5 Weekend Thoughts: Big Ben, EU Bonds, and Politics

By Alex Salomon
Short and sweet yet arguably my most important finding of the week: I firmly believe that neither the ECB nor the Fed could take a chance on using one of their few remaining bullets BEFORE the Greek election results (June 17)… Further to this point, there was just no way the ECB (or Fed) could take a chance in the face of what could be poor or even disastrous Greek results; therefore, any assistance from the ECB or the Fed has to be measured, coming AFTER a Greek resolution… and if the reaction happens to be better than expected, then markets will smile (and ECB/Fed powder will be preserved).

Additionally, let’s not forget that China still has some juice left in their tanks for further accommodation. So, in effect, we could see the Fed, the ECB and China’s Central Bank all waiting for a Greek resolution.

2. Talking about Ben Bernanke… Poor Ben. Okay, relax for a minute, kick back, and follow me through this rabbit hole: let’s imagine you have an imaginary friend and let’s call him “Ben.” Ben’s family (let’s call them “Westies”) are a pretty ethical yet dysfunctional bunch, overburdened with debt, under-invested for retirement, and spooked by a rough decade of slowing growth, declining assets, and tough times finding/creating jobs. Ben’s grandfather (let’s call him “Potus”) is also troubled: Potus is susceptible to a change of heart every 4 years; he could decide to cherish Ben as his favorite grand kid or to kick him out of his will. So Ben does not even know how his grandfather will feel every 4 years and Ben starts to sense that something is afoot in the months ahead that could radically (or not) change Potus mind towards Ben… let’s call it a hunch, but Ben knows something is brewing with Potus agenda. Now, you think that’s bad? You have not even met Ben’s parents yet!! Ben’s parents (let’s call his dad “Elephant” and his mom “Donkey”) are a total wreck. They are always at each other’s throat; Elephant claims that all Donkey does is drink and spend money, and Donkey pretty much considers that Elephant is a cold hearted, calculated jerk.

So that’s Ben: tough family without enough jobs and money, a grandfather who could suddenly disown him, and parents who forgot to be parents and just bicker like drunken sailors.

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All the while, Ben is trying to get his PhD in finance from the world’s toughest university, on the toughest stage, at arguably the toughest time in 80 years. Now, I know Ben is just an imaginary friend and all, but come on, admit it, it’d be pretty tough to be Ben.

3. Big Ben… Our imaginary friend, Ben, must be pretty tired: he’s been scrutinized, mocked, analyzed, grilled, and criticized. All the while, he’s been trying to give the world, a true, proven, and working “QE3″… He’s hoping for the most conventional Quantitative Easing possible: a bona fide bull market. He has been trying everything under the sun for 3 or 4 years, in an effort to rejuvenate the financial markets.

Ben clearly knows that if stocks get back above their trending valuation meridian, back to historical PE ratios, that the world will be all right again. Yet we’re stuck… and Europe is not helping Ben’s grand plan.

But since we are just imagining… picture the S&P at 1700 and wonder how it would affect jobs, growth, retirement accounts and morale.

4. So obviously, this week was a big week for the real Ben Bernanke and I was going to write about the US Dollar and Euro relationship… Andy Nyquist’s piece (Is the Fed Losing Control of the Dollar?) vibed with those thoughts, as I was wondering all week whether Ben and further Fed accommodation would actually force the ECB’s hand and push them into accommodating as well?

So, come June 17 (Greek & French elections) and then again at the end of June with EU meetings, we may see the US Fed forcing the ECB into action? Furthermore, I started wondering about the possibility of an underlying fight between the ECB’s Mario Draghi, trying to keep a lower Euro (thereby helping EU-zone exports and maybe even easing the growth slowdown… let’s call this a baby version of shadow devaluation) and our Fed’s Ben Bernanke trying with all might to keep the US dollar from exploding higher?

These are interesting times, but we might be seeing joint needs (global re-growth and stability) pitted against conflicting want (lower Euro and lower US dollar).

5. This European crisis (as well as our own 2008 implosion) push an important take-away front and center: I am continuously puzzled, surprised and dumbfounded at how much our top leaders (bank CEOs & top business CEOs & State Ministers), who are supposed to be the top crop from an educative/job system spectrum, continue to gloss over structural problems and tell us what they believe we want to hear (effectively lying to us).

Now, there is a lot more to write about on this topic, but basically, the political agenda has pretty much defeated modern democratic values (as politicians are in non-stop campaign mode); and furthermore, the agenda of boardroom economics has pretty much destroyed free markets and capitalism. Modern democracies elect officials who then massively make it their daily job to “protect us from the truth” like parents lying to kids — until it hurts. But they are not our parents, and we are not kids.

We are living through a period of crisis created by uncontrollable debt. More and more, I am thinking that the debt is only the symptom: the disease is a crisis of accountability and honesty.


Twitter:  @alex__salomon   @seeitmarket     Facebook:  See It Market

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of his employer or any other person or entity.