THE SPIRIT IS FLAGGING

The acid test in proving who was a real international banker was to ask the question, "What's the difference between Espirito Sancto and Santo Spirito?"  The answer?  The former is the oldest, largest bank in Portugal whilst the latter is the Vatican bank.  Believe it or not, a lot of folks got that one wrong.  Not today.  Everybody knows what Espirito Sancto is today.

The markets shuttered at the news that the Espirito Sancto group--not the bank--missed a couple of debt payments.  Needless to say, the Euros cocked the entire thing up by not stepping on the idea that it was the bank that was in trouble until the ECB put out a statement that the bank was "ring-fenced" whatever the hell that is supposed to mean.  Problem is everyone--including me--is fairly certain that the group, which owns 25% of the bank outright (and God knows how much else behind the curtain) probably owes a bundle to the bank because that is how these things always seem to turn out.  Now, most of the know-nothings were quick to reassure all and sundry that Espirito Sancto was simply too small to present a systemic risk:  crap.  It is THE bank in a member of the EC which brings the whole shooting match into play again.  So unless Sr. Draghi gets this one tidied up real quick, there's trouble ahead without any moonlight and music.  Memo to Mario:  Got you Covered, punto, works real well if spoken quiockly…like tomorrow.

One thing that will not get covered, however, is the mess that is still Europe.  Indeed, the only thing looking anywhere decent (and that is a relative term) is Germany and England which is of course a myth because Little Paulie Krugman has told us it's, in effect, a failed state.  Italy, doesn't look good; Spain, ditto, France, the most important of them all a political catastrophe and rapidly becoming an economic one.  Funny, despite the heroic efforts of the ECB in propping up economies and the Euro with scads of money, the flight to safety is full speed ahead with the 10 year Bund under 1.20% today and the Treasury at 2.55%.  Now how the hell the Bund can trade 140b.p. through Treasuries is beyond me but then again perhaps the Euros see what may appear to them to be a non-functioning government Over Here which may count for something.  Which brings us to Janet and her band of merry men.

Yesterday I was wondering out loud how the markets could appear so sanguine at the Fed's announcement of the cessation of the bond buying program in October.  If one takes a quick look it doesn't take long to figure it out.  There is no change in the free money policy: reverse repos replace bond buying.  Artificiality reigns and central control multiplies.  We are rapidly coming to the point where everything in the financial world is mispriced--especially credit--and if it isn't, it's by accident. Of course, there appears very little chance of reversal as politicians both Over Here and Over There are locked into political cum economic policies which although having produced no discernible results in 5 years remain unchallenged, funded by central banks that are locked into academic schemes capable only of academics.

Anyway, while all of this is going on, we have over 50,000 children funneled across our borders and The Leader refusing to enforce laws already on the books.  Israel has lined up 40,000 troops on the border with Gaza and the Leader is fund raising in Colorado getting offered a hit from one of its leading citizens.  His latest beaut was to call Angie today to apologize for the CIA guy who was apparently spying on our ally…and got caught.  Claims he knew nothing about it because the dog ate the memo or something.  Think she believed him?  Look, I don't think the guy has done a very good job but now I'm beginning to wonder if he gives a damn.  That's a whole lot different.  I keep crying wolf I know, but then again I keep hearing the howling outside my window.  Nothing moment us will happen until Monday as the finals are this weekend.  Sleep tight.