IF IT GETS ANY ODDER...

I was just getting on the outside of my first see-through last night when all hell broke loose in Asia.  Three minutes after New York had effectively shut down, Sterling fell nealy10% in a blink of an eye in Hong Kong, settling at 1.1830  but with reported prints of 1.15.  Why?  no clue but the uncertain consensus was that was a glitch in certain algorithms or a "fat finger trade' (Chinese are notorious for having fat fingers) or just a computer malfunction.  After the initial shock and throughout the morning, the currency clawed its way back to the 1.23-1.24 range but never quite got back to the point from which it started its fall...in fact it was down nearly 4% and the London close.

The reason were explained as mechanicalbut the fundamentals behind the fall were reported to be the so called "Hard BREXIT" policy line of the May government which has the world all a-twitter that a British government would be so silly as to put politics before commerce irrespective of the fact that is was the politics of the Union that was the subject of the referendum not commerce.  The British people voted "out"and it is what their government is probably duty-bound to give them, but of course for any government to follow the will of its people is frowned upon in smart circles these days.  I mean, after all, how do the people know what's good for them?

Now all this is rather interesting and quite amusing if one thinks about it but today's events convey certain dark images which are worth exploring.

FX trading these days is roughly 70% by machine; the days of ringing up a broker or a trader directly are pretty much gone, which means you can trade from any place on the globe at any time...BUT, if you're going to get a move like today's in Sterling I find it hard to believe that it would not initiate in a major center for the currency...not in Hong Kong.  Then again, the timing was exquisite.  It occurred just minutes after "the book" was "passed" from New York to Hong Kong when there were no other major Asian Markets trading and therefore, by definition, liquidity was at its lowest which would of course magnify any large move in either direction.  Then, too NOTHING that happens in Hong Kong of this magnitude is to be taken as a random event but at the same time how the hell does one get apparently every trading program around to move in the same direction at almost the exact same time?  Beats me.  But folks are trying to find out and in the forefront is the Bank of England.  Stay tuned, because this wasn't random.


As for the jobs number, well of all things I got it wrong.  156,000 new buns and bedpan jobs.  A lousy number if the truth be known but one which certainly takes the pressure off the Fed but surprisingly, the equities dipped slightly and bonds did nothing except firm-up yields slightly.  While the former was viewed as a bit of a surprise, the latter might explain it.  Could it be that the bond market is simply not going to wait for central banks to reach the point of firming but is going to push them there?  There is this feeling of tension highlighted by these strange random events, seemingly unconnected but leaving the impression that something is afoot.  Then there is debate #2 this weekend.  Speaking of things getting odder...

...AND IT IS GETTING ODDER

The time, said the Dane, is out of whack (he actually said "joint," but...).  Tomorrow is September jobs number and nobody is really sure what's going to come out.  Hint:  It's 31 days to the election...think it's going to be a bad number?  Which of course is what everyone else is thinking because it doesn't feel like it should be a good number but as everybody pretty much now realizes the numbers are cooked...well, that doesn't make anyone feel better either.  There is more watching and waiting for this one than there has been all year whilst at the same time there is a perceptible feeling that a lot of people would be just as happy if nothing was to be released as it will only add to the confusion.

Rates were well up today with the 10 year at 1.74%  which is right at the top of the range for the year and looking to go higher.  Stocks were obviously down and the dollar was up as we old guys would say it should be on the higher rates but commodities were up as well which makes us old guys ask what the hell is going on here?  If you are looking for an answer I don't have one but out of Washington, D.C. comes a few hints that all might not be so well in the alternative world of central banking as I suggested the other day.

Stanley Fisher gave a talk yesterday to the N.Y Fed and when Stan talks, people listen.  This is a little Pow-Wow the Fed puts on from time to time for fellow central bankers which will cumulate on Friday concerning the state of affairs in central bank land.  Yesterday, Stan got into the "Natural Rate," which for the life of me I don't understand but which appears to be the rate of interested (adjusted for inflation) that produces the best economic result.    I know, me neither, but if Stan says it exists, it exists.

He also said it is very, VERY low these days which could lead to rapid and dramatic dislocations which, because of its level, may be hard to reverse and which, if it persists may also lead to continued economic stagnation.  All stock and trade Stanley, very MIT-ish, very academic.  But let me suggest another thing about Mr. Fisher: he has never been one to call a spade a spade outright. But he has always, if you listen real hard, been one to send a clear message, and yesterday's message was, in my mind, that we, my central bank buddies, may well have gone too far and we may have to start figuring out how we are going to extract our posteriors out of this crack into which they have fallen.  Misunderstand that at your own risk.

And from D.C., according to my Deep Throats, there are mutterings.  Surprisingly, some are beginning to figure out just what the past few years have accomplished which pretty much stops at a world wide debt bomb being constructed, an inability to price risk and of course the effect central bank policies have had on banks world wide...aside from a few other terrible things.  Not surprisingly, Europe has probably suffered the effects the most, especially in its banking system, which is the primary provider of credit to the economy--but not when there is a loss involved.  Europe is hurting and I think we are beginning to see the beginning of, if not a reversal, but a real slowing of QE type policies we have witnessed for years.  The Bank of England admitted as much on Tuesday.  Will the ECB be far behind?  One can only hope but that mob's ability to amaze is boundless.

And yet, tomorrow is the number.  Will anybody care what with everything else is swirling about?  Depends upon on good they wish to make it.  But in any case, it's not the story.

 

I HATE YOU, HERMINE

...which was the cry heard up and down the street today.

The jobs number came in a around 150,000 which was deemed to be OK but certainly not so OK as to raise expectations for a September rate hike.  In fact, it just about took the hike off the table and despite the fact that the jobs were to a large extent burgers and bedpans, no one was concerned because it was the hitting of the "whisper number" right on the button that sent the DOW up 78 and everybody home early for the long week-end.

Of course there was (and is) whaling and cursing on the Hampton's Jitney because former Hurricane Hermine is going to ruin the whole damn weekend, which, given the Jobs number could have been perfect.  Know what?  Hermine, I love you darlin'!  They don't deserve anything better.  But just don't come our way.  The fly-over zone is going to be perfect!!!!!

A great Labor Day Weekend!!  Back Tuesday...I think!

THE LARK'S ON THE WING...

Big Jobs number today, up 255,000.   Dow shot up by nearly 190.  10 year closed at 1.59%.  A rate hike is back on the table (not really), and the dollar jumped on all the news.  Of course the yields will be down next week as we can expect a flood of money rushing to the only place where there is any yield at all.  Oh yeah, Sterling was down again to 1.3080 at the close.  Whispers of parity could be heard in the City I am told.

So things are looking good for the remainder of the summer and the Olympics open tonight.  What could be better?  The global outlook I guess, but that is not for this weekend.  Kick back and relax.  Watch the snail on the thorn.  For certain, God's in his heaven and all's right with the world.  It is isn't it?

See you next week.

GOOD OL' MARKIE

It would have been a nice, quiet day today with the market absorbing some pretty lousy economic numbers and waiting for tomorrow's job numbers when out of nowhere our relocated Canadian Central Banker announced that after 9 years he was reducing the Bank of England's discount rate by a 1/4% AND, coming to a theater near you in October, would begin buying 60 billion pound in Guilts and 10 billion in corporate debt of all things.  There comes a time in everyman's life when he thinks/dreams/wishes he was Italian, but Carney=Draghi?  Do get along.

The outcome was predictable.  Sterling tanked to 1.3170 and the ten year Guilt showed 0.64% at its close.  All sorts of noise about insuring the continuation of economic growth after BREXIT; the Bank of England stands firm; blah, blah blah.  To be sure economic numbers since the referendum have not been good but I wonder whether that is because of BREXIT itself or the fact that everything stinks everywhere except for equities and the best performing group in that market has been Turkey.  Go figure.  One might also keep in mind that Our Markie was complete Doom and Gloom at the prospect of a "Leave" vote.  Every once in a while I get the distinct impression the Mark doesn't like to be wrong...even when proven so...and reacts in a manner to justify his own beliefs no matter what that may be.

That may be harsh I admit but what we received today was another unfortunate example of the world's central bankers attempting to convince themselves that mankind's future rests solely in their hands.  At this stage they might all be beginning to believe that they are immortal and you know, if our future depends solely upon them they damn well better be right.  Some how I don't think so but unlike Mark, I've been wrong from time to time.  We'll see I guess.

Tomorrow's jobs number had better be OK which, given the start of full time electioneering will probably be the case.  Fortunately, it doesn't have to be really cooked...just cooked enough if necessary.  But another howler like last month....look out below gang.  A good piece of the sky may be coming down.

WHAT NOW?

We had a somewhat surprise visit from dear, dear friends from Over There this weekend, hence the absence of a Monday report.  Facinating sets of conversations about Here--they are following this election very closely, and There with the referendum coming up June 23.

These are bright, sophisticated remarkably well-traveled middle aged folks.  They've been together for donkey's years and both had successful careers before retiring. And yet whe the question is put to them in the simplest of tern; are you voting "in" or "out," neither have an answer for the same reasons.  "Bloody Europeans," is the phrase.  "Trying to run everything and doing a lousy job at it," is the gut feeling.  But, "if we go. does that make everything worse" is the "undiscovered country" that ol' Will had the young Dane speak of in that most famous of stage moments.  If I were to guess, they will split their votes and that it appears is just how close this thing is.

That is a bit of a cause for consternation on the part of all but a bit of a life line for our Janet as well.  Clearly having been gob-smacked by the  truly awful jobs number of last Friday Janet had the BREXIT uncertainty to throw out as a reason why the once-certain June rise wasn't so certain anymore without having to put the change in outlook on the shoulders of a lousy job market and a possibly sinking economy.  Certainly not in the face of her pal, Hiliary's increasingly bumpy road to her coronation which could become a lot rockier if he opponant could ever learn to keep his mouth shut.  If they don't move in June, and I do not think they will, they must move in July otherwise bye, bye rate hike until next year.  It appears that in all things financial and political world-wide, uncertainty rules---except at the ECB where Mario is still set on scooping up all the corporate debt he can find starting in a couple of weeks.  So, the Fed tries to go North, the ECB is going South, the Bank of Japan has really no where to go and the Bank of China has seemingly figured out how to devalue it's currency without anyone knowing (and possibly not caring).  What is amusing, however, is the similarity in the statements of the Fed and many of the announcements by the Chinese )not all are in sync) first indicating satisfaction with the status quo and then those which follow taking a 180 degree turn  apparently indicating a return to more "standard" policies.  Then, out of nowhere, a flop back to...if not increased stimilus...a clear desire not to upset the growth scenario...assuming there is one...as we saw yesterday by the Fed and over the past couple of weeks in China.  Only Mario has been consistant..."it's Lousy out there gang and we are going to fix it!"  Of course, depending on what happens on June 23, there my be not much left to fix.

WHEN A PLAN COMES TOGETHER

Ain't it great!  Nailed it yesterday!  Markets flopped, about, Beijing had it's big parade and Mario let it be known that he and his team were ready to engage in another "whatever it takes" exercise.  As to where the ECB will  stand vis-s-vis the Fed, we will probably know more tomorrow when the job numbers come in.  If there is to be a big hint, remember what Stanley dropped about the economy having almost reached full employment last week.  If the unemployed number falls below 5.2% I'll start eating my words as It appears that that will trigger a rise.  Now, let's keep in mind that in the real world that will mean that the economy will have employed just about exactly the same number of people it had in 2008 with an increase in the population since then of some 30,000,000+.  That should not be a reason to ask, "What the hell is going on here?" or point to out that wages have gone no where as an indication that this economy is not quite as robust as some might think.  Stan is the smartest guy in the room; I'm not going to argue, but it does give me the sense that something else is going on that I don't understand.  To be honest there is probably quite a lot of that.

Anyway, College football starts tonight and pales everything else in it's path.  T & S and I will have out Tacos ready with perhaps an adult beverage on hand to watch the Utes take on the Skunk Bears with their brand new coach.  Big deal in the fly-over zone.  Football, the corn coming in and the soy beans looking great makes for a happy populace.  Who cares who's working anyway.

Reporting early tomorrow.

TWO IN A ROW

If you are all-in with the administration today's jobs number was Goldilocks---not to strong, not to weak.  If you are a fairly neutral observer, it didn't quite stink but it wasn't any good either.  Coupled with a lack of anything positive Over Here, continued economic gloom Over There and no real progress with Mr. Putin and his band of thugs, the outlook worsened across the board.

One bright spot was the announced 72 hour cease fire in Gaza which lasted all of 90 minutes with the killing of two Israeli soldiers and the apparent capture of another.  Israel reacted in fury and The Leader actually placed the blame squarely on Hamas for the renewed hostilities.  Where that takes us is any body's guess.  To an ugly weekend I suppose.

As predicted, the Argie Bargies ran into a pretty hot U.S. Circuit Court judge today in the scheduled hearing which resulted in no movement whatsoever and in the Argies renewing their claims that the Judge was bias.  I'm wondering as to the question of despite the millions in fees that Cleary is earning in the representation of Argentina,  whether there is a point where a law firm simply throws up its hands and says, "I just can't deal with these morons any more."  I mean, come on guys, I know dumb is a synonym for annuity but how rich do you really have to be before you begin to lose your self-respect?  I'm sure the well known firm of Sue, Grabbit & Run would be happy to step in which is about what these clowns deserve.  There is certainly a deal to be done but the Argies have turned this entire fiasco into a domestic political issue with the party in power hoping that its stance will give it a leg up in the next elections.  Probably, except that things are getting a bit stickier on the financial.

There is a lot of credit insurance out there and today in record time the ISDA announced that there indeed had been a credit default which means the writers of the CDOs may have to pony up if a compromised is not reached.  Problem is no one know who wrote this stuff or for how much so the longer this hangs around the longer folks are going to be looking over their shoulders.  Confidence and certainty is the glue that binds financial markets.  Markets do not like a state of affairs like this.  Think we're having fun now?  It could get waaaaay better.

Have a good weekend.

OH, MAN!

I'm telling you, the literary Gods are against me.  I was all set up and ready to report on the impact of the better than expected jobs number today.  Got up, made me a pot of Joe and was in front of the tube at 0827.   And then in the words of #1 Granddaughter, OH, MAN, as only a seven year old can say it.  162,000; no other way to say it: it was a stinker.  Oh yeah, the rate dropped to 7.4% but that was for the same reason that it has dropped every time in the past 5 years; people have dropped out of the labor force.  On top of that pay levels dropped as did hours per week (preparing for Obama Care?) and out on the grass wondering what happened to my easy, end-of-the-week entry.  James Bullard almost saved the day.

Big Jim is the president of the St. Louis Fed and has been a vocal supporter of Quantitative Easing since the program was announced two years ago.  Today he opined that due to the decline in the unemployment rate, it getting closer to the magic 7% mentioned by Boss Ben, perhaps it was time to start thinking about easing off QE.

Now I've always been a bit of a mixed mind on the Fed's dual mandate but when you get one of the strongest supporters of current Fed Policy thinking that this number today was anything but an absolute stinker it's time to consider putting up signs around the place that read;

                                              CAUTION!  BOZOS AT WORK

and start wondering whether they are getting stressed with too many assignments leading to the conclusion that keeping inflation under control may be all they need on their plate.  Hell, you can juggle the numbers to make that work and they are good at that.  One might also throw in the fact that Dr. Bullard has for his entire life either been in a university classroom or somewhere in the Fed. Now there's training for a job creator.

Needless to say, the markets paid no intention to the good doctor's musings.  Seeing no end to free money, the stock market rose and the 13 b.p.s the 10 year put on yesterday fell right off.  Things just meander along out there with no real purpose other than to go with the flow.  The Leader has been great for those that can be in this market but not so hot for the working stiff from whom I'm beginning to get some interesting vibes as there are a lot of those types in the fly-over zone.  A word of advice:  when returning home from a day at the office or on the shop floor and the wife wants to talk about a raise you haven't received, do not tell her that it's really not so important because inflation, if there is any at all, is benign.  That my friend is pot upside the head time because she is out all day buying all those things that don't go into the basket from which inflation is determined that the silly little girl thinks are important, like food.

I'm not smart enough to know what is the right way to go about this recovery thing but I am smart enough (I think) to figure out that what we have been doing for a while now ain't working.  Yeah, it's better, but it's not good enough.  Maybe the government should stop trying so hard and let Joe the Plumber or somebody like that have a go.  Can't hurt.

Grandchildren all next week beginning Sunday.  Things may be a bit spotty but there are the triplets and a seven year old to keep occupied.  How tired am I going to be.  OH, MAN!