Now that the effects of 3-D and IMAX have worn off, I shared what is becoming a tradition: An interview with Rick Santelli. In the past, Rick has asked me for some of my predictions for the coming year. As a market participant who holds the power of market forces in high esteem and disdains models as all-knowing, it is difficult to find narrow based foreseen outcomes. Last December, Rick and I discussed the Swiss National Bank making some move prior to the January 22 ECB meeting. The SNB did make a move on January 15 but I was certainly not prescient enough to call for a 40 percent overnight move in the EUR/CHF cross. (Though I did warn blog readers that the SNB’s failure to levitate the EUR/CHF cross off the 1.20 floor with massive amounts of euro buying was a cause for concern, so readers of NOTES were not caught short Swiss Francs and certain readers were long the Swiss cross.)
Archive for 2015
Notes From Underground: A Long Time Ago In A Galaxy Far, Far Away…
December 27, 2015Financial repression was not the ultimate weapon in central bankers’ armories. The light saber was symbolic of market-driven levels of interest rates allowing for a genuine return on capital. The Darth Vader PUT was relegated to the outer rings of the galaxy while the VOLCKER RULE provided the rule of law and prevention of over leverage. Planet Mario was under assault as its storm troopers were defeated by the battalions of the financially repressed. All banking DOVES from the Dark Side were driven off by the foresight and power of the Millennium FALCON. A mechanical droid was given the power over all financial decisions and order was restored to the financial galaxy … in a realm far, far away. The world is calm as the DROID runs off an ALGO relying on the intelligence of an unseen oracle, devoid of emotion (or Yoda). Okay, enjoy the fantasy.
Notes From Underground: All Quiet On The Western Front … Not
December 22, 2015As the markets are settling into the holiday mood of eggnog and the decorating of Tannenbaums, Germany’s EU partners were castigating Berlin for its continued emphasis on fiscal austerity. The ECB’s chief-economist and executive board member Peter Praet was maintaining that ECB policy would be accommodative for a very long time. This was a shot fired at Bundesbank President Jens Weidmann. Make no mistake about it, Mr. Praet was speaking on behalf of President Draghi who didn’t enjoy being “bested” by Weidmann at the December 3 meeting. The German “block” had raised its concern about more QE and prevented Draghi from delivering what he had previously promised.
Notes From Underground: More Proof of Algo-Driven Volatility
December 20, 2015Notes From Underground: The Fed Meets Market Expectations … So How Was It Unanimous?
December 16, 2015In the Beatles Album “Let It Be” John Lennon introduces the phrase, “Doris Gets Her Oats.” It’s supposedly just typical Lennon gibberish. But in a nod to the Beatles, Janet Yellen got her oats and the Fed did not LET IT BE. The “oats” that Janet got was that the FED increased its interest on excess reserves (IOER) to 50 basis points and overnight reverse repo (O/N RRP) rate to 25 basis points in order to pull the fed funds into the corridor. The most astounding outcome was that FOMC vote was unanimous, 10-0. With the recent über-dovish comments from Fed Governors Brainard and Tarullo, how could they have voted with the Fed Chair? Some commentators remarked that the “historic” occasion of Yellen presiding over the first Fed hike in almost nine years needed a unanimous vote. Question: What did Chair Yellen have to promise the über-doves in order to garner their votes and suffer the wrath of the Shadow Fed Chairman, Larry Summers? This will be an important question going forward for it may mean that Yellen may have compromised herself to lower for longer.
Notes From Underground: Before a Short Hiatus …
December 10, 2015I will be taking a few days of “unwind” before next Wednesday’s Fed meeting and Chair Yellen press conference. Last Friday, Rick Santelli and I talked about the ECB and I am posting that but the last few Christmas Eves Rick has had me on and we discuss predictions about the coming year. There are no safe predictions from this blogger as I will venture far from shore but always try to put my best thoughts forward.
Notes From Underground: Volatility Into A Holiday Market–Small Boats Stay Close To Shore
December 9, 2015WARNING: Put on your life lines, foul weather gear and be ready for the boom to come flying about (thanks Whitewave). There are violent winds blowing in the financial seas as equity markets are giving warning that something is amiss. The 200-day moving averages for the DAX, CAC, Nikkei and SPOOS succumbed to selling pressure in synchronized fashion. The Dow Transportation Index looks atrocious, especially when viewed in terms of the steep drop in energy prices. Lower fuel costs are historically a boon to trains, planes and automobiles and most especially trucks. Lower fuel costs lead to increased profits for freight haulers (h/t American Limey and Professor Waspi).
Notes From Underground: Unemployment Report Spot-On and Meaningless; Draghi Doesn’t Disappoint
December 6, 2015The U.S. jobs report was in line with market expectations colored by the Wednesday release of the ADP data. The market’s response was interesting in that BONDS, STOCKS AND THE DOLLAR reversed some of the reaction to ECB President Mario Draghi’s press conference on Thursday. While the jobs report seemed to SOLIDIFY an FOMC rate hike next week, the settlements on Friday raises questions about the Fed’s current strategy. Even though a rate increase is a “certainty” and with the ECB promising more liquidity at lower interest rates, the settlement prices at the week’s end were perplexing:
Notes From Underground: Tomorrow’s Unemployment Release Is a Meaningless Event, UNLESS …
December 3, 2015After today’s violent market reaction to a wounded Mario Draghi (more on that later),the consensus numbers for tomorrow’s U.S. jobs data will render the December interest rate rise by the FED a certainty. The STREET is estimating around a 205,000 increase in nonfarm payrolls and a 0.2% increase in the very important average hourly earnings (AHE). IF PAYROLLS ARE BELOW 100,000 or IF AHE IS FLAT OR NEGATIVE THEN THE FOMC MAY BE RETICENT TO RAISE RATES AT THE DECEMBER MEETING. A gigantic upside number of more than 300,000 would not be big enough to increase the possible rate rise or even change the Fed’s sense of raising faster than the market already anticipates. It is definitely a one and done until some of the present uncertainty in the global financial system clears. This is a very reluctant move by the FED, especially now that the Germans have increased the pressure on Mario Draghi and the ECB.
Notes From Underground: The Clash Of Civilizations, France Vs Germany
December 1, 2015I know, I know. The clash of civilizations is purportedly about the struggles between the Islamic World and that of Judeo-Christian-based beliefs. But from our global-macro perspective it is the open battle between France and Germany for domination of the EU State. It has always been about the which of the two nations was going to control the European agenda. [NOTE: PLEASE GO BUY A COPY OR TWENTY OF THE ROTTEN HEART OF EUROPE BY BERNARD CONNOLLY FOR SALE FROM AMAZON AT $8.00 or directly from me for $10.00 including shipping.] For the past five years Germany has been the dominant voice in Europe because of the weakened condition of the southern European nations who were burdened with massive debt loads following the 2008 financial crisis. In 2011, French President Sarkozy prevailed over German Chancellor Merkel by installing Mario Draghi as ECB President rather than the hard-money Bundesbanker Axel Weber. The Sarkozy victory came at a steep price, German intransigence over the budgets of the debt-burdened European nations. If MONEY WAS GOING TO BE CHEAP, THEN FISCAL AUSTERITY WOULD BE THE PRICE FOR INSURING BERLIN’S ACQUIESCENCE.