Home > Uncategorized > Never Complain. Never Explain.

Never Complain. Never Explain.


The key news of the day, of course, was that NBC canceled long-running show Law & Order after 20 years. The leaves NBC with only the various spin-offs: Law & Order Special Victims Unit, Law & Order Criminal Intent, and Law & Order Los Angeles. Asked about the cancellation, the producer Dick Wolf released a statement through his publicist that read only “Never complain. Never explain.”[1]

Eurozone politicians might take a page from Mr. Wolf’s book, because the combination of complaining and explaining just keeps making people nervous (U.S. politicians learned this in 2008, when just about any statement by Paulson, Bernanke, Bush, Obama, McCain, or Giselle caused the market to go into a spin). Markets were abuzz this morning with the news that French Prime Minister Sarkozy had apparently threatened to remove France from the Euro if Germany refused to support Greece (last weekend). The other European leaders were considering the possibility when the PM added that this meant also that Les Bleus would not participate in the World Cup this year, completely wrecking the bracket setup.[2] The Germans capitulated.

Add to this Chancellor Merkel’s remarks on the tape this morning; speaking in Munich, she admitted that “Europe is in a very, very serious situation,” and said that success is not yet guaranteed.

It seems that € 1 trillion is an awfully lot to spend if it doesn’t even guarantee success, isn’t it? As I’ve pointed out, though – as have others – the package is nowhere near that size when one considers that much of the commitment is in the form of loan guarantees and the IMF hasn’t signed up for its part yet.

The markets seemed to think that this was a little too much complaining, and perhaps a little too much explaining as Merkel also seemed to suggest that the crisis was very valuable in terms of forcing all governments to start making sacrifices. Hmmm, I don’t know what those sacrifices are going to be, but I am willing to bet it isn’t going to be stimulative! Bonds agreed, with the June 10y note contract +29/32nds on the day with the 10y yield down to 3.44%. Stocks agreed, with the S&P -1.9% for the day on rising volume (1.47 billion shares); European bourses fared much worse with the Eurostoxx50 -4.7%. The VIX popped to 31.24, second-highest of this leg of the crisis, and inflation expectations fell 6-8bps across the curve. Oil dropped 4.2%. The Euro plunged to $1.235, and weakened some against sterling as well. Even gold could barely manage a positive close (+0.3%)!

All of this came despite Retail Sales a touch stronger than expected (considering revisions) and with Industrial Production and Michigan Confidence near expectations. But as has so often been the case recently, the economic data points do not matter much. It is old news, in some sense. Fine, so the U.S. economy was gathering momentum before this latest in a veritable flock of black swans flew by. The data just doesn’t matter much, so unless you’re pretty sure you know where the next news bulletin is going to hit the only thing an investor can prudently do is focus on risk control.

Next week, although it probably doesn’t matter, the data flow is a little heavier than it was this week. Empire Manufacturing (Consensus: 30.0 from 31.86) is released at 8:30ET on Monday, and the NAHB Housing Market Index (Consensus: 20 from 19) comes out at 1:00ET. The rest of the week will hold Housing Starts, PPI and CPI, the FOMC minutes, Initial Claims and Philly Fed. This creates at least the theoretical possibility that domestic markets might trade on domestic news and data, but this will depend on whether the situation in Europe looks more like it did on Monday of this week (all is calm!), or more like it did today (the world will end tomorrow!). Who knows, perhaps there will be another €1 trillion package this weekend…that was good for 3 days or so anyway of relative peace. It’s not like there’s any substance behind the figures; maybe they’ll announce a “gazillion-euro” package. If they can eschew explaining or complaining when it is announced, maybe it will even stick.

Although it is much less compelling theater, we need to also keep an eye on the developments in the financial reform bill. Two senators are pushing to include language to prohibit the trading of swaps over the phone, in the name of ‘transparency.’ They think the dealers will really hate that because they’ll lose the ability to rip off clients (that’s not the way the senators put it, but that’s essentially what they mean). I imagine the dealers won’t like it, because many times the only way to work size is anonymously with a trusted interbank broker, but you know who will like it even less? Firms with big hedging needs. Dealers can always choose not to offer more liquidity to clients than they can lay off, but the same cannot be said of their clients. The GSEs, in particular, will be creamed by this rule, if it is put into effect. The only way to move a couple of billion of 10-year swaps without destroying the market is to do it quietly. If the GSEs and other mortgage hedgers are forced to go on the screens, hedging will get orders of magnitude more difficult.

That is only the latest damaging rule in the legislation. It is rapidly getting to be a Frankenstein’s monster not just in the sense that it is assembled of a lot of parts that don’t match well, but also that it is likely to have a life of its own and go on a killing spree.

This is one circumstance where it might make some sense to explain, so that we don’t later have to complain!


[1] This is not a joke. He really did release a 4-word statement.

[2] This, however, is a joke.

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