Random Musings on Markets 2019: A Saucerful of Musings

In this Friday’s not-weekly roundup of news oddities, we bring you some suggestions for ECB-head-to-be Christine Lagarde, a lament on the missed opportunity for an all-star Fed Board and two missives from the gridlock file. Hope you enjoy the read!

Some Suggestions for the ECB President-in-Waiting

Late Wednesday, as part of a media frenzy following IMF head Christine Lagarde’s nomination to lead the ECB, Bloomberg published a piece highlighting her penchant for quoting historical figures, artists and philosophers in speeches concerning economic policy. Heck, she invoked Mozart’s Magic Flute in 2016 while discussing the euro crisis’s legacy. They posit this may bleed into her policy discussions and statements as ECB chief—complicating analysis by market participants.

We generally find this concept delightful. We have long criticized the unnecessary hyperfocus on central banks and central bankers’ words here. You just can’t use central bankers’ words to forecast their actions. They change their minds. They say things that are open to interpretation. They tell tall tales.^[i] They politick. There is little reason to delve deeply into such speech, if you even can. As former Fed head Alan Greenspan once noted, “If I’ve made myself too clear, you must have misunderstood me.”

So we welcome Ms. Lagarde’s fondness for quotations and metaphors. We hope she goes nuclear with them! Lao Tzu. Salvador Dali. There are so many options! Here are a few suggestions:

“In theory there is no difference between theory and practice. In practice there is.”

–Yogi Berra

“If you could kick the person in the pants responsible for most of your trouble, you wouldn’t sit for a month.”

–Theodore Roosevelt

“Everything is funny. As long as it is happening to someone else.”

–Will Rogers

“Between two evils, I always pick the one I never tried before.”

–Mae West

Then again, we figure Ms. Lagarde will likely take Martin’s Little Pill very soon, so perhaps she will forget she was fond of quotes and metaphors.

A Lament for What Could Have Been

Earlier this week, in MarketMinder’s more, um, serious commentary, we covered President Trump’s planned nominations of Judy Shelton and Christopher Waller to the Federal Reserve’s Board of Governors. We are sure they are fine people and have no animus against them. Yet we still greeted this news with sadness, as it represents a missed opportunity: the chance for Trump to turn the Fed into a fantasy monetary policy team.

You see, a few weeks ago Trump lambasted outgoing ECB President Mario Draghi as a currency manipulator. Then he flip-flopped and lambasted Fed head Jerome Powell for not stimulating the economy as much as Draghi, implying a secret admiration for the gentleman we like calling Super Mario. This gave us an idea: What if Trump nominated Draghi for the Fed board once his ECB term expired this autumn? Even better, what if he tapped BoE chief Mark Carney for the final Fed board position after his own term expired early next year? Not that it would improve policy any, but we figure the Davos crowd would be #mindblown.^[ii]

Alas, this is not to be. And we are sad. It could have been glorious. Every Fed meeting would be Jackson Hole! They could have shot a reality show while they were at it! Or a three-man buddy comedy! With jokes about natural interest rates and the non-accelerating inflation rate of unemployment and the Taylor Rule! They could have blinded us with jargon! Former Chairperson Janet Yellen could have made a cameo and punned up a storm! The Fed could have been a contenduh!

But now it will just be a boring old central bank, as it always has been—unless Trump gets a wild idea and decides to nominate Draghi as Fed head if he wins re-election next year.

Gridlock Is a Beast

Your friendly MarketMinder editorial staff has often countered fears of eurozone populists by pointing to Italy—a place where populists won an election, formed a government and has since floundered in gridlock and internal squabbling. The moral of the story: If a government spends all its time fighting among itself, it can’t pass radical legislation, rendering fears false.

Every now and then, a story pops up giving us tangible evidence of this gridlock. One amusing example arose this week, with breaking news that the coalition’s two parties were deadlocked over what to do with … a bear.

The ursine creature is a three-year old fluffy brown fellow with the creative name of M49. (Inspired by James Bond flicks?) He is one of 80 brown bears living in the northern Italian region of Trentino. In his quest for survival, he has raided beehives and attacked livestock, rendering him a rather vicious real-life Winnie the Pooh with no animal friends. His rap sheet thus far includes the death of seven donkeys (Eeyore does not approve), three sheep and a cow. Residents worry his quest for meat and hunny will soon spiral into attacks on humans and, understandably, want something done about the threat.

The local government is led by a politician from The League, which is the far-right partner in Italy’s national governing coalition. He has asked the government for permission to catch M49. But the environment minister, who hails from the Five Star Movement, is siding with the bear. (Well, and animal rights activists who worry about the danger posed by anesthetics used during capture.) A bear just being a bear doesn’t deserve to die, they say.

And so we ask: If these parties can’t agree on the fate of one marauding (but cute) bear, how can they agree on major policy overhauls? If they can’t pick the low-hanging fruit, they seem highly unlikely to be able to come to terms on bigger, much more contentious issues.

A New Form of Political Gridlock?

Last week, 11 of Oregon’s 12 GOP state senators returned to work after they collectively made a run for the border, and we don’t mean they had a hankering for chalupas. {Rimshot} No, the Republican contingent fled to Idaho June 21 to boycott Oregon House Bill 2020—a cap-and-trade measure designed to curb carbon emissions. The House passed this Democrat-sponsored bill June 19 and the GOP contingent apparently expected it to sail through, given the Democrats control the Senate 18 – 12. Governor Kate Brown is also a Democrat, which many took as a sign this bill was a fait accompli. Republicans opposed the measure and argued it should be put to the citizenry in a ballot measure.

When that move failed, the GOP crossed the Snake River. Senate rules state 20 senators must be present to hold a vote. So with 11 of them on the lam, the Oregon Senate couldn’t vote on the measure. Brown dispatched the Oregon State Police to try retrieving them, but to no avail. Ultimately and ironically, the Democrat Senators then admitted they didn’t have the votes to actually pass HB 2020, meaning GOP senators’ dramatic escape may have been unnecessary. The bill was withdrawn and the fugitive Senators returned.

Of course, the question this might raise: Could this newfangled “flee for gridlock” work on the Federal level? The answer is technically yes but realistically no. The US Senate requires 51 senators present to conduct legislative business. It’s hard to imagine half the Senate heading for Toronto to oppose voting on legislation, especially when they could just, you know, vote against it. But the states are weird and weird gridlock featuring a posse chasing down legislators is kind of a fun mental picture in our minds.

Sports Sports Sports!

Shouts out to the US Women’s National Team and tennis phenom Coco Gauff! You ladies are making this an epic summer for sports. You too, Sloane Stephens, Serena Williams and the mighty Lionesses, who gave the USWNT a solid run for their money on Tuesday. Readers, if you aren’t watching soccer and tennis this week, you are missing out. Join us, won’t you, and watch the World Cup final this Sunday.

Enjoy your weekend!