RANDOM THOUGHTS

While we await something interesting happening, you might pick up the Wall Street Journal which has been on a roll lately. There is a great little story of the happenings about the near death of the European Union a few months back over sovereign risk which describes in the operation of European heads of state precisely what too big to fail is all about and not surprisingly, it is exactly what i said it was: that moment when everyone in the room gets the crap scared out of them at the same time. Having been involved in a couple of those situations way back in the last century, the narrative sounds like the real McCoy to me but in any case it's a fascinating read. Highly recommended.

The Journal also featured in today's edition another confirmation of what I wrote a number of months ago: the coming crisis of regional banking. Hundreds of regionals have failed while at the same time, the majors have prospered, and according to the story the pain is no where near being over. Much has been written of the success of the Canadian banking system in avoiding the disaster of the last few years and indeed, they and their regulators did a fine job. But there are eight indigenous banks in Canada; when I started in the business this country had upwards of 20,000. Today, there are less than 8,000 and in a few years we will probably be down under 5,000. Of course, the population of Canada is far less than that of the United States, but Canadian banks are not small by any standards. Yet, in a regulatory environment where there are but eight to regulate, the folks charged with the task find it far easier than their counterparts in the U.S. It is not we didn't have the proper regulations in place, we just did a lousy job of regulating and I very much doubt that anyone in any agency will argue otherwise. We are paying the price. We still have too many banks but the market will adjust as markets always do. Sadly, there will be great future pain to be experienced as this occurs.

The Chinese slapped a 100% tariff on Chicken parts imported from the U.S. How the Chinese are going to live without pickled chicken feet is a mystery but I bet they'll find a way. Unfortunately, this is merely another demonstration as to how the relationship between our two countries has been slipping over the past year or so, but there are a whole lot of other folks, especially those in Asia, who are not real happy with the Chinese as well. They don't owe them a trillion bucks, however. I don't have a fix for this one. I'm going to ask my really smart friend, Larry, what he thinks the future holds.

Lastly, the Japanese seem hell-bent to continue in their attempt to drive down the value of the Yen. I've spoken to a number of folks who follow this including Larry, and no one seems to believe that they can be successful given the size of today's currency markets. In so doing, their purchases of the U.S. dollar has made them, once again, our largest creditor and continues to drive down interest rates to unheard of levels. And still, no pick-up in our economy which is causing the Fed to continue to talk in terms of "quantitative easing." Funny, most people seem to think that the easy money policy of the Greenspan Fed was major contributor to the "bubble." I guess we have concluded there will never be another bubble of something. Kinda fun in a way. The Japanese try to drive the dollar up as we try every policy known to man that in the past has resulted in driving a currency down. Wonder who wins? Tora, Tora, Tora.