A NEW PAD!

...and I set it up all by myself, so if you wind up with stuff off Hillary's server, that's the reason.

Over There, Macron who as expected.  Big.  All the world expels a sign of relief with good reason.  Mme. Le Pen would have been a disaster, not because of policy (that can be changed overnight) but because she would have been a physchological wrecking ball for France.  At this stage, the French are probably irredeemable statist; they like to be told what to do and how to live.  Probably a result of the revolution which produced chaos, followed by Bony, followed by the Second Republic, followed by another Bony, followed by...well, you have the picture.  Life is easier when there is authority that says do this, do that.  Change is really not appreciated.  There will be little with Macron but the Republic is saved and Euroland is saved for the time being.  Bon!  Le Pen is a nutter by the by.

So, that's the politics, what about the economics?  Don't know.  Macron, at one time a self-proclaimed socialist claims he has seen the light (and a couple of big, fat pay checks from Rothchild's) but he is a product of the elite of France whose socialistic tendencies are well-known as long as their own money is not involved.  There will be some liberalization of the French economy but not much.  France will be more competitive but not much.  The government's share of French GDP may be reduced but not by much.  The cost of Euroland will,go up--by a lot, and without the Brits...oh yeah, don't believe what you read in some papers, they're gone...Jacque and Jean will be paying more which they will not like.   It's good Macron is 39; this a job for a young man.  I don't like the looks of this down the road but it's still France and it's a wonderful place.  Good luck to them.

Meanwhile, Over Here, it's nothing but politics and the Trumpster just fired the head of the FBI.  BUT, there is continued talk of a rethink of the awful Dodd/Frank legislation, from both sides of the aisle.  Maybe this isn't just political blabber; maybe this thing has legs.

I love my new IPad.

CHARLIE vs. STAN/MANNY vs. MARIENN

Boy, did I catch some stick after taking off on Stan Fisher.  Expected it but after the tirades I still think I'm right although it gave me some thought and set me off on a different perspective.

One commentator noted that Stan would probably agree with me but just couldn't say it.  Not good enough said I, he was very specific in what he said.

Ah, said the commentator, what Stan was really driving at was that the stress tests provided a useful tool for management to test their strategy against unknown factors.  Well, if that's the case said I we have a bunch of idiots running the big institutions which I don't think we do (not even excepting Wells Fargo who were just a bunch of criminals).  

But sayeth he, that may be the case but a reminder from time to time can't hurt.

Oh yes it can, because when Stan speaks, people listen and if we hold on to this nonsense people think all is well.  It's not because even the brightest out there don't get it:  it's not about process as is suggested Ina WSJ op-Ed today, it's about trust. Paul Volcker said it best: banks are different.  They represent faith in the state itself.  It is the state in the form of central banks that have to preserve that faith.  Forget about interest rate adjustments and full employment; job one is the preservation of the system.  That stinks, I know but that's the deal, folks.  Mr. Fisher understands that; he just misspoke.


On Sunday, France spoke.  At least for the first time.  Manny Macron and Marienne LePen are in a run off.  The markets have already determined that Manny will be the next M. Le President and everything in the past two days is through the roof.  The Euro is saved!  Europe is saved!  Trumpism is defeated!  Maybe.  The fact that Manny has never held an elected office, that he is a recently converted capitalist (formally a socialist), and that he's all over the place as to policies seems not to be concerns to the brightest among us.  Oh yeah, his wife was his high school teacher who, with three kids was messing with him at age 16 but it is France where tour jour L'amour always rules.  Over Here it gets you 10-25 but at least he ain't LePen and maybe that's a good thing.  Somehow, I don't have a good feeling about this.  Either way.  Then again, it's going to be great fun for the next couple of weeks and I suspect it's going to get really dirty.

Finally, breaking news as I write is that there is a tax reform play ready to be announced tomorrow.  Whew!  I just can't keep up!

A MOMENT IN TIME

There wasn't any one thing that occurred today that was shocking, but a year from now I want to look back and see whether this moment had any real, lasting effect.

The Treasury's 10 year auction today went just swimmingly.  It was $20 billion and nothing much changed except that it appears to have attracted the highest percentage of foreign bid in history.  The coverage was fine but the participation rate was 73.6% non-American.  The reason is simple.  The 10 year closed today with a yield of 1.70%.  The Bund was at a point in the day yielding 0.035%.  That's right, three basis points.  No maturity up to ten years has a positive yield.  Middle dated Gilts were at 1.24%; the 50-year under 2.00% Surely the 10-year will have to follow suit.  We are reaching a point where it would be far to say that global wealth is declining.

Of course the equity markets are doing just fine with the DOW closing today over 18,000.  It is the only place to be despite record high valuations.  Oil was well up on the day as well as U.S. stockpiles came in lower than expected and more impediments to production emerged.  There is now even some talk in the West Texas Town of El Paso of redeploying some rigs, but huge damage has been done.  The cycle continues.

It is a situation that almost defies an explanation but I guess the World Bank came as close to providing one today with an even more gloomy outlook on global economic development that is not too far from being dismal.  More worrying is the Bank's belief that any shock could put the entire system into recession, and while what that might be was not clearly spelled out surely the British referendum has to be in the forefront of their thinking.  In my view, the Bank is correct but if looking at Europe the more dangerous spot is France, whether the Brits vote to leave or not.  Quietly, and with little notice Over Here, France is facing a crisis such as not occurred in decades.

Frankie Holland's approval rating is somewhere in the high teens.  Unfortunately, his socialist rhetoric that served him so well in attaining the Presidency has come back to bite him in the derriere.  In practise, it hasn't worked (quelle suprise!) with almost 60% of the GDP of the nation being supplied by the government.  Now that's one thing if you're a tiny country like Denmark, but France isn't a tiny country and whilst Denmark and especially Germany have, throughout the past ten years rewritten their labor laws, it's damn near impossible to fire anyone in France creating almost complete job immobility while at the same time one has the specter of the railway workers demanding a 32 hour  work week!  The 35 hours they presently toil is just too hard.  It's little wonder then that a labor tribunal awards 450,000 Euros to the convicted rogue trader at Soc Gen that literally broke the bank!   That, coupled with the dreadful immigration mess and a goodly number of French Muslim citizens living in a state within the State has created the remarkable rise of Madame Le Pen and the Far Right which until the Austrian elections of a couple of weeks ago were given no chance in 2017.  They are now considered almost even money to get enough votes to form a government.  And we think The Donald is way out there?  He's a bureaucrat compared with this gal.

Another problem.  The French have always looked at the EU as the great equalizer.  It never was but it has taken them this long to figure it out.  There is Germany and everybody else.  If the Brits leave, IMHO The clamor in France for a dissolution will be overwhelming and one will be able to write finis to this noble experiment.  It will not and should not survive.  And that, boys and girls, is going to be something to behold.  Tune in June 2017 to see how right--or wrong--I was.

THE ROAD TO…WHERE?

The Leader spoke on the Ukraine crisis early this afternoon, some say in response to the criticism of what he said…or did not say…over the weekend.  It received even harsher criticism as a result.  He said nothing which was interpreted only by the American far-left wags as being a brilliant ploy of holding his cards close to his chest.  To be honest, he has few cards to play without the Euros who can't stand the guy and worst yet, don't trust him.  Nevertheless, there seems to be a growing thought that doing nothing can't be done and therefore one has to ask where this thing is going and what will be the repercussions to the increasingly integrated financial world in which we live.

From the standpoint of what this means Over Here, the announced plans of the Administration to essentially fund its domestic policy program through tax increases and cuts in the military is, I think, dead.  Congress simply will not agree to the former or support the latter in an increasingly (or so it seems) more dangerous global environment.  The U.S. response to Russia or the lack of the same will probably become a larger election issue which is now but four months away and could help to shape the congress for the next two years.  Should the Republicans achieve their goal of recapturing the Senate their will undoubtedly be legislative stalemate on all levels which some view as a good thing on issues such as financial regulation and of course health care--which I shall never mention again--leading to a possible roll-back on some of the legislative mistakes that have been made in the rush to punish that group of pariahs in the society formally know as bankers.  Then again, perhaps not.  I'm fairly confident of one thing, however.  The relationship between the U.S. and the Euros had better come out of this thing intact and hopefully improved or there is going to be some really tough sledding ahead in the near term.

Over there, individual domestic difficulties seem to be preventing a convergence vis-a-vis Russia--an understandable situation given what is going on.  The French, par example, announced today that the state of the economy was "un catasthophe" to the extent that Frankie's beloved 75% top tax rate was to be scrapped along with the 35 hour work week (bet that doesn't happen) in order to get the country moving again.  Perhaps scrapping Frankie might work even better but that's none of my business.

Over the weekend more information was released concerning the Banco Espirito Sancto. Luxembourg holding companies, multiple and interlocking loans, commercial paper putchases…and proposed payments thereof…and whether anybody in hell can explain what was going on.  It's not Portugal you see, but the issue being if here, where else in the continent that is one big Disney Land is this going on?  Of course the masters of obfuscation are the Italians…they have been the best at it for 700 years…so it shouldn't be long before questions start getting asked--again--about who owes what to whom and oh my goodness does this mean that the entire system is probably insolvent?  Well, yes, but hopefully the Italians will do what they have always done, keep their mouths shut and act like nothing has happened.  And you thought Omerta was just a Sicilian thing? My son, you haven't seen a thing until you visit some of the little shops in Milano, Turino and oh, let us not forget Vienna.  It's a good thing August is close at hand, otherwise we would have a lot to worry about.  But not until September.  In 10 days all of Europe will be on the road…to somewhere.

IT COULD HAVE BEEN WORSE…COULDN'T IT?

The more I read of the goings-on of the weekend, the less I was sure. The EU, it appears, is very much at a cross-roads and there is no clear answer as to the route to be taken.  What struck me in the result of these local and parliamentary elections across the continent was the sheer lack of conclusiveness in any result.  Nowhere was there a vote for anything; everywhere the results were cast as a vote against something and despite local variances, that something was certainly the Union.

I asked my pal Gordon about Farage and his response was that he probably represents the views of 75% of the people in the UK which is always the sort of number that Gordon comes up with when agreeing with a position but this time the truism in the statement lies in the fact that when push comes to shove, no sane man can stand and say the UK stands with Europe.  And if that cannot be said, then the Union is effectively finished with just the mopping up to be done and the face-saving to be continued.  I suppose the Brits would hand in there is Brussels were to, in effect, disappear, tariffs lifted, etc.  Amazingly, in the face all all that had just occurred the geniuses on the Commission just asked for another 3.5 billion Euros to run themselves with 500 million supposedly coming from the Brits.  Stupidity such as this should be savored like a memorable meal or a fine wine but alas, it is just another step in a pattern of governing stupidity that rises no higher than an undercooked trotter.  There is probably no room for another nail in that coffin an the left of the Channel.

And then there is France.  Mme. Le Pen won nary a thing except about 22% of the popular vote and a bunch of seats in Brussels where her mob will be a complete pest, but what she did do was to shatter the socialist psyche to the point that it may not recover.  Yes, Frankie will serve out, but he is an empty suit politically, leaving Germany and his gal Angie, in the position they so desperately wish to avoid; being out front with no different colored uniforms marching with them.  Germany, for reasons that can be well-understood and magnified by the undeniably dominant position, does not like the images it creates.  Worse yet, the first thing Mrs. Pen let drop was that if she were President, the Franc would be back!  Oops.  Now of course what everybody is babbling about over here is that her party is anti-Semitic and what an awful thing that it (it is), completely forgetting that France has probably been the most anti-Semitic country in the history of Europe and with an 8.5% Muslim population things probably aren't going to get much better, but it is not that that could sound the death knell for Europe.  She wants out of the monetary union and recognizes that is France AND England leave, Finis, as they used to say at the end of the "art" movies into which we used to sneak.

Within the strictures of the Euro, it is nearly impossible for any country to spend its way out of the depression which continues to linger over western Europe and while it pains me to say it, Little Paulie Krugman who's Over There as we write and babbling on about this  is correct.  Of course Paulie, mesmerized by Europe's soft socialism can't think of anything else nor can Mme. Le Pen who has lived under it for too long.  Not good.

With the exception of the Netherlands, it was a right to center right philosophy that swept across norther Europe but not so as we move south.  And yet, many of the complaints were the same, as were many of the shouted proposed solutions.  Curiously, there was no one wave of ideology but a concerted belief that what was in place didn't work.  I'd like to take tomorrow to explore the Southern Tier as to the ideologies seemingly in place in that region and then try to tie everything up in a nice bow atop a box of bold predictions.  Why not?  Everybody else is.

BACK ON STATION

Not a lot of fun getting hit in the face with a blast from a leaf blower.  Even less fun when you realize what must be hanging around in the residue from the fall when you eye blows up like a balloon inside of three hours from an infection and not from mere trauma.  Washed the damn thing out as well not five minutes after the event.  From now on I wear gloves when working in the garden.

There was a wonderful little vignette in the Times today about the N.Y. City A.G. bringing an action against some firm for improperly charging clients for loans made.  Sounded like a good idea given the reported facts but the funny part was that the authorities just realized that they could bring such an action only because of Dodd/Frank.  What a kick and where is Nancy Pelosi when you need her?
Somebody actually read this 2000 page piece of rubbish unlike Obama Care which nobody read.  Of course they read it sometime after it became law but, hey, that's the way we do things these days. Onward and upward.

Meanwhile, Over There, our friends were quite pleased to have announced that for the first time in quite some time the Union has met it's target for deficits coming in overall at 3% which had been the bogie at the very formation of the currency union but hardly ever met--or for that matter enforced--throughout these many years.  Of course the manner of achievement, the draconian cuts in governmental spending which has led to near-economic collapse in some states cannot be overlooked.  Nor can the identity of the one member that stands far apart from complying with the fiscal accords; yep, you guessed it, France again.  It's all great fun, really, but it is not far from the truth when one says that European recovery cannot be achieved without France and France is in a bad case right now.  Of course, she is well-capable of sending one of her leading economists on the road to hump his book proclaiming the joys of a wealth tax under the adoring eye of Little Paulie, ignoring of course that solely as a result of France's tax laws, there are more Frenchmen in London than in Lyon; a perfect reversal of the situation of 6-8 years ago when the Brits were moving in droves to France.  Memo to Jacob/Jack: taxes do matter.

Another item in the fun department that occurred during my recovery was the Argies getting there first shot before the Supreme Court  in a case that only a lawyer could love.  You might remember that they got the crap knocked out of them in the Second Circuit on really what was a contract law decision with an overlay of sovereign immunity and nonsense regarding the "safety of the system" if the plaintiffs should prevail.  That decision is under review as a writ of Ceritorari has been asked to be granted but in putting the cart before the horse, the Supremes overheard arguments as to the lengths the creditors could go to seek out and find Argentine assets of any size, shape or color anywhere in the world.  As I said, it's a wonderful case for lawyers only, involving the Sovereign Immunity Act of 1976 and vast reaches of international conflict of law issues but that does not mean it is unimportant.  Indeed it is very important, but why decide this if you haven't decided to hear the argument in the case which brings this to the fore?  Maybe because Cert will not be granted meaning the Argies lose?  Or signals are being sent to the tune of, "common guys, settle this."  We shall soon know.  Don't forget about it.  As Joe Biden would say, "This is a big ^%$*)*^ case."

OVERDONE

At least that's what folks are telling me.  Nobody will go or has gone near Venezulus and nobody has anything more outstanding to the Argies other that what is already in default which means we skate over this lovely little piece of circumstance without a bump leaving both of these deadbeats to deal with their problems by themselves.  Maybe bankers aren't so dumb after all.

Carter checked in with an interesting thought to wit, if things go well with Iran, things really go bad for Russia whose economy is based entirely on oil and gas revenue.  Now Russia is a real country, run by a Moscow Center Thug and armed to the teeth which could be a real worry if things got really bad, but in my view getting it right in Iran occurs only if our own Baghdad Bob, the White House Press Secretary, declares victory due to the genius of The Leader and the indefatigable spirit of the Secretary of State and somebody on the face of the planet believes it.  Then of course we have the Israelis about whom I would rather not think.  But it could happen and if it does, so what?

Rather, I still am most concerned with the situation Over There although there is nothing immediate to which I can point and say, "here's the bad spot."  It's a continent of  general malaise looking for some form of bold leadership and finding none appears to be content to simply await the hand of fate.  One comment that was telling was that if France doesn't get it's act together the EU will be facing a real question of survival.  Talk about a lack of bold leadership; poor Frankie is trying to juggle three women, an almost 11% unemployment rate and a growing stream of affluent Frenchmen moving over to Blighty of all places to escape French taxation.  That in turn is causing a crisis of the lack of French-speaking plumbers in London and the surrounding countryside for whom there are ads now being posted throughout the Home Counties and Europe.  You can't make this stuff up.

Over Here, our part of the Fly-Over Zone has been, as they say in Folsom, on lock-down.  It is now 4F going to -15 tonight with a wind chill of -35F.  If you venture out in a motorcar it is a $500 fine.  Too many accidents, too many machines in snow drifts, too many roads blocked to the point where emergency vehicles cannot get through.  We have enough whiskey for 4 days.  It better end by then otherwise I have Putin in the form of Trouble and Strife.  Carter, you have no idea.

SNOWJOB

Yes, it's coming down again, but that's not what I'm talking about in the title to this piece.  The Euros fascinate me, they really do.  The ability to flit with life, touching reality only briefly is a masterful achievement.  It's not like the Leader will, as proven, will from time to time deliberately attempt to mislead (lying); these lads have managed to convince themselves of the truth of their utterances which is a remarkable feat.

The latest practitioner of this art is he head boy himself, Jose Manuel Barroso, head of the Commission who a day or so ago announced that the crisis in Euro was over and there was nothing but blue skies ahead.  Ireland, said he, was out of crisis and even back in the borrowing game.  Spain's numbers were far better than expected and Latvia, the newest member of the Clan would soon be the Rock Star of Europe.  There was of course a few trouble spots in between but surely they would be resolved by the end of the year.

He's a politician of course and what you rarely hear from a pol is the talk of trouble out down in the valley especially if the trouble is on his watch.  "It's Bush's fault" is easy (so easy the Euros were also using that line), but after five or six years of somewhat dismal economic and fiscal performance the response one tends to get when the "Bush Solution"--or the local equivalent--is trotted out is, "Who's Bush?"  It's on to Plan B in the USA but for Euroland it's simply declare victory and move on.  Makes life a lot easier.

The reality is of course somewhat different.  The decline in Spanish unemployment for example is more of a result of unemployed Spaniards being found in ever-increasing numbers in England and Germany, creating a phenomenon not unlike that in the United States, while the overall unemployment rate in the EU remains at an uncomfortable and unsustainable 12%+.  Italy is faring no better it would appear although it is far more difficult to determine, as the Italian employment rate has been unreliable since Julie was off in Gaul.  There is of course little argument that the Euro as viewed internally as the currency of trade is vastly over-valued in regard to both countries, not to mention anything else south of the Alps.

All that would enough of a concern if it were not for France which appears to be finding itself more comfortable in playing the role of the sick man of Europe, a condition which is more and more placed at the feet of Frankie and his economic and (especially) tax policies.  The man is facing an increasingly serious political problem.  And of course there is Germany which has yet to face the first truly tough issue with a coalition government deeply divided on political dogma.  It will come and the result is nowhere guaranteed as I do not believe that decades of disagreement are easily overcome.

Anyway, if I were Mr. Barroso I would certainly temper my enthusiasm with a cold, hard stare at the reality about him.  I suspect each one of these issues will arise in the first half of this year and fairly quickly.  As a result, issues which previously have been allowed to lay fallow, such as immigration, will find increasing importance in the discussion.  The Policies of the ECB, whilst central to the overall issue are yet a separate discussion entirely.  Mr. Draghi has, in one sense, played his cards quite close to his vest, not to mention the formulation of a United States of Europe in regard to the Banking Industry.  Angels fear to tread on that ground and I have never been accused of being seen with a Harp.  I'll wait a bit for even broad generalities on that one.

MOVING ON

Well, Monday came and went.  The Leak created not a ripple in the otherwise placid pond of Euroland.  The Italians formed a government which withstood its first no confidence test and promised that Italy would not die the slow death of austerity as the PM flew to Germany to express his desire to stick to the suggestions of Ms. Merkel and the requirements of the Troika.  Now how that circle is going to be squared is anybody's guess but there you have it and so far the Germans have not said anything...well...Germanic.

I must admit that I was a bit skeptical about Massimo's outline of the last week despite his past record but almost as though on cue, the deputy PM, who as a member of the governing coalition while at the same time the head of the party of Berlusconi, immediately took credit for the tough talk against austerity and proclaimed his party's victory and of course by extension, the victory of the old reprobate.  I was going to call Massimo today and congratulate him but then thought, hold on, let's see how this thing plays out...at least for a month.  In the mean time, the focus may well be off Italy for a bit as the news out of Spain continues to worsen and while somewhat overlooked Over Here, all the talk Over There is is the utter collapse of Franco/Germanic relations at this point, they degenerating into ad hominem attacks on Ms. Merkel.  The Hollande government's approval rating is somewhere in the middle 20 per cent and a bit of frustration and panic seems to be setting in.  Funny.  The French and the Germans used to have at it about every 40 years for God knows how long--I mean every generation in Alsace-Lorraine would have to learn a new language--and that was supposed to be ended by the EU.  Well, old habits die hard and while I'm absolutely sure there will be no shooting, not much good is going to happen in the mean time.

The near future conversations will be dominated by thoughts as to the action of the ECB on Thursday.  There is now an almost 100% agreement that Mr. Draghi will lower interest rates yet again from their massively high level of 0.75%.  If that doesn't happen it's really going to be fun to watch...almost as much fun as observing people in belief that this action is going to make a difference.

Finally, today in a truly funny moment, Harvard historian Nigel Ferguson--who is a seriously smart guy--was commenting on the dust-up between his two Harvard colleagues, Rogoff and Reinhart and Little Paulie of Princeton residence.  Deriding Krugman's assertion that he had won the argument, Ferguson proclaimed that he in fact was wrong and that was the kind of comments headline writers for a tabloid make up not someone who used to be an economist.   Whoa!  In academia that's akin to remarks about your mother.  Can't wait for the next chapter in this soap opera.

A TALE OF TWO EUROPES...

...or maybe three.  Things were looking pretty bad for equities the past few days and when someone asked if it was about Europe the predictable American response was, "Who cares about Europe!"  This morning consumer confidence in Germany showed a very good number and suddenly it was, "Europe looks good!  Buy!"  Right now the DOW is up 100 so maybe people do care., but "about what," is the question coupled with, "and why?"

In every battle you will be able to find an American Infantryman with this posting somewhere on his uniform; "Yea, though I walk through the Valley of Death I shall fear no evil, because I am the meanest (*&^%$ ^%$*&^ in the Valley!"  Sort of like German Consumer Confidence.  The Germans are the meanest *&^%$# *^^$##^ in Europe.  Consumer Confidence has nothing to do with economics or finances.  That doesn't trouble German consumers.  The lowest level for German Consumer Confidence was the week last year after Chelsea defeated Bayen Munchen for the title in the Champions League.  You can look it up.  But Americans love German Consumer Confidence and Europe when the former shows a bump.  Ecco, Europe # 1.

Now, Europe # 2 might be called Europe as the Euros see it.  Well, what do we have.  Starting in the south, Greece remains a mess and because of that Cyprus is, effectively, bust it through its banking system filled to the gunnels with Greek risk.  Greece will not hit their targets mandated by the EU and will need more bail-out money and it is here that the German Consumers count as they will be dead set against it (it's REALLY their money after all) and Angie does want to face reelection with the Bavarian Housefraus screaming down her neck.  If the Greeks don't get bailed out, good-buy Cyprus which gets the Russians seriously ticked because that's where they hid all their money.  Not a good show all around.

Moving north a bit, Italy has elections this weekend and results next week.  Things look awful.  Beppe the comedian looks like he might even beat out Berlusconi for second with the party of an ex-Communist winning the thing.  Now, who's in the coalition?  Nobody knows but one thing at risk is all of the fiscal and governmental advances made under Monti may well be reversed.  The yield on Italian debt is looking very shaky indeed.

I was pretty much expected that Spain and Portugal might not make their mandated debt to GDP rations but France?   Well, yeah, France.  It looks awful.  2014 at best for some and 2016 is being muttered in halls of the parliaments.  The credibility of the EU is in tatters and the ECB is caught between a rock and a hard place:  their version of QE--pick a number--has no backing anywhere.  And what the hell was the $2 billion in five year raised by Spain early this week all about?  A dollar bond for Spain?  A move to take on currency risk just to keep peoples' minds off other things?  Oh I know, "It was an attempt to open other markets..."   Right.  And a bull fight is a battle among equals.
"We are in a recession, mes amis.  We all know this except the Americans.  On our success they buy their stocks."

Finally, Perfidious Albion is sizing this thing up as a developing scenario in which to ask the British people in a referendum should we be in or out, not from the narrow standpoint of, "What's in it for me?" but simply as a life-saving measure of abandoning a sinking ship.   The Euros know that will occur and at that stage, it's probably game, set and match.

Europe # 3 can be called, "Europe as Mrs. James' little boy, Charlie sees it."   It has the capacity to be the disaster of the year from not only its own standpoint but from our standpoint as well and it seems to me that nobody, certainly nobody in the administration is paying very much attention at least at this stage which is understandable given the mess we have created for ourselves.  Despite unprecedented buying by the Fed, the yield on our 10 year has moved from the third quarter to today from 1.75% to 2.01%.  With the type of intervention we have been witnessing, that is not insignificant.  It's not the end of the world either, but it is the first clear sign that all is not as calm in capital markets land as we have been told.  Should we see a spike in Euro yields as I think we will not only in the southern tier but for France as well, we may not be the safe haven we have been or at least not at the same level.  As we have seen, markets move in fits and starts but at some point everyone has the same idea and that's when the trouble starts.  The sequester is meaningless from a fiscal standpoint but very important from how the markets react.  Before The Leader fully decides to extract maximum political gain, he should stop and think of this not only from a domestic standpoint but from the European aspect where I believe things are on more of a hair trigger than people realize.  We talked ourselves into a nether-world complacency over the past few months.  There is a growing chance that we are going to get caught out again.

Sorry about yesterday...I was trying to get this piece put together.  Have a good weekend.

THANKSGIVING

For what one may ask?  Well, for being us.  This is the quintessent American holiday shared only in concept  by our North American brothers in Canada It is this Thursday so we will be out of action until next Monday as it is off to the Midwest grandkids for the long weekend.

As for today in Euroland the question was an apt one best described by one happening and one--so far--non event.  First, the latter.

The Euro finance ministers met in splendid session today in Brussels primarily in regard to Greece and came up with nothing although at around midnight talks were continuing.  Despite assurance to the contrary, the IMF was still at odds with the concept of sustainability with the Greek financing program whose requirement appear to grow by the day and solvency guidelines seem to retreat at about the same rate.  The withheld Euro 31 billion has managed it seems to be discussed in terms of 44 billion and the 120% ratio of debt to GDP (which nobody REALLY believed in the first place) has now been openly discarded.  The IMF, who puts great faith in these five or seven year forecasts...well, they really don't but having to justify the disbursement of members' capital they really hate it when the basis upon which they garnered approval is trashed in public which makes them look rather...dare we say it...stupid or at least duplicitous.  Bad show, that.  And so they talk and talk and talk.  Problem is this go-round I don't have boots on the ground as the war correspondents are fond of saying so it looks as though I'm going to read about it in the papers tomorrow--assuming there is something to read about.

What did happen was the removal of France's AAA rating by Moody's.  This event, proved to be a non-event as the French surprisingly played it perfectly expressing sorrow over the incompetence of Moody's and phoo-phooing the practical effect.  Yields rose but only slightly meaning, perhaps, that it was priced in.  Certainly no panic which is a good thing.  But in the context of the Euro debt situation, this action taken today might have an effect as of yet unseen or at least unrecognized.

The solution the Euros have come upon is one which essentially allows them to finance their way out of the problem or if you wish, the "Kick the can down the road" solution. Integral to that approach was the authorization of the ESM, the "European Stability Mechanism," which is to be the funding source for future financings on a "pass-through" basis.  The ESM has been authorized to borrow the funds needed but one must now ask oneself whether, with the second largest economy (and guarantor) in the Euro Zone just having it's credit rating cut, what effect will this have in market acceptance?  If I were still in the game, this would give me pause.  In the next few days it will be interesting to watch and see if French yields move to any great extent.  If they do, it's back to the drawing boards to figure out how far the can-can be kicked.  Calling M. Lotrec.  Right now it's a blank canvas.

For those Over Here have a wonderful Thanksgiving.  For those Over There, we'll be thinking of you and a special thanks to the Brits.  We owe you a lot despite a few upsets along the way.

See you Monday the 25th.

GRASPING AT STRAWS?

The stock market rose today on the basis that following the White House meeting The Leader and the Republican leadership didn't threaten each other with mayhem.  Europe was quiet as a result of minimum rioting and public disagreement among Euro leaders.  Actually, there was a bit of snickering over the front page of the Economist which pictured a tri color bag full of baguettes with a burning fuse and the caption "Time bomb in Europe?" Frankie and his mob nearly lost it which is precisely what the editorial board was hoping for and all had a good laugh at France's expense--except it may not be a laughing matter if the economy turns negative in the first quarter as many expect.

I'm beginning to have some serious self-doubts.  Maybe there is a new paradine and I'm just too old to recognize it much less accept it.  Maybe this state is permanent and can go on for ever.   Maybe there is no finite number for the creation of money.  Maybe nobody cares.  Now wouldn't that be something.  But I think people do which brings me back to 1982 when Tall Paul was in the midst of killing inflation and interest rates were going through the roof except for the head of our domestic economic group who was predicting a decline by mid year.  This was fairly important for us international types as all of our loans were based on floating LIBOR with the obvious implications for our clients.  So I went to see him.

"Hey Eli, you confident about your model?"

"Yes we are."

"Suppose the Fed continues to squeeze?"

"That will not happen."

"Why wont it?"

"Because then the model wont work."

As the poet put it, "You know the rest in the books you have read..."  As Carter has suggested maybe the academics at this Fed have a better model than my friend Eli; then again all those CMO's were AAA weren't they?   Great things models; they let you sleep at night.

Final home game tomorrow.  Great thing about sport.  You have to play the game to learn if the model was correct.  Then you can sleep.

Have a great weekend

QUICK TRIP

Angie's back.  Told the Greeks she loved them; blah, blah, blah.  Told the Greeks they had to implement their austerity package quicker; blah, blah, blah.  Official Greeks told her they loved her too and would try to do what she wanted; blah, blah, blah.   Out in the streets, unofficial Greeks told Angie to get...oh well, nothing is gained by this.  Angie left.

Meanwhile in Luxembourg, all the foreign ministers sat down to break bread and actually announced something interesting.  It seems 11 of the countries announced their intentions to install a financial transaction tax by next year as soon as there is full agreement and the protocols get signed. All of the UK lept for joy as did the remaining 16 as visions of off-shore havens danced in their heads.  Despite pretty much consensus that this isn't the greatest of ideas, the idea implanted in the mind of a politician of another way to detach a citizen's money from it's ownership and ship the same to the state is irresistible.  Led by the French, this has always been the club to be used to get the Brits to toe the line and whilst unsuccessful in the past they continue to battle with the same weapons on the same battle field.

It strikes me that the French should spend a bit more time listening to the sounds about them instead of themselves.  In case they missed it here's a clue:  Euroland is not in the best of shape as of this moment.  In a few months Greece will be gone showing the unthinkable can happen.  Portugal may be next and whilst these are not real countries in the context of this discussion, the UK is and sentiment against a closer union within the UK is more negative that ever.  Indeed, in comments just in the past few days, David Cameron hinted very openly about HIS Euroland and the other.  The visions do not merge.  Then again, the French were never very good listeners, sort of like Americans in one sense.  In their case, I think it may be a language thing, n'est pas?

Over here, it's the election, only the election.  I'm dead.

OBAMA CARE

A rare venture into politicoland.

Told you it was important.  Today, the Leader, in the presence of two heads of state remarked that the Supreme Court had no right to review an act of a duly elected Congress.  Funny, as to the question, I thought that it was exactly for the purpose of reviewing congressional actions that the Supreme Court was established.  I must be wrong if The Leader says so.  If that's the case why go through all this nonsense.  Why not just say something like, "Supreme Court?"  "SUPREME COURT?" I don't need no damn Supreme Court!" It would make life so much easier just like "I don't need no damn Constitution!"
Wonder if he has thought of that.

It's Holy Week so we will hear no more from Europe for at least a fortnight which is probably not a bad thing.  And so thoughts turn to speculating over whether the recovery in the U.S. is real, whether it can continue on it's own or will the increasingly dreadful numbers out of Euroland finally have a spill-over effect into this hemisphere.  I must say, I have never witnessed so many economists and talking heads not only hedging their bets but increasingly refusing to make any bets at all.  No more of this, "On the other hand..." stuff at all.  I have actually heard a couple of them admit that they don't know.  Heady stuff.  All I can say is that I don't like the direction of things either here or especially in Europe.  The French elections are going to begin to dominate the news headlines in about a week and that outcome could well tell the tale.  Remarkably, the left has said such dopey things that Sarkozy may actually be able to pull this thing out.  Then again, he is Sarkozy and how does one run against oneself?

Less noticed,  even by Americans, is the Mexican election in a few months which is vitally important to us and for which electioneering has just begun.  We shall be watching developments to our south over the coming months, keeping in mind that this election will mark probably the successful conclusion to Mexican democratization which really began with Ernesto Zedillo 18 years ago.  There are huge challenges facing Mexico no doubt, but they have made great strides.   I firmly believe that it is vitally important to the future of the United States that the relationship between the two countries is normalized in the form of a hemispheric partnership which, along with Canada, secures the future for all three nations.  Beginning tomorrow, that will become part of our focus.

YO, JAMIE! HOW'S EUROPE TREATIN' YA?

J. P. Morgan & Co. released their results for the fourth quarter this morning; they stank.  No surprise there but what was a real surprise was that their chairman, Jamie Dimon blamed it all on Europe.  Now remember a few months back when The World's Greatest Banker since some Medici proclaimed that Europe was a problem for the Europeans and not us, a view that was greated as pure insightful genius by none other than Jim Kramer?  Well, Jamie, if you liked how that worked out for ya you should just love what may be coming down the road as a result of today's events in Euroland.

The sun rose to reports that S & P was going to downgrade everybody except Germany.  As of this writing nothing official has been released but the French have admitted to a downgrade as have the Italians but no one is sure as to whether the downgrades are one or two (or more) notches.  A drop to AA+ for France would be one thing; to AA quite another as double drops at that level are quite unusual.  One thing that is sure is that the price of poker just went up for everybody and the size of the Euro bail-out fund certainly got more expensive on a greatly reduced amount.  However, if Massimo is correct and everything now has been placed on the shoulders of the ECB, the actual effect going forward my well be less than what had been assumed just a few short months ago.  I don't know.

While markets were absorbing this piece of news, came word out of Athens--from the creditor side of all places--that talks on the Greek restructuring had been suspended and no date for resumption had been agreed.  The spokesperson was very open on the reason.  No agreement had yet been reached as to the pricing of the restructured debt which is another way of saying the cost to he creditors was too great for them to agree to a "voluntary" restructuring or as they are now calling it, an orderly default.  As we have often mentioned, this round of sovereign restructurings is a good deal different than those of the past inasmuch as the creditors, a diffuse lot, whose goals are different and who are not easily subjected to pressure from official sources as were the banks in times past.   Call them by their real names:  HEDGE FUNDS.  Now they can be forced into a restructuring by, as we have explained before, the Greek Parliament changing the law and imposing a collateral action clause on the debt agreements enabling the Greeks to force a restructuring with any percentage of the creditors agreeing that is needed.  Just count noses boys and pass the law inserting the number!  This little jewel was dreamed up some time ago by the afore-mention Cleery, Gottleib and used successfully against creditors who were stupid enough to lend money subject to local law and jurisdiction...which is just about everybody today.  As I told you, Cleery is very good.  


Not that the Hedge Funds will care mind you.  You see, if this happens, you are faced with a real, honest-to-God default and that triggers all of the insurance policies or credit default swaps--remember those little guys--that are out there, and---yep, you guessed it--nobody has a real handle on how many, how much, or for that matter issued by whom  there are.  One thing for sure, however, the Hedge guys own them and will expect to be paid.  Now as these items are generally not on the balance sheet it may turn out that institutions with a direct exposure may have indirect exposure as well.  If Oliver Hardy were still around he might be heard to say, "Now isn't this a fine kettle of fish you got us into, Stanley!"   Greek fish stew Jamie, you should know about that.  Hey, have a GREAT weekend!

THE LAME LEADING THE HALT

The Suit was interviewed (lovingly) today by Jim Kramer on CNBC this morning at some conference entitled "Seeking Alpha" whatever the hell that is supposed to mean.  The former said nothing that was coherent and the latter understood nothing at all.  Now there is nothing new about that except for the fact that people actually took it seriously.  Most of the talk was about Euroland with The Suit telling everybody that the Euros had a plan and Kramer actually confusing Euroland with a single soverign stste.  There would be no Euro Lehman, the French banks were fine and all will come good in the end.  While this nonsense was going down all the Frenchies announced asset sales throught next year, the clearest indicator that all was not fine, the heads of Germany, France and Greece were arranging a conference call to reconfirm to all the world that the former had the latter's back thru thick and thin, and our stock market, having been reassured headed through the roof.  There is no level of wierdness in the world that cannot be reached.

No. 1 son drew my attention to what I guess is a very popular blog called Interfludity which today seemed to have the answer for what ails Euroland.  Equity.  Yep, equity.  It appears that this blogger proposes that if all European debt be replaced with equity in individual states with contrasting levels based upon an ECB fomula, POOF, all will be well again.  This equity will pay a dividend based on the rate of inflation (or be reduced if there be a negative rate) and will be redeemable only by the issuer.  I confess I didn't understand all of it as I didn't read it too closely, but a couple of things came to mind.

Now I'm all in favor of new ideas but I have a prejudice that any idea be grounnded in some form of reality or at least a basic understanding of the subject at hand.  Equity, at least the way I was taught, represented ownership and therefor I had a bit of a hard time getting my arms around the concept of what ownership does soverign equity give one in a country like...say...France; the Tour, the Trocadero, the L'Arc de Trioumph?  Suggestions welcomed.  Of course if ownership of soverign equity gave one, along with the other equity holders the right to tell M. Sakorzy how to govern or be fired it might not be a bad thing except the good Frencmen that elected him might object.  They would lose The Hottest First Lady in the world.

The other thing that bothered me was to whom was this equity to be issued?  Not me thank you.  I have this thing about liquidity in case I run a bit short of the ready as I think do most investors.  Not many markets out there for this kind of beast.  Then I got into the other thing they taught me about equity was that it was there for capital appreciation not for an interest payment based on some rate of inflation for which there are alternatives like TIPS which come immediately to mind and for which there is a substantial, liquid market. Then again, thought I, here is a fellow with a fertile mind: if the job of Treasury Secretary ever opens up, I have a candidate. Nevertheless, the author writes beautifully.  Check it out.

It's amazing what bubbles up in times like these when a simple application of logic and a rudimentary knowledge of history, finance and political science might prove useful, but then, as is said, that's what makes markets.  The other thing is, as I have said before, the only new idea in the last 2000 years was The Sermon on the Mount.  Everything else is a variation on a theme.  The real genius is to undersatndwhat theme.


We have a real housefull for the weekend starting tomorrow--my classmates--and Trouble and Strife is on the warpath.  If I don't get back to this before Monday, please be sympathic.  I face substantial physical risk in the coming days if I stray too far from the role of host.  Wish me luck

AU PRIS DE MA BLOND...

...il fait mal, fait mal, fait mal.  Nikki met with his hot blond buddy Angela today and came up with rien, zip, nada, niente.  It would have been better IMHO had they not met at all and unquestionably better had they just kept their mouths shut.  With the numbers showing growth has stopped in Euroland,  yields on Italian and Spanish paper heading north again and the Greeks looking at a beaucoup Euro repayment in a week all these two chuckleheads could come up with was an assurance that the bail-ou facility was big enough (it isn't), a call for a United states of Europe to be led by a Belgian for the next 2 1/2 years, higher taxes on shares transactions and higher taxes rates--the word they used was "conforming" among all states.  For those who have been dead for a while that means Ireland.

The reaction was an audible gasp on both sides of the pond as if the collective thought raced through the synapses of every observer at the same time: "Are these two as dumb as The Leader and if so, wadda  we do now?!"  Well, it beats the hell out of me but I think what happened...or didn't happen...pretty much insures a Greek default sooner rather than later and serious trouble down the road with possibly Italy and almost certainly, Spain.  The U.S. of Euroland will go nowhere and the Irish will require armed force before they relent on their tax code and of course it is never a real good idea to get into a fight with the Irish.  Over here, the markets tanked before coming back a good deal from their lows but I'm not sure that the result of this failure on the part of Europe's two most important leaders has been fully understood.  My bet would be continued weakness, especially in the financial sector, even in the face of surprisingly good numbers today regarding plant utilization and corporate profits.

Obviously, Frau Merkel knows she doesn't have the votes to get Germany fully behind a European bail-out and without Germany, nothing happens.  If there is such a thing as an orderly collapse over the next few months that's about the best I think one can hope for and I would expect that we will see is the rationalization of the financial sector in Euroland.  The problem is, of course, I'm not at all sure that anyone really knows the true state of European banking much less the state of any individual bank which is going to cause some sleepless nights for all concerned.  Then again, if the weeding-out process begins--probably through mergers with vast government support--the politics of the individual countries will play the dominant role and I for one wouldn't even pretend to understand or begin to spectulate as the direction that will take.  It will probably be ugly.

Tomorrow's open in Europe will be interesting.  The ban on short-selling in some markets will have absolutely no effect if this thing is programmed to go south.  There simply will not be a bid out there for either equities or fixed income soverign debt.  Then again, I may be far too pessimistic and negative in my view of what occured today and if so, I wouldn't mind a "Ho Hum" day at all but I don't think we are set up for that.  No one was particularly optomistic as to the results of today's chit-chat but the results I think it's fair to say were particularly disappointing.  Hold on tight; it might be a wild ride.

IT'S GOTTA BE ME

Pulled up the blog today in preparation of my last post before I'm off fishing tomorrow.  To my horror I discovered that the last two paragraphs never made it into print.  I've spent hours trying to retrieve then all to no avail and have come to the conclusion that I had better start doing better with my publishing as the problems over the past few months must be mostly of my own doings. Once again, apologies.  I'll try to do better.

Anyway, what I was trying to get at is what we can expect over the coming months and what intelligent steps might be taken to straighten out the mess that the Euros are creating for themselves.

Iy seems to me that the first thing one must do is to decide what it is that one wishes to accomplish which so far has yet to be done.  At the present time we have an impending crisis in the debt profiles of a number of sovereign countries, which could--it really hasn't happened yet--expand into a full blown crisis of confidence in credit markets much like that which occurred in 2008.  The one HUGE difference this time around is that we have seen this coming from a long way off and we have had time to consider solutions...not make things up as we go along.  Unfortunately, a good deal of the latter has been done and very little of the former.

So far, this has been considered by the market as a whole as a European crisis but that could change rapidly.  Lets stake stock of what has occur ed and where we are today

1.   Four countries are basically involved: Greece, Spain, Portugal and Italy with Ireland and sitting on the fringe but Ireland moved early.

2.  Greece and Portugal do not really count on their own; they are too small.  It is the relationship or "contagion" of the remaining states that is important if the problem of a single state is not solved.

3.  The well-know dichotomy of a political union having a single monetary policy but multiple fiscal policies has been discussed ad nauseum...ignore it, it isn't going to change or be fixed.

4.  The big players, Germany, France and to a lesser extent the Dutch (the Brits are not players by their own choice) could care less about Greece as a viable nation.  Their only concern is how it effect their own body politics.

5.  The French and the Germans have one mutual common interest, i.e. the health of their national banking systems and diverse mutual interests, i.e. the stability of the Euro and of the EU which could flip-flop in a heartbeat...or certainly as a result of German Parliamentary elections.  Every decision made so far have these interest in the forefront and NOT the viability of a Greece as a nation state and certainly not as a member of the EU

The problem is, the course of action taken by the French and the Germans has, to a great extent, ignored the views of that shadowy thing we call, "the Market,"  who could care less about all of the above and remains solely interested in situations that allow it to make money by exploiting either systemic opportunity or man-created opportunities.  In linking the rescue of Greece with the salvation of the French and German banking systems and the stability of the Euro through this multinational grab-bag of lines of credit, the main players have given the Market an opportunity to make a value judgement and that judgement is too little, too late, too poorly focused and too lacking in permanency to accomplish the undeclared, but well-understood, goals of its authors.  The result?  In attempting to save what probably cannot be saved...the credit outlook of the respective banking systems and the stability of the Euro, the gruesome twosome have probably exacerbated the problem and made the rescheduling of Greece (and if Greece has sprung who can be but far behind?)  and the further collapse of the Euro inevitable.  I fear we are looking at the toothpaste splattered all over the bathroom sink: getting it back in the tube is a mug's game.

The good news is that is the boys recognize and have the guts to admit their mistake, we can deal with Greece fairly easily and with minimum loss to all concern...although there will have to be some loss in order to make the effort credible.  The other good news is there are a hell of a lot of people still around who not only understand what has been going on but have the experience and know-how to fix it...including the distinguished author of a mid west blog site.  Just not next week as NOTHING interferes with the quest for the Blue Marlin.  But keep this Market guy in mind:  Keep providing him with opportunities and he is going to take advantage of the same.  At this point it is really simple to make what has become silly and unworkable ugly and dangerous.  The Market knows how to do that just as some of us know how to fix it.  Fait vos jeu...and don't waste time doing so.

OUI, JE PARLE FRANCAIS

Well, not really. Not any more at least but I could get it back in a month or so. The ear is still pretty good but I struggle with the vocab and construction and wondering whether something is male of female--but then again in these times when restaurants proudly advertise that in THEIR establishment boys and girls can go potty in the same place one wonders if even the French care any more. We'll all have to learn it I suspect as yesterday The Leader made it very clear that his goal is to turn this country into the Seventh...or is it the eighth Republic before he's done.

The arrogance is sunning, the stupidity unimagined and the question as to whether ANYTHING The Leader proposes will stand the test of constitutionality remains out there. It is clear he doesn't care. Like FDR he is determined to install his vision of this nation in stone and hope that it lasts. Getting it there is important for he realizes that once enacted, givaway programs are very hard to undo. And so the transfer of wealth continues this time from the hated banks to the UAW, to the lower middle class to every Democratic support group to be found without any concern as to effect. This administration has become entirely political in every action it takes. It exists only to survive and grow like some giant Hydra, devouring every thing to feed itself and its young.

To place a tax on the 50 largest banks is merely a cover-your-ass procedure to deflect attention from the monumentally failed programs of the president and the Democratic party: Fanny and Fred, GM, GMAC, Chrysler and the mortgage protection program. Yes, I am making assumptions but is there any doubt when just this week the "New" GM made it clear that there success depends on...wait for it...TRUCKS! Where have we heard that before.

Now France is a wonderful country and I, unlike many Americans, have never had a problem in France or with Frenchmen. Besides, the food is fabulous. But I fear this reshaping of this country: I fear the spirt a individualism that has shaped and is so much a part of what has made this country grate is being squeezed out of it in favor of an elitism of the political left who for the most part have never struggled with making a deadline, making a payroll or a mortgage payment. They are the new Elite, the children for the most part of privilege and of the eastern finishing schools referred to as Universities, offspring of those who grew up with the sounds of eastern European socialism argued around the dinner table. I grew up with their grandparents and their parents. I recognize the music. I am afraid they are the only band in town.

The Leader then gave another of his vacuous speeches about all we (he says "I") am going to do for that poor, benighted country, Haiti. Am so we should. But The Leader doesn't recognize that we are still capable of perhaps bringing this situation back from the brink because of what America has been, not what it will be in his vision of the future. Great nations are great because they stand apart, not blend in. They do this because of the will of the their people who refuse to be just another face in the crowd. The are great because their people have a overwhelming desire to overachieve; who when asked to lead and motivate and overachieve they say, "I will" not, "why should I?" The fruits of that attitude and labor allow us to save Haiti. As I said, I love France, but I don't want to be France. Every day The Leader and his mob gets us closer. Pour moi, NON! Sorry for the rant


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I though I was on to a really great idea as I mentioned, but as I worked on it it didn't come together. Hence nuttin' happened yesterday. I'm still working on it. Sorry again