Thoughts on Super Thursday

Thursday, June 08, 2017 // Written by Enzio von Pfeil


-Notes for today’s RTHK radio show, Hong Kong: UK election, ECB and Comey's testimony-


a. Here are my observations as a German-American foreigner who lived in London throughout the eighties.

b. A Labour victory - or indeed a hung parliament – surely MUST weaken Britain’s BREXIT negotiation hand

i. These elections make Britain appear totally undecided

ii. This apparition of indecision plays straight into the hands of Europe’s hard liners who want a tough deal for Britain’s exit terms

2. ECB’S LATEST MONETARY POLICY DECISION1 re staff forecasts about growth and inflation

a. Markets expect monetary policy to remain unchanged

i. i.e. NO tapering, no winding-down of the ECB’s gargantuan stimulus programmes to revive the European economy

1. Hitherto, the ECB has purchased €1.8 trn of sovereign debt, asset-backed securities and – as of a year ago - various corporate bonds

2. Currently, the ECB is adding €60 bn2 to this stash every month

b. But this inertia may make markets believe that

i. ECB President Mario Draghi is behind Europe’s inflation curve, because

ii. He wants to keep suppressing debt yields of Europe’s periphery countries such as Greece

1. è to paraphrase, “the bailout” goes on…

2. Indeed, just last week, Draghi told the European Parliament that the Eurozone still needs an extraordinary amount of monetary support

c. But the music may stop sooner than you think.

i. At its meetings this September, October or December, the ECB may announce an end to its bond-buying programme by the end of 2018

d. This means that by the end of next year, tapering ends”: no more net purchases of bonds!

e. This supposition flounders on the belief that Europe’s growth3 and thus inflationary pressures4 are gathering pace. Nothing could be further from the truth

i. This welfare museum has regulated its way out of a business cycle

1. Witness how the French unions already now are opposing even a whiff of change to France’s labour laws, one that Macron made one of his campaign promises

ii. The 19-member-strong ECB is operating – like all Central Banks – by driving with a rear-view mirror: there is no more demand-pull inflation, courtesy of

1. Globalisation as well as

2. Automation5

3. è the global supply curve has gone infinite, meaning that an increase in demand can be met by

a. A build-down in inventories, or

b. Increased production abroad or via non-unionised robots


a. “DC”stands for “Dysfunctional Capital” (Allison Graham’s “Thucydides’ Trap”

b. These hearings address two matters

i. Russia’s alleged involvement in America’s Presidential elections, and

ii. Comey’s dealings with Trump regarding this matter

c. è market effects if it gets a whiff of hanky-panky by the Russians or the White House

i. Gold will rise

1. Already it stands at USD 1,290/ounce, the highest since 9th November 2016

ii. America’s stock markets will be even more skittish with a downward “bent”

iii. The Dollar will dive, especially against the yen, and

iv. US dollar bonds will be sold, i.e. bond yields will rise.

1. This may raise the policy-sensitive two year Treasury Note yield

v. All of which will exert a last-minute influence on the Fed who are due to meet next week in order to deliberate on Fed Funds

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