Financial markets were quiet last week, which is well nigh incredible.
Europe’s situation
Overseas, Europe is un-gluing again. The only thing holding the Euro zone together is the euro currency itself — poll after poll indicates exhaustion with Brussels and “one Europe,” but even in Greece, “keep the euro.”
Any nation can have a solid, non-inflationary currency whenever it wants, just by accepting German-style discipline. No nation in Europe (except semi-Germany) has been willing on its own to adopt German discipline, but all now have good German money in their wallets — and although hating everything about accepting German discipline via Brussels do not want to let go of the euro. Despite that currency wish, Greece is again at the exit moment, and Italy not far behind.
China is leaking currency reserves again. And its effort to control its currency, domestic interest rates and credit, and international capital account all at the same time is guaranteed to fail. Not quickly, but it will fail. As will Japan.
All of that external stuff pushes down on rates.
And here?
Here in the U.S., this week the glorious, cheap, everybody-covered fix for Obamacare…maybe next year.
Sure. 2018 is an election year. Three weeks in and Obamacare repeal is dead as a hammer.
Now we are told to expect in “weeks” the glorious, economy-boosting, fair-to-all tax reform.
Forgive my skepticism. Tax reform, as in the greatest in U.S. history in 1986, is zero-sum. That one was based on lower tax rates in exchange for closing loopholes.
Today there are very few loopholes left to close, and no source of compensating revenue for tax cuts except this absurd dream of cash from heavy taxes on imports.
Other voices have begun to speak to the situation.
Larry Fink is the calm and disciplined chief of BlackRock, which invests $5.1 trillion (that’s right, trillion) for its clients, most of whom are to the right of political center, and whom Fink would not like to annoy. Fink this week: “…Because of uncertainty over global trade and the Trump administration’s plan to cut taxes… I see a lot of dark shadows.”
Willem Buiter, the ultra-dignified chief economist at Citigroup Inc. this week spoke to the Trump administration’s comments on exchange rates and their alleged manipulation by China and Japan: “This is all basically hogwash. All this currency-manipulator talk is, I think, basically hot air.”
Ethan Harris of Merrill, a largish outfit which would also like not to annoy its many Republican clients: “Until there is more clarity on policy we will remain in a very cautious mood. In particular, we think economic activity could slow and confidence could fade as consumers, investors and firms try to figure out whether they are net winners or losers from all of the policy changes.”
To reassure readers that the U.S. has not lost all of its marbles, and we’ve done odd things in the past, and parental presidents have risen to the defense of offspring, as Trump alleged Nordstrom had mistreated Ivanka: Harry Truman’s daughter Margaret liked to sing, performing in public.
After Margaret’s December 1950 recital at Constitution Hall, Washington Post music critic Paul Hume wrote this review: “A pleasant voice of little size and fair quality, is flat a good deal of the time, has not improved in the years we have heard her, and still cannot sing with anything approaching professional finish.”
Give-’em-hell-Harry wrote in response: “I’ve just read your lousy review of Margaret’s concert. When you write such poppy-cock it shows conclusively that you’re off the beam. Some day I hope to meet you. When that happens you’ll need a new nose, a lot of beefsteak for black eyes, and perhaps a supporter below!”
It has always been a great country.
The 10-year U.S. Treasury
The 10-year U.S. Treasury is just fibrillating, no idea whether to drink more, sober up or go blind. Chart in the last year.
The 2-year U.S. T-note is on solid ground.
The 2-year U.S. T-note is on solid ground. The Fed is still coming. Get the bunker ready for the fallout after the next rate hike.
The Atlanta Fed GDP tracker.
The Atlanta Fed GDP tracker. The economy is doing just fine without stimulus from anybody.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
