Monday, November 28, 2016

Sometimes when I read the papers there is a disconnect between the reported stories and what seems to me to be obvious. Recently there is a lot of ink spilled about OPEC reaching an agreement about cutting production to raise the price. Every major oil producer is strapped for cash and the chance of these countries reaching a agreement to cut their cash flow voluntarily is non existent. The US-Iran deal allows Iran to sell their oil on the world markets putting pressure on Russia and Saudi Arabia who are  pumping oil with both hands because they need the money. If I was betting on a sustainable oil price increase I would be very nervous.

The Financial Times has an article this morning about the Italian banking system. Ever since the financial crisis in 2008 the worry about the banking system in Italy has been bubbling below the surface. I don't believe anyone has done anything about it and it seems ready to finally surface depending on the referendum next week. Throw an Italian banking crisis on top of Brexit and it might be time to turn on the fasten seat belt sign and strap in for a bumpy ride.

Why bank stocks in the US markets are up big since the election is a mystery to me. Traditionally a Republican administration is favorable to the industry, but the incoming President ran anything but a traditional campaign. There was a large component of populism in his victory and this will create a conflict between the financial industry and the voters who supported his election. Some direction about dealing with this dilemma will be indicated by whoever is appointed Secretary of the Treasury. Stay tuned.

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