"Where's my money?" - Homer Simpson - Commentary January 2017

    There is a classic episode from The Simpsons that begins with the entire Simpson family in church. The Reverend appears to have concluded the service with an, “Amen.” To which Bart then muffles his combed hair and says, “Amen. We’re done.” The Reverend then says, “Allow me to introduce our guest speaker…” Homer immediately moans in the background, “UGHHHHH.” The Reverend continues, “…from the ill-advised mission in Indonesia: the Reverend Khartoweejaya.” Bart then moans, “AWWWW.” The guest speaker begins, “I know how you feel young man.” The guest speaker proceeds to describe the struggles of a mischievous boy named Tsunami who has become sick. Bart immediately connects to the menace boy from Indonesia and feels the need to donate to Tsunami. He first asks his Mom and gets a no. He then askes Homer who reluctantly concedes, gives Bart a $20 bill and says, “Alright son, but you have to pay me back.” Bart puts the money in the collection, leans back, smiles and says “Life is good.” To which Homer immediately leans in and says, “Do you have my money?” Bart snaps back, “What?!?!” Homer quickly, “Do you have my money?” Bart, “How could I?” Homer, “Right, right, too soon. Do you have my money?” Bart, “Ughhh.” And so the story continues with Homer hounding Bart incessantly for the $20…in the bathroom…at the plate hitting…at the dinner table…

    J. Paul Getty once said, “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” We mention this as it is not lost upon us how the global economy is changing quickly and dramatically. A recent article in Reuters entitled, “Any Country Leaving Eurozone Must Settle Bill First: ECB Draghi” immediately made us both cringe and transport us immediately back to 2008…and Bart. It reads, “The comment - a rare reference by Draghi to the possibility of the currency zone losing members - came in a letter to two Italian lawmakers in the European Parliament released on Friday. It coincides with a groundswell of anti-euro sentiment in Italy and other euro zone states, fueled in part by last June's unprecedented decision by Britain to leave the European Union.” Draghi said directly, “If a country were to leave the Eurosystem, its national central bank’s claims on or liabilities to the ECB would need to be settled in full.” 

    This is soooooo 2008 when the once benign, home mortgage quickly transformed from the everyday borrower’s problem to a near-collapse and major problem for the global banking system. In what still remains the best anecdotal story I know of 2008 a good friend of mine friend was told this in mid-2010 by his accountant. “Billy, I know you’re a smart man….but as of right now you’re my only client paying his mortgage.” Sure enough, my Midwestern friend, now living in California, brought up to “pay your mortgage no matter what mentality” subsequently pulled a Greece: told the bank he would pay, punted, punted again and eventually turned over the keys.  This is exactly why Mario is absolutely freaking out. 

    See, up until now Mario has gotten away with allowing already indebted European countries issue more debt to solve their debt problems (huh?!?! exactly!). A move very much akin to the second mortgage followed up by additional lines of credit without the normally necessary income or growth to support the balance sheet expansion. Unfortunately Mario wasn’t counting on the post-2008 emergence of the populist accountant politicians. As a result, Mario’s angst has gone public as he now recognizes that the more people in Greece, France, Italy, etc. that start seeing an exit from the European Union as more of a banker problem than their problem the more he starts looking like Homer. “Where’s my money? Do you have my money?”  

    This is the real ugly risk of populism in Europe. The debtor creditor imbalances are enormous and the debtor parties involved are a few elections away from being run by an electorate that wants out of the obligations. At home, post-2008, we have also had a massive US debt explosion supported by our central bank. We also now have additional balance sheet expansion and potentially inflationary proposals by Trump. That said the US equity markets have recently embraced the global populism and protectionism as evidenced by one of the least volatile runs in the history of listed markets. As of today the Dow was up a 12th record day in a row…a feat last accomplished in 1987. This is the least of our worries as we remain patient and disciplined. What does worry us is the potential for a massive homeowner dismissal of their obligations and its seemingly discounted effect. 

    In the end Bart ate two pieces of someone else’s gum, orthodontic wax, cinnamon, St. John’s wort and a formaldehyde-soaked frog to earn $20 and pay back Homer. He ended up in the hospital, handed Homer the money, to which Homer says, “What did you owe me some money?” The doctor then hands Homer a bill for $4000. “D’oh!” The Dr. then asks, “Where’s my money? You got my money?” And so it goes. Stay hedged.