Epoch of Belief, Epoch of Incredulity (23): Keep the Faith

Written by Adam Whitehead, KeySignals.com

Faith, of the believers in the great institutions of our modern day was shaken to the ground last week. The institution of FIFA got all the headlines – [i], but there was plenty of dirty business going on elsewhere behind closed doors.

As the antithesis of the peace, that he was supposed to create between the West and the Middle East, Tony Bliar took the opportunity to hide his resignation – [ii] as Middle East Peace Nuncio on the inner pages, way behind the evil villain Sepp Blatter’s vilification on the front pages of last week’s fish and chip wrappers.

Rumour has it – [iii] that Bliar’s true religion is Footie; so that he has brushed up his CV and anxiously awaits the call from FIFA. Having sold war to the British middle classes, he is now returning home to sell New Labour II to this painfully indebted and war weary aspirational demographic – [iv].

If he can spin it all up in the traditional British desire for fair play and slavish fascination with the beautiful game, he’s onto another winner. First however, to satisfy his Messianic ambitions for the Rapture, he has decided to stir up Anti-Semitism; typically by taking a job that is supposed to prevent it – [v]. Readers, who are rhetorically thinking “Yanks don’t play footie so why are the Feds involved”, do not see the method in the apparent madness. They are advised to go back and read Age of Wisdom, Age of Foolishness (37) “The Third Man(date)“ – [vi]. In this volume of the series, the BRICS had just drawn first blood in the great battle to break US Dollar hegemony. Since then, Russia has been sanctioned, hit with a fall in Oil thanks to the strong Dollar; and is set to lose its World Cup competition hosting status – [vii]. South Africa is similarly embroiled in the World Cup drama – [viii]; and its own commodity currency recession thanks to the same strong Dollar.

Does anyone see a pattern emerging? Brazil post the World Cup failure, that will soon no doubt reveal evidence of grand larceny and malfeasance, is currently in the first stages of Latin American Spring.

The second stage of which will see the newly anointed – [ix] Carnival Queen Katia Abreu apply American styled free market policies, when she ultimately replaces Dilma Rousseff.

India is lucky that it plays cricket and not footie. It is far luckier that it is needed to play the regional balance of power game, between China and the rest of Eurasia, which is so critical to America’s Pivot. Thus it was last week, that India was signing up major arms deals with America – [x] whilst the Feds were locking up bad guys from the BRICS.

Such is the state of “Forsa BRICS” that China has now been isolated and must unilaterally take on America with its AIIB. We have been through the knockout stages and now we have reached the final. It is a game of two halves, now we are into injury time in the first half.

Readers who then read on to Age of Wisdom, Age of Foolishness (38) “Rosebud“ – [xi] will remember that it was suggested that Rupert would chase the Dragon. Footie is what the world has most in common, thanks to Rupert Murdoch, especially where headlines are involved. It is therefore a game that the Americans play; and as usual they play by their own rules and play to win.

Alexis Tsipras, another Champagne Socialist chancer like Bliar, pinned his hopes to avoid the Grexit onto the broad shoulders of Francois Hollande and Angela Merkel – [xii]. His hope was that the two would override the economic concerns of their finance ministers; and agree to a political solution that would allow Greece to welch on its debts.

Having failed to elicit the desired response from Merkel and Hollande, he then defaulted back to his traditional tactic of looking for a fault line within the Troika by deferring a payment to the IMF – [xiii]. In so doing he opened up the gateway to the Grexit; but he knows that neither the IMF nor the Europeans wish to go down as the party that triggered it and potentially the next Credit Crunch. His decision to call the bluff of his creditors may however backfire if the markets decide that the Grexit needs pricing in even if it has not even happened.

As was previously explained in Epoch of Belief, Epoch of Incredulity (22) “SPECTRE’s” Wolfgang Schaeuble is wearing the economic hat. He tipped this hat once again last week, signalling clearly that Greece’s position in the Eurozone would not be maintained at any financial cost – [xiv]; so the Grexit remains on the table, where he wants it to create leverage over the Greeks. Whilst Schaeuble plays Realeconomik, Merkel plays at Euro-Realpolitik by opining that a European solution is still within reach – [xv].

As the Greek economic offer failed to make an impact on the Troika, Tsipras tried to work the political angle to bring the two sides closer. His choice of the eponymous Euclid Tsakalotos, to come to the negotiating table – [xvi], was well made based on the actions his surname suggests that the Greeks will soon apply. Will Euclid live up to his family name though?

Epoch of Belief, Epoch of Incredulity (22) “SPECTRE’s” also observed that the Freshwater and Saltwater Schools of economics were battling it out for global supremacy at G7. Christine Lagarde the “Collaboratrix” had been seen to be adopting the Saltwater position, much favoured by the Anglo Saxon men. The IMF then hardened its attitude towards the Freshwater School, by openly criticising the EU’s slavish following of austerity Dogma and fiscal targets – [xvii].

Unperturbed by this hostility, the Europress simply rewrote what Lagarde had said ,about the probability for the Grexit – [xviii], with new the words saying that “Nobody wishes the Grexit on the Europeans” – [xix]. Unflustered, by the placing of unsalted words in her mouth, Lagarde continued to paddle up the salty Anglo Saxon river; and got her institutional brains trust to apply some sophistry – [xx] in order to opine that the Anglo Saxons can live with high debt “forever”.

Epoch of Belief, Epoch of Incredulity (22) “SPECTRE’s” explained how the agent Boris Johnson was positioning for leadership post Cameron. Johnson kicked his cap further into the leadership ring last week, when he opined that Cameron should be ready to Brexit if renegotiations break down – [xxi]. Johnson then made his play to bring the World Cup to England from Russia – [xxii], breaking his cover and revealing his true global intentions and capabilities.

The beginnings of a European strategy, for dealing with the threat from the confluent events of the potential Grexit and Brexit, have been observed developing into tactical deployment. The strategic objective remains to preserve the Euro and the long march towards political integration at all costs.

The speed bumps of the Grexit and Brexit have finally elicited an ingenious classical European response. Last week, Emmanuel Macron opined that he was in favour of the rationale for “Two Speed” European integration – [xxiii]. Translated into Anglo Saxon this means spinning the Grexit as a deliberate and successful political move. Greece and other Southern Europeans will be left behind in the Europa League, whilst the Northern European teams renegotiate the European Treaty in order to create a Champions League of the politically integrated. Britain can then decide if it wants to go into the qualifying stages for the Champions League.

In relation to the said potential Brexit, a “Two Speed Europe” will give David Cameron the opportunity to show his strength and opt out of the Champions League draw; with some notional commitment to discuss qualifying at a later date. This suits Cameron down to the ground – [xxiv]; as he can return to England with a political victory and take all the momentum out of the UK EU referendum. Qualifying, can then be conveniently left to another manager; and will then also be a decision only taken by said manager, since the credulous British fans will have already exercised their constitutional rights in the first meaningless referendum on EU membership. He can then retire, with his political reputation much enhanced. Sepp Blatter and FIFA look like amateurs in comparison to the European and Anglo Saxon politicians.

Epoch of Belief, Epoch of Incredulity (22) “SPECTRE’s” observed Larry Summers changing faith, in relation to what central bankers should do to accommodate policy makers in their quest for the Holy Grail of growth. The Grail being sought by Summers is growth masquerading as inflation.

To defend the honour and reputation of Janet Yellen, the Queen of Central Bankers, Prince John Williams opined what new vows the members of the FOMC Order must take. Williams’ speech was interesting, because it signalled how the Doves will behave going forward on the quest for Nominal GDP growth. Such a quest is unleashing the volatility in the bond markets that threatens to undermine the noble pursuit of inflation. In order to deal, with what has been termed the Temper Tantrum, Williams opined that monetary policy has no place in macroprudential stability policy – [xxv].

It’s a pity that nobody told the Mad Monk Ben Bernanke this fact, at the time when he was taming the beast of macroprudential instability by throwing money at it. Such behaviour created the current macroprudential instability that the New Order must now deal with. The Fed is therefore going to try to temper the Taper Tantrum by the application of macroprudential rules and regulations; in order to prevent the tantrum from destabilizing the financial system as another attempt to normalize monetary policy is made. Good luck with that….. and if all else fails there is always the old faith of more QE.

Mario Draghi, a former disciple of the Mad Monk at the high alter of Saltwater Economics in the New England cathedral of MIT, is keeping the old faith however. As a consequence of this old faith, he is creating greater volatility in the markets as the Fed’s exit Taper Tantrum gets discounted.

Draghi was almost cavalier in his dismissal of the cries of horror at the volatility that his intended course of action to deliver the full QE in the face of rising US interest rates will create – [xxvi]. As far as he is concerned, the markets will just have to wear it – [xxvii]. Draghi had the last laugh however; since far from signalling that the floor had opened up under the Euro, his announcement of the full QE was timed to coincide with some very strong European inflation and growth data.

The Euro bears, who thought that they could ride Draghi and the Euro down the trend-line again, got nailed by the strong data squeeze. When the weak shorts had all been squeezed out, the trap-door under the Euro then opened as Tsipras stiffed the IMF and the US released a stronger Employment Situation Report on the Friday. As Draghi had said previously, speculators were wearing it.

Governor Kuroda at first appeared to be far more circumspect about the Taper Tantrum than Draghi, before eventually losing the plot. He first opined that the BOJ must be vigilant about the impact on the Yen of the Fed’s tightening – [xxviii]. Having put his currency and his own credibility at the whipping post of the Yen bears, he is now starting to have misgivings about a new wave of Yen selling based on Fed tightening. He therefore got his go-to currency guy Yutaka Harada to verbally intervene; by saying that the Yen was currently in a “pretty good place” – [xxix].

Kuroda then began to stretch his credibility by using the analogy of Peter Pan to convince observers that the Japanese economy had reached escape velocity – [xxx]. The Japanese translation of Peter Pan that he has read is obviously not a good one; because the make-believe world of Neverland is a place that dreamers like Michael Jackson rather than central bankers inhabit.

Towards the end of the week, as tempers got frayed and tensions rose, “La Collaboratrix” tried to sooth the testosterone driven egos of the Alpha Males; by calling on the Fed to postpone tightening until H1/2016 – [xxxi]. Obviously she knew in advance that Greece was going to defer payment to the IMF, so this is why she spoke out. But what else is she seeing? Clearly there is some other amorphous globalmacro event out there, possibly related to the Grexit or the Brexit, that is going to break; and will demand that all notions of tightening get rolled back.