Monday, June 27, 2016

That didn't take long: No article 50 -- no talk of any form

Well Nigel and Boris first statement are wrong. It seems that these two though they could use the Referendum to get more out of EU.

Turns out that's a big fat NON, NEINE!

Merkel has said, we will talk as soon as you invoque article 50 of the EU charter/constitution.

So much for a negotiation -- also Switzerland and Norway's contribution to EU budget is "identical to that of the UK"  so not much savings there either.

What a mess, what a massive waste.

Brexit -- Class warfare -- The end of history (not so much)

Since Thatcher and Reagan came to power more than 30 years ago, a system change has occurred in the Western world.  Democracy decided that that "Moocher/looters" had taken too much and it was time for the "winner" to take a bigger share of the pie.

A decision to integrate the world, bringing access to cheap labor and a less restricted system of labour negotiations -- the big winner was capital in all its forms.  When I joined the city in 1986 the city accounted for less than 3% of GDP. Today in the UK its near 10% (granted a substantial percentage of that relates to services to other countries), but it remains, the UK saw an net immigration from the rest of Europe of nearly 6 million -- between 1993 and 2016.  The bulk of these live in London, the Capital doesn't ressemble the rest of the country (although the same could be said for Paris...).  What the last few days have show is how people have voted for Brexit:

Demographically:  the 18-49 have voted at 75% to remain in Europe, from there onward the trend has been downward for the 65+ voting massively for exit from Europe.  Worse is the breakdown in terms of wealth:  75% of AB and 49% of C1and only 36% of C2 and DE have voted to stay.  In other words, those who are the biggest winners in the "new UK" want to stay.  Whereas the others wanted to leave.

Since the mid 80s the system has been rigged against labor (not the party) it has been set up so that the winner could take their factories and move them to India or China.  Giving labor virtually nothing in return.  The concept of fee trade is driven by a desire so that each partie produces goods in the most efficient way possible, which is fine, but doesn't address how to deal with the losers.  In fact, the past 30 years have been great at ignoring the losers -- those whose skills are no longer required. The fast pace of change means that within 10 years Britain's coal industry died, as did the old fleet street. Now I am not saying that the old system was best, but labor was treated as a pure input and not as a stake holder.  We consider paying off taxi drivers off who have seen their license drop in value because of Uber and others (which is capital) but society has decided that it will not treat labor the same way. Brexit is the consequence of this.  A new class warfare has begun, between those who benefited from an open economy and all the others... so the end of history not so much

On a side note:

Amusingly, this morning Nigel Farage told Good Morning Britain that he had no idea where the saving of STG 350 million per week figure came from, and that he had not endorsed  this number -- when in fact, throughout the campagne he has said that so much money was going to Europe...

Even Boris Johnson -- looked flustered Sunday morning -- as if he had been hit by a bus... (maybe its the same bus?)

Since Thursday referendum more than 2 million brits have signed a petition to get a do over!

Monday, and the market are going crazy.  In fact, there is no real way forward, for despite there having been a referendum the key to activating Section 50 of the European treated requires an act of parliament.  We know that the majority of parliamentarian are against Brexit.  That alone should be interesting.  The right wing crazy (in American anyway) are talking of this as a great opportunity for Britain (with Scotland and N. Ireland probably leaving) as a way to open the doors to free trade (which is funny because that's what they had in Europe...) The reality is that the UK has two year to finalize its departure!

P.S. I kind of quote Ayn Rand -- but doesn't mean I buy her BS!

Thursday, June 23, 2016

New York City demonstration -- in front of the Mexican Embassy...

Well that was strange, yesterday I was walking on near the Chrysler building in mid town manhattan when I saw a rather particular sight:  Demonstration in from the the Mexican Embassy to the UN.  Didn't know what it was about, the demonstrators looked like Mexican (what do I know!).  Turns out it was about a recent massacre in the town of Oaxaca, where apparently the police killed 19 demonstrators and injured "hundreds".  

Turns out it was really serious thing -- actually the US press covered the issue (it got a little out of hand), but the real issue is that the state of Oaxaca is the most reactionary (or at least the teacher's union the most powerful) and they have stopped the state from reforming the education system -- which by the way is a unbelievable; apparently a large number of teachers have never showed up for work, they even inherited their job.  Guess what they have zero shame, they want to keep the phantom jobs.

Now, the problem is far more than just that, but it gives a sense as to the nature of the problem.  In reality here the issue is how 19 people were killed by the police, even if this was a violent demonstration there is simply no justification for killing 19 people.  Police brutality run amok!  

In other news, in 2015, Freddie Gray died in police custody -- from a broken back.  He was arrested for possession of a "illegal" knife that was actually legal.  So this poor bastard, was arrested while committing no crime and was killed in Prison by a bunch of cops (6) that have now been found not guilty of killing Freddie Gray!

Also last week a police officer (white dude) was given probation for growing pot, while some poor black guy gut life for the the exact same crime -- one would suspect that the police officer knew very well that growing pot was illegal (the black guy too, but then he was not an officer of the law -- and he got life).  

America, land of the the free, land of the brave -- as long as you are a white dude!

At least the weather is nice -- airport is ok too, if you love junk food (which I don't) even the salads look like calorie bombs.

End of rant

Monday, June 13, 2016

The saddest news -- Brexit may well happen!

I cannot believe that I am on the same side as the big investment banks; I always though that the UK had more to gain inside of Europe than outside (Economics valuation).  Turns out the new polls are showing that a majority of Brits are for exit from Europe.  

It will be expensive economically, the pound is certain to take a hit, Britain is very reliant on foreign capital (to the tune of 7% of GDP). There is no doubt that Europe will go out of its way to make things difficult for Britain (and what about Ireland?).  Europe's bureaucrats will try to punish the Brits by killing the City' s access to Europe's businesses -- just because they can. Although I am not so sure that Germany wants that poison chalice, although I am sure that France would -- I wonder what Investment banking looks like with a 35 hours work week? (just saying...)

This morning I read Abrose Evans-Prichard, who just two weeks ago said in his weekly column that the departure of the UK would be very expensive.  However, yesterday he wrote that he would vote for the exit.  He is a hugely smart, well spoken guy.  First, he doesn't buy the Brexit proponents that an exit of Europe would be a no cost outcome, maybe even a gain for the UK.  He believes that the short term cost of the exit will be very high indeed.

However, AEP is more worried about democratic institutions.  There is no doubt that the ECB's secret letters to Italy and Greece, its actions in Cyprus and elsewhere are deeply undemocratic.  In fact, a referendum that SPECIFICALLY rejected the Mastrich agreement was just disregarded.  The ECB is the executant of Angela Merkel's political decisions that all that is right in Europe is the making of Germany and that everyone else is at fault.

AEP writes: "We are deciding whether to be guided by a Commission with quasi-executive powers that operates more like the priesthood of the 13th Century papacy than a modern civil service; and whether to submit to a European Court of Justice (ECJ) that claims sweeping supremacy, with no right of appeal."

Fighting words in deed.  In a sense his reasons for leaving are the same than those who though the Munich Agreement (appeasing Hitler) was a disaster and treason was that it was going the easy way "Peace in our time" was a way to avoid the unpleasant truth that something was not right (BTW I am not linking Europe to Hitler -- rather sometime unpleasant actions have to be taken based on principles with disregard to the economic consequences).

Read AEP's article here .  A unfortunately worthy argument! 

Saturday, June 11, 2016

Paris ville des lumières

Also it turns out, European cup 2016, air France strike, SNCF strike, and strike by the garbage men.  The view a few blocks from where I am just doesn't convey the lovely odor!  Let me just say, that while Paris' terrasses were a pain because of the number of smokers, this is something else entirely...

Let me just say, I am almost glad to be here only for a few days!

Tuesday, June 7, 2016

David Rossenberg: Zero chance of a US recession within the next 12 months

DR was first know as a Permabear -- always seeing that the investment world was about to collapse, and yet -- well it kind of did in 2008...  Anyway DR has a 106 slide that explain while the US econonmy is not doing great its not really sinking down the drain, its just not perfming so well.  One of the early slides says:

Conventional wisdom (Prediction for June 2016, made in June 2105)

Fed Funds:  1.25%  [0.37%]

10 year T-note at 3.0% [1.7125%]

Oil Prices at $75    [$50]

S&P at 2233 [2117]

CAD at US$ 86.2  [0.78]

The [xxx] is the actual number as of today!

So Fed funds and the T-notes has been a big one; firstly the Federal reserves sets interest rates largely with the Fed funds, this is actually a figure that can be controlled (no so with the T-notes).  Both are tied at the hip (the reality is that the relationship between long term money and ultra short term money is imperfect -- but the short term money is indicating loosey goosey that translates into lower long term yield.

Moreover, at 1.7125% the US rate is positively generous when compared to what Europeans get on their long dated bonds -- many trade inside the US level.

Oil prices and CAD are also attached at the hip, the reality is that the CAD is a petro currency, and the level of the CAD was even worse when oil prices were around 28/30 in January (remember these days...)

What I have not shown is the other 106 slides, most are amusing cartoons some have very serious graphs.  The most serious for market watchers is that both in terms of trailing and projected earnings p/e levels are expensive.

So DR's view is that the US economy will crash (maybe) after the election of the next President; either Hillary -- first ever women president and the Donald -- the first time ever a Donald has been president of the Republic.

BTW the only figure that seems to make any sense (in view of the projections made a year ago) are the numbers for the S&P -- 6% short from the target of a year ago -- and the way the markets have been over the last few days its possible that we will hit the right level.

here are David's slides