Notes From Underground: The FED … Unsafe at Any Ultra-Low Rate

November 30, 2015

Last week, in the middle of gorging our material senses, Janet Yellen was responding to a letter from Ralph Nader, a well known consumer advocate who took the Bernanke and Yellen to task for keeping interest rates too low, resulting in asset inflation for Wall Street and the very wealthy while MAIN STREET was “rewarded” with zero interest rates and almost NO returns on passive, low-risk credit channels. Yellen repeated her third grade teacher tutorial about how savers have indirectly have benefited because of the bounty of jobs available for them and their children and grandchildren and they should stop complaining because home prices have increased to pre-crisis levels in many parts of the country–all because of the wonderful work of the FED and its QE programs. (Even as Carmen Reinhart and other top-level economists have criticized the FED for prolonging FINANCIAL REPRESSION in order to insure against inflation staying below the FED‘s self-imposed mandate of 2 percent.)

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Notes From Underground: All My Words Come Back To Me

November 29, 2015

Sometimes world leaders and CEOs ramble and say things that reverberate for longer than intended. Two things in particular are echoing in the canyons of poorly thought-out ideas: President Barak Obama’s comparing the military potential of ISIS to A HIGH SCHOOL JV BASKETBALL TEAM. Then, there’s the CEOs OF AMERICA’S HEALTH INSURANCE AND HOSPITAL INDUSTRY, ALONG WITH THE BIG PHARMACEUTICAL COMPANIES, APPEARING REGULARLY AT WHITE HOUSE CONCLAVES TO ACTIVELY SUPPORT THE AFFORDABLE CARE ACT, PROCLAIMING AS THEIR RATIONAL: IF YOU ARE NOT AT THE TABLE THEN YOU ARE ON THE MENU.

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Notes From Underground: The Sergeant Krupke Syndrome In Foreign Policy

November 16, 2015

Let me say first off: I agree with President Obama about putting massive boots on the ground in response to the ISIS threat. I felt the same about Afghanistan in that the U.S. ought to have fully utilized the special forces in a tactical manner to determine when and the place of our choosing to do battle with a non-conventional adversary. The U.S. special ops are a potent disruptive force and when supported with the cavalry and other forms of airpower can inflict great harm. The recent acknowledgement that A-10 Warthogs have been dispatched to INCIRLIK Airbase in Turkey signifies the U.S. has the ability to severely damage the mobile capabilities of ISIS and thus limit the scope of the battlefield and enhance the effective use of U.S. Special Forces. The success that this type of operation had in the early part of the battle against the Taliban when the Special Ops allied with the indigenous Northern Alliance.

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Notes From Underground: To British Prime Minister David Cameron — Only Twits Tweet

November 15, 2015

It is appalling that even political leaders are in such a hurry to gain recognition that they rush to put out tweets like any movie star or music artist in an effort to gain followers. The British prime minister rushed out this superficial bout of pabulum: “I am shocked by events in Paris tonight. Our thoughts and prayers are with the French people. We will do whatever we can to help.” This is what the leader of a nation with armed forces at his disposal rushes to send out to the world. It is so vacuous that mere words cannot measure the low esteem in which I hold the reigning British leader.What next? Selfies with tears pouring down his cheeks in order to show the French people how truly saddened are the Brits and how those across the channel feel the pain caused by the millenarian nihilists.

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Notes From Underground: Shot Fired, British Pound Down

November 5, 2015

Is it the first Friday of a new month already? If so, then it must be time for the release of the U.S. employment data and preparing for a day of market volatility driven by the machines of madness and their algorithmic masters. In preparation for the trading madness, it seems that the consensus is for a nonfarm payrolls increase of 192,000 jobs, a work week of 34.5 hours, and, most important for Chairman Yellen, an increase in average hourly earnings of 0.2%. It appears that a strong number will result in a higher probability of the FED raising rates at the December 15-16 FOMC meeting. It is the problem of dissecting what a STRONG EMPLOYMENT is that makes trading and investing so difficult for the next six weeks. Is it the number of jobs created and the impact on the unemployment rate that renders the most powerful argument for the Fed hawks? Or is it the level of wages relative to GDP and corporate profits that is the most significant indicator of job strength and possible inflation?

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Notes From Underground: ECB = Every Corrupt Banker

November 3, 2015

Let’s clear the air. The lead story in today’s Financial Times was “ECB Officials Met Bankers Before Big Policy Moves.” This is why the battle cry of Notes From Underground for the next two months is PEPPER SPRAY DAVOS. The financial markets have been rendered meaningless. Not by the mere massive QE programs of global central banks but by the sheer possibility policy makers were providing fore-warnings to large private institutions before public releases. This is the epitome of what Adam Smith warned about 250 years ago. It is difficult enough to trade and invest in a zero interest rate world but when the investment is “rigged” by the ability of the large institutions to be privy to information prior to public release, well, the math must be 2+2=5 for nothing is balanced.

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Notes From Underground: The King of Hearts Syndrome Dominates the Markets

November 2, 2015

One of the great movies of the 1960s asks who is more insane: Those in the asylum or those who create wars? The present state of central banking can lead one to ask the same question about the overseers of FIAT CURRENCY and those who make investment decisions based on the policies of those academics so in love with their economic models. As the Bernanke victory tour rolls on, the fallback position of the recent anointed savior of the global financial system poses the counter-factual of, “What if we hadn’t acted by embarking on a massive liquidity injection? Aren’t you all satisfied that the unemployment rate is hovering around the defined level of full-employment?”

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Notes From Underground: Hey Fed, Are We At Absolute Zero?

October 28, 2015

In the realm of physics, absolute zero is the temperature at which every element freezes and molecules are no longer in motion. The FED and other global central banks seem to be mimicking their scientific betters by keeping rates at a low enough level to prevent the movement of capital from their balance sheets and into the real economy. Yes, the ECB, Riksbank, Swiss National Bank are at negative interest rates but it is the velocity that measures absolute zero rather than the relative level of interest rates. This brief analysis is based on the CONTINUED FRUSTRATION of trying to understand the basis of FED communication and signalling to the markets.

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Notes From Underground: The Shot Heard Round the World

October 26, 2015

It was ECB President Mario Draghi who declared war on the German economic model of GROWTH THROUGH AUSTERITY, but it was the Chinese central bank that fired the first real shot in response to the “intervention” by Super Mario. As usual, Draghi proposed an increase in the ECB QE program (possibly in December) and also mentioned taking deposit interest rate even more negative. The EURO, of course, depreciated by as much as 3 percent while Draghi stoked the fires of a possible liquidity increase.

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Notes From Underground: Mario Draghi Declares War On German Economic Policy

October 22, 2015

In the ECB press conference held today in Malta, the market heard what they wanted to hear and settled in on the idea that Draghi was all set to increase the QE program and/or use the tool of negative interest rates to bring inflation up to its mandated level of 2 percent. The EURO dropped more than two percent after the Draghi press conference began as investors believed that the ECB was intent on increasing its asset purchases by the December meeting. I listened to the entire press conference but was reticent to draw that conclusion. The markets’ response to the possibility of any enhanced ECB actions poses more questions than the pricing action resolved:

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