The rank economic cheerleading in the guise of “news” printed by the Wall Street Journal, Reuters and the rest of the financial press never ceases to amaze. But on the heels of Congress’ pathetic capitulation to Wall Street over the weekend you have to wonder if even the robo-writers who compose the headlines are on the take.
How could anyone in the right mind label this weekend’s CRomnibus abomination “A Rare Bipartisan Success for Congress”? Apparently, that unaccountable plaudit was bestowed upon Washington by the WSJ solely because it avoided another government shutdown.
And one that was of its own making at that. After all, we are already 75 days into the new fiscal year, yet Congress had not yet passed a single appropriations bill. So once again it had set itself up for the usual midnight scramble behind closed doors where the pork barrel overflows and sundry K-street lobbies stick-up the joint and then demand immediate passage—–sight unseen—–in the name of keeping the Washington Monument open on the morrow. Continue reading
Commentary has not been able to ignore changes in the Fed’s balance sheet mechanics with all the potential systemic shifts occurring as QE ends and the FOMC contemplates going even further. As I said last week, the total balance of bank “reserves” declined but not due to anything other than an operational test of the Fed’s Term Deposit Facility (TDF). With about $400 billion “auctioned” last week, the significance of the amount has only been to seriously confuse many observers who don’t understand how a central bank actually works.
As for “markets”, there has been precious little attention paid to any of it, with much bigger problems drawing focus. There has been the “little” matter of a global collapse in oil prices terming out while global credit markets in an uneasy state all year are now turning toward perhaps outright fear. The TDF just doesn’t rate, though perhaps it should (or it does, but in a manner wholly contradictory to how it is portrayed). Continue reading
The Ukraine crisis has moderated for now, but it should have awakened the world to the new “great game” being played in Eastern Europe. Vladimir Putin is positioning Russia to control the global energy trade, knowing that he holds the trump card: Europe’s dependence on Russian oil and gas.
This epic struggle between the US and Russia could change the very nature of the Euro-American trans-Atlantic alliance, because Europe is going to have to choose sides.
The numbers in Putin’s OIL = POWER equation are only going to keep getting bigger as Russia’s control and output of energy continues to grow and as Europe’s supply from other sources dwindles—as I outline in my new book, The Colder War. Finland and Hungary get almost all their oil from Russia; Poland more than 75%; Sweden, the Czech Republic, and Belgium about 50%; Germany and the Netherlands, upward of 40%.
Cutting back on energy imports from Russia as a means of pressuring Moscow is hardly in the EU’s best interest.
Germany, the union’s de facto leader, has simply invested too much in its relationship with Putin to sever ties—which is why Chancellor Angela Merkel has blocked any serious sanctions against Russia, or NATO bases in Eastern Europe.
In fact, Germany is moving to normalize its relations with Russia, which means marginalizing the Ukrainian showdown. Ukraine is but a very small part of Moscow’s and Berlin’s plans for the 21st century.
Though the US desperately wants Germany to lean Westward, it has instead been pivoting East. It’s constructing an alliance that will ultimately elbow the US out of Eastern and Central Europe and consign it to the status of peripheral player.
(The concept of the “pivot “ in geopolitics was advanced by the celebrated early 20th century English geographer Halford Mackinder with regard to Russia’s potential to dominate Europe and Asia because it forms a geographical bridge between the two. Mackinder’s “Heartland Theory” argued that whoever controlled Eurasia would control the world. Such a far-flung empire might come into being if Germany were to ally itself with Russia. It’s a doctrine that influenced geopolitical strategists through both World Wars and the Cold War. It was even embraced by the Nazis before Russia became an enemy. And it may still be relevant today—despite the historical animosities between the two countries. After all, the mutually beneficial alliance of a resource-hungry Germany with a resource-rich Russia is a logical one.) Continue reading
BuBa chief Jens Weidmann is complaining about the EU Commission’s decision to eschew confrontation with France over its repeated inability to deliver on its debt and deficit targets, and rightly so.
Some people may argue that the French government’s recent willingness to implement some long-overdue, if halfhearted reforms, should be taken into account as a sign of goodwill. Perhaps, but it was precisely the “original Maastricht sin” of 2002-2003, when neither France nor Germany were taken to task for violating the treaty with their deficit overshoots that created the preconditions that later made it seem normal for many others to violate these limits as well (admittedly, this has to be brought into context with the artificial boom of 2002-2007 and the subsequent bust).
Nevertheless, the fiscal compact strikes as one of the more sensible EU regulations (although it is obviously difficult to enforce it against a big member nation). Not only because the euro’s survival essentially depends on it, but also because keeping government spending under control is good for the economy at large in any event. Continue reading
We have happened upon that time in the investment cycle when investors vastly eschew active management of their assets in favor of a more passive management style. In fact, I read recently 461 Hedge Funds, a hallmark of active investment management, shut their doors in the first half of this year alone. If liquidations continue at that rate, they’ll outpace the 1,023-closure record from 2009. All signs now indicate that active management has fallen out of vogue.
And why wouldn’t it? Index funds have done very well these past few years; whereas active managers have underperformed the major averages. The problem is when everyone piles into or out of the same investment philosophy, it usually signals it’s time to change course. Therefore, I predict the tides will soon change and active management will make a huge comeback.
Passive investing, such as Index mutual funds, is an easily understood investing style that allows you to access broad segments of the market. Indexing has been called investing on autopilot. This is a strategy that tends to work well, until it doesn’t. Take the mid to late 90’s, when it appeared the stock market would always go up. Everyone from your hairdresser to the cab driver was a stock genius. New websites such as the Motley Fool preached that you didn’t need an investment advisor–just buy a broad basket of stocks (especially in the technology sector) and you would get rich. And, if got out before March 10, 2000, you were all set. Continue reading
With Chinese industrial production in November “unexpectedly” weak, coming in at the second lowest rate since December 2008, Pavlov’s dogs are barking again much louder in the direction of the PBOC. It’s not as if this is a one-time dip in production levels, as theweakest growth rate was achieved only a few months ago in August (but the PMI’s!). Talk of a Chinese “hard landing” is now ubiquitous, which supposedly means that there is no way the PBOC will let that happen.
Clearly, there can be no doubt anymore, despite all these same “experts” who said the Chinese economy was poised to take off like the US, that China is heading for trouble. But commentary focuses only on the internal aspects of diminished and recessionary growth rather than taking that to the next step. The comprehensive picture for the Chinese economy is such that accounts for not just the potential downside of domestic bubbles but also why they are there in the first place. Continue reading