Notes From Underground: The Chinese Cite Hyman Minsky

October 19, 2017

First a few jokes: My sources tell me that the new Fed Chairman will be Marc Faber; second, as Lloyd Blankfein is chirping about Brexit and Goldman moving to Frankfurt, Germany, he opined several years ago that Goldman was doing God’s work. Well, being the cyclical time in the Jewish Torah of the reading of NOAH, I remind Blankfein that Noah was also part of God’s work. (Pour a scotch and laugh).

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Notes From Underground: Some Areas Of Concern and Importance

October 16, 2017

As the tinder of prairie fires builds, these areas of concern are important because of the potential impact they can have on the market:

1. Sunday’s election results in Austria give rise to concerns about the rise of euroskeptic groups in several European nations. Yes, the anti-immigration sentiment appears to be the dominant variable in bringing a right-wing government to Vienna, but the sparks from xenophobia can manifest into an anti-ECB issue as domestic citizens are asked to foot the bill for bail-outs of Italian banks. Many citizens of various European states have borne the costs of bailing out Italy, Spain, Ireland, Greece and Cyprus through negative interest rates, the ultimate tool of financial repression. German two-year notes are currently -73 basis points, even though German inflation is approaching 1.7%, resulting in a real yield of NEGATIVE 2.5% for the savers in German-based banks. Regardless of what the ECB does in terms of quantitative tightening President Draghi has maintained that negative rates will remain lower for longer. Financial repression will be the next theme for the European right.

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Notes From Underground: Who Gets Eaten and Who Get’s to Eat (Sweeney Todd)

October 15, 2017

As Stephen Sondheim wrote in the dark musical Sweeney Todd, “What’s the sound in the world out there. It’s man devouring man. The history of the world, my sweet, is who gets eaten and who gets to eat.”

I open with this thought in regards to a wonderful op-ed piece in the Barron’s over the weekend by John Curran titled, “The Coming Renaissance of Macro Investing.” Curran has the pedigree of writing this piece as he served his time at one of the greatest global macro funds, Caxton Partners. There are no greater thinker/traders than Stan Druckenmiller or Bruce Kovner. When it came to understanding the role of foreign currencies in creating investment opportunities Kovner is the wisest I have ever had the pressure to read. The last 10 years have been difficult for the global macro discretionary crowd but as John Curran suggests the winds of change are blowing. This is also a theme I have been discussing of late. The big difference in my opinion is that short-term trades will morph into momentum investments.

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Notes From Underground: Trading Strategies For An Automated World

October 10, 2017

Yesterday, I sat down with the group TOPSTEP TRADER to discuss ways I prepare to trade. Topstep is a private group that educates/prepares potential traders for a profitable existence. As the fourth quarter has begun, I thought this video would be beneficial as a review for my readers. Reviewing rules and concepts are important, especially as I BELIEVE WE ARE HEADING INTO A PERIOD OF INCREASED VOLATILITY. A rise in market volatility can be a time of great profit but it comes with a major increase in risk. The complacency of the market because of the central banks continued intervention coupled with the risk selling of the risk-parity crowd. I say crowd because it is not just AQR and Bridgewater involved in risk parity but there are many volatility sellers piggy backing on the power of the largest market players. Remember, when George Soros/Druckenmiller broke the Bank of England in September 1992, it wasn’t just Soros but many of the banks servicing Soros were tailcoating the Quantum Fund. But when the elephants leave the drinking hole many denizens of the jungle get crushed (Niederhoffer).

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Notes From Underground: Be Very Afraid Of Jerome Powell and His Printing Press

October 3, 2017

Over the past 15 months, I have made light of Fed Governor Jerome (Jay) Powell because of his answer to a question I had asked him at a symposium presented by the Chicago Global Initiative. I asked Governor Powell, “Who guarantees the balance sheet of the ECB?” Without hesitating, Powell said, “THEY HAVE A PRINTING PRESS.” If this is his answer to issues of debt overhang I will be closely watching the precious metals if Powell actually became Fed Chairman. Janet Yellen has proven far more competent than Jerome Powell would be under any top of stressful central bank situation.

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Notes From Underground: Welcome to 4Q, May We Not Be Drawn and Quartered

October 1, 2017

The political and economic landscape is fraught with danger even as the global equity markets remain mesmerized by the continued liquidity from the ECB, BOJ and the Swiss National Bank. It is not only the massive amount of asset purchases sustaining the elevated equity levels, the siren call of a HUGE U.S. tax cut (OR IS IT REFORM), which will be aided by being revenue neutral, keeps Wall Street pushing for lower risk premiums, or conversely increased stock market valuations. As I noted last week, the S&P/BOND RATIO has broken out to all-time highs as it has struggled for several years to climb above the record made in December 1999. The ratio moved to an all-time monthly high Friday, an indication that stocks are the highest price to Treasury debt, ever. Are stocks over extended on a fundamental basis?

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Notes From Underground: Which Spark Will Start the Prairie Fire?

September 27, 2017

In several blog posts over the last eight years I have used the words of Mao to relate to the potential issues that could cause severe disruption to the global financial system. If you listen to the narrative propagated by the mainstream financial media your concerns would revolve around North Korea, the Trump tax and healthcare plans, the FED starting QT (or else citing the Fed’s ridiculous dot plots), concerns about the potential shutdown of the U.S. government, the economic implications of Brexit, etc. The bottom line is that all the forecasters have been wrong for long as Phillip Tetlock revealed in his wonderful book, Superforecasting. The FED has been worshiped as all-knowing fonts of wisdom when nothing they have forecast has proven correct. Yesterday, Fed Chair Janet Yellen admitted that the FED is as confused about the lack of inflation as most of the prognosticators on Wall Street. This confirmed my theory that what the FED peddles IS NOT ROCKET SCIENCE.

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Notes From Underground: Angie, Angie (As Told By the Rolling Stones)

September 25, 2017

Mick Jagger was prescient when he sang these words in 1973:

You can’t say we never tried
Angie, you’re beautiful
But ain’t it time we say goodbye
Angie, I still love you
Remember all those nights we cried
All the dreams were held so close
Seemed to all go up in smoke
Let me whisper in your ear
Angie, Angie

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Notes From Underground: German Elections. The Sound of Complacency Shattering?

September 24, 2017

I will start tonight’s BLOG with two very good comments from a long time reader and contributor GREEN AB who hails from Germany. Green has always provided great insight and though we don’t always agree I have great respect for his perspective. On Thursday he posted a very prescient forecast about today’s election and Sunday he followed with a post-election thoughts.

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Notes From Underground: The Sound Of Complacency Shattering

September 19, 2017

First, for all those in the Notes From Underground community who celebrate Rosh Hashanah, have a happy and healthy New Year. For those who don’t I also wish you a happy and healthy New Year. Thanks for your continued support and if I angered you with my thoughts I have to say it was not done to be hurtful but rather to provoke a high-quality discussion around issues in the realm of global-macro finance. When I listened to the Ray Dalio interview on CNBC today it was comforting to know that the mission of this BLOG is similar to what Dalio tries to accomplish with his employees. NOTES FROM UNDERGROUND is not about PERSONAL VALIDATION but about discourse in the crucible of financial ideas, striving to refine the GOLD from the DROSS. Let’s hope the SHOFAR BLAST shatters the complacency of our static thoughts in all matters of our lives.

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