Waiting for the extraordinary

Mint – Blain’s Morning Porridge 

We got no ship, no crew, how’re we going to get out of this one?

Short comment this morning – we’re waiting for the Federal Reserve tonight and something extraordinary from the Bank of Japan on Friday. Rumours are the Japanese plan a Yen 13 trillion pack of “fiscal” measures. This will be interesting – confirming the basis of global policy measures is shifting: from pure monetary experimentation into the realms of actually doing something tangible.

The questions such a shift in global policy would create are legion:

What will fiscal expenditure do to already massive country debt burdens? (This is not necessarily a problem for the UK and Japan – their central banks could simply accept a perpetual zero-coupon IOU from their respective treasuries – making the debt currently held via quantitative easing disappear via an “Evanesco” spell. (Yep, I had one of the interns look up on Potter-world what the spell is…)

What would rising government debt do to inflation expectations? Inflation? Just had to explain the concept to said intern!

How quickly will fiscal announcements translate into real economic activity? More to the point, how quickly will markets price such activity in?

On the basis Europe is a continent of Muggles unable to practice fiscal financial chicanery, how quickly will fiscal expansion elsewhere translate into European growth? European growth… is there no end of things to explain this morning..

Or will expectations of Japanese fiscal policy be disappointed? In which case.. who will be first up to the plate?

I sent out a note yesterday on the European bank stress tests. It got a fair amount of comment, much of it relating to Deutsche Bank.

To be fair, DBK does seem to be getting lots of negative press and much of it is probably undeserved. It’s in the middle of results this morning, but from the comments I’ve seen from the analysts, it’s all about how much it can continue to trim costs and generate capital while avoiding a regulatory event. Good luck to them.

However, one point that was made to me yesterday was short-term funding. In the past most banks fail not because of some massive one-off event killing their capital, or from betting the shop on black and red comes up.. (actually, that’s pretty much what happened to Barings..)

Nope, most banks come a cropper because their funding dries up – starting at the short-end, where it hurts first and hardest. I’m reliably informed the German banks are paying 20-30 basis points more in the money markets than other Northern European names for short-money.. (Which admittedly might not be particularly relevant as the European money markets have all but died, and who actually pays attention any more…)

Finally, I went to see the new Star Trek last night, and enjoyed it greatly. As a little boy, I lived for Tuesday nights when the original Star Trek hit the small screen on the then new BBC2. The new film is the closest to the original TV series yet. Most of the characters have found their feet and the old banter between them has been re-established. Just don’t ask me what the plot was about.. I’ve absolutely no idea what was happening.. but whateva… lots of improbable action… 

Out of time..  

Bill Blain

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07770 881033