The first Friday of the month brings big news for the data dependent Fed. The market consensus is for 185,000 job gain and average hourly earnings increase of 0.2% and the work week to remain unchanged at 34.4 hours. In my opinion, a HUGE increase of 300,000 jobs with another 0.4% increase in wages (similar to last month) would bring great pressure on the FOMC to increase FED FUNDS more than the market’s expectation of 25 basis points. What I am saying is purely THEORETICAL but it would make for an interesting discussion for the DATA DEPENDENT FOMC. It’s especially interesting as the exuberance of the tax cuts, infrastructure projects, rollback of regulation, the equity markets should prompt the asymmetrical nature out of the FOMC decision-making process.
Sometimes looking back provides perspective in moving forward. As December begins we know the year-end is the global market’s attempt to position themselves for the coming year. The rise of populist voices has certainly sent tremors through financial markets. The most interesting aspect is how short-lived the disruptions have been. Brexit, no problem; coup in Turkey, no problem; Chinese economy sputtering, no problem; Donald Trump becoming the U.S. President, no problem; and this week’s Italian referendum, no problem.
The world’s central banks believe that the massive accumulation of bonds in a global condition of continued QE will be no problem. That is something we will continue to examine in 2017. The FOMC is certainly constrained by its continued asset purchases. The question at the FOMC should be: Why don’t we raise rates by 100 basis points if the TRUMP administration is going to pursue a robust fiscal stimulus? The FOMC model maintains the U.S. is at full employment and a retreat from austerity in the time of full employment OUGHT to be met with a rapid rise in interest rates or at the least beginning the aggressive reduction of the balance sheet. The year ahead will be rife with volatility as politics and debt overhang prove the motors of turbulence.
The world is all abuzz with the good feelings radiating from the aftermath of the Trump victory. However, no matter how long the U.S. equity market rallies, be certain that Trump is not draining the swamp of Washington, D.C. He is proving to be a caretaker. Today’s pick of Elaine Chao for Transportation Secretary is just more of the same. Ms. Chao is certainly qualified. After all, she has an MBA from Harvard, but being a past member of the Bush Cabinet means we are using old, worn-out tires. The Transportation Secretary will be overseer of many of the INFRASTRUCTURE PROJECTS the Donald has promised to deliver. The pork barrel these projects will be dipped in will be beyond lucrative and the wife of Mitch McConnell ought not to have been given this role.
This is a tough POST to write for I will criticize a newspaper I have read every day for at least 30 years. (In fact, I still have it delivered on my doorstep and read most of it online in the evening before the hard copy arrives.) The London Financial Times had a front page story, “Troubled Italian Banks Face Fresh Risk of Failing If Renzi Loses Vote.” This is a deplorable headline for it harkens back to the days of the mainstream media warning of dire consequences if Brexit passed and the Trump was elected president. THIS IS SCARE MONGERING. It raises the question: When will the Davos crowd EVER LEARN?
Tonight I am posting today’s Santelli and Harris exchange (click on the image at the end of the post). (It is with gratitude that I thank Rick and his wonderful producer Lesley McKeigue for they keep providing me a with a platform to express views that are based on almost 40 of trading experience.) The Santelli Exchange has allowed me to meet and share views with some of the most respected minds in the financial community: Art Cashin, Jim Bianco and the list continues to go on and grow. Thank you my readers for allowing me time to deal in dialectic exchange and be challenged in a constructive method to enhance my knowledge. Remember, it is not validation but dialectic that I strive for in Notes From Underground.
Everybody has opinions on the recent election outcome but as usual most of the opinions are from the echo chamber and not factual in any way. This blog is dedicated to seeking profitable investment and trading opportunities as I sort through the noise of the financial media. As with Brexit, the punditry found itself trapped in its own rhetoric and every prediction but the weakness of the pound proved to be WRONG, at least in the short to medium-term. British Gilts (10-year notes) rallied substantially in the post-Brexit confusion and most importantly the Footise stock index rallied 15% off its election night bottom. The POUND did weaken substantially against the U.S. dollar and the euro currency but I have argued for a few years that the British current account made the relative strength of the POUND to its key trading partners unsustainable.
Time it was
and what a time it was, it was
a time of innocence
a time of confidences
long ago it must be
i have a photograph
preserve your memories
they’re all that’s left you [Simon & Garfunkel]
So Jamie Dimon is being considered for Secretary of Treasury as the theme of Wall Street Insiders being the only “Stuarts” of the financial system remains on the front burner. What is interesting is that the rumors persist even as JPMORGAN is fined more than $280 million for providing jobs for the offspring of the Chinese elites in order to secure an inside track to the China power center. Hey, why not put Dimon in charge of the Treasury? That way he can hire the New York elite’s Ivy League kids for internships and other such jobs. It would really secure the fidelity to JPMorgan wealth management teams even more than being a bank recognized as too big to fail. Again, the most competent person to be the Secretary of Treasury is Sheila Bair for her wisdom, regulatory experience and strength in combating the Wall Street “wizard,” Tim Geithner. Jamie Dimon for Treasury ought to be a non-starter and he would be crazy to take the job for the intense scrutiny he would undergo. Enough of this rumor. Let’s get back to the Fed.
Noise fills the airwaves and so many “pundits” keep the outlets from going dark by providing opinions that are less than ridiculous. These are the same people who failed to identify many of the significant political dynamics during the last few years. There is a viral video of Fox Business anchor Maria Bartiromo interviewing the much-maligned Jonathan Gruber. I have no opinion on the politics of the interview but I do offer this criticism of Gruber’s hypothesis of the positive outcome from the Affordable Care Act (ACA). Gruber raises the counterfactual that insurance costs and medical care would be at the same levels as now and maybe even higher and with the addition of 22 million people on the health insurance rolls, the ACA is a success.
The experts are out with more ridiculous forecasts about the Trump victory and what it means for the various aspects of the financial markets. But let me toot my own horn for a moment: The trading outcomes for a Trump victory were on target, except for the dollar rally sustaining itself, but that is something I will be analyzing as we go forward. It amazes me how the media rushes back to the same forecasters who have so badly predicted many of the major political outcomes of the last two years. An important book for my readers is Tetlock’s “Superforecasting,” which makes a very powerful argument about following the experts.