Notes From Underground: “It’s Good News Week”

December 10, 2019

What an appropriate song for the band Hedgehoppers Anonymous. This week is loaded with potential market-moving outcomes. On Wednesday we have the final FOMC statement of the year followed by Chairman Jerome Powell’s press conference. The CONSENSUS is for no change in the current fed funds target range of 1.5% to 1.75%. The real key will hopefully be Powell’s press conference as market participants are hoping for any sort of dialogue about the Fed’s role in the repo market.

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Notes From Underground: The Jobs Picture Is Robust, But Where Is the Wage Increase?

December 8, 2019

This is a rhetorical question of course, for the lack of wage growth is to be found in the vast amount of money chasing a global labor pool.

It is capital that had benefited from the last 30 years of the unleashing workers after the fall of the Soviet Empire and the black/white cat policies of Deng in pursuing growth in China. Now that other emerging economies are attracting capital in an effort to create jobs, there still remains a great deal of downward pressure on wages. Even the movement of supply chains out of China will act as a drag on global earnings as manufacturers will act to hold down wages as way of remaining attractive to foreign direct investment. The world has been watching as Chinese earnings growth has accelerated over the last 10 years but one of the outcomes from the Trump tariffs will be to force a slowdown in China’s wage inflation.

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Notes From Underground: All Tweets, No Substance

December 3, 2019

On Monday President Trump sent out an early morning TWEET that sought to admonish the FED for keeping interest rates too high, coupled with an accusation that “two South American have been presiding over a massive devaluation of their currencies, which has not been good for our farmers.” ALL THE PRESIDENT’S MEN IN THE CAPACITY OF ECONOMIC AND TRADE ADVISERS OUGHT TO BE FIRED FOR MALFEASANCE.

This tweet was so off base that it should have forced the media into hyper critical mode to deconstruct its flaws. Brazil and Argentina have not been intervening to depreciate their currencies.

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Notes From Underground: Same Old Song With a Different Beat

December 1, 2019

There are few questions about the one-dimensional nature of the driving force of markets around the world. Cheap money sustains equity markets as the vast amounts of central bank liquidity continues to provide support for low-cost borrowing and a lack of alternatives for investors. A subset of the cheap cost of capital has been the “hoped” for resolution to the China/U.S. trade conflict which without question has disrupted global trade. South Korea’s recent economic performance is a reflection of the impact suffered by key components of the global supply chain driven export-oriented economy.

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Notes From Underground: Was Trump Addressing Mnuchin or Powell?

November 19, 2019

On Monday, Treasury Secretary Steven Muchin and Federal Reserve Chairman Jerome Powell met with President Trump at the White House where the duo “advised” and “forecasted” the economy to the president as 2020 election posturing is in full swing. NOTES FROM UNDERGROUND has maintained that Trump used the tariff threat to cajole Jerome Powell into lowering interest rates, weaken the DOLLAR and end the balance sheet runoff that the administration believed has held back the U.S. economy. What was Powell buying insurance against?

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Notes From Underground: So Many Insights

November 5, 2019

On October 31, I had the pleasure of the recording a discussion with Anthony Crudele and the always insightful Jim Bianco. These spots with Futures Television provide context to many things discussed in NOTES FROM UNDERGROUND. I have been fortunate to have been chosen to appear with many high level global macro analysts.

Then on Sunday, I spoke with FRA’s Richard Bonugli and Dr. Marc Faber, one of the most heralded analysts in the global macro world. We covered the important issues for fifty-five minutes. It is my pleasure to share both of these conversations with you all.

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Notes From Underground: Symmetric Inflation Targeting?

November 3, 2019

Yes, the leaves have shed, frost is certainly on the pumpkin and there’s even six inches of snow in Chicago. The news has been clogged with positive results from the recent phone calls between Lighthizer/Mnuchin and their Chinese negotiating partners. Even Commerce Secretary Wilbur Ross was aglow with positive news from his ASEAN meeting in Bangkok, Thailand. President Trump was tweeting about a possible signing ceremony in Iowa.

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Notes From Underground: I Am Not Your Beast of Burden

October 29, 2019

In the global financial system, the central banks are indeed the are system’s beasts of burden. With the November FED FUNDS contract pricing in 93% chance of a rate cut, Federal Reserve Chairman Jerome Powell will attach himself to the plow and till the soil, spreading more fertilizer for equity purchases and further financial repression of creditors. As we discussed Monday, the week is filled with central bank meetings of importance and further impacted by unemployment and GDP data. But there is so much more in the political realm that we haven’t even entertained:

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Notes From Underground: The Sounds Of Silence, as Sung by Hyman Minsky

October 28, 2019

Equity markets on Monday sustained their global rally as markets across Asia, Europe and the United States powered higher, even as the political backdrop continues to foment greater uncertainty. This week brings three key central bank meetings: The Bank of Canada, the Federal Reserve and the Bank of Japan. Read the rest of this entry »

Notes From Underground: So Long, Mario

October 24, 2019

A quick summation of ECB President Mario Draghi’s final press conference:

1. The Draghi Era is ending and I have to say that this was one of his best press conferences. Draghi exited, stage left, not PURSUED BY A BEAR and he did it with grace and aplomb. He took a BOW for his self-imposed mandate of PRESERVING THE EURO BY DOING WHATEVER IT TAKES. The desire to keep on keeping on by sustaining QE, TLTRO, MTO and most significantly, NEGATIVE INTEREST RATES will be a testament to the judges at the COUNTERFACTUAL HALL OF FAME. How much QE was enough? What was the political damage that resulted from the bond buying program? This will be an issue that the cheerleaders of lower for longer will never entertain.

2. Again, Draghi stressed the need for greater synthesis of the EU in monetary, fiscal and political harmonization. He was laying the groundwork for Christine Lagarde and what I have maintained is Lagarde’s dual mandate of the creation of the true EUROBOND with a massive EUROWIDE fiscal stimulus program. Drahi urged those with budget room should ramp up spending while the deficit stressed OUGHT to get their fiscal houses in order. This is nonsense for once Germany capitulates to an infrastructure program fiscal stimulus will bloom all around the European Union. As an aside, the Financial Times had a story about how that the progenitor of the SCHWARZE NULL came out in favor of German fiscal stimulus in an effort to replace worn infrastructure. Spend while money is cheap.

3. Draghi still made a statement that the limits on each country’s bond purchases are self-imposed by the ECB so there may be room for the central bank to play with the amount of bonds purchased on any given day. The relevance of the CAPITAL KEY is in the stock of BONDS, not the FLOWS. This is important when trading any individual sovereign under duress. (I think Draghi is on thin ice here but something he failed to note as self-imposed by the ECB is the 2% inflation target.) Lagarde’s task is not to build the balance sheet. It is fiscal. Maybe President Lagarde could dispense with the new round of QE if Germany would ramp up fiscal stimulus.This seems to play to Jens Weidmann.

4. In response to a question about any mistakes the ECB made under the Draghi regime, the outgoing president said there was an overstretched commercial property market in Europe but felt that was a result of foreign investors seeking to be involved in EURO investments. Mario doesn’t see any BUBBLES. He did suggest theĀ  SHADOW BANKING SECTOR was a blindspot because of the lack of transparency. But Draghi said the corporate bonds and leverage markets were not as significant in Europe as in the U.S. because of the structure of capital markets so he was not overly concerned. Enter Christine Lagarde and we will prepare for the change of leadership.