I am very confused by the constant bombardment of the news headlines that tend to contradict each other. One begins to wonder if the “ARMS” race media outlets are running is to craft headlines that have the greatest market impact. In a world of keyword algo readers, the market impact can be immense in a mere TWO SECONDS.
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Posts Tagged ‘QE’
Notes From Underground: Bernanke, Deliver Us From This Madness (Annie Hall or Deliverance)
June 17, 2013Notes From Underground: Judgement Day is Tomorrow as Supplicants Approach the Bench
June 10, 2013The German Constitutional Court is scheduled to hear the arguments in the issue of the constitutionality of the ECB providing unconditional funding for the bailouts of European sovereigns plagued with financial problems. The main issue really becomes this: Can the ECB consign German citizens to be the paymasters for the entire European project without their DIRECT CONSENT–or what the highly regarded Otmar Issing rightly called “taxation without representation” in an FT op-ed piece several months ago? Germany’s Constitutional Court sits in Karlsruhe and decides major issues of law impinging on the legality of the BASIC LAW. Previously, the court has held that the sovereignty of the people resides in the Bundestag but has warned that the transfer of German wealth and property to an outside foreign body has its limits without direct consent of the people. Where does the demands of the European Union conflict with the sovereignty of the citizens in determination of German rights?
Notes From Underground: The Markets Are Reacting to Rising Interst Rates, While Equities Continue to Roll On (And Fed Anticipates a Roll Off)
May 28, 2013In post-Memorial Day trading the BONDS had a large selloff as yields on long-term debt rose dramatically. The U.S. DOLLAR followed the rate increase and rose against all major currencies. Let’s reflect: Equities are impervious to rising long-term interest but the DOLLAR attracts foreign investors in search of a little more yield. The fact that the short-end of the curve is anchored by the FED, the result is that the 2/10 U.S. yield curve is steepening and actually made 52-week highs today as it rose to 186 basis points. The STEEPENING YIELD CURVE is aiding financial stocks. The 2/10 has increased to 184 from 145 basis points during the last three weeks, which has helped banks and other financials to pick up 40 EXTRA POINTS in yield by selling the short-end and buying the longer end. This is an interesting situation for usually steepening curves will put pressure on a currency.
Notes From Underground: Did The Chinese Fudge The PMI???
May 23, 2013First, Happy Memorial Day to all the readers of Notes From Underground. If you are a veteran of the U.S. Military, thank you for your service. If you aren’t a veteran, take the time to thank those who have served to fight for the freedom to write blogs and entertain the free interchange of ideas.
Notes From Underground: Everybody Is Talking At Me, Can’t Hear a Word They’re Saying (Only the Echoes of the Bonds)
May 21, 2013This week has been loaded with FED OFFICIALS filling the airwaves with thoughts about ending QE or just tapering, with the markets left to discern how, when and how much. Today, the NY FED President presented a speech at the Japan Society in New York City, titled, “Lessons at the Zero Bound: The Japanese and U.S. Experience.” President Dudley compared and contrasted the mistakes made by the Japanese and U.S. monetary authorities and what they had been able to learn from each other. The speech was not critical about recent Japanese monetary moves, which infers that the FED is very comfortable with current BOJ policy. The NYFRB president does tell seem to support Chairman Bernanke in being a ’37er, meaning the FED cannot allow the mistakes made in 1937 by the U.S. Treasury and Federal Reserve Board to recur. This belief emphasizes that deflation is the most powerful variable that can disrupt the political economy.
Notes From Underground: Does Tapering Lead to a Narrow PEG of a Pant Leg?
May 13, 2013Now that the FED has provided the U.S. and world financial system with a suit of liquidity, it is trying to figure out how to reduce the amount of material. The word “TAPER” is not my favorite for it fails to define what I believe is the goal of the FOMC. Who cares if the FED reduces it security purchases? That is not the problem. If the economy has any real traction the current balance sheet of more than $3 TRILLION should be quite sufficient to keep interest low. The dilemma is how to remove the LIQUIDITY without causing a collapse in Bernanke’s beloved PORTFOLIO BALANCE CHANNEL.
Notes From Underground: Searching for Clarity in the Age of Monetary Policy On Steroids
May 12, 2013The much-awaited piece from Jon Hilsenrath about FED “tapering” appeared in the weekend WSJ, and, as promised by the abundant tweets, it delivered very little in providing any new insights into Fed halting of security purchases. The headline, “Fed Maps Exit From Stimulus,” wasn’t a map of any kind and merely seemed to provide the philosopher’s answer to question of what to do when confronted with the fork in the road … TAKE IT. The FED is caught on the horns of a dilemma for it wants to provide some clarity as to how it will end the large-scale asset purchases (LSAP) without sending the market into a downside tailspin. The massive increase in the FED‘s balance sheet has provided the rocket fuel to boost the demand for all types of risky assets but how do they know the economy has enough strength to sustain the rally on its own. It seems that the most important voice now will be Fed Governor Jeremy Stein–more important than Jon Hilsenrath–for he seemed to unnerve Chairman Bernanke with his April 19 speech in which he warned about the distorting impact the Fed was having on risk assets. It seems the Chairman has awoken to the idea that the FED has blown an asset bubble, especially now that the Japanese have added to global liquidity.
Notes From Underground: Why Are The G-7 Finance Ministers Meeting In England This Weekend?
May 10, 2013There was a Reuters story yesterday by William Schomberg, “G7 Finance Chiefs to Discuss Bank Reform Push.” Very few people picked up on this but it seems strange that all the sudden a meeting is called to discuss what elements of bank reform. Are they going to try to persuade Germany to get behind the EU push for a banking union and if so why the hurry before the September German elections? The idea of a banking union with resolution authority is sure to be a lightening rod for all the German angst about the bailouts of the peripheral nations. The Reuters piece notes that some G-7 officials are upset that the U.K. called the meeting so soon after the recent IMF talks in Washington. One official said, “I am really annoyed I’ve got to give up my weekend for this.”
Notes From Underground: My Response To Larry Summers
May 7, 2013First, the RBA finally cut the lending rate by 25 basis points to 2.75%. By the close of the market, the Aussie dollar remained weak as some were surprised by the move. As I promised my readers of NOTES it is the 2/10 yield curve where the indicator of further currency and bank action will be found. The 2/10 steepened a slight three points, but the action ahead will be the key. Failure to take out recent steepener highs will be an indicator that the RBA has more work to do if it wishes to give a boost to the Australian economy.
Notes From Underground: Draghi to Bundesbank President Weidmann … KLAATU BARADA NIKTO
May 2, 2013The last two days has seen two of the world’s key central banks deliver fresh interest rate decisions and there was very little in way of surprises. In a salute to the philosopher Isiah Berlin, I have noted that Chairman Bernanke is a HEDGEHOG and President Draghi a FOX. A hedgehog is one who “views the world through a single defining idea.” The economy is slowing, unemployment is high, inflation is low, so it is appropriate for the FED to buy and continue buying Treasury debt. You say it is not having the desired effect? Buy more. In yesterday’s FOMC statement, the FED noted that ”… FISCAL POLICY IS RESTRAINING ECONOMIC GROWTH.” The meaning of this is that Washington is acting irresponsibly, thus the FED needs to possibly INCREASE its bond and mortgage-backed securities purchases. Whatever it is, QE IS THE ANSWER.
