I love everything about James Bond movies.
Like most Bond fans, I’m first and foremost a Sean Connery loyalist… there’s just no substitute for the original.
But honestly, Daniel Craig has breathed such new life into the role over these past few years, that in my view he’s risen to number two with a bullet.
I’m not exactly sure when the next one’s coming out, but I can’t wait.
One of the things I find most interesting about his turn as the suave secret service spook is the circumstance surrounding his first Bond movie, Casino Royale.
The story was actually author Ian Fleming’s first novel, written in 1954. At one point, he was paid $1,000 by CBS to adapt it into a TV special, but sold the rights away just a year later to producer Gregory Ratoff for $6,000.
Ratoff died, however, and Charles Feldman subsequently obtained the rights from the estate, eventually deciding to make a satirical film, which Columbia Pictures agreed to produce.
To this day, all I can tell you about the plot of the original is that everyone’s at a casino, and something like seven people are all pretending to be James Bond – the authentic one portrayed by the great David Niven.
Craig’s reboot, on the other hand, is a complete about-face from the formerly farcical turn – instead opting for a brooding, gorgeous, but rather dark character introduction.
And while the two movies couldn’t be any further apart in look and feel, they obviously both share one central theme in common.
Gambling with someone else’s money.
“Oh, I Think My Credit’s Good?”
Gambling in the newer version took the form of a newly relevant game to modern audiences at the time – a Texas Hold ‘Em tournament.
At the time, I was an avid player – I actually bought my wife’s engagement ring with poker winnings – so I was excited to see how they would integrate the game into the movie.
As it turned out, that part was kind of awful.
The script staged a highly improbable couple of hands where Bond first goes bust – hitting a full house on “the river” (the last card dealt) that was outmatched by villain Le Chiffre’s four of a kind.
That got my eyes rolling a little.
But the second one was just garbage from a probability standpoint, where Bond – playing with British government money – hits a straight flush on the last card to beat a flush, a full house, and a higher full house.
At this point, my eyes were fully in the back of my head.
This little scene is frankly the one complaint I had with the reboot, which to me was fantastic in all other aspects.
And the thing that made me think of this movie today is the fact that Sellers/Tremble/Bond, after busting out in the first hand, asks for a loan to triple the stakes in the second one, saying “oh, I think my credit’s good?”
Put a different way, he’s so confident in his ability to succeed, he leverages up by borrowing money from the house to place his bet.
And though you may not be aware of it, the Federal Reserve is actually planning to do the exact same thing tomorrow.
But instead of a few million – they’re auctioning off US$25 billion in 20-year bonds.
That’s a lot of credit.
Good Times, Bad Times?
The question here is just how successful the auction will be.
Last week’s 10-year auction was actually pretty strong, stabilizing bond prices after a period of decline.
Thursday’s 30-year bond auction, however, was a completely different story, with weak demand from foreign buyers and primary dealers being forced to step in and soak up the difference – usually a bearish sign.
That’s sending mixed signals for tomorrow, as the money multiplier – the amount of money banks generate with each dollar of reserves – is declining.
And usually, that is indicative of deflationary pressure on the market.
If auction participants do think that’s the case, the bond auction is likely to be fairly strong, yields will fall, and prices will go up, along with our stake in iShares Barclays 20+ Yr Treas.Bond (NasdaqGM: TLT).
If it goes the other way, we’re going to exit that position Thursday and wait to analyze Fed banking data on Friday to see what’s happening in the background.
And if it’s “meh” – we just hold and wait for another day.
But the money multiplier is essentially the ratio of bank deposits (M2) to the overall monetary base (M1).
When it falls, it means that M2 is declining in relation to M1 – which is exactly what happens when the Fed prints money and the economy isn’t doing well.
Because of that dynamic, I also want to add a ¼ stake in Proshares Ultra Gold (NYSEArca: UGL), which moved up a little today as gold retook the psychologically important $2,000 level.
With deflationary pressures showing up in banking data, and inflationary pressures still showing up in other measures (chart below), tomorrow’s auction should show us which dynamic is winning the battle at the moment.
Source: USDOL, Bloomberg
In the meantime, we can only hope that Jay Powell’s hand of bond poker in this case is a hell of a lot better conceived than Daniel Craig’s straight flush.
Fingers are crossed.
All the best,