Teaching new dogs old tricks

Teaching new dogs old tricks

A quick quiz before we start…

Who can name Barack Obama’s Treasury Secretary(s)?

Just as I thought. We all knew Tim Geithner since he was instrumental in the reaction to the financial crisis, but after him?

Jacob Lew anyone?

No, me neither.

That’s because under Democrat Administrations, the Treasury Secretary is not such a high-profile position as under a Republican one.

This is an extension of the benign neglect that the dollar receives from Democrats who prefer to concentrate on domestic agenda, believing that all is good at home. Such things as trade take care of themselves.

When you consider that only ten percent of Americans own a passport, it maybe isn’t such a bad thing. That would probably have changed had Hillary Clinton won the election given her more “International” outlook. Secretary of State is another close to redundant role under the Democrats.

I can just picture Jacob Lew, John Kerry and Joe Biden becoming very good at chess and cards during Obama’s second term.

If we look back a little further, to before the financial crisis, there is something missing today that is going seemingly make a return. Political and/or central bank influence over the exchange rate.

We have seen the mayhem caused last week by the ping pong played between Secretary Mnuchin and President Trump over strong dollar/weak dollar.

Intervention is an almost forgotten concept. The cries of “the BoJ are in” are a forgotten sound now as the market took on and beat the Japanese Central Bank’s desire to weaken the JPY. It all got a bit complicated with sterilized versus unsterilized intervention, then supported or not.

In the end, they just gave up and resorted to ultra-low monetary policy before that became a “thing”.

As the global economy returns to normal, there now seems to be a scramble to ensure that G7 economies gain their “rightful” share of world trade.

New world order brings new problems 

So, the U.S. wants a weaker dollar but isn’t about to say it in public despite the fact it may be in their best interests economically.

As President Trump heard Munchkins’ words in Davos, he must have expected a call from Beijing or Tokyo at any minute. Right now, Japan and China hold the U.S by the unmentionables, owning a large proportion of their debt. This is, after all, what keeps world trade revolving.

Basically, China and Japan lend the U.S. money to allow them to buy plenty of their goods, which means funds flow back to China and Japan who buy yet more bonds and the cycle continues.

But, as the dollar weakens, the value of those bonds diminishes in value, and with extremely low interest rates, the deal starts to favour the U.S. more and a rebalance is necessary.

In the past, under Democratic Government, the dollar has been allowed to strengthen and the U.S. has sucked in more goods, but that now seems ready to stop.

Next time Donald is about to drive on the first tee with his “good friend” Xi Jinping, the Chinese Premier may just remind him of who currently holds the purse strings. Cut to a golf ball flying way right into the trees.

Brexit: Just when you thought!

David Davies, the UK Brexit minister made a speech in the North East of England last week in which he revealed his hopes for what the UK can expect from the transition deal.

The negotiations restart shortly and in the grand scheme of things, the only thing that really matters about the transition period is its length.

It is a bit like trying to plug a hole in your boat as a Tsunami approaches.

Chancellor Philip Hammond’s comments that the UK and EU economies would diverge only “modestly” following Brexit were, at best, wishful thinking. The EU economy, as will be revealed by this week’s GDP data, is set to grow at a far faster rate than the UK, Brexit or not.

George Osborne’s fantasy of the UK being the fastest growing member of G7 was never going to last. It was the quick fixes that Treasury and Bank of England are so fond of that gave that appearance.

It’s going to be Norway style during the transition period, as Belgian MEP Philippe Lamberts said: “During the transition period, the UK will be a member in all but name, but it will no longer sit at the two tables where decisions are made; parliament and council.

What’s more, it’s the discussion over transition period will run on, particularly if the U.S. goes through with their plan to start a registration scheme for EU residents arriving after the official leave date of March 29 next year.

Financial services are the real battleground

Forget the phoney wars, the EU, Frankfurt and Paris. See Brexit as the best opportunity they will ever have of wresting a portion of London’s pre-eminence in Financial Services away.

Monsieur Macron has already started to gauge the lay of the land commenting that a bespoke deal on trade in goods and services should be made available to the UK.

Macaron’s bespoke deal involves giving the UK what they want on good where the EU has a huge trade surplus with the UK but acting tough on services where the battle will be fought.

Michel Barnier has also weighed in, saying the UK will not have access to the Financial Passport which provided preferential treatment to those financial institutions within the EU who don’t need separate licenses to trade in every EU country.

Now, Goldman Sachs CEO Lloyds Blankfein, never one to avoid stirring the pot, has commented that his firm has almost reached the point of no return in its arrangements for a post Brexit landscape.

That landscape will, it appears, be viewed from the top of a tower in Frankfurt.