the situation in Europe and nothing seems to make sense. As for the former, for the life of me I cannot see how this proposed legislation is supposed to, in any way, substantially improve regulatory oversight. This appears to be nothing more than a rehash of what is already on the books whose problem was never in its content but in it's enforcement. As previously stated, derivatives are to be funneled through clearing houses which is a change but as we know these instruments were never the problem and now it appears that honest hedging in commodities might be affected by the wording. Not good. Of course there is at least a half dozen attempts at new methods of taxation on financial institution which will ultimately have the affect of
1. passing on the cost to consumers, or
2. reducing bank capital which tends to defeat the purpose of making the world a safer financial place
Also not good. The bill will pass but it shouldn't.

Today's job report stank but it wasn't as bad as some people had been predicting. The Leader got on tv at Andrews AFB before leaving for somewhere to tell us all is going well. By his demeanor, not even he appears to believe what he's saying anymore. The stock market fell again and the 10 year stayed below 3.00% All the economic numbers this week were poor. This again is not good.

Europe, however, is the real mystery. Something really strange is going on. On Wednesday, the mood picked up as the numbers as a result of borrowing from the ECB were well below what had been expected. Then on Thursday there appeared a new round of borrowing that indicated that the Euro banks were still heavily into the ECB indicating a continued softening of interbank lending or in the jargon of the industry, a refusal to "face up" with one another. Not good. This is simply a further indication of what we have been saying; the "sovereign debt crisis" in Euroland is really a bank credit problem that is going to be with us for a bit.

The implications? Well, bankers may not be too smart but they are not entirely dumb either. With all of this money set aside for sovereign debt one can be fairly certain that few banks are going to be willing to sell their sovereign holding at a loss but will simply wait for the maturities to roll in and then run like hell. Of course, they're not going to be anxious to do any new lending either--of ANY kind--which means all but the most credit worthy of borrowers will be able to get credit and then only those with real clout. Sound familiar? This situation results in a mind set of economic stagnation and cash hoarding on the part of corporates and/or a re-allocation of investment to other parts of the world. Can one spell BRIC? Not good.

To counter-act this syndrome, the Euros will soon announce the results of a European "stress test" much like the one conducted with the American banking system. 11-5 the results will be good but
1. It will be only for the majors, and
2. One will never fully understand the ranking of assets within the institutions: remember, sovereign debt under Basel II carries no risk rating.
One will also not get any kind of clear picture of the standing of the second-tier institutions and the local Casas many of which are state or national government controlled...or for that matter public pension plans. Sound familiar? Not good.

So, I'm sitting around watching all of this while low and behold the Euro and the Pound suddenly go through the roof against the dollar and I'm saying to myself, "What the hell is going on?" The reduction in dollar yields can in no way justify the remarkable rise in the European currencies nor can the present dismal economic situation, nor can the call for austerity on the part of the European G20 countries in stark contrast to The Leader towards whom less and less deference is given. The Time is out of Joint and unless I miss my bet, something less than Kosher has been going on in the currency markets. What, I haven't a clue but I would hope that the good folks who are supposed to be on top of these things are looking into it. Of course, if I'm correct, there is going to be hell to pay with consequences that could be very dramatic. Now I could be wrong but just remember it was moi who took a fancy to the Dutchies and they knocked mighty Brazil out of the Cup competition today. I'm feeling very good about myself this evening. We shall see.

For our non-American readers, this weekend marks the 234th anniversary of the signing of document that begins, "In Congress, July 4th, 1776..." and that changed the world. It was a statement of principals and politics by a remarkable group of men, many of whom were flawed in different ways but who, for one moment, came together in a manner so bold, so unified of purpose and so without precedent as to solicit wonder even today. It is a phenominal document but to me the most phenominal part of it is its close.

"And in support of This Declaration with a firm reliance on Divine Providence, we mutually pledge to each other our lives, our fortunes and our sacred honor."

Our Sacred Honor...Can any of us say today we are governed by politicians with principals such as these?

Have a great weekend, this Independence weekend.