After an absolutely perfect weekend in the fly-over zone we are around the club house turn and headed for home. The election in 60 days; the end to the third quarter; the G-20 (which produced nothing except for Il Duce getting humiliated) and the Fed meeting in a fortnight. It's going to be a dull three months.
Everybody came back late so yesterday was a washout in more ways than one for our East Coast buds, but what numbers there were tended to be soft. Same thing today as the whole world seems to be in a bit of a funk. The only really interesting stuff--and not that interesting--was in Europe where the embarrassment among returning politicians and resident geniuses was at a high level as nobody could figure out how they got in so wrong regarding Brexit. Merry Ol' is the hot spot right now and the Proud Pound has made a heck of a recovery. Dare I say as predicted? But on the political front, Angela took a hell of a beating in her home state adding to the list of victories by nationalist parties and now serious concern as to the future of the Union which awaits with great trepidation the coming announcement of the day for the declaration from the U.K. Amusingly, the guy who should have been right about this, the Guv of the Bank of England, was the one who got it the most wrong which might result, one would hope, in fewer proclamations from him in the coming months, but then again, he's Canadian. What does he know.
The financial and, unfortunately, the political scene continues to be dominated by the Central Banks of the world more and more clearly in a growing unholy partership with the supposedly elected rulers. There is occasionally humor in this as over the weekend one Democratic wag announced with great solemnity that Trump must be defeated, "To preserve the independence of the Federal Reserve." These guys are a laugh a minute, but to give them credit the Fed has yet to succumb to the negative interest craze which has overtaken just about everyone in Europe and around the world. One stands in amazement at what this has wrought as today it was reported that Italy was sounding the market for an upcoming debt issue of 50 year maturity. Amount? Oh, 3 billion Euros should be easy...maybe three and a half. Four might be a stretch, but....Coupon? Well, less than 3%. Purpose? Well, they'll spend it on something I guess. Oh.
In this month's edition of Foreign Affairs there appears a letter to the editor by a fellow by the name of David Robinson who is a Senior Lecturer at the Hass School, Berkley, commenting on an earlier article by Martin Feldstein warning about the possible affects of the Fed's easy money policy. Mr. Robinson believes that this is the "new" norm, that rates will and must stay low and should because there is no indication that the United States has any difficulty in raising even more debt. This is the Little Paulie Krugman approach to Global Finance: it's there, spend it while you can. But the real telling line explaining what has happened is the following:
Lastly the United States has enormous sums of capital--some $24 trillion--held in pension funds. Although many state and local pension funds are woefully underfunded, they nonetheless have trillions of dollars invested in stocks and bonds. In a world awash in capital, sustained low rates of return may be the new normal.
No Mr. Robinson, the world is awash in debt not capital and there is a difference. At a point debt has to be repaid. Capital seeks risk for investment not merely a return, supposedly without risk as sovereign debt is viewed. And the list of investors is shrinking. Unfortunately, the debt--especially the sovereign debt being amassed is not invested for any useful purpose, either here or especially in Europe. It is used to feed--for want of a better term--the welfare state. Joltin' Joe has gone away, sir. There isn't anyone out there who seems to understand this any more. Stick to plastics Mr. Robinson. Finance ain't your game.
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