Tags: Richard Fisher | Eurozone | Federal Reserve | Patrick Spencer

Richard Fisher: Fiscal Authorities Failing Worldwide

By    |   Tuesday, 14 July 2015 11:45 AM

This writer chided a sometime talking head in an email exchange Monday for talking about the policy mess in Europe without bothering to mention that the U.S. is a leading source of global instability.

Richard Fisher, former president of the Federal Reserve Bank of Dallas made this same point on CNBC.

Asked what will happen whenever the eurozone has to raise rates, Fisher responded that it is “astonishing” that bonds of Spain and Italy “trade through” those of the U.S.

“This is the power of the euro; this is why you want to be part of the European monetary union, because you get this enormous lift from cheap money.”

He praised the global central banks but blasted the fiscal authorities for “abysmally failing their people.”

He was interrupted before he could talk about the U.S. circumstance, but a cynic might conclude that the EU benefits from the perception that its policy is backed by the U.S. Fed.

As U.S. TBTF banks prepare to report earnings, or as this writer would call them, “yearnings,” analysts and traders lined up as usual to voice their support for the group.

Meanwhile, Patrick Spencer, MD at Baird, responded to a suggestion that volatility spawned by the Greek crisis should be good for the performance of bank portfolios by downplaying trading as a factor but noting that banks have been outperforming, rising 7 percent in the last quarter versus 1 percent for the S&P.

“So the market is telling you that it’s faring quite well, and it’s telling you that what the markets care about is rising interest rates and what the Fed is going to do.”

A note of caution comes from Brendan Brown, head of economic research at Mitsubishi UFJ Securities International, with respect to high-yield credits, because he thinks the outcome of the Greek crisis makes it unlikely that the peripheral countries will be bailed out.

Brown also mentioned stresses in China and oil as “credits which could also fall quite sharply,” and he warned that “frothy” high-yield markets could eventually affect equities.

He added that whatever liftoff is in store from the Fed is going to be “feeble,” and he looks to the markets for events that will reflect their “particular vulnerability.”

Brown also referred to a shouting match between German Finance Minister Schaeuble and the ECB’s Draghi as evidence that the Germans fear the ECB will “print money” for the benefit of Greece.

Returning to the theme of the bullish outlook for bank stocks, Gemma Godfrey, of Brooks Macdonald, points to the complacency of investors and the tepid “relief rally” but sees the European economy strengthening and advises, “If you are brave, the banking sector looks interesting. They are in much better shape, and they are finally starting to take up this cheaper financing, and in a lean organization, that is going to flow straight through to the bottom line.”

Finally, Fast Money’s Pete Najarian goes through the financial group and enthusiastically recommends JPMorgan (JPM), Morgan Stanley (MS), and Goldman Sachs (GS). Steve Grasso adds Bank of America (BAC), but he would wait for a lower entry, and Karen Finerman repeats her recommendation of Citi (C) and her love for JPM and its CEO.

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Robert-Feinberg
Yesterday this writer chided a sometime talking head in an email exchange for talking about the policy mess in Europe without bothering to mention that the U.S. is a leading source of global instability.
Richard Fisher, Eurozone, Federal Reserve, Patrick Spencer
535
2015-45-14
Tuesday, 14 July 2015 11:45 AM
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