Sunday, 28 February 2021

Biden's Legislative Blastoff or Bust: It Depends Solely On Him.

President Biden has seemingly pledged to be a one-term president. So, that means thinking about your historical legacy from Day One. You want to get the most bang for the buck during those four years to make your nation a better place and to lend a helping hand to Americans to the greatest extent possible. Amen to that.

Now, let's get back to who Joe Biden is and could be: Biden served in the Senate for 36 years. Now that's experience at feeling people out and mastering the art of personally cutting deals in your country's best interest. That's Biden.

Biden has publicly said that today, he only knows reasonably well about one-third of Senators now serving. My response: so what. Put another way, in a manner that would probably make Biden smile, while Trump was repeatedly making the art of the deal in NYC -- deals that always only benefitted Trump -- Biden was serially striking deals with Republicans that were, at the very least win-win, for both sides. Again, that's Biden.

With all of that in mind, one wonders why Biden is already getting it wrong: sure, The American Rescue Plan Act of 2021 just cleared the House on a too close for comfort vote of 219-212, given the level of serious division in the United States. You need more coalition building than that, most especially in the Senate and only President Biden can accomplish that. No one else, and I mean, no one else. That means Biden has to be intimately involved on a one-to-one basis if necessary for all bills that are the cornerstone of his Administration and its future legacy. Biden has to get down in the dirt and wrestle to get the widest possible consensus in the Senate on the most major legislative initiatives backed by his Administration. He's got to pick his battles but also win one for the Gipper. And listen to Jill.

In the ARPA's case, Biden is already blowing it: he has the Republican leadership and other lawmakers over to the White House and then doesn't trust himself, even after all those years of making things happen! The guy defers to the heads in the back that are shaking No, rather than putting it all out on the line using both the power of his office and his own personal capital to get that deal through the Senate with at least a respectable level of Republican support. I mean up to now, the results certainly haven't been a big fucking deal...

Will I dare to presume to give political advice to the President of the United States? Damned right I will: so listen Joe, do what your instinct, intelligence and gut tell you to do: pick your cornerstones and most fundamental pieces of legislation, then roll up your sleeves and fight like Hell. Make it happen, on the phone whenever possible and in person when necessary, both collectively and one-on-on. Forget about those nodding heads. I don't care who they are. When Biden feels it, that there's room for a deal, then just have at it.

That's how this President wins and more importantly, how his legacy immediately starts to take shape for the betterment of America and its people. And may God be with him.

Saturday, 27 February 2021

Well, There's Stimulus And Then There's That Other Stimulus.

OK, let's kick it off with our former reality: up until recently we were in a deflationary environment with The Fed pumping almost 8 trillion into financial markets, largely by purchasing treasuries, quality bonds, mortgage instruments along with all that is shit, in terms of bond and other financial products. The whisper tune was that Blackrock was also buying stocks as per The Fed's instructions. Maybe, maybe not.

But now, we're in a new economic paradigm, in the wake of unhealthy financial markets and its secondary cause otherwise known as COVID-19. Remember that the Repo Crisis came first in late 2019 and that told you all you needed to know about these markets, the financial institutions related to it and the banking industry as a whole.

Under l'ancien régime, The Fed called all the shots in a deflationary world where monetary stimulus was sent largely to financial institutions who many expected would use that influx of cash to save jobs. But financial services being what financial services always is, the money went instead to fund stock buybacks and pay bonuses to financial firm bigwigs. How thoroughly predictable, but I digress. The end result was like giving an addict a continuing hit so markets could keep going up based on nothing even remotely resembling traditional market cycles or corporate fundamentals. So, it looked relatively good because during deflation, asset prices drop making things less expensive for consumers and so it went until...

Once the politicians finally got it that much of the large cap companies had turned their backs on many of their employees and that medium to small companies were closing and going bust at an alarming pace, it suddenly dawned on everyone that an epidemic of homelessness, job loss and other economic misery was in full flight. That meant that Treasury had no choice but to start moving toward fiscal stimulus and that led to the beginnings of helicopter money to individuals, with no means-test or even an effort at determining if the universal drop was required by most people's financial predicament. Sure, it was then and is now the humanitarian thing to do but it changed the game.

Suddenly, money velocity which is always close to or at zero in a deflationary environment began to tick up and continues to this day. That meant that some of those receiving checks spent it on the necessities of life but a lot of others simply spent it on non-essentials. And thus, that set off an uptick in inflation as spending increased as the dollar continued to go down. 

That in turn severely reduced the demand for Treasuries as money flowed out of the semi-safe haven otherwise known as the bond market and into stocks. Because demand for treasuries dropped, that meant that bond yields would rise and they sure have. Just check out the ten-year treasury note. 

As ten-year yields rise, so will rates for commercial loans and mortgages. Remember when The Fed went to 2.5% FFR, only to have to back-track when all hell broke lose in the markets? So much for the late 2018 confidence in the American economy. In light of that, inflation will likely continue to rise but we're a long way from an 18% FFR and the Volcker thing. IMHO, that precludes going this route again to limit inflation's rise because the economy is already DOA and QE is what has it on life-support.

That leaves only one other major thing in the toolbox: negative FFR rates that are already in effect in the EU and Japan with the UK foolishly lining up to join the band. That would mean a return to deflation and an attempt to spur borrowing and investing rather than hording cash and saving money. It's supposed to give a good kick to an economy but where tried, results have been mixed at best.

For the average Joe and Jane, first and foremost stay out of The Dixie: during deflation, the dollar continues to drop while the same thing happens if inflation gets out of control. That means reduced purchasing power and worthless money if we ever hit hyperinflation. 

Meanwhile, gold is the beneficiary of pronounced inflation or negative interest rates. However, if both treasury rates and the dollar rise, gold is toast. In short, there are no easy answers to the economic circumstances affecting us all. But one thing is almost a no-brainer: get us the hell away from QE, because if we don't it will only magnify 10-fold the crash, when the market crash inevitably comes. That's what continuing monetary heroin ultimately does, it kills the addict.



Tuesday, 23 February 2021

Empty Hypodermic: On Panic's Edge.

Over at the Office of the Prime Minister and Privy Council, they aren't exactly all smiles these days. If you can't guess why, then just consider this: you know, they could once again re-name the building and call it what it is -- Empty Hypodermic. The ever dutiful professionals in PCO will do what they can to advise and help out their political masters but even their expertise and competence has its limits, given who's actually Prime Minister. I mean, they don't exactly have a whole lot to work with, now do they?

In any event, now that the PM, Katie and Company and party strategic thinkers have reverted to the mean, that suggests double trouble -- so, in reality, they've only got one possible hope left: they absolutely must bring in Broadhurst full-time to try and turn this vaccine tide. Katie can't do it, nor can Gerry so that leaves only Jeremy to thread this needle.

The funny part will be watching them all in panic mode, most especially Freeland, who will suddenly and rather unexpectedly be looking for a new Chief of Staff. Can even Broadhurst pull it off? I'll be charitable: we'll see soon enough.

A lot more strategic fun and games lie ahead as they try to save HMCS Trudeau. Meanwhile, many Canadians tragically will continue to die while two others rot in a Chinese prison. Dief once said that polls were for dogs. In 2021, the former PM would no doubt have had Liberal Party polls in mind.

Now, they'll all really get to earn their salary trying to save this sinking ship. But the boilers are still burning, so she'll only stay afloat for a while yet. After that, the ship of state will more than likely be transferred onboard HMCS O'Toole.

And so it goes, in federal politics.

Saturday, 20 February 2021

This Is How BOJO Blows It.

Boris with regard to this worldwide pandemic experience was truly blessed by fate: he got COVID-19 and that led to his travelling on the same road as Saint Paul all the way to his own Damascus. He said it himself: the NHS saved his life and his illness gave him new insights, clarity and a better focus on what's truly important in life. It also made BOJO a better person.

But now, Boris is about to face an even more fierce enemy -- one that he and the Chancellor fear and traditionally would not tread on. It's the grand architect of monetary policy known as the Bank of England. The BOE is to economic sanity, stable markets and financial institutions as One Flew Over The Cuckoo's Nest was to modern mental health services.

The BOE are not simply grievously misguided. In fact they are downright crazy. They have already served notice on the banks that they intend to implement negative interest rates in the next six months. That will not only put a dagger to financial services but will also ultimately destroy the UK's economy. 

The UK will become a meaningless shell of its former self as economic misery takes hold in every quarter of British society. In my book, that's called Japanization of the economy and we all know how that turned out post-1990. But for the Japanese stock market bubble of today, the economy would still be in ruins.

One would think that five years of what I've termed the ECB's Lagarde Lunacy would have been more than enough, but I guess not for the BOE...

So, in short, this is how Boris blows it next time. Some will call a PM's forceful intervention almost unprecedented. But anyone with a brain and some cogent level of strategic insight will call it smart politics instead.

Saturday, 13 February 2021

June 30, 2021 - Bye, Bye, Bond Market.

So, there you have it. That's likely the day that the stock market crashes following the lead of the bond market. And why, you may ask? Quite simply, because another round of The Federal Reserve's stress tests are mandated for most of the largest money-centre banks. Others, are not required to go ahead but do have an option to opt-in.

It's my understanding that the stress-tests will be conducted between April and June and to put it mildly, I'm not an optimistic sort of fellow. Just think back to 2008 when most of the largest banks in the United States were technically insolvent. Thanks to large cash infusions from The Fed, they were brought back to life thereby avoiding a massive bank failure panic almost across the board.

This round of stress-tests will measure bank liquidity in the wake of a computerized algo of a 55% stock market failure -- as some of you already know, Trump got The Fed following intense banking industry lobbying to abolish during this crisis the 10% fractional-banking reserve requirement. For those of you who don't read Fed-Speak or Bank-Speak, that means that up until last March when most of the financial crisis hit, in the wake of COVID-19, financial institutions no longer must have on hand one dollar for every ten dollars on deposit. 

It's doesn't take a genius to tell you where that's going to lead: sudden and unexpected bank holidays where commercial banks, savings and loans and other institutions such as credit unions abruptly close for days or weeks on end due to a lack of cash. And the topper? Either the ATMs don't work or they only dispense $100.00  per day to their customers. That's when bank panics set in with depositors lining up to get their money, on the faint hope that they can.

So, forewarned is forearmed. Keep as little cash as possible in your saving and chequing accounts and don't count on the FDIC in America or CDIC in Canada. And best of luck to all of you.

Saturday, 6 February 2021

Trudeau: No Churchill But On The Way To Becoming One.

Before Liberals start broadly grinning, first a reality check. We all know that this Prime Minister is by no shape of the imagination comparable with Churchill, The Great. Churchill was at his finest when he was in the political wilderness warning Chamberlain and others of the calamity to come. He saw the Nazis rising -- and ultimately proved how Chamberlain was going rapidly down the road to hell -- albeit with good intentions. You can't fault Chamberlain for striving for peace but you can for failing to properly size up his adversary and more importantly, delaying the rearming of the UK as proactively as possible. But I digress.

Now back to our PM: during my ten years of Liberal incarnation -- because I could no longer take Harper's leadership -- I supported Garneau for leadership primarily because those around me who happened to be gifted political strategists all told me the same thing: Trudeau n'est pas prêt.

When Garneau unfortunately fizzled in the race, I turned my attention to electing a Liberal government with not so subtle reservations about the new leader. I chose to give Trudeau the benefit of the doubt thinking that in one aspect, he was another Harper: he would grow in the big job just as Harper did once he came to power. Before that, Harper was a pretty lousy Alliance and CPC leader but he blossomed in power and more than handily developed the capacity to do the job, not just adequately but with real competence and a strong hand on the ship of state. Of course, I remained gone and gladly so, not being able to stomach so much of his political agenda. But again, I digress.

Trouble is that Justin Trudeau never grew in the job, not having even a remote capacity to do so. So like Martin Sheen, he simply played a chief executive on TV.  His acting skills were not altogether unremarkable so he bluffed his way pretty well past a multitude of crisis that would have politically sunk anyone else not fortunate enough to hold the Trudeau brand. And so it went, until COVID-19.

That's when the emperor was finally found to be wearing no clothes. It became a contest to discover who was more incompetent on this file: himself, his PMO or ministers. It was pretty much a draw. In short, when karma finally dealt him the job of dealing with rubber that had hit the road, he was found sorely lacking, to put it kindly.

And as a result, the real possibility of a Liberal rout is suddenly credible once more. Some of us saw it coming in 2006 yes, even with Harper as leader. So, here we are again. O'Toole may be the right man at the right time, just as Attlee was. People are tired, disillusioned, pissed off, mournful and most of all, prepared psychologically for political change. That's why I say the next election is already O'Toole's to lose. 

Ironically, that potentially puts this Prime Minister in Churchill's shoes. The latter won them a war and they still tossed him to the curb. This guy has proven himself to be well below the bare capacity level required to do his job. Like Sheen, he's quite content to play a leader on TV. The only question is, are all of you still willing to let him continue?