Beware the ideas of March
March 15, 2017

Mint – Blain's Morning Porridge

It's going to be a big newsflow day. Is it going to be a game changer? (It is the Ides of March after all…)

Lots of people are approaching today's US Federal Reserve meeting assuming it's going to be something of a yawn. The market has "apparently" priced in three hikes through the year – enough said...

But… others are raising the prospect of further tightening measures. According to Citibank economists, the Fed might decide the "economy is on [such] a solid course" it may announce it's going to cut its reinvestments and start reducing its US$4 trillion plus balance sheet. Wow.. normalization… at last…

Cutting reinvestments would be something of a game changer in the rate expectations and bond price universe! While the street is crying out for supply, it clearly has reasons to be cautious... normalizing demand and supply inevitably means lower prices!

And what about growth? Especially if some of the "stuff" president Trump is planning actually happens (tax cuts and spending) and the economy takes off faster than expected. Does an increasingly hawkish Fed suggest that's actually happening. Inflation is up, growth is up, employment is solid…

The New Normal increasingly looks like the Old Normal boom… which history tells us is followed by the inevitable bust.

There are disturbing signals and data points from parts of the US financial economy pointing towards "overheating" – how strong can the dollar get without causing crisis? What about the rise in sub-prime auto lending defaults? Or how exposed is the financial system to commercial shopping malls as large anchor stores (like JC Penney) pull out due to internet competition? Or junk borrowers facing a double tax and tax deductibility whammy?

There are many other micro slices that could be taken from across the US economy and the dependent dollarized global economy that collectively point to potential macro over-exuberance and the kinds of corrections we remember when we were young. Welcome back to the business cycle and the credit cycle.. Today might just be the day it all becomes obvious.. again…

Meanwhile...in a Galaxy far away… The Dutch elections could well confirm the anti-establishment "Die Liberal Die" populist zeitgeist of this modern age.. Or they might just be, well, Dutch elections...important for Holland, and a momentary flicker of dispassionate interest for the rest of us.

I doubt it. The Dutch poll is the first in a series of critical electoral moments for Europe this year. Watch the trends. Holland is among the countries doing best under the euro – only 7 percent unemployment and a growing economy - and if they are "peeved", then which countries are going to be "aggravated"?

Line up the French and the Italians. These poor sisters of Europe are quite rightly incensed about the consequences of the euro on their long-term economic prospects, long-term unemployment at 10.5 percent and 12 percent respectively, their wasted generations of young folk forced to flee in search of work – and it's easy to see how that negativity is magnified by the cheap and nasty politics of blaming someone else.

It's just too simple and too convenient for the right wing not to garner electoral support by blaming Europe (correctly) and immigration (because it's easy).

The Germans are miffed for all sorts of other reasons – mainly because they don't see why their economic efficiency means they should have to pay for everyone to remain feckless workshy gadflies.. So they've got lots of targets to blame – Europe and immigration. There is a trend there. Don't be surprised by populist surprises..

Today is the start of a dangerous political journey for Europe. Now how are we going to play it in the bond market? With gusto.

I would say something more about Scotland and referendums/referenda this morning, but thankfully I'm out of time..

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint – Blain's Morning Porridge

It's going to be a big newsflow day. Is it going to be a game changer? (It is the Ides of March after all…)

Lots of people are approaching today's US Federal Reserve meeting assuming it's going to be something of a yawn. The market has "apparently" priced in three hikes through the year – enough said...

But… others are raising the prospect of further tightening measures. According to Citibank economists, the Fed might decide the "economy is on [such] a solid course" it may announce it's going to cut its reinvestments and start reducing its US$4 trillion plus balance sheet. Wow.. normalization… at last…

Cutting reinvestments would be something of a game changer in the rate expectations and bond price universe! While the street is crying out for supply, it clearly has reasons to be cautious... normalizing demand and supply inevitably means lower prices!

And what about growth? Especially if some of the "stuff" president Trump is planning actually happens (tax cuts and spending) and the economy takes off faster than expected. Does an increasingly hawkish Fed suggest that's actually happening. Inflation is up, growth is up, employment is solid…

The New Normal increasingly looks like the Old Normal boom… which history tells us is followed by the inevitable bust.

There are disturbing signals and data points from parts of the US financial economy pointing towards "overheating" – how strong can the dollar get without causing crisis? What about the rise in sub-prime auto lending defaults? Or how exposed is the financial system to commercial shopping malls as large anchor stores (like JC Penney) pull out due to internet competition? Or junk borrowers facing a double tax and tax deductibility whammy?

There are many other micro slices that could be taken from across the US economy and the dependent dollarized global economy that collectively point to potential macro over-exuberance and the kinds of corrections we remember when we were young. Welcome back to the business cycle and the credit cycle.. Today might just be the day it all becomes obvious.. again…

Meanwhile...in a Galaxy far away… The Dutch elections could well confirm the anti-establishment "Die Liberal Die" populist zeitgeist of this modern age.. Or they might just be, well, Dutch elections...important for Holland, and a momentary flicker of dispassionate interest for the rest of us.

I doubt it. The Dutch poll is the first in a series of critical electoral moments for Europe this year. Watch the trends. Holland is among the countries doing best under the euro – only 7 percent unemployment and a growing economy - and if they are "peeved", then which countries are going to be "aggravated"?

Line up the French and the Italians. These poor sisters of Europe are quite rightly incensed about the consequences of the euro on their long-term economic prospects, long-term unemployment at 10.5 percent and 12 percent respectively, their wasted generations of young folk forced to flee in search of work – and it's easy to see how that negativity is magnified by the cheap and nasty politics of blaming someone else.

It's just too simple and too convenient for the right wing not to garner electoral support by blaming Europe (correctly) and immigration (because it's easy).

The Germans are miffed for all sorts of other reasons – mainly because they don't see why their economic efficiency means they should have to pay for everyone to remain feckless workshy gadflies.. So they've got lots of targets to blame – Europe and immigration. There is a trend there. Don't be surprised by populist surprises..

Today is the start of a dangerous political journey for Europe. Now how are we going to play it in the bond market? With gusto.

I would say something more about Scotland and referendums/referenda this morning, but thankfully I'm out of time..

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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