Notes From Underground: All My Words Come Back To Me

Sometimes world leaders and CEOs ramble and say things that reverberate for longer than intended. Two things in particular are echoing in the canyons of poorly thought-out ideas: President Barak Obama’s comparing the military potential of ISIS to A HIGH SCHOOL JV BASKETBALL TEAM. Then, there’s the CEOs OF AMERICA’S HEALTH INSURANCE AND HOSPITAL INDUSTRY, ALONG WITH THE BIG PHARMACEUTICAL COMPANIES, APPEARING REGULARLY AT WHITE HOUSE CONCLAVES TO ACTIVELY SUPPORT THE AFFORDABLE CARE ACT, PROCLAIMING AS THEIR RATIONAL: IF YOU ARE NOT AT THE TABLE THEN YOU ARE ON THE MENU.

Now the same CEOs reappear on the same CNBC and Bloomberg television shows explaining why their firms’ EQUITY VALUES ARE COLLAPSING ALONG WITH PROFITS. We should have no sympathy for the health care companies who now find themselves as the main course because it appears that the menu was based on DU JOUR AND PRIX FIXE pricing. Fixed prices in a capitalist system are a flawed model. NOW IF THE FED ONLY UNDERSTOOD THE RAMIFICATIONS OF INTEREST RATES THAT ARE FIXED IN A DYNAMIC SYSTEM.

***This week has taken on great importance as the ECB and the Bank of Canada meet to decide their current interest rates; Janet Yellen testifies before the Joint Economic Committee on Thursday; and UNEMPLOYMENT DATA is released on Friday. Oh, lest we forget, OPEC also meets on Friday. It is easy to see how explosive this week can become and yet all markets are trading in a very subdued, non-volatile state. Why? Because the power of CHEAP MONEY appears to overwhelm all sorts of geopolitical concerns. The FED‘s anticipated rate hike is considered of limited impact compared to the expected enhanced liquidity injections from the ECB. The global financial markets are listening to ECB President Draghi and believe that Thursday’s meeting will possibly result in a lowering of interest rates and maybe an increase in QE purchases by either raising the level from 60 billion euros a month or else extending the duration of the program to March 2017 from September 2016. Either way an additional amount of liquidity is expected to be added.

In my opinion, the ECB may lower the negative interest rate on ECB DEPOSITS to NEGATIVE 40 BASIS POINTS because the present rate of -20 is not low enough for the ECB to purchase  the two-year debt of many European sovereigns. (There are currently EIGHT countries have two-year yields below -20 basis points and by the ECB’s rules that debt cannot be purchased so a drop  in the rate will allow the ECB access to an increased pool.) An outright increase in QE purchases will anger the Germans while a drop in the official deposit rate to NEGATIVE 40 will be where the German two-year is presently trading. The Germans are very angry about the plan for a European-wide bank deposit guarantee program currently circulating in Brussels. Germany is worried that the plan as proposed would expose German taxpayers to bank failures in other EU countries on loans made before the rules take effect. German Finance Minister Schaeuble wants bank shareholders and bondholders to be responsible before German taxpayers.

Something is very rotten in the state of European politics and the Germans are growing uncomfortable with the present state of the power of the ECB. As Chancellor Merkel’s poll numbers decline, Draghi will have to be very careful not to place more pressure on the German Chancellor while German voters voice greater concern about ultra-low interest rates, financial repression and the increased costs of settling Syrian refugees. Remember, with interest rates at ZERO around the globe, geopolitical events become magnified as the central banks have very little room to respond to economic and political crisis.

***There was a very significant headline in the weekend Financial Times: “France bows to Obama and backs down on climate ‘treaty.'” French President Hollande was hoping that the UN-sponsored climate conference would result in a significant global agreement on carbon emissions, an agreement that would be legally binding not just toilet reading for bureaucrats and those trying to arrest a bout of insomnia. Such is not to be because the EMERGING NATIONS will not agree to limit their growth with expensive, alternative, renewable energy sources. India and others will not by saddled with policy to deal with problems created by their previous colonial masters. Many nations are aware that President Hollande is desperate for any political victory in attempt to push back against the popularity of Marine La Pen’s National Front.

Mr. Hollande will be dealt a setback with the failure of a lack of a binding climate accord, which will result in a new intensified bombing campaign in Syria. Hollande is a wounded politician and desperate for any type of apparent victory. The world becomes far more dangerous everyday. More to follow.

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16 Responses to “Notes From Underground: All My Words Come Back To Me”

  1. Sarah Lambert Says:


  2. silverbug2155 Says:

    Yra, let’s not forget the IMF Nov. 30th announcement whether China’s Yuan will be included in the SDR.

  3. yra Says:

    The YUAN is a done deal

  4. the american limey Says:

    Steve Sears in his Barons col pointed out

    “With CBOE Market Volatility, or VIX, futures around 19, buyers have accumulated 500,000 VIX December 27 to 30 calls. The trading pattern is odd since the consensus view is that a rate hike is good, or at least not bad, for stocks. For the calls to have any real value, stocks must plummet.

    Although the notion that someone is betting on more terrorist attacks may seem a little far-fetched, the trading activity merits further investigation”

    SO my short /es doesn’t look so stupid now 🙂

  5. yra Says:

    limey–anyone who says you are stupid is a very shallow thinker

  6. the american limey Says:

    praise from Caesar …

    anyone hovering near the bog over the Opec mtg? Especially since johnny turk could close the Bosphorus Strait ( zerohedge cite). Incdently Yra excellent observations a GREAT start to the week.

  7. Asherz Says:

    With free markets invaded by the interventionists, and suppressed interest rates and QEs popping up in different locations at different times, equity markets have been operating on algorithmic cruise control. Despite company reports of falling revenues and lower GAAP earnings (before creative accountants and stock buybacks) with record debt/GDP levels, stock markets have been levitating to near highs. The tulip bulbs and South Sea Company shares are alive and well in their current 21st century appearance engineered by the money creation theorists. Creationism has won the battle over Evolution in the financial world. Caveat emptor.

  8. yra Says:

    Asherz–well stated and the proof exists everyday.When Ralph Nader is correct and yellen sounding again like a third grade teacher telling her students why they should be grateful for a prescient,omniscient FED and its love of the people–well I see the FED as a poorly designed rear engine -car believing it is actually the front

  9. yra Says:

    Perhaps it is the FED that is UNSAFE AT ANY SPEED

  10. Chicken Says:

    CNY being accepted implies acceptance of communism, lols, wonder what happened to propagating democracy?

  11. yra Says:

    Democracy is in the eye of the beholder or all power grows out of the barrel of a gun

  12. Asherz Says:

    Yra-Can we get the resurrection of Nader’s Raiders to aim their arrows at the Fed? It is so surprising to see Ralph’s clearly stated perspicacious remarks, and even the Great Alan has seen the light., It proves that maybe we need more octogenarians who had in their earlier years lost their way, making policy.
    Joe Kiernan this morning, in response to Lawrence Lindsey’s criticism of the asset bubble created by monetary policy, said that the high equity prices feels so good. But so does speeding, smoking and swilling to those who indulge. However the results are almost always regrettable.

  13. yra Says:

    Asherz–I defer to the wisdom of Dr.Twerski

  14. Rob Syp Says:

    If the biggest (or one of the biggest) pension funds in the world can lose this much wonder how the others are faring chasing yield?

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