Notes From Underground: Hey CNBC, New York Is Not the Most Powerful City In the World

August 27, 2015

At 8:00 a.m. EST, CNBC‘s announcer says, “From The Most Powerful City In the World, This Is Squawk Box.” What bothers me is the squawking about your importance. What irritates me even more is that Beijing has been the most powerful city when it comes to moving markets. Every other idea spewed this week has been about the impact of the Chinese authorities and the policy impact from the Politburo that “destroyed” trillions of equity market value. It even appears that the Chinese are dominating the discussion in Jackson Hole, Wyoming where the Kansas City Fed is hosting their annual symposium. Even New York Fed President Bill Dudley, aka Less Compelling, cites the Chinese as the reason to be less compelled to raise rates at the September meeting.

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Notes From Underground: When China Shakes, the West Rattles and Rolls

August 24, 2015

Mao, Deng and Xi, oh my! It seems whenever China releases economic data, the U.S. markets and its developed market cousins either go into an orgasmic paroxysm or a spasm of pain. Readers of Notes know that I have criticized the Chinese economic releases as fiction and my rational was simple. If the Politburo would not allow GOOGLE to operate without restraint within China why should I trust any “official data.” Many times I have referred to GDP and PMI figures hitting the predicted market consensus as a greater feat of financial engineering than Jack Welch’s record of beating Wall Street’s forecast’s for GE earnings by a penny every quarter while Jack was CEO.

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Notes From Underground: Why the Fed’s Credibility Is Suffering

August 23, 2015

As Harry Nilsson sang in “Everybody ‘s Talkin'”: Everybody ‘s talking at me, I don’t hear a word they’re saying, only the echoes of my mind.” This is true of the words from St. Louis Fed President James Bullard as he had the audacity to opine in the middle of Friday’s S&P and equity rout that: 1. “The Fed doesn’t react directly to equity markets”; and 2. “More sanguine than market on global outlook, China.” (source: Bloomberg). This is the very same James Bullard who is credited with halting the significant break in the SPOOS on October 15 when he mentioned that “the Fed should be open to continue its QE on the back of low inflation expectations.”

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Notes From Underground: A Quick Note to End the Week

August 20, 2015

The global markets were anxious by the action of the 200-day moving averages and their reference points to the global equity markets. As of writing, the DAX, SPOOS and CAC have joined the others that began the week below their 200-days. The NASDAQ 100 futures index is struggling to hold support on the vaunted moving average, currently at 4381.01 on the CQG daily continuation chart. While equity markets have swooned, gold and silver found buyers as investors have momentarily sought refuge from what has been the great haven of the last three years: Large cap, high dividend stocks combined with a growth piece have provided the consummate investment vehicle for investors leaving the REPRESSIVE returns from low-risk credit markets. While volume has been low in typical summer fashion, the breakdown in favored moving averages and strength indicators suggests there is definitely nervousness in global equity markets.

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Notes From Underground: Let’s Deflate the Cult of Personality and Media-Inflated Infallibility

August 18, 2015

Some follow-through from yesterday: The DAX,Dow and Russell 2000 closed below their 200-day moving averages but it is early in the week so while a negative it is not definitive of any sustaining activity. Just another effort to be attentive to global developments. The Chinese markets were under assault last night, which led to a selloff in copper and silver prices although GOLD remained firm. Some analysts maintain that the selling in copper and silver was due to having meet margin calls with account collateral being liquidated. I have no argument with that analysis but if so silver should regain itself above 15.10 and GOLD should rise above its recent highs. If China’s recent market developments is the onset of global deflation the world’s central banks will be forced into renewed crisis mode and the precious metals will again be viewed as a “reliable haven.” Let the market be your guide for theory confirmation and have your technical levels ready especially for GOLD resistance.

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Notes From Underground: A Desultory Philippic on the Markets, the Fed and World Finances

August 17, 2015

One of my favorite songs by Simon and Garfunkel is “A Simple Desultory Philippic” in which the duo takes the time to mock and criticize the world of culture and politics that surround them. Desultory means lacking a style or plan, while Philippic connotes a word for a tirade or rant. Will my readers entertain my desire to craft my own simple desultory philippic?

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Notes From Underground: Reissue, April 24, 2014

August 13, 2015

Almost 18 months ago I wrote a blog in response to an Ambrose Evans-Pritchard piece in the London Telegraph. I think readers of NOTES will find it more than a passing interest. More importantly, Mr. Evans-Pritchard wrote a new piece in yesterday’s London Telegraph, “China Cannot Risk the Global Chaos of Currency Devaluation.” Evans-Pritchard stresses the deflationary shock from a significant Chinese yuan devaluation in response to the Chinese plague of overcapacity from an excess of capital investment for a Chinese effort to increase exports to ease the burden of excess production would weight heavily on an over indebted world struggling with falling prices.

This is the greatest fear for the world ‘s central bankers and why I always referred to Bernanke and Yellen as the ultimate 1937ers for Bernanke promised Milton Friedman that the FED would not repeat the errors of 1937 and allow deflation to become the major dynamic in the world economy and certainly not the U.S. Evans-Pritchard is hopeful that the recent weakness of the YUAN is not really a new policy:

“The slowdown in China is not yet serious enough to justify such a risk. True, the trade-weighted exchange rate has soared 22% since-mid-2012,the result of being strapped to a rocketing dollar at the wrong moment.The YUAN is up 60% against the Japanese Yen.”

Read the article and be aware that the Chinese are not targeting the dollar but are very concerned about the YUAN strength versus the rest of the world.

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Notes From Underground: The Chinese Send a Message

August 11, 2015

There is much to talk about after the Chinese sent a shot across the bow of the U.S.S. Financial Complacency. If we glance at the currency charts of various global currencies versus the Chinese YUAN it is easy to see what the authorities setting policy in Beijing are so very concerned about. The YUAN may be very stable against the U.S. dollar but in terms of Brazilian real, Turkish lira, Mexican peso, Aussie dollar, euro, British pound, Japanese yen and Korean won, the YUAN has undergone a MASSIVE appreciation during the last three years. While the Chinese were announcing their intentions to attempt a pivot to a more domestic-consumption economy, a strong YUAN favored a structural change of such magnitude.

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Notes From Underground: Santelli Exchange–Yuan falls after Chinese intervention

August 11, 2015

Yra & Rick, Aug. 11, 2015Click on the image to watch me and Rick discuss China’s intervention and what this means for the global economy.

Notes From Underground: Just a Note Before I Go On Vacation

July 28, 2015

It’s time to take a few days and recharge the mind. But before saddling up and heading off into the SUNSET here’s a few concepts to consider. Longtime NOTES readers know that the tagline 2+2=5 is a very serious construct for thinking outside the proverbial box. The line comes from Dostoyevsky’s short story, “Notes From Underground” in which the Russian master of literature protests against the RATIONALISTS who pretend to be all-knowing, like the FED MODELS. Just because things appear to be in balance doesn’t mean they are factual, so my goal is to look beyond conventional wisdom and find relevance and profit opportunity in what may appear to be mundane. While I am away new readers to NOTES should look back in the archives to see how we dissected ordinary news to find investment possibilities. The aim is to achieve economic gain through the analysis of politics and economics for the combination of political economy is the main thrust of this BLOG. Now, tomorrow and the FED:

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