Kim Jong-un is behaving like a textbook schoolyard bully and as we all know, reasoning with bullies never gets anybody anywhere.
But what if a bigger and stronger bully turns up and threatens to knock his block off? The media are full this morning of complaints that President Donald Trump is using such non-diplomatic language with his threat of “fire and fury” but if just one of the “meedja” geniuses can show any progress whatsoever that has been made over the past months or years by trying to reason with North Korea, then I shall be the first one to swing in behind them.
Anyone who can remember the sad 2003 spectacle of then-Secretary of State Colin Powell sitting in front of the United Nations holding a small vial of white powder and trying to use that as proof that Saddam Hussein posed a threat to global peace and needed to be taken out in a legal strike will grasp that sometimes one needs to fight fire with fire.
Powell was in turn trying to replicate the barnstorming performance by Adlai Stevenson, the then-US ambassador to the United Nations in October of 1962 in which he put the Soviet Union on the spot over the placing of nuclear missiles of Cuba. The fact is that in 1962 the UN still had authority and what was presented on the floor of the Security Council carried weight. The recent resignation by Carla del Ponte from her role on the UN enquiry into human rights abuses in Syria speaks volumes.
So maybe Trump, seen by many as something of a schoolyard bully in his own right, has got the measure of Kim and maybe the “I’ve got a bigger one than you have and I’m not scared of using it either….” is a justifiable approach to the North Korean conundrum.
Overnight market movements are being held up as a reaction to the Trump threat although in the greater scheme these moves are so small that they might just as well be technical adjustments to the ongoing macro moves. Sure, the greenback has gained a half a cent on the euro but I can assure you that if you go back into the charts in a few weeks’ time and try to identify the day when America first talked of fire and fury, you’d be hard pressed to pick the spot.
Dimon geezer
The real fire and fury, for my book, came from JP Morgan supremo Jamie Dimon who gave a pretty explicit interview to CNBC in which he opined that banks aren’t buying back stock and reducing capital because they don’t want to lend but because lending has become such an arduous and over-regulated process that they simply can’t. He took a further swipe at the authorities when he commented that he could see no 10-year sovereign bond in the world that he’d want to own. The worst thing is that when Dimon, alongside Lloyd Blankfein one of the world’s two most influential private sector bankers, speaks somebody ought to listening. I somehow doubt it. Trump made all the grand speeches about unbundling some of the regulation that constrains the banking sector but as yet he has done dick on a stick about it. Over on this side of the pond, some of the asinine fiddling with MiFID II regulations ahead of their introduction manifests legislative control freakery, which is now becoming more scary than the sector it is trying to control.
I hear that Markus Ferber, the “lead legislator” on the MiFID II market rule overhaul in the European Parliament, is said to have bemoaned a decision handed down by EU regulators that will exclude certain interest rate swaps from rules meant to increase “trade transparency”. Major parts of the multitrillion-dollar derivatives market will remain in the dark for almost two more years because the European Union is soft-pedalling on the introduction of its own new trading rules, according to him. Herr Ferber, apart from having read engineering and having worked for Siemens and for Pfister, has only sat on the supervisory board of the Augsburg regional savings bank. My dim view on the roles local political grandees play on the boards of regional lenders is no secret. And now this guy, with little more practical experience of capital markets than my neighbour’s cat, is complaining because somebody out there is trying to make the leaden-footed legislation workable in practice? Are they all fiddling while Rome burns?
Take the following: at the beginning of the financial crisis the Fed reported outstanding US consumer credit to stand at, give or take, US$2.57trn. When last reported at the end of June, the same figure was US$3.855trn, an increase of just over 50%. All the while, US CPI has only risen by an aggregated 17.57%. That computes back to 1.63% annualised CPI but consumer credit growth of 4.26%. The statistics for Europe are not quite as clear and given what we know about previous practices in some of the European statistical offices I am loathed to trying to draw comparisons. I am, nevertheless, left with an innate feeling that the likes of Herr Ferber are busily trying to work out what’s wrong with the compass when it’s the rudder that is broken.
Markets
Overnight the Nikkei took a tumble of 257.30 points to close at 19,738.71 but as ever, one need only look to the dollar-yen exchange rate to see where the move has come from. The currency is now back above – or should that be below? - ¥110.00, which in turn is of course put down to the flight to quality in light of the competitive sabre-rattling between Kim and Trump. I always thought the great flight to quality trade was into the dollar and not out of it but perhaps that does not hold true for Japanese investors.
There is no doubt a miserable feeling at the moment and, after some stunning moves in both stocks and credit spreads, a darned good excuse for a bit of profit taking can’t be sneezed at. Look for a bit of weakness across markets today but don’t assume there’s a nuclear conflict about to break out. Beijing’s demonstrative reticence is probably more good news than it is bad and Trump’s silence on the rising US trade deficit with China should also not go unnoticed.
Keep an eye on France’s industrial production. Young Macron is now finding himself faced with the reality rather than the dream and it will be interesting to see whether he and his administration face the challenges head on or whether they smile sweetly and hope they’ll all just go away. For the moment it is August and nobody cares but in three weeks it will be September and then what?