from Tom Luongo's Market Report for August 7, 2024.  

Tom's remarks about Mark Walz, Kamala Harris' new VP pick, were extremely interesting. 

33:36. And as Alexander Mercouris pointed out ages ago, he said "But then that effect of this has been to hold everything in this band and hold everything and Innovation behind the curve technology then the lack of competitive then the lack of competitiveness of German industry is exposed badly, especially with the rise of China.  So now Germany is ultimately the target.  Now you can kill the ECB, and you can kill the EU.  If you were a bunch of predatory Fed and New York and Tokyo bankers and you like more open Capital markets than the Europeans do, well then you're going to not argue; you're not going to be down there.  That's why they hate Trump who put Powell in place and they replaced Libor with Sofr.  This is the story I've been telling for 3 years.

from Luongo's Gold, Goats, and Guns:

What is SOFR? The Secured Overnight Funding Rate. It is the U.S. domestic replacement for LIBOR. SOFR is market-driven and arrived at through actual transactions in the U.S. money markets with the daily quote arrived at by real data from real US banks.

LIBOR, on the other hand, is a rate set by 17 foreign banks and 1 U.S. bank (JP Morgan Chase’s London Division). It’s still not market-driven but arrived at by consensus. Regardless of that, it represents the activity within London’s and Europe’s banking system, not the U.S.’s.

Ad therein lies the rub.

For all intents and purposes for decades, LIBOR was the mechanism by which the City of London and Europe controlled the flow of dollars into and out of their banking system. No wonder the Fed had no real control.

Broadly speaking, when the Fed raises rates and it causes a drain on the eurodollar system, it puts upward pressure on LIBOR. If Europe’s banks are more exposed to a rise in the cost of dollars then LIBOR should blow out faster than the Fed raises rates.

In past cycles, before SOFR, all US debt was indexed to LIBOR. So, it didn’t matter if the Fed raised rates domestically, our mortgages, lease rates, and credit lines blew out with LIBOR even if there was no underlying stress in these domestic markets.