Notes From Underground: Taking Pulse of a Dead Market

Wow! Was it quiet in today’s market? The simple answer is yes but Notes From Underground never takes things at face value. The global markets digested Friday’s “robust” employment report and seemed content with the market results: stronger dollar, stronger equities, higher yields and selling of precious metals. The euro and gold were steady today, but the yen and Swiss were weak as the safe haven’s were shunned as the risk-on trade is back en vogue. I have no problem with the market’s assessment of the jobs data but there were other stories that piqued my interest.

1. In the Financial Times today there was an article by Sam Fleming and Joe Rennison titled, “Fed’s Powell Warns of Stagnation Trap.” The FOMC Governor sat with the journalists in an interview that was uber-dovish but seemed to receive no coverage on the networks. The caveat is that the interview took place Thursday before July’s unemployment data release. Interestingly, Governor Powell said, “In particular I need to see two really good employment reports. And then it is a conversation. I WOULDN’T BE POUNDING THE TABLE SAYING WE REALLY NEED TO RAISE RATES,” (emphasis mine). Then, more dovish language from Powell: “With inflation below target, I think we can be patient.” And in a major statement of the FED‘s THIRD MANDATE, Powell maintained the U.S. economy was “… not full of risk right now. But the issue is that if you look around the world there are just a lot of risks that could affect us. So it is a US economy that is probably pretty close to its pattern of the last seven years, but the risks to us from the global economy are to the downside.”

It appears that aside from Vice Chair Fischer, the FOMC Governors are far more cautious than the regional presidents. Governors Powell and Brainard seem to be running interference for the Fed Chair Yellen and she remains reticent to raise rates. We will HOPEFULLY get more clarity from Chair Yellen when she speaks at the Jackson Hole Summit in late August. I will remind NOTES FROM UNDERGROUND readers that Powell told me not to worry about the ECB‘s solvency because it has a printing press.

2. In monitoring the power of the printing press I am posting a reference point put together by Karl of Vine Street Trading. It shows the top ten holdings of three large investment entities, the Swiss National Bank, Calpers and the Norge Bank, which holds for the Norwegian Sovereign Wealth Fund. The top six are the same stocks. The main difference between the SNB and the large entities is that the Swiss central bank does not have any major ownership in any U.S. banks. The conflict of interest would probably raise concerns from the U.S. authorities. The herding effect is rampant and the power of major global investors to influence equity prices is easily discerned.

SNB, Calpers, Norges Bank Holdings

A poignant point needs to be raised as my pulse races: How can global investors maintain buying SWISS FRANCS when the SNB is pursuing the greatest con since tulip bulbs, Mississippi Stock and any number of other events from the Madness of Crowds? The Swiss print currency and exchange the ever-increasing fiat paper for the assets of real corporations. Last month, the SNB–through currency market intervention–added roughly TEN BILLION to its balance sheet by exchanging Swiss francs for global stocks and bonds.

3. There was an interesting piece from the FT this morning. A research poll by SENTIX found that the Brexit shock had only a temporary negative impact. The negative expectations of an economic downturn “… have not intensified in August. The devaluation of the British Pound and monetary easing by the BOE should have boosted investors’ expectations. According to investors surveyed by Sentix,the British economy is not expected to plunge into recession.” Now, the researchers at Sentix are in no better position than the Bank of England and Governor Carney to forecast a coming supply shock but it raises the question as to why the Monetary Policy Committee was extremely aggressive in last Thursday’s QE, rate cut and term lending scheme.

At best the outlook is uncertain as the Sentix research reveals. Did the BOE move to head off a “possible” recession to satisfy its own dire forecast of the economic dislocation resulting from a LEAVE vote? Or maybe Governor Carney sought to fire a shot in the currency wars by pushing the pound lower versus its main trading partner, the EU?

4. It’s August, the season of European beach vacations. Markets are quiet but the ECB, BOJ and now the Bank of England have plenty of bond buying to do. There is a growing chorus of BOND BEARS looking to short the U.S. and European markets. I caution all readers: Be patient because the central banks have a great amount of clout in a thin holiday market and with all global bond yields reacting in a relative return manner a short position can be readily be stampeded into losses by ECB‘s 80 billion euro of large asset purchases. Complicating the ECB‘s bond purchases is a conflict between President Mario Draghi and Bundesbank President and Executive ECB Board Member Jens Weidmann. The lack of large assets to buy under the ECB’s capital key guidelines is leading to rumors of an adjustment to the program.

MNI news reported on August 4 that the “… ECB will address scarcity risks by buying bonds according to the magnitude of a member state’s outstanding debt, rather than its weight in the central bank’s capital key, are premature.” Jens Weidmann seems adamant that the capital key will remain for “to focus on bonds with particularly high debt levels and low credit rating would move us further away from our mandate.” This is a very serious issue for the ECB because any move to undermine the capital key basis of the TLTRO AND QE programs would send the anti-Merkel AfD party rushing back to the German Constitutional Court for a decision on the expanded ECB policy. The pulse of the market is quiet but there are all sorts of issues that can bring sudden volatility to vacation thin markets. Enjoy the quiet but don’t be fooled by complacency.



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15 Responses to “Notes From Underground: Taking Pulse of a Dead Market”

  1. Muad'Grumps Says:

    Yra, I noticed as well the SNB didn’t hold any PD stocks. No Goldman, JPM, WFC, C, etc. But did you catch what else they hold?…..Gold miners. 30 of them.

    AGNICO EAGLE MINES LTD 2,364,753shares 1.0% of the float

    ALAMOS GOLD INC NEW 3,876 452,921SH

    ASANKO GOLD INC COM 04341Y105 317,900SH

    B2GOLD CORP COM 11777Q209 1,555,029SH


    ELDORADO GOLD CORP NEW COM 284902103 7,777,200Shares



    FRANCO NEVADA CORP COM 3518 1,923,500SH 1.1% of the float

    GOLDCORP INC NEW 9,010,200 shares

    HECLA MNG CO 619,237

    IAMGOLD CORP 668,000

    KINROSS GOLD CORP 12,256,635

    KLONDEX MNS LTD 234,581

    MCEWEN MNG INC 397,331

    NEVSUN RES LTD 338,300

    NEW GOLD INC CDA 856,762


    NOVAGOLD RES INC 384,700


    PRETIUM RES INC 251,248

    PRIMERO MNG CORP 283,100


    ROYAL GOLD INC 110,300



    SILVER STD RES INC 188,100


    TAHOE RES INC 510,201 shares

    YAMANA GOLD 9,825,848 shares

    • yra Says:

      Muad–I posted the reply under Publius post

      • Dennis Moncrief Says:

        Dear Yra, I’m in Chicago this week, Tues-Fri and wish to meet you in person. I’m a long time fan of your Notes blog, started reading Bernard Connolly. 1978-1980 I traded gold with Jim Sinclair… am now getting back into trading after starting & selling e-commerce company. Cheers, Dennis

  2. Chicken Says:

    It’s not your grandfathers printing press, it’s an Heidelberger Druckmaschinen.

  3. Sophocles Sophocleous Says:

    They are basically indexing. From Bloomberg:

    SNB officials have said repeatedly that they replicate broad-based indexes to serve the interest of monetary policy rather than to generate a profit. Some companies are excluded on ethical grounds.
    “The SNB adopts a passive approach,” SNB Governing Board Member Andrea Maechler said in a speech on March 31. “This means, in particular, that we do not actively engage in equity selection”

    • Muad'Grumps Says:

      If they were passive indexing then we would only see a token allocation to a Barrick or Newmont. No, we see juniors and nonproducers in that 13F. The SNB is hedging for a monetary apocalypse, the inevitable debt for equity swap to rebalance the system.

    • yra Says:

      Sophocles—but it is more then obvious that more then just the SNB as being an indexer —-scary to say the least

  4. Kevin G. Waspi Says:

    “Indexing” is the opiate of the masses now with 50+ years of “knowing that markets are efficient”. It works well until all correlations go to 1.0 The thought of central banks owning equities and financial engineered proxies for them is still abhorrent to anyone who still believes that the role for a central bank is to be the LENDER of last resort at a risk appropriate rate, period, end of sentence. Central banks have now become the fountain of endless speculation in all asset classes, the ULTIMATE Ponzi scheme, as they need no new pawns to continue the roll. Huxley was right, it is a BRAVE NEW WORLD.

    • yra Says:

      Professor Waspi–and Japan has become the ultimate test tube for the freak en -nomics of the vanguard of the counterfactual brigade

  5. Kevin G. Waspi Says:

    Yra, You are so right. Worse yet, all of the Jackson Hole/Davos crowd have seen the dismal results of Japan’s freak-en-nomics, yet have followed down the same path, expecting different results.

  6. Publius Says:

    As a longtime voracious consumer of news media I can’t help but feel reading financial news- be it FT or WSJ feels like I’m reading the Onion. That’s not a diss on those publications either.


    • yra Says:

      Muad—yes I noticed that but thanks for the great post –they have a tendency to trade the precious metal stocks so it is worth watching but certainly Gresham’s law at work.In the second quarter the SNB traded ABX—Barrick gold as they bought and sold at the end of the second quarter—they bought and sold 11.9 million shares for considerable profit

    • yra Says:

      Publius–I agree with much of what you wrote but a purpose of this BLOG is to look through the news media and dig for ideas based on some of the nonsense they post as Secretary General of Echo Chamber—if I keep on keeping on I will hopefully bring some light to the darkness

  7. GreenAB Says:

    Can anyone explain to me why the SNB is buying stocks instead of bonds? Propping up foreign equities does next to nothing for the swiss economy. Why are they taking on that much risk? Thanks!

    • yra Says:

      Green AB–if the SNB were to be buying global bonds they would be creating a bigger bubble then the ECB,BOJ and BOE are building.Also,it seems like the SNB is trading in and out of some stacks so they have profit motivation and are thus the most powerful hedge fund in the world—and with a printing press—think Bridgewater with the ability to self fund its losses with a printing press and never having to go back to investors—

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