BEEN THINKING (AGAIN)

...but before that, there seems to be no end to this thing.  Equities up again; yields down; weather is great (until tomorrow...mucho caliente).  Despite all that is swirling around the pollsters (now THERE'S trouble) are telling us it's the economy stupid which everybody thinks is good and getting better.  Works for me, but I was really thinking about Asia and in particular Korea and along with that China and what we had discussed a couple of years ago.  A reserve currency.

 The Little Fat Porker is a real problem.  Worse yet the solution to the problem--China--will not, do not even consider CANNOT-- help solve this thing.  One word and the Little Porker is bacon but nope, not in the cards.  Apparently nothing else either.  Forget about sanctions, pressure, harsh words...the Porker could care less.  But on China?  Ah.

Now I rarely get into political questions but clearly, if pressure is to applied to anyone in this picture with any chance--however remote--of success it is China.  And so let's go back in time a bit and revisit the Yuan, the IMF, and the one overriding concern that this blog had at the time.

Your scribe had expressed concern at the time as to appropriateness of the rush to judgment  as to the currency given the somewhat, ah, spotty record of the PRC in regard to manipulation, convertibility, openness, honesty...well, you get the picture...but most importantly was asked the question, "From a foreign policy standpoint do we really want to risk a substantial portion of global trade to be exercised in Yuan?"I think the answer, once one thought about it was, "No," but the pressure and the willingness to bow to the same by the IMF was quite overwhelming.  As was usual, the Obama administration was less than fully involved.

Remarkably, in the intervening time frame all of the conditions  causing the concerns not only remain but in some cases have been magnified.  Had the PRC played a very good hand with any form of skill the landscape today might be a good deal different.  As it stands, the dollar remains far and away the dominant world currency with the Euro solidly in second place.  But had China chosen to liberalize?

The most important point to take away from this both then and now is that because of the currency the options available to the government of the United States are really quite broad.  Access to the financial system of the United States is essential to any internationally focused nation and absolutely essential to any financial institution therein. Even China and  Chinese institutions.   If the solution to the Korea quagmire is through China and if China need be pushed, the pressure will come through the financial sector.  This is going to be very, very difficult as, unfortunately, the Euros hardly feel as threatened by Korea as do we or especially our Asian allies, and it will be a true test of the ability of the Trump administration.  To this point we dodged a bullet as a result of the incompetence of the PRC and the ability of such a regime to conform to required standards.  Luck, however, is not a strategy.

HEARD AT DINNER

"Good"

" Very good.  I am most surprised.  I would not have expected it.  From where did you bring the chef?"

"From nowhere.  He lives right here."

"Truly?"  That surprises me even more."

"It's a Jewish neighborhood."

"He is Jewish!"

"No, no!  But if you want good like this go to a Jewish neighborhood.  I mean, where do they go on Christmas? "

" I never heard of this in Iowa."

"You never hear about a lot of things in Iowa.  Great state though.  Great people.  They love me.

"You are full of surprises."

"Yep.  Been that way all my life.  Here, try the Moo Goo Gai Pan.   Melts in your mouth...oh by the way sport, we just blew the crap out of an airport in Syria."

"ARRRGGGGGER,"

It's true a swear it.  I know a guy who knows a guy who talked to a guy who was there...well almost there.  He might have tapped the conversation.  Happens a lot these days.  But you might want to keep in mind the "face" thing.  The Donald just dumped all over Mr. Xi very much in public and no one can tell me it wasn't purposeful.  Then again, the guy is lucky.  He had a dream opportunity and used it to his advantage.  But, and it is a big BUT, how will Xi react?

Anyway, The Donald stunned everybody, the jobs number at 98,000 absolutely stank,  the last two month were revised downward and absolutely no one cared.  Nothing moved...nothing.  So, what me worry?  A georgeous weekend in the Fly Over Zone with T & S's peonies racing skyward, happy as hell like everybody else.  She's happy so I'm happy.  I think.

Have a great weekend!

FOLLOW UP

"So who's Lin?"

"What"

"Who's Lin?"

"Who the hell is Lin?  I don't know anybody named Lin."

"Lin...the head Chinaman you wrote about"

"Lin?  The Chinese's leader is Xi not....oh, crap..."

"Thee you go smart guy.  Time for apologies, but I must say after months of silence you write that thing and that's all people are talking about."

"Think there is causation?"

"You should be so lucky.  Better, you should be rich.  But you aren't either.  Hell of a call though.  What's the outcome?"

"Ah!  I'm going to charge you for that!"

"Like I said you should be so lucky."  Apologize first.


He Who Knows All Things is a pain in the butt.  Worse yet, he's rarely wrong.   Apologies.

QUARTER END

With a bit of a whimper to be honest.  I keep marveling at the attempts of those in the know to explain what is going on.  Today there were competing stories in the same newspaper, one explaining how the the Trump rally/economic push hasn't materialized whilst the other was marveling at the 13% growth in equities since the election and inflation finally reaching the Fed's target of 2%...yep, 2%.  We made it!  Hallaluya...I think.

Trying to make sense of all of this I called He Who Knows All Things.

"What do you make of all this?"

"I donno."

This is very troubling because HWKAT is the source of last resort.  Fear, cold, grasping fear right in the middle of the gut.

" I was speaking with [expletive deleted] who of course hates Trump. There is no doubt the...ah...elites on both coasts and of both parties wants the guy out.  Then again, except for the hard left among them no one can really express why.  So I asked ED straight out whether he was sorry he didn't throw his hat in the ring when he had the chance.  Funny response.  He said he really believed he could do better.  Then why not, I asked.  He said he had asked himself that a number of times and had no answer.   The fear of losing was all he could come up with.  And I thought, 'God, have we all become so self-absorbed that the fear of public failure even for a guy this successful is too much to contemplate!'"


"Think they'll get him?"

"No, I really don't.  Tell you why.  From a lot of standpoints this quarter is going to look pretty good and every day the sun comes up the fear of the world ending becomes less and less.  Watch the earnings and particularly manufacturers.  With consumer confidence through the roof that sector has to be good.  If the bank guys didn't get too pleased with themselves and got hammered when bonds went on that roller coaster ride, they should be terrific.  But never underestimate how dumb some of these guys can be.  Even ED agreed.  Said next week could be critical, however."

"The Chinese?"

"Very good.  Big meeting.  We see how good a deal guy he is.  There are a lot of trade-offs."

"Such as?"

"Look they need us probably more than we need them, but they have one big leverage point."

"The little fat nut.?"

"Yep.  If he goes away...I mean really goes away...Lin gets a lot.  He has real problems; probably greater problems than we realize.  And neither he nor the country has that much time.  Forget about the 5000 year patience of the Chinese.  That works when the next rice paddy is a  journey to another country.  These good little socialists know what's out there and there's 600,000,000 of them who ave not experienced any of it.  Next week is a very big one for our Accidental President..  Forget about everything else."

I hung up thinking HWKAT is a pretty smart guy...who left me no better off than I was before I dropped a dime...trying to make sense of this

WHAT TO SAY

I  donno.  Stocks are up, bonds are down, the dollar is up, and it looks as those things are going to stay that way.  The remarkable sector is of course financials which six months ago were cold as ice, and now?  The 10 year closed at 2.60% today which means at some point there has to be a rotation in to capture this yield but everything is so bullish that I wonder when.  That might come if the Democrats can convince enough electors to elect Hilliary but unless that happens, The Donald seems to be the dominating force in all phases of this market.  As far as the markets are concerned the guy hasn't put a foot wrong...of course he has yet to do anything of consequence but visions of sugar plums are dancing in people's heads all over the Street.

The foul winds are all international.  While economic sentiment has grown increasingly positive in regard to the EU, the political issue grow more negative by the day.  The Italian banking system will face a terminal point by the first week in January and the afor-mentioned political/financial crisis in Greece will begin to take center stage by mid-January.  All these have the potential to become flash points for market disruption.  And then there is China.

Trading in the Chinese sovereign debt market was suspended today in Shanghai in the face of plummeting prices no doubt reflecting the actions in the U.S. and the strength of the dollar.  The market is almost entirely internal but obvious has consequences for the Yuan as well as risk indicators throughout China and the region.  What is going on?  No idea, but aside from my ignorance the scarier thing is I don't think anyone has any real idea either.  Now I do know that the Chinese have been talking to anyone they think might have a handle on the near term consequences of a Trump administration or for that matter the actions of a Trump administration.  Nor do I think they have gotten an outline with which they are satisfied.  Things move quickly in China.  The herd instinct is alive and well.  It is to be watched closely.

That's it for this year except for a few interludes on issues that might arise.  Check in from time to time for insightful insights.  God!  That's too much even for me!

Later, gang.

BILLY D. OR KIMMY K.?

These Days I'm not sure who gets more media attention, Bill Dudley of the New York Fed or Kim Kardashian.  Mind you Ms. Kardashian has a lot behind her but it seems that Billy the Dud has more to say.  He was at it again last Friday as reported today in the New York Times.  Full disclosure: I was brought up to believe that, like children, Central Bankers better being seen but not heard.    Oh sure, the head of the Fed has to make regular reports to Congress, but the President of the NY Fed would, upon the rare occasion say something meaningful if events called for his utterance, but generally speaking, he would say nothing...certainly nothing meaningful for long stretches.  Billy the Dud has turned that on it's head.  He says a lot anytime he's withing ten feet of a reporter and none of it is meaningful.  In fact most of it leaves one searching for reality.  At least, up to now, he's kept his clothes on (shudder).

Today's interview was the latest chapter in the, "I'm OK, you're OK" litany that has been spewing out of Liberty Street for months.  I quote from the Times:  "He described the global situation as 'Dramatically better, and said that financial conditions have eased considerably."  He continued, "I would say at this point I don't see a lot of things that disturb me."

Now I have taken this out of context but have done so because those comments are the headlines makers along with his stated belief that, "the Fed is on the right path."  I spoke with a guy who knows Billy D. pretty well for a long time going back to his Goldman Sachs (funny how they always pop up) days.  Comment?  "He's lived within the Fed all his professional career as a Fed Watcher economist at Goldman and now inside the same institution."  The outside world has never really concerned him."

 Mind you, having dodged a bullet in 1008/9 he may be speaking purely in relative terms, but the thing about this business is that you never really see the Black Swan until it swims up for a hand-out: don't worry about them, simply know they exist and be ready to act.  But it's the things you do see and ignore or choose to ignore because it doesn't fit the pre-determined scenario, the particular mind set of the moment, or because having gotten lucky you begin to confuse that with being so smart as to never be caught out again.  So, if Billy is listening...

In the period of 2008/9, the crisis was severe but there were a lot of people around who had seen its like before and pretty much knew what had to be done--as unpalatable as it might have been--to stabilize the system.  It worked.  We are good at crisis management and there were a few people in D.C. and in New York who were VERY good at it.  Since then, nothing the Fed has done has had any real beneficial effect at all; indeed, its actions have created false hope and worse, false markets.  To an extent that Billy doesn't realize, it has, through its actions served to destabilize the markets and encouraged others to take the same foolish path...witness Japan..

The economy is lousy...not in collapse mind you, but lousy.  The true engine of growth is the private sector and despite all the claims of success the number of people employed in the United States today is pretty much the same as in 2007...except our population has grown by 30 million.

Debt has increased enormously.  Forget about Little Paulie and people who speak of the ownership of the printing press.  Corporate debt has exploded as well as personal debt in relation to autos and real estate.  This stuff is real; it has to be repaid and it is entirely the result of Fed policy.

Billy's bud, Jacob/Jack is off in Puerto Rico today.  Bit of a debt problem there as we know.  Now why the damn fool went to P.R. in May at the 11th. hour is beyond me.  It's not like he needs a break in room rates: he should have gone in February when it might have done some good AND when the weather stinks in D.C.  Rookie mistake.  BUT, as Il Duce is fond of saying, "Make no mistake," this P.R. thing is a mess and could very well get worse and the timing is all wrong.  The is a payment of general obligation bonds due July 1.   If they are to collapse, that is just about the time the Greek negotiations will collapse.  Not good.

If Billy missed it, the BREXIT vote is too close to call.  I'm sure, the United States having advised the British people that it would not be in their interest to vote "yes," that he is convinced that the result will be "no."  Hope he's right.

And speaking of Europe, the recent upturn in economic numbers was a head fake.  The continent (read, Germany) is down again and the UK is falling backwards.  European banking is not back and DeutschBank is awful.  All will be saved if necessary but at what cost both in a financial and political sense?  And oh, Sr Draghi has all but admitted that nothing he does seems to work but he'll try a bit more of the same.  Boy's got game.  And today the Austrian P.M. resigned over the immigration mess further clouding the political interplay which in itself could affect the BREXIT vote.

Japan...well, Japan.  Mr Abe announced today that Japan will intervene if the Yen continues to appreciate.  Super! A good ol' currency war!  In an election year!  Spoken with your markets group lately?

And last, but certainly not least is China.  There were many, myself included that felt the Chinese were smart enough to get a lid on this thing.  Again, this is going to be a close call but the betting line now favors a considerable amount of financial blood being spilled, the ramifications of which throughout all of Asia really cannot be determined.  Anyway, I just thought I'd supply a bit of food for thought for Bill which, if absorbed, might even supply grist for the mill of his next interview which, if he sticks to his schedule, should occur in about three days.  He might even consider a joint effort with Kim...perhaps in Puerto Rico...on the beach...to draw attention to.......nah, bad idea.

I LOVE GOOGLE

Google got mad at me again over the past two days...or maybe I just messed up which could be the case but the result was I could publish nada.  Which perhaps wasn't a bad thing because nothing that I was writing made sense 24 hours later which gave me time to reflect and pause for a moment in my certitude.

Unlike the mystery of the fault--was it me or Google--I'm pretty sure about this: nothing that I  was writing made sense because nothing out there is making any sense at all.  I am completely confused as to what is going on as is I think everyone else.

Take oil:  WTI traded up to $47 a barrel last week and the sentiment on the Street was that the market had stabilized.  Only problem was there was more of a glut last week than ever and there appears to be no end in sight.  The U.S. is importing more oil than in the past two years while production has fallen just 3%.  Why?  Well, according to the WSJ, it is cheaper to store oil in the U.S. than on a ship and surprise, surprise, the U.S. has a great deal of excess storage capacity.  Coulda fooled me, but there ya go and on cue WTI traded down to $43 today.  Now that's a hell of a lot higher than the $26 of a few months back but apparently Iran is pumping and selling so fast it would make your turban spin and selling it at a discount in Europe to buy back market share.  Needless to say, so is everybody else to preserve market share.  See what I mean?  What's going on out there?

Bond yields, after a brief spurt, seem to be indicating that the future is not bright but in regard to the stock market the talking heads have come to the conclusion that equities are "fully priced," either indicating a satisfaction with things or a complete lack of alternatives for investment.  Now if the bond guys are right and the market is fully priced, some people are going to lose a hell of a lot of money pretty soon.  I know about losing money.

Puerto Rico had their first default on Monday worth $400 million and seem to be heading for a second of $1 billion in about a month with the Congress playing politics as to how to solve this problem.  A mess in the muni market one would think?  Nah, nothing moved despite the fact that all the rules of the game could get changed overnight.  It restores faith in humanity.

We had a bank failure in Italy the other Day.  Big Deal?  Not really except that those clever Italians had, in i scuri set up a living will for this institution focusing on it's take-over by Unibanco.  Only problem was when Unibanco popped up to announce that they really didn't think  they were in a position to do that causing the government to institute an immediate bail-out which of course they are not supposed to do.  BUT, not to worry because things are looking up for the Eurozone economy.  Yeah sure.  The largest bank in the third largest economy announces that it doesn't have the where-with-all to fulfill a previously agreed deal and things are looking up?  On top of that, the latest out of the UK has the BREXIT polling just about dead even, tightening considerably in the two weeks post-Obama (gee, did I predict that?) with the referendum barely a month away.  After three months without a government, Spain is about to have a new election and whilst there is little shouting thank goodness, Greece and its creditors are still somewhat at loggerheads.  Buy Euros as suggested?  Sorry can't see it.

And then there is China.  I'm not even going to try.  The latest big thing in China is commodity specu...ah...investing.  Why not.  The government in the first four months of the year pumped about a trillion and a half into the economy.  Heck, you have to spend it somewhere.  Good for the fly-over zone, however.  Live Hogs have been up for a week.  Who says we're not part of globalization.

I could get onto to Japan but that is a chapter in itself.  Besides, the more I write on a wet, miserable day like this the more I get depressed.  I should stop writing.  I wonder.  Did Google have my well-being in mind?  What a lovely thought.

FIFTEEN YEARS

Elliott Management and the Argentines announced that they had reached an agreement in principal to settle the 15 year old dispute over Argentina's restructured debt plan to which Elliott did not agree.  This could mark the end to one of the longest international financial disputes (there were a few wars) that I can remember and marks--perhaps--a return to sanity on the part of Argentina and a true statesman-like approach by its newly elected President.  How much time, effort and treasure was wasted on behalf of the Argentine people by the fools who ran that country for years will never be known, but it had to be immense.  One should also give a bow to the courts of the United States for upholding principals of law that have been with us since we were Englishmen.  We'll continue to follow this but I do wish everyone well and a speedy final conclusion to this sad chapter.  There are many issues that will arise which are certain to affect international and especially sovereign risk transactions in the future which should be explored and we shall attempt to do so in the course of time.

                                                                   _________


Well, the boys and girls got together in Shanghai this weekend and for the life of me I can't figure out what was accomplished except for the addition of more confusion piled atop of that pile of mass confusion known as the international economic outlook.  China did absolutely no one any good by announcing a reduction of 0.5% in the amount of banking reserves required at the Bank of China which would seem to indicate a loosing of monetary controls which would result in the fall of the Yuan (which did happen), but no, said the Chinese, their intention was to continue to support the currency...which they didn't do today.  So you tell me.  There was at least some good-natured bantering about the degree to which one could rely on the economic figures released by the government( one cannot to any degree) and what the REAL growth rate might be; 4% you say?  HA, HA, HA!  If correct it may be no laughing matter; that would be one hell of a slow-down, a level for which most every other country in the world would kill but not every other country has half a billion people marginally employed.  Coupled with slow to marginal growth in the rest of Asia, the numbers out of Europe (what numbers?) and the mess of Latin America,  that leaves the U.S. as One Great Hope for the world economy in the near term.

Problem is--not that anyone cares--I'm more confused than ever.  Last week we had a revision in the fourth quarter GDP from 0.7% to 1.0% and everyone went nuts.  OK, sez I, OK, but it's not gangbusters.  Inflation was reported to be heading for the 2.0% range which the Fed has been targeting since...hell, for so long I've forgotten...and wages were looking better.  The weekend was looking up.  Then comes today and the Chicago purchasing numbers were released and they absolutely stank which is where I start getting confused.  The global picture is poor to bad and the data Over Here is so contradictory, I keep telling myself that something has to be off.  Finally, equities sold off today across the board but WTI was UP over 3.0% as was Brent...a one-day-at-least de-linkage...but in the face of continued reports that the world is running out of places to store all the crude that is being pumped that no one wants.  We have more data than we have ever had but can we believe any of it or has the world just gone weird.  It's February 29 today so that's weird in itself but things are beginning to get out of hand.  I guess we just keep watch and see when and if all this matches up and look forward to more madness in March.  At least that kind of madness is fun.

STILL SPOOLING

This will take longer than I thought.  There are a lot of mixed messages out there and some odd things going on.  Equities moved up again today along with oil on reports from Venezuela that the Zulus and the Russian and the Qataries were planning a get-together to stabilize prices.  Like, Dude, who cares. The House of Saud announced yesterday that was a no-go and that is that.  Are there really people out there dumb enough to trade on nonsense like this?  If there are, I have a lot of work to do.

Speaking of the Zulus, there was a report today that they have informed the international investment community that they are going to service their foreign debt at whatever cost which of course leads me to believe that a cessation of payments is just around the corner as soon as Maduro is certain that he has enough stashed away somewhere to allow him to live a modest socialist life without fear of Latin Justice.  Vermont, perhaps, with Bernie Sanders, or perhaps Hollywood with Sean Penn and the gang?  Rumors have his government selling gold reserves to raise cash which could possibly be correct, as the country's reserves are dangerously low and sinking rapidly and selling gold privately is a hell of a good way to skim a bit (or a lot) off the top for soon-to-be-unemployed politicians. On a serious note, a default here could be a staggering financial event and Christmas-come-early for the legal profession as the Venezuelan government and its oil company have quite a bit of assets located in the U.S.  They have received quite a bit of support from Russia and China in the past but Russia is tapped out and the Chinese may just decide to cut their losses. After all, who needs Zulu crude?  The world is awash in oil.

And then we have the G-20 meeting in Shanghai coming up as we write where today the index just went in the tank to the extent of about 7%.  Now THAT should be a hot topic over spring rolls and some Maotai not to mention a few other things that might prove to be an embarrassment to the hosts.  Watching the dance around these talks is going to be fascinating.

Finally, Brexit.   I didn't believe this when I read it but some executive from J.P. Morgan said today that he was paying more attention to the bookmakers odds than he was to the opinion polls as to how he was going to position himself going forward in regard to Sterling.  Well I never!  There is at least one honest man left in this business.  Bet he's fired within a week.

Charlie is going to be a busy boy.

NOT MUCH

I signed off last week with the thought of waiting to see what Monday was to bring.  Monday didn't bring much except for some stinko manufacturing numbers out of Chicago which really didn't have much of an effect, and mood changes in commodities (read, oil--that's all that counts) which means the equities were up and down all day ending slightly lower.

However, one of the things we talked about last week was the anticipated assault on world-wide currencies, particularly those in Asia.  Over the weekend into today a really strange scenario began playing out which I confess in all the years I have been around this business was new to me.

Traders are a paranoid bunch; everybody is out to get them...or at least learn their positions.  In the good old days, no one would speak as to one's plans other than the occasional "I own and therefore recommend" hyping of one's position, but for the most part secrecy reigned.  Not today; this is a whole, new breed out there, in-your-face people who could care less and are happy to brag about their positions.  It got to the point today where you wanted to ask, "If there is anybody long the Yuan out there, would you please hold up your hand!"  Had you done so I suspect nary a hand would have risen.  To listen to these guys, one would think the entire world is short the Yuan and that may be the case.

Now to be sure, China has problems reflected in the tremendous out-pouring of currency about which we have spoken which is going to continue for a bit as we approach the lunar New Year which is when every Chinese where ever located takes to the road with all the cash they can carry.  I don't think that even this band of thugs running things would dare mess with that.  But that will be over in a couple of weeks and then, after a reassessment of the reserve position, it will be interesting to see what stance is taken by the Bank of China, if any.

Shorting a nation's currency is always a bit risky; shorting it with one way traffic in the trade is even more risky.  Shorting it when there is only one real source of the currency which in this case is Hong Kong, is downright scary as we discussed last week.  The BOC still has around $3 trillion to play with which is a hell of a lot of money with which to go to war.

This is all hedge fund action.  As far as I can tell the banks, whilst probably short as well, are hardly so in size.  The guys that run these funds are very, very smart guys and very, very big risk takers.  The Chinese think they run the world or will so shortly.  It is a classic match-up and one whilst being written about is seemingly being ignored to a great extent.  The stage--unless these guys are simply making open boasts--is set for one of the great financial battles of all time..or not.  It's China after all and who knows what's really going on.  An emerging crisis or a rather clever way to devalue without getting jumped on by the rest of the world?  Do they have a firm or firms working on the "inside" or will they go after one of the shorts rather than setting up a broad defense simply to create an example in the hope of ending this once and for all?  Can they do that in this new age or have the rules of the game been changed forever by new strategies and new instruments?  This could make the Super Bowl look like the Pop Warner League.  Is there an over/under on this one?

HERE COMES THE CALVARY

He Who Knows All Things called last Friday.

"Don't ever do that again."

"What?"

"Disappear for a week.  Do you see what happened?  Everything went to crap"

Well, I'm back and sure enough the Stock Market stopped it's horrendous six day slide and rallied at the close today.  Shanghai didn't, however, and everyone is now convinced that China is a disaster in the making...or one already made...as once again the government proved that they are not quite ready for prime time.  Having received what they thought to be the imprimatur from the IMF in the form of a reserve currency designation, they decided to get cute and as we have mentioned in setting the "peg" for the Yuan against a basket of currencies instead of only against the dollar which the leadership believed would allow the Yuan to depreciate more rapidly and aid China's export economy.  It depreciated rapidly alright; it cratered, causing the Central Bank to engage in a massive struggle against this thing called "the Market" to get a grip on things immediately after agreeing to the "free markets" called for by the Fund.

Now a run on a currency is not always a bad thing but when it is caused not by technical factors but by a clear concern for the stability of a country as a whole, things get dicey.  Last week, things got real dicey and were made worse by the continued collapse of the commodities markets led of course by oil which continued it's downward slide by over 5% today.  What is about to start happening is the first in what will be substantial bankruptcies in the oil patch, the reality of which, though predicted, will trigger downward revisions in economic forecasts which will have the effect of decreasing economic expansion, which will...well, you get the picture.  Over the last few years the best prognosticator of economic performance has been the Atlanta Fed.  Their prediction for this year?  Well under 2%.  The economic and to reiterate, the political fall-out from such performance in this election year might well be earth-moving.  In any case, a fair reading of the tea leaves will lead one to realize that this economy stinks and this cannot be argued away with job creation as last month's growth greatly skewed to the age groups of under 24 and above 55.  In addition, the lack of any meaningful wage growth which leads me to believe that the real bell-weather is the labor force utilization number and that still stinks.  We are on a knife's edge and now, just when some positive thinking was growing concerning Europe, the refugee/immigration problem, as I am sorry to say I predicted broke out in the most ugly of manners throughout the continent over New Years followed by an almost imaginable breach of public trust by European leader led unfortunately by Ms. Merkel who may well lose her job as the result of completely misguided policies.  That occurrence could spell finis to any dreams to a Euro-led global recovery.

So I'm back, thinking I should have stayed away a bit more rather than having to comment on these gloomy goings-on.  But carry on we must, following the sound of the trumpet.  CHARGE!

CRYSTAL BALL I

I think I have survived and lived to think an extra day and it was quite a day.  In equities,  a full fledged Santa Claus rally led by a surprising drop in oil supplies which resulted in a overall commodities rally.  The DOW was up 185 at the close and the ten year showed a 2.25% yield.  Not a bad way to await the arrival of the Chubby guy or did we miss it and he's been here and gone?

It's an odd phenomenon.  The United States which has always been a somewhat provincial nation seems in some respects becoming more and more of the same.  And yet, we exist more and more in an integrated world--particularly in a financial sense--which we in this country continually overlook whenever it is convenient for us to so do.  Stocks fall in Cushing...BUY OIL!  The fact that 500,000 bpd are ready to spew out of Iran seems to make no difference.  Are we aware of global events, immune to them or do we simply not care?

This past year has not been an easy one anywhere but the U.S. has indeed been fortune to whether difficult times better than most despite (or because of) what at times appears to be a dearth of leadership at various levels.  And yet, one must also question our relative prosperity which is indeed occurring, and wonder whether we will be as fortunate in the coming year.

At the top of our success has been the recent uptick in worker compensation which has been flat for so many years.  perhaps the unemployment number of 5% is responsible for this (I leave all discussion as to whether the statistics are reliable or not) as it could be but one is also faced with the terribly low utilization of work force number that remains depressingly low and has continued to decline all year which argues for a different result.  So too, are the GDP figures which not only are subject to remarkable fluctuations between quarters but in any case remains stuck at below 3% with little prospect for an improvement in 2016.  Most troubling is that these mediocre results have been achieved despite the astounding drop in energy costs caused primarily by the advent of fracking and the brilliant advances therein which, if viewed in terms of a tax cut and the stimulative effect thereof, would be the largest of all time.  Surely, we should be expanding greatly but we are not:  capital expenditures remain meagre despite profitability which has been used to return wealth to shareholders either in the form of dividends or buy-backs; consumer spending, though up remains below expectations as the reduction of debt was the primary focus of many; consumer confidence throughout the year has never achieved the high of January; M & A activity has been remarkably high  which while providing a handsome living for a fortunate few, is hardly a sign of business confidence as is the increased number of corporate inversions which are he result of a ridiculous tax code and the lack of belief that this administration (or perhaps ANY administration) will correct the same...a view supported by the utterly incompetent efforts of Treasury to address the issue.  Yet, we muddle along.

There would no doubt be more optimism on my part if it were not for the even deeper problem that surround many if not all parts of the world.  We shall set aside the disgrace of the Middle East in itself and the complete lack of leadership on the part of the U.S. which either to one's chagrin or opinion reinforcement proves once again that the U.S. is the one, indispensable nation.  Whilst hardly happy about it, the rest of the world is prepared to accept this designation: only the present leadership of the U.S. remains opposed to this clear reality.

Perhaps even with bold foresight and aggressive leadership the situation might be the same but the other reality is that the collapse of the region and the resulting mass of humanity made refugees will probably have a profound effect upon Europe which, in a moment of simple morality (for which Europeans have never been noted) agreed to play the role of savior to these oppressed--far too late came the realization that this, whist admirable, might not have been the best idea the Zone ever had.  Europe will be profoundly changed in the coming years.  Ms. Merkle, blinded somewhat by the fulfilling of the need required by Germany as a result of disinterest in the bedrooms of the nation, finds herself with hundreds of thousands of new workers who have absolutely no interest in becoming Germans or in German society, existing in an almost semi-autonomous state among their rescuers.  To a lesser extent (except for France) how Europe deals with this issue will determine the fate of the continent over the next few generations.   Everything will be affected.  As will the United States.

China has overstepped.  In a commercial sense but also in a geopolitical sense as it misinterpreted the full meaning of the Obama administration's "pivot" to Asia (probably because the administration had no idea what it was doing as well) and chose to repost in a military sense.  China can...to the extent anything that large can...turn on a dime domestically but internationally and intra-Asia, correction is not so easy.  A pull-back would be seen as a tremendous loss of face and undoubtedly affect the leadership within the country.  As a result, unneeded tension will remain in the region throughout the coming year taking resources away from desperately need domestic reforms at the worst possible time; the year of a Presidential election.  The continued confrontation with China ( with a small "c") will also affect U.S. domestic politics--no candidate will wish to be considered "weak"--leading to what could be some premature and therefore poor policy decisions which will affect the relationship in the years to come.  This overhang of potential conflict will have its economic effect as well throughout the region.  Asia is not the cure for what ails the world economy and will not be so in the coming year.

I could continue in this grand, global overlook in regard to our hemisphere but I think approaching this region is better done in a more individualistic sense.  There's a lot more to come so I hope you stick with me through at least the middle of next week.  I would really like to hear your views in regard to MY views, so please respond.  Right now, I have to go and make sure the chimney is clean and clear...don't want that task left to the last minute.

GRANDCHILDREN WARS: THE PATHOGENS AWAKEN

Made it back having undergone assault from indubitably multiple armies of pathogens, merged and mixed in three third grade classrooms by the triplets.  Modern medicine has no answer to this: you either survive or....anyway, here I am.



Our landscaper, Ted, stopped in today.

"Yuan, " he said, "and the IMF.  Big deal?  Can you invest in it?"  Ted is obviously far richer than I had imagined.  I'll have to start looking at his bills more closely.

"Well," said I, here's what I think, " having just lost $.25 to My Really Smart Friend, Larry, with the news of the IMF allowing the Yuan to join in the currency basket of the IMF before year's end.

"Chrissie Lagarde just declared the Yuan, 'freely usable,' and if you are going to bank on that there's a bridge...somewhere...any bridge...that I would like to sell you cheap.  In fact, most of the conditions for the establishment of a reserve currency have not yet been met--not to mention the inability to engage in domestic equity investment in the Chinese equity market.  What has occurred is at this stage a recognition of the economic power of China and a near-capitulation by the IMF to China's rather unique way of doing business as a result of the Fund desperately needing a friend at this stage, having run out of really any role and yet still having a lot of very expensive mouths to feed.  Chrissie also wants her next title to be Madame Le President and this 'breakthrough' fills in some rather empty space on her resume.

In order to further bolster the complete unhinging of IMF rules the argument is being made all of the place that this will help liberalize China and diminish the power of the Communist Party as China will now be forced to play 'by the rules' and liberalize not only their economic and monetary policies but, by extension, their political policies as well.  Bollocks.  The CCP will do damn what it pleases unless and until a failure in their economic policies causes a rather compliant population, now seeing a rise in living standards so desperately needed, to experience a set-back and being asking, 'Hey, what am I getting out of this?'  It is a vanity gift to the Chinese people giving their government extra time but accomplishing little.

It is also being argued that this move is good for the world's financial system as it breaks the hold that the dollar has exerted over all facets of international financial and for that matter, ALL business dealings and by extension, the influence of the United States.  Fair comments except that there are far more many reasons for the existence of this influence beginning with the Rule of Law which far surpass the mere existence of the dollar and I would argue even the vast infrastructure and liquidity which supports it, although in reason years, under this---allow me to be political---incompetent administration and increasingly politicized central bank, these advantages are being eroded.  With a weighting of nearly 11% in the SDR basket let's see how many central banks switch 10% of their reserve holdings into dollars?  Aside from those tightly wedded to China in other areas, very few I would bet.  I'll take on all comers; I'm down $.25 to Larry.

The other thing in which I will be most interested is to see just how much of the approximately $18 trillion in Yuan sitting in deposit accounts will remain.  Under the agreement, the Chinese are supposed to be allowed to invest up to 50% of their assets in foreign assets.  Does money flow in, out, or simply sit tight.  If the trend is out, given how much Chinese money is already in such places as New York, San Francisco, Miami, London and points around the Globe with all sorts of restrictions in place, with restrictions relaxed if we have a vast outpouring, how long will Xi's mob allow that to continue as the result will almost certainly be the collapse of the Yuan?  Not long I would argue.  And the Fund's reaction?  Not much I would argue making it even a bigger joke than the ECB in dealing with budget deficits.

Finally, I would once again bring up the effect this ill have on one of the U..S's greatest strategic tools, financial sanctions.  If all the other reserve currencies are always on your side politically, they can work quite well.  When one reserve currency issuer is not on-side they don't work at all.  The U.S.'s strategic bag of tricks has just lost a big component."

"So, Ted," said I, "There you have my views.  Your call.  Have any more questions?"

"Charlie, that was great and I thank you so much.  Actually I have just one more.  Do you have Larry's number?"

IS THAT ALL THERE IS?

With apologies to Miss Peggy Lee, writing about the Yuan's entry into the SDR world of the IMF is about as exciting as the jump in 10 year yield to 2.21% at the close today signaling a "repricing of the bond market" which reflects a resurgence of belief in the Fed going for 0-25b.p. to 25 b.p. in December based on the rise of the equities markets which is based on nothing at all.  But that's all I got, Peggy, so we go with it.

Fortunately, My Really Smart Friend, Larry, came out with a great piece on the Yuan just the other day, which can be found only if you are a subscriber to his publication.  (I never asked him if I could name it but I will).  As you know he and I differ as to whether the Fund is going to let the Yuan in as a result of its year-end review and while I still  have my doubts, he has added a very persuasive argument that I had mentioned but to which I had given little weight.  Added to every other thing on the world stage that Il Duce and his mob continue to ignore is the Fund; this is not good for the thousands employed by the palace on 19th Street (tax free for many) known lovingly as, "Headquarters 1" by its adoring staff...especially when most people are beginning to realize that its functionality is somewhat in question.  The Fund needs a friend and China needs acceptance; a match made in heaven the implications of which are yet to be fully understood.  MRSF,L, does point out one thing that most of the watchers and commentators have not.  A good part of the implications have a great deal to do with China alone--or at least for the time being.  The move towards SDR status for the Yuan may have little practical effect for the world at large but will indubitably have a great deal of effect domestically, for in order for China to reach the point of acceptance of it currency, certain bridges had to be crossed which were navigated by what one might refer to as the reformist element in the economic leadership of the country.  The political leadership moved grudgingly to comply but make no mistake, the "market driven considerations" have never been welcomed, and if the IMF grants Yuan SDR status we may well have seen the high water mark of the reformists for some time.  Nothing more of value from the standpoint of President Xi can be gained and a consolidation of power on all fronts will resume.  The implications stemming from that reality are yet to be considered.

We might also ponder another effect mentioned in this space not too long ago.  Il Duce loves to speak about "smart power" in regard to foreign affairs...like sanctions.  With the loss of influence within global organizations such as the IMF and the emergence of new "reserve currencies," bye bye "smart power."  The dollar and its friends, the Euro, the Yen and Sterling held sway.  We are about to enter a new era with new realities and, surprisingly...or not..less options.  Leading from behind.  It's kinda like the two dog on a dog team; the view never changes.  Anyway, my two-bit bet is looking a bit more problematic.

As for bonds, I find more amusement in George Soros pulling half a billion that he put in just a year ago out of Janus, his buddy Bill Gross' new amusement since his departure from PIMCO.  Gee, it's harder and harder to make an honest buck these days although as some would tell it, Georgie never cared what kind of buck it was as long as it was made.  If things go on like this Billy is going to be left with managing just his own money, $700 million of which was supposedly the seed money for Janus.  Oh, the humanity!  Having said that, a decision if there is to be one will be more important for it having simply been made than for any economic effect it will have.  Further, if the discount rate is increased it's is going to be interesting to see the rationalization presented vis-s-vis the opposite direction in which the Euros are heading.  Thought there was this cooperation among central banks thingy. It will certainly provide copy which is desperately needed in these times.  I will also be interested on the discussion of with China slowing, the Euros going nowhere and Asia more or less dead how the United States is making it happen all alone.  We can call it the John Donne Rejection; you know, "No man is an island..."  Or maybe you don't know.

A LIQUIDITY REVISIT

We're heading back East tomorrow for a christening so I may be off the air for a few days--except for commenting on what the Fed does tomorrow--but afore I go I wanted to come back to the issue of market liquidity on which I have been harping.

About a month ago, an analyst from Citibank wrote a thoughtful and interesting piece on the subject which I have been thinking about ever since.  Taking out the graphs and charts his thesis, reduced to simplicity, is that it is not so much the reduction or absence of market making functions about which we should be worried but the very nature of the financial markets themselves.  In his mind the individual investment decision making process has somehow become one of the herd concept of investing: one big cow moves in one direction and all the cows follow.  At the end of the day there is little distinction in the portfolios of the major players and as a result--having learned from the same playbook, if one moves, all move in exactly the same direction.  Or to put it another way, if you want to sell it's a pretty safe bet that so does everyone else.  Result?  No bids.

I think he's right but the theory, with a bit of a different take, is not new.  It is a variation on the theme that has worried many of us for years, especially when we hear the stertorous tones of the talking heads on TV telling us that the first rule of investing is to diversify.  Yeah?  With whom, since every mutual fund out there is holding the same thing.  Well, between different strategies is the answer--a little of this, a little of that.  Financials, emerging markets etc., etc.  OK that's fine but these days it seems when the market decides to move in one direction, everything moves.  Mind you, it takes a pretty big event to have that happen but...SURPRISE!...right after the publication of this paper we had one called China.  But on the way back towards stability, a funny thing happened.

I remember watching CNBC as the equity markets imploded and hearing their best and brightest breathlessly report that Treasuries had not moved...nor had Bunds, nor had any public sector fixed income.  "What illiquidity," was the cry.  "Surely there has to be a flight to quality but Treasuries have held firm."  In fact the 10 year hardly budged, nor did the 2 year and I said to myself, "boy, are you wrong about this liquidity thing."  And I forgot about it for a day or two and then I literally woke up with a start.  Dummy, the reason nothing is moving was that somebody was selling into the thing and doing it very well and with great care.  Yep, surely there were our old friends the Chinese unloading Treasuries and other things to raise cash--a lot of it--and obviously getting help in so doing.  DUH!  Candidate for dope of the year.

Now I couldn't find anyone to admit it but I'm as certain as I can be that it was the Fed, which as far as I am concerned is just fine.  After today's outburst from Goldman's Chairman Mr. Blankfein concerning the "ham-handed Chinese," I would also be prepared to wager some serious money that Goldie was not in on the trade.  In fact, I'd be prepared to further wager that Goldie was long and seriously wrong when all this went down.  Couldn't happen to a finer group of people.  In any case, there's your liquidity provider in the biggest mess we have seen in years, The People's Republic, and as we used to say in the old days, they deal in sizzzze.

But stop a minute.  In this case we had an entire market looking to buy and one big player looking to sell, a player so big that it provided the liquidity as a result of an event that had really very little to do with the market in Treasuries itself.  Kismet.  But if you have been keeping track, one of the unsettling changes that has occurred as of late is a reversal of conditions and behavior in all of the emerging markets.  For years this class has been doing reasonably well and accumulating reserves.  As of late they are doing not so well and seeing their reserves fall: from deliberate monetary actions to protect their currencies and through the switch from current accounts surpluses to deficit positions across the board.  In recent weeks, this trend has accelerated.  As of yet, there is no end in sight.  If it continues, will there be the buyers needed when the emerging markets all come looking for a bid?  And how would a Fed move affect this scenario?  Will credit spreads rise for this class of borrower (many are highly indebted) and  cause an acceleration of cash raising and capital flight?  More importantly, I wonder if anyone is thinking about this.  Certainly not the equity guys.  DOW was up 160 at the close.  OUT, OUT DAMNED QUARTER PER CENT!  The bet on the street is the Fed stays pat.  The New York Times has told them to do that, and today Larry Summers did the same.  You can be sure Janet and Billy the Dud are looking for cover and now they have it.  I bet no but what do I know.

Let you have a few brief thoughts tomorrow...or Friday.  Hard to get there from here.

THEN AGAIN...

Maybe I am the only one who figured this out as the equity markets came bounding back again today.  Broad rejection of my thoughts?  I don't think so.  My pal Max used to tell me, "I don't care in which direction it moves just so it moves."  Trader talk and to an extent I think that's what was going on today.  Of course if you want more trader talk mixed in with some techie stuff, September is historically a lousy month for equities.  As has been said before I guess, only time will tell.

Tomorrow is the EU big pow-wow with Mario Draghi the man in the spot light.  What the optimists will be looking for are moderately good thoughts as to the European economy but not so good as to cause Mario to rule out a continuation of his QE or an extension beyond 2016.  Now this creates a very interesting scenario.  The Fed clearly wants to raise rates--not that 1/4% is a "rise" having made clear that any "normalization" will be a slow process--to what real intent I am not certain.  I can't believe that if Mario goes in any direction it can only be lower through addition money-creating mechanisms which puts the two central banks that really count at odds with one another.  Not good for the rest of us but as I have been saying these guys have been painting themselves into respective corners for years and it is becoming increasingly more difficult to get out without leaving a mess all over.  Stan Fisher has it right but he's really up against a very bad moment in time. None of them have any real tools left and the worst part is I think they know it at this stage but still refuse to confront the political establishments with an "Over to you, Gaston," which is what is really necessary.

Tomorrow China is shut for the great, "Daddy won the war" celebration and a show of the PL A's new toys.  There was a wonderful tale out of Beijing today about monkeys having been trained to climb trees and destroy bird nests so the little dears wouldn't fly into the intake of the PL A's brand new jets at the parade tomorrow.  I mean, come on.  Given the air quality, every bird within 50 miles of that place probably died some time ago or is too week to fly, but I guess you can't be too careful.  Which of course gives me no real comfort as to the ability of that bunch to micro-manage the world's second largest economy and to transform it as Chrissie would so dearly wish into a free, market economy.  Funny thing about free markets; they tend to do exactly what you don't want them to do from time to time.  What's even funnier is that some really important people appear to be just learning that.

MAYBE I'M NOT AN IDIOT

...Which doesn't make me feel particularly good because what happened today is, I believe, worse than what happened last week.  Last week was primarily a reaction to what had occurred in China particularly on the Shanghai Stock Exchange which had gone up like a rocket ship fueled by cheap and huge amounts of credit (more on that in a bit) pumped out by the Central Bank and what seemed to be an official policy of "buy, buy, buy" which in turn encouraged that there was the Big Put behind all this on the part of the Government.  When that didn't work out, everything went to hell and there was the "Oh My God" reaction in world markets.  Fine, after a few days it seemed we could live with that.

The Chinese, lauded for years over their tight control of all things began to really mess thing up.  First was the devaluation for probably sensible economic reasons but coming at precisely the wrong time and leaving, a situation on which few Over Here commented, of a 1% arb situation in the Yuan's value between the mainland and Hong Kong of all places.  Now 1% in currency terms is like all the money in the world so it was no surprise that bundles of Yuan began moving overnight headed for Hong Kong.  In stupid move #2 the government tried to tighten up on exchange controls already in place which had no chance of success but further convinced everybody that the boys in Beijing didn't really have a firm grip on things.  The half a city blew up purely because of corruption at the highest levels killing a reported 128 people which of course no one believed and they started putting people in jail for talking about all of this which received not a peep from Il Duce's mob and to be fair anyone else but it did have the effect among people who run money that these guys rally were losing it.  But they followed their own advice, stayed the course, didn't panic, scared the crap out of the shorts in the energy market and things calmed down causing Charlie to start looking for a gas pipe.  Then came today.

I don't sleep that well any more (residual guilt probably) and I woke up in the middle of the night and dialed into the Asia markets.  Not much happening over there but just for kicks I checked our futures and there was a lot going on.  Now I still don't understand futures but I get the impression that they are a pretty good indicator of what the short term sentiment might be and these didn't look good.  Couldn't figure out why.  Said Oh Well and went back to bed.  At 8:00 things were not looking good at all and it turned out that the Chinese PMI which had not been released at the time I made my middle of the night check, came in below 50...which means in anybody's country that things have not only slowed but have gone backwards.  Frankly, there had been a number of predictions that this might be the case but frankly, I don't think people wanted to believe it...the stakes were too high.  Gone was the 7% growth rate, gone was the economic stabilization, gone were the plans to redirect the economy from an export model to a internal consumption model.  This was no longer explainable; this was real and the fun began.

I can't help but think that maybe I have been pretty right for a while now.  Since 2009, the world has thrived (or survived) on nearly $10 Trillion in liquidity pumped out by the world's central banks with nary a thought as to fiscal or political adjustment at any level.  With the China situation we are witnessing a commodity collapse, huge currency realignments, sympathetic economic stagnation throughout the broad range of China's trading partners and a lessening of credit standing on the part not only of sovereigns but of corporates as well across a broad range of industries.  The banks have seen this show before had have been reducing credit exposure for some time now.  Can they avoid the past from becoming the future?  Frankly, I do not know but it seems clear that we are witnessing the start of a tremendous deleveraging operation around the globe that is not going to end any time soon.  Which is why I think today was far worse that what happened a week ago.  This time what occurred was because people began to figure this thing out.

WASN'T THAT A FUN RIDE?

This week of course.  It seems as though everyone is happy it's over probably because despite all of the comment it is widely recognized that all of it is guesswork and nobody really knows exactly what happened, why or most importantly, where we are heading.  Maybe we need another week to sort that out.

There was quite an interesting and amusing moment this morning right at the start of the interview with Stanley Fisher on CNBC.  Stan was asked by Steve Liseman if he would comment on Billy the Duds comments made earlier in the week.  You might remember that Dudley was widely credited, although I am quite sure he was clueless, for stopping the stock rout with his statement that the reasons for a rate rise were "less compelling."  Stan always has a bit of a sly smile before be kills you.  It was there, he slaughtered The Dud, and of course the markets, which had been moving slowly higher all morning, stopped, reversed and started moving slowly downward all day.  Nothing bad though; the DOW looked like it was trying to close flat and that's probably where it will wind up.  But Stan did his thing...he kept 'em guessing and with the some more big data next week, this rate move could be in the cards making Charlie here about as wrong as I have ever been about things in a week. What threw the whole thing up in the air was the revised GDP number which, if believable, was quite something.  Jobs next week and then we shall see.

That is not to say this week's "crisis" is over.  No one has really sorted out the full macro direction and the noise being heard is to a great extent very nervous people trying to talk their book.  It didn't seem to me as though there were a lot of true shorts out there--clearly there was short covering that resulted in the rally--but from determined shorts?  I don't think so.  The most interesting comments were that cacaphony of, "China really doesn't affect the U.S. too much."  Maybe, but China affects everyplace else and someone, somewhere has to affect the U.S.  The shift is going to be to Europe next week if they can cobble together anyone important to attend some previously scheduled meetings on Euroland in the last week of August (despite September beginning on Tuesday August always ends on a weekend).  I for one, will be happy.  I think I understand that mob a bit better.  Inscrutable these Chinese, but it was fun.

NO NOBEL YET

Boy, did I get that one wrong and the bad thing is I don't know why.  By all the logic in the world things should have started off bad today and gotten worse: the day started good and got better.  Nothing has changed but if you are going to point to one thing that stiffened the resolve of the buyers who came into the stock market this morning it was of all people Billy the Dud of the New York Fed who, while I am certain completely unaware, uttered the magic words, "Less compelling" when speaking of the chances of a September rate hike.  Yea Billy.

Now a good deal of the advance was probably triggered by short covering on the part of people who were new to the game, but it was quite a performance none-the-less.  And so, like the guy who went before me, I can now say when I make a mistake it's a beaut.  But, to reiterate, nothing has changed, certainly not in the place where this thing started, China, and as a result nothing has changed anywhere else either.  So, before I look again like an idiot, I'm going to stop and wait until tomorrow.  Off the record, I have a feeling the events  of today may not have legs.

WELL!

I actually got up early to watch this unfold because by the time I went to sleep last night Asia was a catastrophe and the writing was on the wall.   It was something.  It reminded me of 1987.  Shares were being "paused" right and left (we didn't have that in '87) and no one had a handle on where this was going.  At one point the DOW was down almost 1100 points but I'm not telling you anything you don't already know.

Nor can I tell you anything about what's going to happen except that I don't think it's over.  One of the "optimists" on TV this morning predicted another bad day on Tuesday and then the "snap back" which always occurs.  That makes sense in a single over-bought market but I don't think that's what we have here.  I'm looking at a crisis of confidence that has become quite global in nature,  The release of the Fed minutes started it as it was clear that mob had no agreement on anything and gave the distinct impression that they really didn't understand what was going on anyway.  That was bad enough but the Chinese, who everyone thought ruled the nation with an iron fist proved that there was more iron in their brains in the matter in which they have handled their finances over the past few month and in the ineptness over the past week.  The Euros haven't exactly covered themselves in glory for a while now and the administration in this country has been playing golf.  When people world-wide start asking, "Is anyone in charge," that is never a good sign.

We have always said that in the financial world if one loses credibility one is lost.  Today there is no credibility anywhere.  There is also a growing sense of fear.  In the midst of the morning's carnage I saw a print for GE that scared the hell out of me.  20.  GE is a hell of a good company.  Somebody (s) was selling the hell out of GE.  You don't sell GE into a market like this to that extent unless you have to get liquid in a hurry.  Oh no, thought I, we're going to lose somebody right now.  Fortunately, we did not but if you think this liquidity issue on which I have been harping for months now is not real, think GE.  And think debt markets.  A couple of more days like this and there could be some real shocks among the hedgies and if there are shocks there how far behind will be the banks?

Look, I don't know what is going to happen so there is no point in continuing.  However, it must once again be said that trying to deal with a global economy this complex with monetary policy alone while witnessing the absolute abdication of the fiscal and political forces is insane.  I'm afraid we might find out just how insane this is.

More tomorrow.