Market Notes, 4-5th July 2020

Worth Reading

  • Latin-America’s Airlines Are Crashing, But There May Be No Bailouts. Aeromexico Denies Filing for US Bankruptcy . What a peculiar form of capitalism, where investors lose out when the companies they invest in are not economically viable. It will never catch on in the US or UK. It’s as if the planes that will have to be sold, and the pilots who know how to fly them would be deployed productively by other companies if the existing, badly run companies, were allowed to go bust. Of course as we know the financing of airlines is a mess, with governments ever-ready to step in to bail out their national champions because it would be embarrassing for politicians not to have airlines flying the flag. This sort of thing is supposed to be ruled out by EU competition policy, for obvious reasons. But of course there is massive lobbying to make sure that when the UK leaves the EU we won’t comply with this policy or, in other words, future governments will shovel more of our money in the direction of the companies that pay the lobbyists. So, governments justify bailing out national champions because, well, other governments will bail out national champions. It’s almost as if the EU had devised a mechanism to stop this prisoner’s dilemma.

  • As the Biggest Restaurant Chains in the UK Fall into Bankruptcy, Attention Turns to KKR & Other PE Firms that Own Them. It seems that financing pubs and restaurants with near 100% debt was not a great idea after all!

Can J. Powell’s printer “go BRRRRR” fast enough to finance Trump’s re-election strategy?

  • JPMorgan Concludes The World Is Drowning In Too Much Debt For Stocks To Go Down Again. I try to avoid reposting too much stuff from ZH. It makes me look like a conspiracy theorist. It seems that JPM’s analyst Nicholas Panigirtzoglou put out a note saying that the yield curve inversion we’ve recently seen was spookily like that which preceeded the Q4 2018 mini-crash. 24 hours later he had put out a contradictory note saying that with the Fed doing so much money printing it was impossible that stocks would ever go down again. ZH’s conspiracy theory was that he was leaned on.

Oddly enough, Druckenmiller in his June 2020 interview mentioned that in Q3 the financing required by the US Treasury would start to exceed the quantity of easing being conducted by the Fed. Central Bankers are constantly pleading with Treasuries around the world to “do their bit” for stimulus by running deficits. I have always thought this was just a front, and an admission that the CBs were running out of treasurys [sic] to buy. Maybe this time Powell will get his wish. Wolf Richer has noticed this too. They said they’d act quickly and avoid the extended unwind that characterized QE1-4. I’ll believe it when I see it, but they’ve made a good start. Wolf commented about this on 19th June too, and on the 18th. He’s nothing if not consistent.

It’s all very confusing, because actually the Fed has been shrinking its total lending since 7th June. Yes, Koyfin is a pretty wonderful system, for the price. The neat thing is that if you find the ID for a data series in the St Louis FRED system, you can just type it into Koyfin.

What is money?

Daniela Gabor on Financial Globalization, Capital Controls, and the Critical Macrofinance Framework is a great podcast, but one which requires a bit more concentration than some. Daniela refers to work by Herman Minsky, but at no point mentions his “Minsky Moment” work. It’s a dense podcast, which looks at the details of the monetary financing regimes on both sides of the Atlantic. Divisia M4 gets a mention too: something I still find very récherché. I recommend it, if only as an example of what high quality podcasts are available now on more esoteric subjects. A few takeaways: shadow banking is important. ETFs are very important. What constitutes money is changing. It’s not enough for the Central Banks now just to stand behind “traditional” banks. People seem to have stopped worrying about ETFs. Like banks, they seem to achieve a miraculous maturity and liquidity transformation on underlying assets which are neither. Possibly, like banks, when the going gets tough, the curtain will be pulled back to reveal an old man performing a parlour trick. (On that note, did you know that the Wizard of Oz was meant to represent the Chairman of the Fed in Frank Baum’s book, although he always denied it.)

M2 is taking off:

Insider Sales

I have a negative view on a number of stocks. Reported in $EHTH, $MRNA, $MU, $W, which are amongst those stocks. Probably nothing.

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