– From “Lenguistics”, by Paul Lengeman –

Greece has been at the center of discussions in the markets for several weeks now. It has had a significant impact on the value of the euro, on sterling and to some extent the Swiss franc. Most importantly, it has put a spotlight on the whole subject of sovereign bond trading as an alternative to pure currency dealings and equities trading.

Unfortunately, some of these discussions have also entered into the popular press and the political arena where no one is sufficiently educated to know what all the discussions mean. Thus, major distortions could enter into the equation.

Fortunately, the subject of sovereign bonds is so boring for most people their eyes glaze over quickly and they forget there was a discussion at all.

As for the real world, it is quite clear that the people who run the European Union are now ready to take action and prevent the budget crisis to turn into a local and then a global fiasco. This problem is as serious, if not more so, than the inactions by central banks that preceded the Great Depression. [entire post]

– From “Lenguistics”, by Paul Lengeman –

Anecdotal reports usually come first, and then the official statistics confirm what is happening in the real world. Some of the U.S. automobile companies are already feeling the improved economic environment. Look at Ford (NYSE: F). They had a huge increase in sales in the last month. The next companies to look at are the better retail chains, such as JC Penny (NYSE: JCP) or home improvement companies such as Lowes (NYSE: LOW). If these firms show good sales and earnings results we might be on the road to true recovery.

An unscientific survey of several businesses in the North-East and in Florida concluded that an early spring is in the air. Business is growing to some extent. Businessmen are more positive.

Says one sales executive in New York: “There is activity. There is not a lot of closing going on yet. But there is activity. Before Christmas I would get five or six emails and most of those were from co-workers complaining that there was no business being done. Now I get 50 emails a day and less than a handful are from colleagues. The emails are mostly inquiries; few are people asking to buy.” [entire post]

– From “Lenguistics”, by Paul Lengeman –

We’ve changed accounting now so the balance sheet is not so bad anymore since we can mark to “belief” rather than “market”. All debt is now FDIC-backed so if the bank ever goes bad, well the taxpayer will cover it. We’ve (Hank Paulson) changed the tax code in the still of the night last fall during TARP so these mega mergers between banks create huge windfalls for the acquiring banks.

The battle lines for bank reform are drawn. The big banks are on one side with their legions of cash-laden lobbyists. The major governments and international institutions with their huge powers to enact laws are on the other. Each is powerful enough to crush the other.

Who will prevail? The betting should be on the governments. Oddly enough they have reason on their side and they have an extremely angry global constituency on their side. In their minds’ eye they can see the masses ready to revolt, ready to lynch them if they don’t rein-in the greedy bankers.

The talk is about separating commercial banking and investment banking. It is clear to everyone that the banks cannot be allowed to take their depositors’ money and use it to gamble while refusing to lend for commercial needs. If the governments can achieve that separation they will be safe from the lynch mob.

Paul Volker, the former Fed Chairman and current advisor to President Obama, wrote an article in last Sunday’s edition of the New York Times about just that subject. His arguments for re-separating commercial and investment banking are powerful. They are a call to action now. [entire post]

– From “Lenguistics”, by Paul Lengeman –

We got at least one thing done. By “we” I mean our erstwhile representatives in Congress whom “we” elected. What did we get done? We reappointed Fed Chairman Ben Bernanke.

Now, why is that even an issue? The man is competent, intelligent and effective. Unfortunately, our “morons” (instead of solons) on the Hill wanted somebody who bows to the politicians’ will not someone who has the highest education, the best academic credentials and the greatest competence.

With Bernanke established for another four years at the helm of one of the most important institutions in this country and during a difficult transition of the financial system from one of speculative growth to actual growth, we can rest easy that a trustworthy man will be guiding us.

In addition, there is a growing chorus of international self-serving leaders who want to end the dollar’s dominant position as the key medium of exchange. Bernanke will deflect the worst attacks on the dollar and will be there to ensure our currency’s continued viability as a store of value.

There was an article in The New York Times today that said French President Nicholas Sarkosi was calling for a new Bretton Woods agreement, one that did not have the dollar as its central role. China wants the same thing and so does Russia. [entire post]

– From “Lenguistics”, by Paul Lengeman –

Bank of America Corp. (NYSE: BAC), Citigroup, Inc. (NYSE: C), Barclays PLC (NYSE: BCS), Wells Fargo & Co. (NYSE: WFC), Goldman Sachs Group, Inc. (NYSE: GS), Morgan Stanley (NYSE: MS) and others should take to heart the President’s remarks, yesterday morning, regarding financial reform.

President Obama said, “It’s for these reasons that I’m proposing a simple and common-sense reform, which we’re calling the “Volcker Rule” — after this tall guy behind me.  Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.  If financial firms want to trade for profit, that’s something they’re free to do.  Indeed, doing so, responsibly, is a good thing for the markets and the economy.  But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.” [entire post]

– From “Lenguistics”, by Paul Lengeman –

Market attitudes continue to confound the markets. If market participants had their way, they would keep on selling the US dollar no matter what. Evidence is mounting, however, that this entrenched point of view needs major adjustment.

Most important is the fact that the economic outlook for the US is looking better than anticipated earlier. If the economic number over the next two months keep showing improvement there is no doubt that the Fed will start raising interest rates and syphon off cash from the banking system. That should persuade market participants that the dollar is a good buy. [entire post]

– From “Lenguistics”, by Paul Lengeman –

It’s the Beginning of the End for President Chavez.

Venezuela’s bolivar (VEB) was devalued over the weekend by some 40%. The new bolivar fuerte was set at VEB 4.3:USD1.0 up from VEB 2.6:USD1.0.

This virtual halving of the official exchange rate against the dollar is not a good thing for the country. Although it will double the local value of Venezuela’s oil sales abroad, it will also massively increase inflation. The rate of local monetary erosion is around 22%. That undoubtedly will accelerate dramatically.

Moreover, the black market value of the bolivar will now begin to soar. What the rate of exchange will be is not clear at the moment, but we will find out soon.

Those who are old enough should remember what happened in Chile when President Salvadore Allende, in September, 1973, was ousted in a coup after driving his country’s economy into hyper-inflation and virtual economic stand-still. [entire post]