“The Italian Job grapes of Wrath Flight of the Dollar Yellen Thunderball Election Adventure”
Did you ever get the feeling that November 9th is going to be an interesting day? We may well see the following all happen at once:
- Trump gets elected, bond yields go through the roof
- The Italian finally banking contagion spreads to France
- Department of Justice makes a decision on Deutsche Bank
- World lack of Dollar liquidity starts to go critical
- The Bond balloon turns into the Hindenburg
- Fed says December rate hike is slightly impossible
Based on past performance, it’s highly likely that nothing will happen, although I’d lay good money on the last one. Anyway, let’s breeze through them and see how things stand in this, a world in which there’s nothing to worry about at all.
President Trump?
The Clinton corruption machine swung into action yesterday by ensuring that one of DNC Chairman John Podesta’s best mates Peter Kadzik will be in charge of the DoJ investigation.
After giving the FBI its warrant to search the Weiner emails, Justice moved swiftly to say it would be giving top priority to its own investigation….a ploy by Attorney General Loretta Lynch to ensure that the FBI doesn’t leave things in the air (to the advantage of Trump) and her DoJ can say “nothing to see here” (to the advantage of Clinton).
So Donald Trump still faces the same Lynch mob – which is a 24 carat rock solid bought-by-the-Hillarybillies group. And Kadzik himself – through his lobbyist brother and wife – is umbilically connected to the Democratic Party.
Thus, this morning you could say the odds favour Clinton. But she’s a long way from getting through this to the Oval Office.
Don’t forget there’s a deliciously bonkers Catch-22 element to the FBI warrant thing: the FBI tells the DoJ that it needs a warrant to search the Weiner laptop – having already decided there’s something relevant on it, that decision having been made by, er, searching the Weiner laptop. Either that, or they went to Lynch and said, “There’s an unpleasant stain on the exterior of Weiner’s laptop, and it looks suspicious to us”.
The chances are that the Bureau already has a very good idea what’s in there among Anthony’s emails. Furthermore, I did think it extremely odd that his estranged wife and Clinton intimate Huma Abedin has gone to ground….at this, the pinnacle of Hillary’s need for her help in general and reassurance about, um, what’s on the laptop apart from updates for Anthony from sexyteens.com. It’s not the act of an innocent woman.
A contact (no more than that) in Washington told me yesterday the FBI has established that Abedin and Weiner had shared use passwords for the notebook. Considering even that, this is a shocking security lapse….and a disgrace that the DoJ looked the other way during emails1. But that alone would not be worth Director Comey putting his backside on the line – albeit under pressure from truculent underlings – to launch emails2.
My guess would be that the FBI v DoJ race is on to see who can report the most quickly and definitively, but it may well be something of a standoff: Comey can’t just leave the accusation in the air for fear of a Lynch whitewash; and Lynch can’t hide something big without the fear that Comey will say, “What about these ten emails, then?”
Were Comey to do that, then all hell would break loose: not only would he be loudly accused by a predominantly pro-Hillary press pack of blatant use of politically damaging material before any case has come to trial….despite that Clinton would have to stand down. Doug Schoen’s point of yesterday – you can’t inaugurate a person facing criminal investigation – would become irresistible.
So then, what solves a standoff? The answer has to be leaks. In that context, the odds favour Trump: the DoJ can’t leak evidence of nonexistence, but the FBI can leak specific, incriminating email content.
Don’t be surprised if the Bureau leaks. Don’t be surprised if the leak goes to a Murdoch newspaper. Don’t be surprised by anything: it’s a waste of energy.
The Italian hospital pass to France
Like central bankers generally now, the Italian authorities – and some of the major players involved on the receiving end – are quietly admitting that the Atlante Bank plan is a peashooter aimed at an avalanche.
We’re now on Atlante2 (don’t bother to look up 1, it’s not worth it) and releases are already dribbling out that talk of “a small level of contributions so far” and “a lack of interest in the investment”. Monte dei Paschi and Unicredit alone are the proud owners of over a fifth of all the bad debt non-performing loans in the eurozone. Pause for a second and think about that: 1 in 5 welched euroloans in two Italian banks.
It’d be nice if the problem stopped there, but there are regional and local banks of one sort or another, most of which are hopelessly unsalvageable. There are so many Elephants in the Italian banking room, it feels like Hannibal left a few hundred behind when he crossed the Alps.
Frau Doktor Mirakle continues to say “no government bailout” -a hypocritically farcical position given there is already government-derived money in Atlante2. If she’s suggesting that bank failure must be allowed to happen, then we’re going to see very frosty Berlin-Paris relations soon afterwards. The exposure of two enormous French institutions – BNP Paribas and Credit Agricole – to Italian debt is, to say the least, alarming.
The Financial Times led at the weekend with a piece affirming that the Bank of England urgently wants big British lenders to audit their exposure to some of the larger Italian, in the light of markets and banks being increasingly nervous about the health of Europe’s banking system.
Deutsche, Deutsche über alles
Italian banks to one side, Deutsche Bank remains the potential horribilis in AD2016 – not so much because of its size as its connectivity. We all know of course what a wonderful idea globalised interdependent banking is, because no domino is ever going to wobble over and then keep going until every domino on the planet is horizontally aligned. Of course not.
Unfortunately, DB offers debt and derivative contagion on the Richter Scale of 24.7, give or take a Krakatoa or two. There are major exposures to it in Britain, France and Germany…and Italy. Oh dear.
Dollar liquidity dries up in Europe
I’m sure you can spot the link from the last two items to this one. Ever loyal to its obedient NATO allies, Wall Street is putting the word in bigtime – as are both the White House and State: “let’s not go bang for too many bucks here, guys”.
Ambrose Evanelpus at the Daily Telegraph warns this week that in Europe and elsewhere, there is a severe shortage of Dollar denominated investment and liquidity.
“The Federal Reserve pledges to provide dollars to other central banks if necessary to alleviate financial market turbulence that could ricochet back and hit the US economy,” said Janet Yellingyesandno in the summer.
It’s yet another promise she can’t live up to….and the reason is terrifyingly simple: across Britain, the eurozone, Japan, Australia and major African nations there just aren’t enough Dollars to go round. Well, there are – but the hyperinflation it would set in motion isn’t something you want to think about.
The Bond balloon turns into the Hindenburg
What we’re coming to the end of at the moment – and it had to end one day – is easy, cheap money. Quantitative Easing (indeed, monetary ‘tools’ overall) have proved to be a false dawn, in that the Sun also didn’t rise at all anywhere. With Zirp rates still there and QE’s factory-fitted margin being consigned to the failure pit, every investor of high net worth aged 45+ is looking for yield. And Bonds are it.
But there’s a delicate boom/yield equation going on here. A lot of relatively infrequent bond buyers are in there, and they won’t stay if the yield is no better than, say, bank deposits or equities. With a lot of sovereigns owing a lot of money and facing stubborn deficits, Japan, Canada, Brazil and even Germany saw rising yields last week. Now the QE money isn’t pumping up publicly quoted company margins and stock prices any more, bond yields continuing to rise will not only see serious debtors like Japan in deep doodoo: it will also be happening alongside falling corporate dividends and stock market indices.
It strikes me as something vaguely counter-intuitive that could suddenly perform a somersault, and take everyone by surprise….
Fed hints re December rates next week
….and that’s where the Janet & John imbeciles come in. Or not, as the case may be. One could argue that Fed rates are the last bastion of monetary mechanics in which there is at least some trace of petrol left in the tank. But Yellen’s been doing her best all year to match Christine Lagarde when it comes to mind-altering inaccuracy and broken promises.
So now she has painted herself into a surreal corner where the key task is to prove her Fed has cojones. It’s not the ideal criterion for action.
If she raises rates, every Bric and eurozone debtor will be in a worse position. This will encourage increasingly powerful bond traders to restart calling the shot as they did at the peak of ClubMed mania. I note that, already, dealers are ‘raising doubts about Ireland’s elevated debt’. Just wait until the neurosis about Japan sets in.
As the Buddhists say – and I hope this jolly little jaunt across Quicksand County has shown – everything is connected.
When Establishments are surrounded and have run out of ammunition is the time every citizen who’s even half awake should start getting really nervous. That time is approaching faster than most commentators realise.
The Slog 