COULDN'T WATCH

The Mets did the business and have now taken the first two out of a best of seven against the Cubs.  I was ready, had Frank on singing "New York, New York......." and couldn't watch.  I mean, how the hell do you root against the Cubbies?  It would be like rooting against Lassie to find the missing child.  Not on, just not on.

Anyway, in the interim, there were few issues that came up that are interesting enough for comment. Mark Carney?  Bank of Canada?  Bank of England?  Infected with the Billy the Dud Syndrome of  being unable to keep his mouth shut?

One has to ask what is it with these guys?  For no apparent reason whatsoever, Carney felt he just had to discuss the grave credit risk posed by climate change (formally, global warming) because the future value of fossil fuels will decline as mankind moves away from their use and latches on to renewable energy, causing the financing of the same to be in real trouble.  Really?  Now I'm not going to debate the climate change thing  but merely point out that present plans by the real true-believers in the issue call for about 30% of all power to come from renewables by 2050.  I'm not really sure who is financing oil and gas 35 years out but I guess someone is for Mr. Carney to be so worried as Mr. Carney is, I am told, a very smart man.  I'm also wondering how the remaining 70% need is going to be covered, but that's a tale for another day.  Now if I was 21 and my retirement account consisted entirely of Exxon stock, I might have concerns, but I am not, and it does not, putting me in the same position as probably most people on the face of the earth.  But Mr. Carney is a smart man which is why he got the job as Governor, for people looked at his record at the Bank of Canada during the troubles of 2007-09 and said, "gee he's a smart man."  Canada remained unscathed.

Canada is also a country of 3 1/2 million square miles with a population of about 150, all of whom are employed in the business of extracting natural resource commodities--oil and gas for the most part--and selling them to other countries who don't have any or enough.  You might remember that this wasn't a bad business to be in for the first part of the 21st. Century and Canada was in it big time. Canada was smart enough as well not to have a Ginny or a Freddie or 30 year mortgages to people with no income which I guess was part of Mr. Carney's doing so maybe he is a really smart guy.  I keep wondering, however, why smart guys say dumb things.  Maybe he'll stop and focus on some issues that are more current.  I'm sure he knows what the are.   He's a really smart guy.


Then there is the deposit issue.  Under Dodd/Frank, there are deposits...and there are deposits.  Some are good and some are bad.  We don't like bad deposits that we call "hot money."  Hot money is that stuff that goes from here to there in the time it takes for someone to punch a computer's key, or as is becoming more frequent these days in the time it take one computer to tell another computer to "move it.'  The bad deposits are what we used to call in the old days "wholesale" or "corporate" deposits as opposed to "retail" deposits which are "good" deposits because, you see, the average Joe doesn't know or doesn't care enough to move his money when things aren't looking good.  Oh yeah, part of the lack of concern may be because those deposits are guaranteed  by the FDIC up to the tune of $250,000 per account which is generally beyond the monthly average balance of most Americans.

Anyway, the boys and girls who wrote Dodd/Frank (including Crazy Lizzy) convinced themselves that a good deal of the problems that were the cause of the creation of Dodd/Frank were in fact liquidity problems in the banks caused by the rush of hot money out the door.  Solution?  Simple.  Tax the banks for holding too much hot money by imposing heavy capital requirement over a set percentage as determined by the regulators.  Result?  The banks have begun charging customers to accept their deposits.

Now I'm not really sure who wins in all this but there certainly are a few losers, namely the banks and their customers which I am sure is not the best way in insure a safe banking system.  The terrible part of all this is that while it was certainly a bit spooky to see a Citibank operating with about 35% core deposits--"good" deposits in 2008--that wasn't why things turned upside down.  In assessing this, one might ask oneself what is the real purpose of a central bank, and one might come to the conclusion that is is to maintain or restore order, which, if defined as liquidity, to provide the same or make it clear that liquidity would be provided when needed.  In a situation such as that we faced, 5% more capital because of too many "hot" deposits does absolutely nothing when the uncertainty in exposure between the bank payment system makes any amount of capital below 100% meaningless.  Can a central bank perform this role in extremis?  Four trillion dollars on the balance sheet of QE assets makes me believe it can.

In the end, I don't mind silly statements or dumb laws that much but the result often is to obscure what really counts.  Mr. Carney may be wonderfully politically correct, but addressing the very real problems facing the European Union of which the UK is a member might well be a more meaningful exercise.  By the same token the writing of laws that do not address the major issue but are convenient in a political sense leading to a false sense of security among the body politic is almost criminal.  Anyway, the Cubbies have three on the trot in the Friendly Confines.  I've been offered a seat to one of them.  I don't think I can stand it.

SURORISE, SURPRISE

If you had any allusions about the politicalization of the Federal Reserve, you probably lost them this week.

In well-coordinated seperate announcements, Big Jim Tarullo and Lael Brainard, the two governors most directly connected to the administration, parroted the White House's favorite economists Larry Summers and Little Paulie Krugman along with the house organ, the New York Times in proclaiming--perhaps demanding--that there be no interest rate rise this year.  I've been around for a bit and while I have witnessed disagreements among board members, we the public generally found out about them in well-schooled leaks to the press...always unattributable of course...but I have never seen an orchestrated campaign to promote such supposed differences in policy matters such as we are witnessing here.

I suspect two things are at work.  Ms. Yellen is clearly Obama's gal but can't say so, and as Chair, she is playing the roll of Caesar's wife but in addition, the two afore-mentioned Governors are probably getting their shots in at Stan Fisher whose views are not quite in line with those of the administration and its sycophants.  As everyone knows, Mr. Fisher is the smartest guy in the room; this is a problem.

Now as you know I don't think it makes a bit of difference whether the Fed raises a 1/4 point or not in the near term.  The problem, Horatio, is not in the rates but as Angel Gurria pointed out, in the structure of things, and while we are no where near as mucked up as Europe, we are moving in the wrong direction (the Democratic "debate" last night was truly spooky). A rate rise is an attitude adjustment and with attitude comes action and with action comes a reassessment as to whether this liquidity gravy train can go on forever.  To that question, you know my answer.  But while this "debate" continues, we face some fairly grim situations which perhaps--just perhaps--are becoming recognized.

The economy, touted as moving ahead, isn't doing much at all.  With more than 1/3 of the capable workforce not working the 5.1% unemployment rate is a nonsense, a fact sustained by the realization that if we were really close to "full employment," wages would not be stagnant and consumer purchases--save for autos which is all the result of borrowed "free money," would not be going no where.  On top of all that, in recent years a growing amount of the business of American corporations has been directed internationally--particularly towards the emerging markets.  That is an ugly place to be doing business right now.  Which the profit numbers as they emerge in the following weeks.

The solution to all of this is of course for the Fed to hold the course.  To do otherwise would of course admit to a monumental policy mistake but more importantly, to a rejection of political theory that has governed our major political parties (yes, Toto, the Repubs are to blame as well) for too many years.  Egos will certainly be bruised.  But it is quite brilliant to focus the conversation on the Fed; reality can be awkward.  And all the while the chance of an "event risk" in the Middle East and other places becomes greater as TOW missiles marked "Made in the U.S.A." are knocking off tanks marked, "Made in Russia."  At some point there are going to be Russians in those tanks and old Yuri in Red Square with a bottle of home brew in his belly, will not wish to understand the niceties in the of the difference between 'Made In" or "Supplied By" as the body bags come home.

I've been getting more political in tone the past couple of weeks which I promised I would never do but unfortunately, politics is becoming such a big part in all our activities that it is difficult to avoid.
The new situation in Syria is just going to make the flow of refugees worse and I really fear for Europe.  This is a economic as well as a societal catastrophe in the making and one with which I suspect, they are not capable of dealing.  We need something to cheer us up...like the Mets beating the Devil's Team, the Dodgers and meeting the Cubbies in the NLCS.  New York against Chicago...the First against the Second City...good against evil...at least for seven games.  That's my kind of war!   Go Mets!

A JIMMY BRESLIN MOMENT

A long time ago, back in the 1960ies, when people were beginning to talk about a unified Europe in timid, halting terms, a new baseball team was formed in New York called the New York Mets.  At first they weren't very good; in fact they were awful, but a New York writer by the name of Jimmy Breslin chronicled the first year of the team's exintence with a book untitled, "Can't Anybody Here Play This Game?"  It remains one of the funniest books on sport that has ever been written.

Jimmy's still around which is amazing in itself given his lifestyle which I witnessed and was part of one night quite by accident.  Accident is the proper term, as in a train derailment.  It took me about a week to recover.  Jimmy went on to write, "A Drinking Life."  Because of that night, I think I was the inspiration.

Jimmy could have a field day with Europe.  Greece.  "They really want to stay in the Union."  They are flat broke, they can't no matter who wins the election unless Angie gets EVERYTHING she wants (see last post).  Spain.  18 billion to recapitalize their banks.  Now regular readers will know what I think about bank capital.  For those of you who aren't, it's a myth.  Recapitalize during a period when there are no solutions to the underlying causes of the crisis and all you will be doing is to watch the "capital" flow right back out.  All that counts with banks in times such as this is liquidity:  guarantee liquidity you have a chance.  Provide a method by which liquidity can be lost...i.e. "recapitalization..." and you're toast.  Not only that but the only source of bank capital is governmental liquidity and at the end of the day you will have an illiquid government, illiquid banks and very happy--and highly liquid--bankers in Germany or Switzerland or London.  Thank you very much indeed.  Can't anybody here play this game?

Amazingly, the markets are trying desperately to believe that there are all these really good ideas that something good is going to come of all of this.  Hope springs eternal.  Maybe people remember that 7 years after their founding, the Mets won the World Series...that team forever being remembered as the "Miracle Mets."  The battle cry for the year was, "You gotta believe!"  By that time, however, they had acquired a couple of guys who actually play the game.  If anybody out there runs into a couple of guys like that in Europe, give me a call.  I'll ring Jimmy.


Tomorrow marks the start of my 50th. reunion of my University graduation.  Postings may be...ah...intermittent.  See ya.