Notes From Underground: The ECB Is On the Horns of a Dilemma … Again

August 28, 2014

Let us continue where last night’s blog ended. This week’s move by the French President Hollande to reshuffle the government’s cabinet should be perceived as a way for France to negotiate for a depreciation in the EURO and an end to the German-imposed conditions of growth through austerity. Prime Minister Valls cast out previous Economic Minister Arnaud Montebourg because his continuous attacks on the Germans’ push for austerity wasn’t appreciated by Chancellor Merkel. Montebourg is a beloved leader of the Socialist Party and has been a close confidant of President Hollande. The change in the cabinet can be disastrous for Hollande’s socialist standing so we must examine Hollande’s political maneuvering as representative of something bigger.

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Notes From Underground: Santelli Exchange — European Deterioration

August 28, 2014

In a follow-up to last night’s blog post, click on the image below to watch Rick and I discuss the EURO on the Santelli Exchange August 18.

Yra on the Santelli Exchange, August 18

Notes From Underground: Been Gone So Long It Looks Like 1939

August 27, 2014

It has been refreshing to sit and watch the world spin without the pressure to react to the daily dose of instability. Europe is devolving into the mess that I have been blogging about for almost five years. Two weeks ago I appeared on Rick Santelli’s show and made the comment that anybody who puts money on deposit in a European bank is a MORON. Why would you place money in an institution that pays ZERO when you have great risk of losing a large part of your savings? Capitalism is all about reward/risk and taking great risk for minimal reward is the true measure of stupidity. THE PROBLEM FOR EUROPE IS ITS BANKING SYSTEM. The high level of unemployment has led to high levels of non-performing loans, which has clogged the credit creating system of European banks. In Europe the credit system is heavily dependent on banks rather than corporate bond markets. BANKS ARE NOT LENDING BECAUSE SOVEREIGN BONDS ARE SAFER, especially with the Asset Quality Review (AQR) results that are being released in mid-October.

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Notes From Underground: A Tribute to Stanley Druckenmiller

July 31, 2014

Today’s trade was supposedly a risk on/risk off as all of July’s news that failed to impact the market became relevant today. Argentina, Gaza, Ukraine, Portuguese banks … all these issues became reasons for the 2 percent selloff in global equity markets. The problem with the pundits in search of a correlative rationale failed to find the traditional correlations. The SPOOS sold off forty points and the bonds actually closed lower. The YEN, which has been the safe harbor for global investors, remained unchanged for most of the trading session. GOLD, the ultimate haven, lost $14 and closed miserably for the month. Tomorrow’s GOLD action will be critical as we closed under the 200-day moving average. A CLOSE under 1276.50 after the unemployment report will be the end of my bullish outlook on GOLD until some other technicals provide support.

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Notes From Underground: The FED–No Rate Raises Before Wage Increases

July 30, 2014

It seems that the Fed’s FOMC statement was an effort to have it all: “LABOR MARKET CONDITIONS IMPROVED, WITH THE UNEMPLOYMENT RATE DECLINING FURTHER. HOWEVER, A RANGE OF LABOR MARKET INDICATORS SUGGESTS THAT THERE REMAINS SIGNIFICANT UNDERUTILIZATION OF LABOR RESOURCES.” This is Janet Yellen coming clean. She is a labor economist who will ensure that the FED will err on the side of labor and wage gains. The battle cry from the Fed is loud and clear: No RATE RAISES BEFORE WAGE INCREASES.

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Notes From Underground: Janet — Klaatu Barada Nikto (The Day the Earth Stood Still)

July 29, 2014

Tomorrow is a big day for disseminating information with market-moving potential. The market is bored with war, pestilence and famine so it must be FED pronouncements and GDP data that can provide a volatility boost. The markets did twitch today as the European Union and the U.S. both upgraded the sanctions against Putin’s Russia. It will be very difficult for Russian banks and large energy consortiums to raise dollar- and euro-based capital. Even with the advent of new and improved sanctions the global equity markets barely moved, especially as corporate earnings in the U.S. continued its string of “beats.” The counter to the continued strength of the equity markets is the behavior of the global debt markets as European sovereigns from Spain to Germany have reached record low yields. The U.S. yield curves continue to flatten as investors continue purchasing 10- and 30-year debt driving long-term yields lower. Again, I will state that while the curves are flattening the 2/10 U.S. curve is not historically flat.

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Notes From Underground: Its a Very Cold Day In July … When Bundesbank Capitulates

July 23, 2014

The financial press is filled with articles about the recent EURO weakness. During the last week the EU currency has fallen about 1.5 percent. Many pundits have opined that it is the Ukraine situation and Gaza that have made investors uneasy, thus the move into U.S. dollars. In a July 22 Bloomberg article, “Draghi Cedes Euro Control to Yellen on Fed Bets,” it is suggested that the DOLLAR is rising in anticipation of moves by the FED, especially now that the ECB has gone to negative yields on reserves. The problem for the Fed argument is that yields in the U.S. have actually softened during the last week and Fed communication has been muddled over when interest rates might possibly rise. When the ECB announced a negative interest rate June 5 the EURO/DOLLAR made a low of 1.3503. Today we are trading at 1.3465, a little below the 1.35 low but well below that day’s close of 1.3650.

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Notes From Underground: CNBC’s Santelli Exchange — Foreign Exchange Outlook

July 20, 2014

 

yra7-18-2014Click on image to watch Rick and I discuss the euro currency and ECB balance sheet.

Notes From Underground: The Alfred E. Neuman Equity Markets, “What, Me Worry?”

July 20, 2014

Alfred E. Neuman for President

Alfred E. Neuman, the beloved character of Mad Magazine, was famous for his deadpan look while espousing the philosophy, “What, Me Worry?”

While the world has certainly entered the madness zone, the world’s equity markets remain in bull mode, floating on a sea of central-bank provided liquidity. Russian support and arming of “rebel” groups results in the downing of a commercial airliner … no problem. An Israeli invasion of Gaza to thwart the nihilistic behavior of Hamas, and the markets shrug and offer up a bland response of, “whatever.”

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Notes From Underground: On Yellen’s Testimony

July 17, 2014

First, as I have been critical of Chair Yellen’s communication efforts prior to this weeks Congressional testimony, I will give the Chairwoman an A+ for her effort this week. She was very forthcoming in her Senate appearance on Tuesday, and, more importantly, she fended off the idiots in the House of Representatives with clarity and the patience of a saint. The problem with the House is too many ex-prosecuting attorney’s who all try to get Yellen in a gotcha moment, but the Fed Chief was not falling for the trap of providing sound bites for the elections back in the home district. The Senate questions were of a substantial nature while the House was fluff of either adulation or criticism.

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