After an absolutely perfect weekend in the fly-over zone we are around the club house turn and headed for home. The election in 60 days; the end to the third quarter; the G-20 (which produced nothing except for Il Duce getting humiliated) and the Fed meeting in a fortnight. It's going to be a dull three months.
Everybody came back late so yesterday was a washout in more ways than one for our East Coast buds, but what numbers there were tended to be soft. Same thing today as the whole world seems to be in a bit of a funk. The only really interesting stuff--and not that interesting--was in Europe where the embarrassment among returning politicians and resident geniuses was at a high level as nobody could figure out how they got in so wrong regarding Brexit. Merry Ol' is the hot spot right now and the Proud Pound has made a heck of a recovery. Dare I say as predicted? But on the political front, Angela took a hell of a beating in her home state adding to the list of victories by nationalist parties and now serious concern as to the future of the Union which awaits with great trepidation the coming announcement of the day for the declaration from the U.K. Amusingly, the guy who should have been right about this, the Guv of the Bank of England, was the one who got it the most wrong which might result, one would hope, in fewer proclamations from him in the coming months, but then again, he's Canadian. What does he know.
The financial and, unfortunately, the political scene continues to be dominated by the Central Banks of the world more and more clearly in a growing unholy partership with the supposedly elected rulers. There is occasionally humor in this as over the weekend one Democratic wag announced with great solemnity that Trump must be defeated, "To preserve the independence of the Federal Reserve." These guys are a laugh a minute, but to give them credit the Fed has yet to succumb to the negative interest craze which has overtaken just about everyone in Europe and around the world. One stands in amazement at what this has wrought as today it was reported that Italy was sounding the market for an upcoming debt issue of 50 year maturity. Amount? Oh, 3 billion Euros should be easy...maybe three and a half. Four might be a stretch, but....Coupon? Well, less than 3%. Purpose? Well, they'll spend it on something I guess. Oh.
In this month's edition of Foreign Affairs there appears a letter to the editor by a fellow by the name of David Robinson who is a Senior Lecturer at the Hass School, Berkley, commenting on an earlier article by Martin Feldstein warning about the possible affects of the Fed's easy money policy. Mr. Robinson believes that this is the "new" norm, that rates will and must stay low and should because there is no indication that the United States has any difficulty in raising even more debt. This is the Little Paulie Krugman approach to Global Finance: it's there, spend it while you can. But the real telling line explaining what has happened is the following:
Lastly the United States has enormous sums of capital--some $24 trillion--held in pension funds. Although many state and local pension funds are woefully underfunded, they nonetheless have trillions of dollars invested in stocks and bonds. In a world awash in capital, sustained low rates of return may be the new normal.
No Mr. Robinson, the world is awash in debt not capital and there is a difference. At a point debt has to be repaid. Capital seeks risk for investment not merely a return, supposedly without risk as sovereign debt is viewed. And the list of investors is shrinking. Unfortunately, the debt--especially the sovereign debt being amassed is not invested for any useful purpose, either here or especially in Europe. It is used to feed--for want of a better term--the welfare state. Joltin' Joe has gone away, sir. There isn't anyone out there who seems to understand this any more. Stick to plastics Mr. Robinson. Finance ain't your game.
Showing posts with label Global Debt. Show all posts
Showing posts with label Global Debt. Show all posts
Wednesday, September 7, 2016
Friday, May 6, 2016
BINGO!
Jobs came in at 160,000. Damn near dead, solid perfect. Janet doesn't have to do a thing, the politicos on the Board are over the moon and the equity boys are smiling. Even labor Secretary Perez--a revolting little creature if there ever was one--had reason to smile. While a bit lower than he would have like said he, the people who were now entering the labor market were the "long term unemployed" which means that the market is tightening and that bodes well for the future.
If anybody knows who the "long term unemployed" might be or how they are identified, would you let me know please? Further, the unemployment rate held steady at 5% only because the labor participation rate fell below 73% again. This number is becoming increasingly open to suspicion by more observers--you know where I stand--especially when you come out with crap as did Perez today in the face of declining labor participation.
The problem of course is that even this number is beginning to line up with the poor economic data we have being seeing reviving the recession concern which for a short period had dissipated. There is a momentum to these things and surely there is going to be a heightened interest in the negative markers for this and the global economy next week. Speaking of negatives, a figure which I found hard to comprehend was the level of total debt to GDP in the Chinese economy: 275%. Can that be real? And I thought that we were bad hitting up against 100% as we are. In both cases it is all domestic currency but my word...275%! Which brings me back to Janet.
The days of discrete markets are long past and since the U.S. is the biggest puddle of cash around, any action taken by the Fed will have affects felt all around the world. I am even more convinced than ever that we are in for a protracted period of low to negative interest rates because with any appreciable rise the servicing of this world-wide massive debt will become impossible given the low level of economic activity, low profitability and declining productivity of global industries, particularly in the U.S. where productivity has taken a dramatic drop.
It is becoming clearer every day that the "Mr. fix-it" role of Central Banks has probably come to and end and may becoming counter productive. For example, the ECB has announced that beginning in July, it will begin to purchase corporate debt directly. With the Bund over 100 b.p. through Treasuries, where is the next great debt boom going to occur? As though corporates need more debt.
But I digress. The destruction of productivity which in these times is essential to continued well being, is a direct result of governmental interference in the free market both in finance and manufacturing. In the past four years this has been particularly egregious in the western economies but there is no end in sight. If it continues, we are, I am afraid, in for a very bad time. The only good news is that more and more people are recognizing this. The U.S. election will fuel this debate and the BREXIT vote is all about this issue. But time is short and stuff happens. Hopefully, there is enough time before it does.
Sunday is Mother's day. For all of us there was--and is--no one more important.
If anybody knows who the "long term unemployed" might be or how they are identified, would you let me know please? Further, the unemployment rate held steady at 5% only because the labor participation rate fell below 73% again. This number is becoming increasingly open to suspicion by more observers--you know where I stand--especially when you come out with crap as did Perez today in the face of declining labor participation.
The problem of course is that even this number is beginning to line up with the poor economic data we have being seeing reviving the recession concern which for a short period had dissipated. There is a momentum to these things and surely there is going to be a heightened interest in the negative markers for this and the global economy next week. Speaking of negatives, a figure which I found hard to comprehend was the level of total debt to GDP in the Chinese economy: 275%. Can that be real? And I thought that we were bad hitting up against 100% as we are. In both cases it is all domestic currency but my word...275%! Which brings me back to Janet.
The days of discrete markets are long past and since the U.S. is the biggest puddle of cash around, any action taken by the Fed will have affects felt all around the world. I am even more convinced than ever that we are in for a protracted period of low to negative interest rates because with any appreciable rise the servicing of this world-wide massive debt will become impossible given the low level of economic activity, low profitability and declining productivity of global industries, particularly in the U.S. where productivity has taken a dramatic drop.
It is becoming clearer every day that the "Mr. fix-it" role of Central Banks has probably come to and end and may becoming counter productive. For example, the ECB has announced that beginning in July, it will begin to purchase corporate debt directly. With the Bund over 100 b.p. through Treasuries, where is the next great debt boom going to occur? As though corporates need more debt.
But I digress. The destruction of productivity which in these times is essential to continued well being, is a direct result of governmental interference in the free market both in finance and manufacturing. In the past four years this has been particularly egregious in the western economies but there is no end in sight. If it continues, we are, I am afraid, in for a very bad time. The only good news is that more and more people are recognizing this. The U.S. election will fuel this debate and the BREXIT vote is all about this issue. But time is short and stuff happens. Hopefully, there is enough time before it does.
Sunday is Mother's day. For all of us there was--and is--no one more important.
Tuesday, March 8, 2016
SAY THAT AGAIN?
I'm really not sure why central bankers feel compelled to open their mouths even when there is nothing much good to say. Even the supposedly smart ones like Mark Carney, resident Canadian hired help at the Bank of England. As we used to remark in a derogatory sense, "Said a banker in the City late last night...(you see, one NEVER found a banker in the City late at night unless he was very, very drunk), Mark said late last night that the Old Lady would be flooding the country with Pounds in June just in case the British people got the vote on Brexit the wrong way 'round, which in his learned opinion would prevent panic. Well, no Mark, let's not worry about panic. What you just did is to reinforce the belief that Brexit is a REAL possibility in the minds of the Mandarins which is precisely the opposite of the view that HM Government wishes to present. And oh, you don't flood the country with currency right now, you bleed it out until it is really needed (if it ever is) or perhaps you missed the point of if Britain goes, it is because of the will of the people? A wonderfully intelligent thought: "Let's vote for this and then PANIC!" Ye Gods...
By the by, this is sure the time to be adding to the glut of liquidity that's out there as if we haven't learned that liquidity, like cash, is fungible. I was reading somewhere the other day that there is something like $300 Trillion of debt in the world. The U.S. itself accounts for about $20 trillion of that number. Now little Paulie Krugman will tell you that's no big deal because we own the printing press and everybody wants to buy U.S. debt but of course in these times that's because there's nothing else to buy that has any yield and if you keep buying the same thing it's price is going to go up while it's yield goes down. And eventually that, too, stops. But it's out there and in theory it has to be repaid which means you either leave it to inflation or start selling assets. But because in part of the liquidity sloshing about, there is no inflation, so where do we go from here?
Which brings us back to the ECB on Thursday. Mario is probably even in a worse spot than the Fed because not everyone in his circle of shareholders is on the same page. And yet, voters are demanding that something be done so I suspect that we will get more of the same but with a heavier dose of rate cutting in an attempt to disprove that history that has been written over the past few years. In theory, that knocks the hell out of the Euro and one would have thought that the decline would have been anticipated in recent trading, but that really hasn't happened. Perhaps it is because a Fed rate hike has been completely discounted not only for March but in some quarters for June as well, and yet the spreads between the Note and Bunds are so outrageous the trade seems to be as clear as...mud. At that highlights another problem. None of us are investors any longer, we have been forced to become traders unless one has the stomach for equities which a lot of people do not--and should not--have.
Then again, we all could be China which yesterday reported a drop in exports year-on-year for the month of February of 25% Astounding. Guess what the government is going to do? Why print money of course which will have the effect of cratering the Yuan, which will undoubtedly lead to competitive devaluations in Asia where if memory serves, there is a hell of a lot of debt outstanding...in dollars, Euros and whatever. Reserve currency, indeed. Thank you IMF for once again proving how truly useless you really are.
More tomorrow.
By the by, this is sure the time to be adding to the glut of liquidity that's out there as if we haven't learned that liquidity, like cash, is fungible. I was reading somewhere the other day that there is something like $300 Trillion of debt in the world. The U.S. itself accounts for about $20 trillion of that number. Now little Paulie Krugman will tell you that's no big deal because we own the printing press and everybody wants to buy U.S. debt but of course in these times that's because there's nothing else to buy that has any yield and if you keep buying the same thing it's price is going to go up while it's yield goes down. And eventually that, too, stops. But it's out there and in theory it has to be repaid which means you either leave it to inflation or start selling assets. But because in part of the liquidity sloshing about, there is no inflation, so where do we go from here?
Which brings us back to the ECB on Thursday. Mario is probably even in a worse spot than the Fed because not everyone in his circle of shareholders is on the same page. And yet, voters are demanding that something be done so I suspect that we will get more of the same but with a heavier dose of rate cutting in an attempt to disprove that history that has been written over the past few years. In theory, that knocks the hell out of the Euro and one would have thought that the decline would have been anticipated in recent trading, but that really hasn't happened. Perhaps it is because a Fed rate hike has been completely discounted not only for March but in some quarters for June as well, and yet the spreads between the Note and Bunds are so outrageous the trade seems to be as clear as...mud. At that highlights another problem. None of us are investors any longer, we have been forced to become traders unless one has the stomach for equities which a lot of people do not--and should not--have.
Then again, we all could be China which yesterday reported a drop in exports year-on-year for the month of February of 25% Astounding. Guess what the government is going to do? Why print money of course which will have the effect of cratering the Yuan, which will undoubtedly lead to competitive devaluations in Asia where if memory serves, there is a hell of a lot of debt outstanding...in dollars, Euros and whatever. Reserve currency, indeed. Thank you IMF for once again proving how truly useless you really are.
More tomorrow.
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