Who is Mr. Draghi’s Dudley?

Outlook:

The Kansas City Fed's shindig at Jackson Holes begins on Thursday. A lot of central bankers will attend but all eyes are on Yellen and Draghi. The WSJ notes that in 2014, Draghi signaled the ECB would embrace QE by promising it would use "all the available instruments needed" to reverse deflation. "Just as Mr. Draghi set out a framework for understanding why quantitative easing, as the purchases are known, was necessary in 2014, ECB watchers think his coming appearance will give him an opportunity to review the evidence and set out the case for bringing it to an end in 2018."

The success of ECB QE is visible in the unemployment numbers, growth and inflation, which was running at 0.4% in 2014 but is 1.3% now. While government stopped contracting their budgets over the same time period, they can't be said to have engaged in the structural reforms Draghi wants.

Bloomberg has a cute story on the Deutsche Bank process for evaluating Draghi's intentions—count the number of times he says the euro is important, very important, or even having significant meaning for the economy and inflation expectations.

The FT reports that no matter what Draghi says, the ECB "may have little choice but to wind down its €2tn bond-buying programme next year — whether eurozone inflation picks up, or not." That's because the ECB is running out of bonds to buy, something that was much discussed when the QE program began. The ECB rules won't allow it to buy more than a third of any country's debt.

The ECB already has €400 billion of Germany's €2.1 trillion issuance and will hit the ceiling in Feb, according to Citibank. "The ECB is also approaching its purchase threshold in some smaller eurozone countries. It will max out on Portuguese, Dutch and Irish debt next spring, according to estimates by UBS." That leaves France and Italy....

The ECB has "already extended the range of entities whose debt is eligible for purchase, and raised the proportion of supranational issuers' debt it can buy from 33 per cent of outstanding debt stock to 50 per cent. Yet with legal pressure from Germany, it looks likely to be difficult for the ECB to raise the ceiling — even if it was limited to buying more ultra-safe German debt. Lifting the limits for eurozone countries across the board would also be politically problematic. The ECB has called it a binding limit, and German politicians have threatened legal action if its stance changes."

Coincidentally, a lot of the German debt matures next year, along with large amounts of French and Italian paper. One analyst says "Any taper will likely be muted by redemptions. This suggests Bunds [pricing] will continue to be supported."

We'd like to know—who is Mr. Draghi's Dudley? Dudley is the guy in charge of ensuring stable pricing and ample liquidity. Somebody is working behind the scenes to jigger the proportions and total amounts of various countries' paper. And it will be hard for legislators or courts to complain.

We have no better idea than anyone else about whether Yellen hints at the timing of the third hike or Draghi disclosed a tapering plan. On the whole, we are likely to be disappointed. The theme of the Jackson Hole conference is "Fostering a Dynamic Global Economy," which doesn't sound like arcane papers on monetary policy, does it?

Bottom line for the dollar this week—treading water, unless there is a surprise. If there is a surprise, turn your gaze to Asia. It could be N. Korea, or China, or Afghanistan.

Politics: In Germany, 500 neo-Nazis gathered to celebrate Hess, Hitler's named successor. The law makes it hard for them to shock. According to the NYT, "Far-right extremists in Germany are not allowed to display Nazi symbols, or use the stiff-armed ‘Hitler salute.' But marches are permitted if they abide by those restrictions. Far-right organizers were told that they could not glorify Hess or the Nazi regime, or carry weapons, drums or torches. They were also told that they could bring only one flag for every 25 participants." The neo-Nazis were met by a crowd of protesters twice as large, about 1000 persons. One of them told the NYT, "The rats are coming out of the sewers. Trump has made it socially acceptable."

Well, no. Anti-racism rallies in Boston and a dozen other American cities had hundreds of thousands of protesters, 40,000 in Boston alone. "Free speech" groups (aka white supremacists) were corralled and prevented from causing violence by police, although it was touch-and-go in Dallas.

The big news was chief of staff Kelly giving strategic advisor Bannon the heave-ho. Bannon proceeded to say the Trump presidency he had worked for is over. We deduce he meant to add a new one is coming that will be dominated by what he calls Dems and globalists. He says he has his hands back on his weapons at Breitbart, meaning news that really is fake. This is a case of having a guy spitting into the tent from having that guy spitting out. A headline on Sunday asks "Can Trump's Generals save Ameri-ca and the World from Trump?" This one sentence contains a world of implications.

One of the most interesting things about Bannon's departure is that it solidifies the influence of the gen-erals—not just Kelly, but also security advisor McMaster and Defense chief Pompeo. Usually the US public is wary of military influence at the top—think VietNam—but now we're counting on these guys to control an unstable and incompetent chief. (We may be re-thinking that new role after we get the announcement on TV tonight as to the new Afghanistan plan.)

The military is required to be as non-partisan and unpolitical as possible. The same can't be said of the business execs who suddenly find it necessary to distance themselves from Trump. Where were they before the election? The FT says business execs can "fill the Trump leadership vacuum." Well, we know what that means—more blatant lobbying and tax cuts.

It might be fun to watch Bannon attack Trump except the Breitbart far-right narrative is inconsistent, confusing and often not well written, let alone well-thought out. The NY Times magazine has a lengthy story about the Breitbart enterprise and its current editor that indicates the firm doesn't actually have a political agenda or ideology. A piece in the Sunday issue of Breitbart writes about seregationalists like Woodrow Wilson and Hugo Black. The bottom line" "The Talibanesque destruction of public art and local memorials wages war on history." The magic word is "Talibanesque," designed to get blood boil-ing. But naming Woodrow Wilson today is like invoking the horse and buggy—true but not useful. And the Confederate statues can go into museums, where they belong.

Funny enough, Trump is being shown on cable TV at the very start of his campaign (June 2015, if you can believe it), saying yes, the Confederate flag should be taken down from the S. Carolina statehouse and put into a museum. What a difference an election makes. The Economist cover story says "Trump has no grasp of what it means to be president. U-turns, self-regard and equivocation are not what it takes." We judge its anti-Trump cover to be the best of the bunch this week. The Time cover is just plain scary. Trump will not be putting these covers into frames.

Today the US gets a full eclipse of the sun. It will be only partial in Washington and New York, but let's see what happens in financial markets when the sky goes dark. Will the birds stop singing and the cat freak out?

Currency	Spot	Current Position	Signal Date	Signal Strength	Signal Rate	Gain/Loss
USD/JPY	109.14	SHORT USD	07/19/17	WEAK	111.96	2.52%
GBP/USD	1.2880	SHORT GBP	08/11/17	WEAK	1.2961	0.62%
EUR/USD	1.1744	LONG EURO	06/28/17	WEAK	1.1218	4.69%
EUR/JPY	128.17	SHORT EURO	08/14/17	WEAK	129.40	0.95%
EUR/GBP	0.9118	LONG EURO	04/25/17	STRONG	0.8490	7.40%
USD/CHF	0.9679	SHORT USD	08/10/17	WEAK	0.9655	-0.25%
USD/CAD	1.2595	LONG USD	08/11/17	WEAK	1.2730	-1.06%
NZD/USD	0.7309	SHORT NZD	08/11/17	WEAK	0.7275	-0.47%
AUD/USD	0.7923	LONG AUD	08/17/17	WEAK	0.7931	-0.10%
AUD/JPY	86.47	SHORT AUD	08/07/17	STRONG	87.66	1.36%
USD/MXN	17.6929	LONG USD	08/07/17	WEAK	17.8507	-0.88%
USD/BRL	3.1467	LONG USD	08/11/17	WEAK	3.1751	-0.89%