Notes From Underground: When Doves Coo

March 20, 2019

Wednesday’s FOMC statement and press conference was as dovish as we have heard in many moons. More importantly, the VOTE WAS UNANIMOUS. Even Kansas City Fed President Esther George voted with the group. Why was this dovish?

Read the rest of this entry »

Notes From Underground: The Jobs Report Was Not Data Dependent

March 10, 2019

Wow! That was a serious miss by the forecasters on job growth as only 20,000 new jobs were added. The huge miss will prove to be an aberration but doesn’t matter at all. As I pointed out in Thursday’s blog — as well as on the PODCAST Peter Boockvar and I recorded with Richard Bonugli from FRA, the ECB’s pivot toward liquidity addition via cheap bank loans has forced the FED into a policy of “watchful waiting.” And Chairman Jerome Powell reiterated that stance in his speech Friday night as he stressed the need for caution in the search for normalization on rates and the balance sheet.

Read the rest of this entry »

Notes From Underground: It’s a Drag Listening to Draghi Get Old

March 7, 2019

ECB President Mario Draghi’s press conference was, once again, another act of flim-flam as he PIVOTED away from any tightening for the next [FILL IN THE YEAR]. There was NO SURPRISE as the TLTRO was well telegraphed various news outlets in recent weeks. What’s amazing is that the currency markets were surprised by Draghi’s press conference as the U.S. DOLLAR staged a sizable rally, reaching its highest level in more than three months. The YEN was stronger as the weak stock markets provided a sense of Japanese repatriation of invested capital, while GOLD performed dismally.

Read the rest of this entry »

Notes From Underground: MMT Is Gaining Velocity

March 5, 2019

We at NOTES FROM UNDERGROUND have discussed the issue of MODERN MONETARY THEORY. Now, the battle lines are drawn over the possibilities of a benign outcome to the practical basis of the so-called printing press. Yes, the simplification of MMT bothers its disciples, but the printing press is in essence what the theory purports to avow: Don’t worry about debt, because enough money flooding the system will not push interest rates higher but rather lower as banks take on massive reserves to put out the bid that’s pushing interest rates persistently lower.

Read the rest of this entry »

Notes From Underground: The Politics of Money

March 3, 2019

Over the weekend, President Trump blasted a high note from the Conservative Political Action Conference. Again, the president put pressure on the Federal Reserve as he pointed his finger at Powell. He said, “I want a dollar that does great for our country, but not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business.” He didn’t mention Powell by name but added noted that the U.S. has “a gentleman that likes raising interest rates in the Fed, we have a gentleman that loves quantitative tightening in the Fed, we have a gentleman that likes a very strong dollar in the Fed.”

Read the rest of this entry »

Notes From Underground: Be Vigilant, Very Vigilant

February 26, 2019

Today, I am writing this for all traders and investors. For many years I have been concerned that the market is sometimes plagued by headlines that create volatility as algos react to six words crossing the wire, only to be completely out of context when the article is published. But the damage is done. Most actors in the investment arena are unaware that MOST data releases and FED documents are provided to the media roughly 30 minutes early so that they can get their headlines and stories written for the scheduled time. My problem is that this antiquated methodology OUGHT to be extinguished because trades and information move in nano seconds rather than on Telex rollers as financial news was reported when this policy was enacted. When high frequency trading groups are spending millions of dollars to get edges in micro seconds it is certainly time to say goodbye to long-held operations.

Read the rest of this entry »

Notes From Underground: How Many Fed Speakers Does It Take To Make a Greenspan?

February 24, 2019

More than two decades ago, then-Fed Chairman Alan Greenspan said, “I know you think you understand what you thought I said but I’m not sure you realize that what you hear is not what I meant.”

It seems that the cacophony of Fed speakers on Friday accomplished what the so-called Oracle did by his own design .The headlines pulled out the narrative of the FED leaving a larger balance sheet and more reserves thus allowing for more liquidity in the U.S. financial system. Equity markets, bond markets and hard assets all experienced a sigh of relief and rallied in anticipation of removal of what Druckenmiller referred to as the double-barrel approach of FED tightening policy. Fed Vice Chairman Richard Clarida spoke about the FED‘s use of balance sheet and forward guidance dynamics as two exceptional tools the Fed used to combat the Global Financial Crisis. If policy was already at the “effective lower bound” the Fed may invoke a Bank of Japan-type policy of yield curve control (YCC) by capping the rates on longer maturities.

Read the rest of this entry »

Notes From Underground: Time To Tidy Up a Few Issues

February 20, 2019

While the markets are busy digesting the January FOMC minutes it is a splendid opportunity to muse on recent events.

Read the rest of this entry »

Notes From Underground: Though I Walk Through the Valley of Debt, I Fear No Evil

February 18, 2019

On Friday, U.S. 30-YEAR BONDS were the best performer as the 5/30 yield curve flattened in the face of several divergent asset movements. The GOLD rallied even as the stock markets rose around the world, so no need for haven status. The DOLLAR had actually been strong in the morning but as global stock markets rallied the DOLLAR was actually lower by late afternoon. So why was the 30-YEAR BOND the premier asset? I have no idea. Over the weekend there was a Yahoo Finance story in which Jeffrey Gundlach is quoted as speculating that long-end U.S. Treasuries will see 4 percent yields later this year.

Read the rest of this entry »

Notes From Underground: Why So Much Weight on Italy and Its Gold?

February 14, 2019

There has been much discussion this week about how the current Italian government wants the nation’s GOLD to be the “property of the state” instead of on the Bank of Italy’s balance sheet. The coalition of Five Star and League have thought to gain control over the gold and some pundits have raised the idea of Italy selling its gold holdings, the world’s third largest, in an effort to plug holes in the budget. (NOTE: The Italian government is actually the fourth largest when the IMF is included.) Italian Prime Minister Matteo Salvini maintains that the government has no plans to sell any of the people’s GOLD. Maybe the Salvini Government is deciding to take the advice offered for the last eight years here at NOTES and monetize the GOLD by issuing GOLD-BACKED BONDS. (Securitizing the gold by selling bonds backed by one-fifth of an ounce of gold.)

Read the rest of this entry »