Mario Draghi – Prime Broker to the Universe

April 10, 2015April 10, 2015 by CantillonCH

When even the eminent lawyer, Christine Lagarde, interrrupts her incessant calls for more ‘stimulus’ to confess that yes, peut-être, we ought to be on the look out for a bubble or two, you know things have reached a pretty pass.

In truth, the awful effects of monetary overkill on the part of the major central banks seems finally to have reached a critical juncture, with asset markets everywhere spiralling rapidly out of control. We can only shudder to think what will await us if the inflationary spark ever manages to jump the firebreak of bad banks, zombiefied overcapacity, and ruined balance sheets and sets light to the markets for goods and services, too.

The Ghost of ’37

March 26, 2015November 11, 2016 by CantillonCH

With the Fed supposedly steeling itself at last to remove a little of its emergency ‘accommodation’, it has suddenly become fashionable to warn of the awful parallels with 1937, as the highly-respected Ray Dalio of Bridgewater has notably done.

That year, the story goes, the nation’s ascent from the depths of the Great Depression was aborted because the Fed ‘tightened’ and the government ‘cut spending’: a sharp recession was the immediate and highly avoidable result. Therefore, we are told, we must not act today.

We strongly refute the analogy: Fed actions were marginal and largely technical in nature while the real fiscal story was the rise in taxes, not any slashing of regular outlays

Money, Money, Money

March 4, 2015April 10, 2015 by CantillonCH

As the title of the blog suggests, we pay close attention to developments in money and credit since the twin precepts of our outlook are that ‘the credit cycle IS the business cycle’ and that ‘silver [i.e., money] is the true sinews of the circulation’.

It is all very well for both macro-economists and stock-pickers to look at flows, but unless a weather eye is kept on how they are being financed and what that implies for the future vulnerabilities of the contracting parties, a very important element is being overlooked.

Chart(s) of the Day

February 24, 2015April 10, 2015 by CantillonCH

Taken over a forty year history, US gasoline is trading in its 3rd percentile – 1.8 sigmas from the mean – when expressed as a ratio of the price of heating oil. In seasonal terms, this makes sense as the winter draw for space heating coincides with the consumption lull in (discretionary) road transport and the anticipatory change of emphasis by the refiners. Given the severe weather being endured Stateside these past several weeks, it should surprise no-one to learn that stocks of heat are more than 8% below the mean for thetime of year, while those for mogas are 4.3% above that norm. Hence the wider price differential.

A World In Debt

February 11, 2015April 10, 2015 by CantillonCH

In his magisterial 1936 work, ‘A World in Debt‘, Freeman Tilden treated the business of contracting a loan with a heavy serving of well-deserved irony, describing how the debtor gradually mutates from a man thankful, at the instant of receiving the funds, for having found such a wise philanthropist as is his lender to one soon becoming a little anxious that the time for renewal is fast approaching. From there, he turns to the comfort of self-justification, undertaking a little mental debt-to-equity conversion in persuading himself that his soon-to-be disappointed creditor was, after all, in the way of a partner in their joint undertaking and so consciously accepted a share of the associated risks.

Whatever it Takes

January 28, 2015February 12, 2016 by CantillonCH

So, finally, the world’s most open conspiracy came to full fruition and Magic Mario actually got to do a little of ‘whatever it takes’ after 2 1/2 long years of bluster. Sweeping aside the objections of what appears to have been most of Northern Europe, the triumph of the Latins was near complete. For all his stubborn resistance, Jens Weidmann proved no Arminius and the airy council rooms of the ECB building in Frankfurt no Teutoburger Wald whose mazy forest tracks and swampy margins proved so deadly to the legions of that earlier Roman legate, Publius Quinctilius Varus.

A Slow Boat in China

January 21, 2015April 10, 2015 by CantillonCH

Still struggling to move from its ‘Three Overlay’ period – essentially the indigestion added by the post-GFC ‘stimulus’ burst to the already unbalanced economic structure – to its vaunted ‘New Normal’ – slower headline growth but growth of much higher quality, to be concentrated not in building steel mills, metal smelters, and dormitory towns just for the sake of it but on high-tech and clean energy and all sorts of other touchy-feely, Googleworld concepts – China nonetheless managed to eke out a face saving final quarter GDP number of 7.4% yoy and an industrial production uptick to 7.9%.

Tell me another!

January 19, 2015April 10, 2015 by CantillonCH

In the wake of the SNB decision last week to remove its infamous 1.20 euro floor rate, the ever ingenious – and no less self-assured – Willem Buiter has been expressing his outrage that any central banker might dare to deviate from a consensus which shares three articles of faith, each engraved by the Deity on the tablets he handed down to His prophets at MIT.

Let’s be Franc about it

January 16, 2015April 10, 2015 by CantillonCH

On Wednesday, we were all utterly not shocked to learn that the Advocate-General of the European Court of Justice, Pedro Cruz Villalón, had decided that he could see no major objections to Mario Draghi’s Fed-wannabe programme of so-called Outright Monetary Transactions – a decision upon the legality of which was earlier referred to that august body by the German Constitutional Court like the hot potato it was.

Though Snr. Cruz Villalón’s decision is not binding – a decision of the full body sometime in the middle of the year is needed for that to occur – it was nevertheless highly suggestive of the way the court might rule and was therefore seized upon by stimulus junkies everywhere as a result.

The Sinews of Circulation

January 9, 2015April 10, 2015 by CantillonCH

Regular readers of these pages (whether here or in the author’s previous professional incarnations) will recognise that the analysis is informed by a core belief that while money should never be confused with wealth – and that therefore the latter cannot be conjured up by the central bank like a rabbit from a magician’s hat, however much people might wish it were so – the former is anything but neutral in its effect upon the creation, the distribution, and even the destruction of said wealth.

A secondary, but still highly important distinction to which we insist it is necessary to hold fast is that money – the supreme present good, the demand liability instantly and universally redeemable today at par, the generally dominant (if not absolutely exclusive) medium responsible for the smooth and efficient exchange of goods and services, the great enabling mechanism which obviates the need not just for barter, but for interpersonal trust among a transaction’s counterparties – is different from credit – which latter is actually a claim on money (and hence on the potential to acquire all other goods) only realisable in the future.

True Sinews

Commentary & Analysis by Sean Corrigan of www.cantillon-consulting.ch

Category Archives: Macro

Mario Draghi – Prime Broker to the Universe

The Ghost of ’37

Money, Money, Money

Chart(s) of the Day

A World In Debt

Whatever it Takes

A Slow Boat in China

Tell me another!

Let’s be Franc about it

The Sinews of Circulation