TOO HARSH?

Some have suggested that I was too hard on Billy the Dud yesterday.  I mean, after all, said one caller, the DOW is up damn near 200 (it closed up 220) and the Greeks seem to have a deal!  As the football guy says, "Not so fast my friend."

The DOW was up because oil was up because half of the place where the oil is in Canada seems to be burning.  If anybody can find a long term trend in that, call home quickly.  Traders at work.  As for the Greeks, the Germans today announced...something.  Actually, they were no longer negative on a renegotiation under new terms and conditions that were "being discussed" and which, by the by, the Greeks could never in anybody's wildest imagination, ever meet.  But the whole world belongs to the traders these days and this is what one gets when there is hope--or doom for that matter--in the wind.

Then of course there's Jacob/Jack down in P.R saying all sorts of encouraging things like, "Something must be done."  I'm sure no one had that figured out until his pronouncement, so we can all rest well tonight.  And then there is BREXIT.

The latest poll had this thing dead even at 43%-43% with a remarkable 14% undecided.  Now of course this all started when Mr. Cameron dreamed up the brilliant idea of a referendum a couple of years ago when things were looking a bit bleak for he and his party to counter Labor's threats to get out.  Little did anyone know that Labor, in the general election would stand a fool like Jeremyand proceed to shoot itself in the foot, head and most other place leaving Mr. Cameron the once and future P.M. elegantly regaled upon his own petard and facing a far greater threat to his career in the form of former Mayor of London, Boris Johnson who is stumping all over the country and simply destroying Mr. Cameron in the most mocking terms since his late fellow American Sir Winston (yes, they were both born in America) used to refer to the Labor Minister for health in The Commons as, "The Right Honorable Minister of Disease."  When you have 14% who don't seem to have a clue at this point, their susceptibility to this kind of electioneering is, I suspect, worrisome if you are the P.M.

So, maybe Jacob/Jack should head Over There to sort this thing out and finish the job his boss started...well, do something in any case.  I'd hate to see Billy lose sleep as we get closer to a decision.  He sounded so happy the other day.

BILLY D. OR KIMMY K.?

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

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

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

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

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

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

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

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

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

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

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

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

LOST IN SPACE

No. I'm not talking about Mr. Putin's ship-fired missiles which, as predicted, didn't like where they were going and apparently killed a lot of cows in Iran...and hit nothing of consequence any where else. I'm talking about that I am out here in the fly-over zone (don't get ideas Mr. Putin) without a thing going on other than another ridiculous interview on CNBC today by Billy the Dud making one wonder whether the guy is trying out for some late night show on CNN where, since no one seem to watch, one can say anything and not get in trouble.

Billy seems to think that if...if mind you...his assumptions are correct, the Fed might be able to raise interest rates this year.  What assumptions?  Well, continued solid job growth of around 125,000-175,00 a month (he slipped in 200,000 at one point),  which has led to unemployment of only 5.1% and which will lead to higher wages and begin to create higher inflation.  He was never asked of course if the unemployment numbers were simply crap as

1.   125,000 comes no where near the population growth, and

2.   The biggest drop cause of in the unemployment rate is a result of the growth in the decline in the employment percentage which has reached 62.9% indicating a steady increase in the "the hell with it attitude" causing people to drop out of the job market and  of course the increase in retirement as one portion of the labor pool ages. Or to put it another way, when a third of the labor force ain't lookin, the percentage of those that are so doing, but unsuccessfully, can easily reach 5.1%

Wage growth is stagnant and likely to remain so and inflation--as measured by the Fed today--is no where to be seen.  But Billy was all smiles.  Why not?  he was on tv...YET AGAIN!

China isn't a direct problem for the U.S. but more so for developing markets which then could impact upon the U.S. economy.  No kidding.  Of course if the Yuan gets picked up as a reserve currency by the IMF...well, that apparently is not on the radar.  (My Really Smart Friend, Larry, thinks that's going to happen by the end of the year by the way.  I don't.  Let's see who is right).  Credit issues:  not discussed.  Liquidity:  Huh?  A new QE program for stimulus?  Smile.  How 'bout some Euro stuff like negative interest rates?  Well, sometimes that can be "useful."  Huh?  Where?  Switzerland?  In short a perfect interview.  What me worry?

The equity guys liked it and kept buying but this is a long weekend and everybody got cautious towards the end.  I think there are pretty much square books in everything as it approaches.  The event risk is still out there and Mr. Murphy doesn't care about a long weekend break.  So, we will keep our fingers crossed for the next three days, enjoy some good college football and root for the Mets and the Cubbies to make it through.  Wouldn't that be a kick?  Too bad we didn't get a better lead-off batter than Billy the Dud today.

WASN'T THAT A FUN RIDE?

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

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

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

NO NOBEL YET

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

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

THROUGH THE LOOKING GLASS

I was so bummed yesterday I didn't even try to write. Called some good friends and asked if I was losing it.  Answers ranged from "no" to "you lost it some time ago."  I just can't make sense of it so I pulled out my vitamin G made by Plymouth Pharmaceutical as they have been so doing since 1751 and went to bed.

Billy the Dud spoke today which in itself is never a good thing but today it brought me out of my doldrums and filled in a blank or two.  Billy's job was to contribute his two cents in the Walk back the Chairman, mantra which was predicted in this space last week, installments of which began over the weekend.  Billy did it one better.  Not only did he repeat the party line of the market didn't understand what Ben was saying he pretty much added don't listen to Ben anyway because he's really not running the show...at least not alone.  Whet we should REALLY understand, sez Billy, is that we're going to do pretty much any damn thing we want, when we want and for as long as we want until we get the result we have been predicting.  And we are going to do this depending upon OUR interpretation of the data which is presented to us.  Oh, and in the mean time we're still printing.

Whilst The Dud was educating the Great Unwashed--and I mean at the exact same time, the guy who laid out the GDP growth for the last quarter as being 2.4% on an annual basis was saying, "Tic a minute on that, it was really only 1.8%."  Now in a $15 trillion economy that is a rather considerable miss, but it lit a light bulb:   "Self," said I, "now I get it.  It's not about duty, honor country.  It's not about right or wrong.  It's all about testing theories and whatever the reality might be, who the hell cares...certainly not us."  And so, we wind up with a bunch of theoretical economists trying to centrally manage a $15 trillion economy, most of whom have never worked at a real job in their lives and not giving a tinkers damn what they are being told.  And guess what?  Like the spawn of the pods that arrived from outer space in the movie classic of the same name, they're every where.

And I started feeling better.  These guys have been printing money around the world and will continue to do so until the last tree on the planet has been cut down.  There is no inflation (unless you live on a fixed income like me) because they tell us there is none.  They can keep interest rates just where they want them to be (except for mortgage rates, those little buggers) simply by talking them down. The economy will be just fine because they say it will be, structural adjustment is a myth and as long as the stock market goes up, we're OK.  AND THEY LOVE IT because it's power and for the first time in their lives (aside from grading some poor schnook's paper a "C"), they have it.

The sneaky part of this--and I haven't quite figured it out--is the manner in which people are reacting to the biggest tinker-toy economy in the history of the world.  You would think people would want to hold on to something real, but Gold is down 40%.  Either people have been crazy for the past ten years or they are really nuts now.  Or maybe those pods contained some sort of dumb-me-down gas we knew nothing about.  I'm working on it.

And so, breathing deeper and yet deeper, the DOW was way up, the ten year ticked below 2.50%, and a quiet calm was reported on the street.  Mortgage rates were way up but that might be the result of every new mortgage (just about) in the country coming courtesy of Fanny or Fred...gee, how did that happen?   Oh well, not to worry.  But most importantly I am feeling much better about my self.  There's nothing wrong with me at all.  I'm just trapped inside a movie playing a bit part.  Beats reality.

A DAY LATE

Last week and into the weekend I did some mental qrm wrestling with myself over whether I should comment on the remarkable events centering around our central bank and in particular the Federal reserve Bank of New York that seemingly had defied comment for over three days. By yesterday I had pretty much convinced myself that my reactions were probably incorrect and that I shouldn't write about them, which, coming late in the day meant that I didn't write about anything at all.  I was wrong.

What had set me off in the first place was a remarkable series of comments made on Friday by the President of the New York Fed, William Dudley, in regard to the state of the real estate  market, it's present effect on the economy and what further steps might be taken to imprve the situation.  As you probably know (and should if you don't), Mr. Dudley is a former senior economist at Goldman Sachs who was, in his time, the leading "Fed Watcher" on the street.  To say he was/is an academic economist is to understate the case--not that there is anything wrong in that mind you but then again there nothing right about it either.  His knowing more about the Fed than anyone else is what got him his present job..along with a little help from about a score of well-connected friends from Goldman not the least of which was the oft-mentioned Bobby Rubin.

What kept me from writing about Mr. Dudley's comments was my releutance to criticize the Fed which has been long since I can remember an institution commanding the highest regard in world-wide circles for it's independence and lack of political traits.  No more.  For Billy the Dud's comments which went straight into the political maw were incorporated into a larger presentation having the imprimatur of Mr. bernanke himself, delivered to Congress and calling for new action on the housing market to include new lending, the leasing of foreclosed property by the Feds, subsidized servicing and a slew of other proposale which supposedly would aid the economy in the belief that the housing market was central to the weak economic figures.  That's what I was going to write about and chose not to.  Today, the leading article in the Wall Street Journal did and I urge the reading of the same to appreciate their take on the matter which, incidently is not too far from my own.  Scooped again.

That is not what troubles me the most, however.  What is, is what makes fact of the guy running the most important Reserve bank in the country and indeed, the world to be so damn dumb as to politicize his institution to the degree in which he did in this an election year?  Why would you want to make your institution an assuredly campaign issue limiting, therefor, whatever influence it has or should have in what are certain to be grave national and international issues of the coming year.  The great thing is we have had is an independent central bank but that only lasts until people think the independence is still there and Billy the Dud has taken a huge step in changing that view.  What makes these guys believe that doing their own job is not enough and being unable to resist trying to do someone elses job as well is beyond me.  Hubris?  Probably but you have to be really dumb as well for in the effort there is no consideration that one is destroying the raison d'etre for one's self.  We can lose Billy the Dud as we know him; we can't lose the Fed as we have known it.


                                                         ----------------------------------------



My Really Smart Friend, Larry, called today.

"Seen the new ECB rules on eligible paper/"

"No."

"Better take a look."

"And pray tell for what am I looking?"

"It's like pnorography.  You'll know it when you find it."

So I went looking and he was right.  It is pornographic.  If you think things were crazy bad over in Euroland, we haven't begun to scratch the surface of the levels to which these guys will go to fix the unfixable.  Tomorrow

INCOMMING!!!

The Guns of August began firing today as expected.  The trigger was a completly accurate story on the front page of the WSJ concerning the Ney York Fed and the world's banking system..a story which I hinted at the other day.  Now its one thing for your friend, Charlie, to write about this but its quite another thing for the Journal to headline it although that shouldn't be the case.  My  comments were really informed speculation--been there, done that--knowing how these things work.  The Journal or any decent newspaper can't work that way.  Somebody spilled the beans and the result was to be expected; markets crashed and stayed crashed all day and will stay crashed for some time.

I don't know whether Billy the Dud is in town or out at Amagansett this being August, but wherever he is, he better damn well put out the word that in times like this KEEP YOUR MOUTH SHUT!  God, I know the Euros can't find their asses with both hands in the middle of the Haupbanhoff Strasse at high noon but the New York Fed?  Memo to Bill: if you do nothing else try to maintain whatever confidence is left.  The next thing you do is get Kramer off CNBC in the morning whaere today he simply tried to cover his butt for the mess he made in 2008 and panicked everyone again.  With this stuff he's way out of his league; time to say good-bye.

That's not to say there isn't a big problem.  The Euro banks have stuffed themselves full of as many dollars as they can get their hands on for pure liquidity purposes and the political initiative is dead.  The three states in Germany that are needed to finance this thing have said no way, Merkel is finished politically and everyone knows it and my Really Smart Friend, Larry, told me today that France is the only game in town and that is not very reassuring because the last time the France won anything on their own was with Joan of Arc and we know how that worked out.  He was in the country, drinking one of his really excellent bottles of Barolo and staring at an open ticket to Zermat.  Encouraging, that.

All that remains, barring a real miracle, is the final discussion of who dies in the financial sector and what Europe looks like in six months.  This mob have managed to take what amounted to a 30 billion Euro misunderstanding and turn it into God knows what by a total lack of leadership, intelligence, failure to act and stupid little turf battles between the ECB and the politicians with the pols trying to protect their precious banks who, if the truth be known, are really too dumb to be allowed to survive.  Mind you, our institutions are not the seats of genius, but come on!  You could see this coming for two years and you guys did nothing.  Incroyable.

Economic numbers today were just awful as well.  The Philly Fed report when it came out at 10:00am looked like a bad print.  Housing starts were awful and the jobs picture was not encouraging.  But things really can't be too bad because I guess The Leader is still heading up to the Vineyard for 11 days.  Nice place Martha's Vineyard.  Filled with those middle class folks of whom The Leader is so fond.  Hard working folks with good Union jobs, living in $15, 000, 000 bungalows as should we all.  I'm sure he'll get a lot of good ideas for his jobs speech in September.  What a country.