Notes From Underground: Putting Perspective To Our Narrative

Let’s be clear about the unfolding political and economic landscape: It is the desire of the Trumpians and the anti-Trumps to control the political dialogue. The media is putting President trump and his appointees under a microscope, which is what the press should always be doing. (My apolitical belief for the fourth estate is that a free press should be responsible in pursuit of the “facts,” but if they have a bias it should be “to afflict the comforted and comfort the afflicted.”) In my opinion, during the past 20 years the U.S. press has devolved into a sycophantic mob as everything becomes about access to those with the greatest celebrity status, which usually means wealthy. The financial media especially bows to the rich because if you are a billionaire your views go unchallenged for fear of being shunned as it  undermines the concept of, “if you’re rich, they think you really know.”

When Donald Trump was merely The Donald, journalists would gush over the witty star of the Apprentice and journalists–especially the CNBC group–would do everything to elevate the ratings star. Fortunately, the game has changed as the PRESS is now at WAR with the White House as journalists seek relevance while Steve Bannon tries to make the media irrelevant if they only wish to be, to quote Spiro Agnew, “nattering nabobs of negativity.” The point is that there is a battle to control the narrative, which means that NOTES FROM UNDERGROUND will be more vigilant in pursuing the underlying concepts in detecting financial opportunities. I take nothing on its face. If the media actually becomes aggressive in its investigations we will all be better served.

***The most important FACT of the day: President Trump had the CEOs from the U.S. auto industry at the White House for a meet-and-greet breakfast. The President pushed for GM, FORD and Fiat-Chrysler to try and increase their production in the U.S. The Presidential bully pulpit has been on full display. When the media interviewed Ford CEO Mark Fields after the meeting, they asked Fields about President Trump’s executive order to halt further action on the Trans Pacific Partnership (TPP). Ford’s boss surprised me with his comments supporting Trump’s executive action because I thought a global producer like Ford Motors would have been in favor of all regional and international trade agreements. Instead, Fields thought the TPP was flawed for it failed to discuss currency manipulation. He called currency manipulation “… the mother of all trade barriers,” adding “the TPP failed in that.”

This was a direct assault on the Japanese because China was not in the TPP and of all the signatories to the trade agreement Japan is the largest automobile producer. The comment from Fields suggests that the National Association of Manufacturers (NAM) will be leading the charge for President Trump to battle back against the currency manipulators. Twenty years ago such a statement from a major U.S corporate executive would have caused the YEN TO RALLY. In today’s algo-correlated world, EQUITY MARKETS were up and the YEN was down as the risk-on trade was in full swing. HOWEVER, I CAUTION ALL DOLLAR BULLS TO BE CAUTIOUS AS THE GREAT NEGOTIATOR WILL USE WHATEVER LEVERAGE HE CAN TO CRAFT BETTER TRADE DEALS. Historically, the Japanese have been sensitive to verbal attacks on a weak yen and thus allowed an appreciation of its currency. Just something to be aware of as the world is BULLISH the DOLLAR.

In reference to today’s comments from the Ford CEO, I cite a December 30 Project Syndicate piece written by Carmen Reinhart, one of my favorite economists, titled, “Will Dollar Strength Trigger Intervention in 2017?” Professor Reinhart wrote: “President-elect Trump campaigned on a promise to bring back U.S. manufacturing, even if doing so requires imposing tariffs and dismantling trade arrangements. Yet a strong dollar is a major obstacle to fulfilling his promise. Perhaps financial markets will begin to perceive the dollar as currently overvalued and retrench. If not, will it be time for another Plaza-style accord? More important, who would be willing to cooperate?”

Reinhart concludes by noting that 2017 is not 1985 and any effort to weaken the DOLLAR would be a unilateral move to intervene. Of course, any unilateral intervention would contravene G-7 and G-20 agreements but this administration has revealed its respect for international confabs. (HAT TIP: KEVIN M.) Be vigilant to any type of market rebalancing of LONG DOLLAR positions.


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30 Responses to “Notes From Underground: Putting Perspective To Our Narrative”

  1. Arthur Says:

    So, this time, it might be called the “Trump Tower Accord.”

  2. Publius Says:


    Slightly off topic but should we should be concerned not so much about the Goldman alum in the the administration but the HUGE hedge-fund run by Trumps major supporter in regard to market-moving tweets?

    • Yra G Harris Says:

      Publius—I would not respond to Ichan ‘s tweets—he is a great bottom up analyst but weak as a Global Macro trader—last February he put out a bearish call for the entire market at around 1880 on the SPs

      • Publius Says:

        I was referring to Renaissance Tech. Robert and Rebbeca Mercer. Father, daughter mega donors. Silly me for thinking there were only a few conflict of interest entities. Presidential tweets moving markets on a daily basis with no “Chinese Walls”

      • Yra G Harris Says:

        Publius–yes i regret that but it means that the effort and patience become the cornerstones of investing because the algos will be tracking presidential tweets

  3. Richard H Papp Says:

    On 12/08/16 my notes say that the Dow Transports closed at 9,421.08. Today my screen says that they closed at 9,421.01.
    Just an observation for our readers.

  4. Chicken Says:

    Kyle Bass warns again on China, predicts trouble coming as Trump implements fair trade tariffs and Draghi is forced by Germany into tapering.

  5. Chicken Says:

    Will a weakening of $US cause US indices to reverse? I’ve been thinking one reason US indices have been advancing, is the strengthing dollar.

    • Yra G Harris Says:

      Chicken—too early to tell for the risk on/risk off algo is in play again and yes i agree that the dollar has benefited from the inflow of foreign capital searching for yield and it seems the u.S. equity market is the right place

  6. pittrader1988 Says:

    One thing that leaves me queasy is a head of state getting into the weeds with private companies. I didn’t like it when Obama did it. Obama was like the disciplinary parent who took candy away. Not really liking it with Trump even though in the short term it looks like he is helping American GDP. The long term effects might be damaging though. The theory of economics and free trade works.

  7. Arthur Says:

    Perhaps of interest. Check new hot topics of discussion via Drony

  8. GreenAB Says:

    watching with disbelief the daily Trump show from goold old Germany. unbelieveable stuff on all fronts…

    ok, so we´ve become a target too. today news broke that Tesla is canceling out of a 100m parts order for the upcoming Model 3. the pumps would have been made by German company SHW. a couple of days ago Musk met with Trump, who´s insisting to “buy american”… let´s see where this leads us. nothing good, i suspect.

    BUT in all the hype i am missing one question: what is this with Trumps obsession with manufacturing? Sure, these are well paying jobs. but after all, the US employs 12m people in this sector. Even if he brings every single job who was lost since 2000 – it´s only 5m. out of 152m working overall!

    The US economy is a SERVICE economy. please anyone, tell Mr. Trump! to get the middle class back on track you need higher wages in service (restaurants, retail, healthcare…), starting with the minimum wage. ok, looks like a non-starter when your labour secretary owns fast food franchises.

    I didn´t hear a single word how he will fight for those working in service providing industries. and it seems that nobody is asking either?!

    maybe you can tell me.

    happy new year to Yra & the blog gang! 😉

    • Yra G Harris Says:

      GreenAB—happy New Year and thanks for the post.There is a great deal of noise and the theme of We’ll See is important.Trump is providing great use of Symbolic Politics[Murray Edelman] in his early days as he plays to his base to say–see I am a promise keeper.But as Otto Von well knew,making laws is like making sausage ,you don’t want to watch the process no matter how much you like the outcomes.Yes,the U.S. is a service industry but as the Germans will let you know,wealth is created by manufacturing,mining and agriculture the rest is movement of money through financial means.Yesterday,the FT had an interesting piece on the need for Germany to become more entrepreneurial inn the digital arena.But the resolution of higher wages will be critical—

      • GreenAB Says:

        But as far as my research goes – the US has always been a service economy. Even before globalisation took over. Manufacturing employment peaked at 19 million in the 70s. Would you say, the US hasn´t created wealth historically?

        Yes manufacturing jobs are paying better. But they are under a constant threat by automation. Services on the other hand can´t be outsourced or replaced by robots. You need PEOPLE for healthcare, retail, restaurants…

        People are getting older. They will need even more service in the years to come. That´s where the future lies. That´s where Germany has to move, where China tries to move.

        So i don´t get how Trump is making waves when a couple of 100.000 manufacturing jobs won´t make a difference. His focus should be on services. And doesn´t he get that “made in America” or a trade war will hurt the service economy in a big way? When prices for goods go up you will lose jobs everywhere.

        Germany was one of the last countries to introduce a minimum wage. That was 2 years ago. Conservatives, CEOs and pundits were screaming how that will ruin the economy and jobs will get lost. But the opposite happened. Our economy is stronger than ever. 8.50/hour wasn´t much, but more people can afford to live off their wage. At the beginning of 2017 the minimum wage was raised by 4%.

      • Yra G Harris Says:

        Green AB—but i would argue that Germany’s strong unions set the pace for wages and thus the need for minimum wages was far less important.It was Hartz IV that did so much do restructure the labor market.And by the way,why does Schroeder get a free pass on his close relationship with Putin.Also,I read this week cooments from Joschka about the U.S. in Nato and this was not the Joschka of his youth when he would have been walking arm and arm with Willy Brandt

    • the bigman Says:

      Yes we are a service economy but manufacturers and their employees use those services. The job multiplier of manufacturing is likely 3-4 jobs per each manufacturing job ( So if for every 100,000 manufacturing jobs created there will be another 300-400,000 other jobs also created- all be it mostly service related. Trump understands this effect but does need to better job of explaining why manufacturing jobs rather than service jobs are so important. If he can bring back 1,000,000 manufacturing jobs that will generate 3-4 million other jobs- not chicken feed ( with apologies to Chicken)

  9. Chicken Says:

    Now we need for Treasury to issue 50yr Bonds, that should be interesting.

  10. GreenAB Says:

    Yra, as for the unions: they are in retreat for many years now. Only 50% of the people work for employers under “Tarifverträgen” (wages negotiated by unions) .

    The minimum wage was absolutely necessary. Especially in the service industry, where unions are barely existent. Many many workers got a significant raise when the minum wage was introduced. Before these 8.50 ,wages have been as low as 5 Euros/ hour.

    As for Schröder. His Putin relation has been a constant issue since he left office. They are real life friends. But over the last years it´s become rather quiet around the former chancellor. To me he´s still the best thing that happended to Germany since the reunion. Hartz IV was THE factor that brought Germany back from the brink.

    • Yra G Harris Says:

      Green AB–absolutely agree with you that Hartz IV was brilliant and forward working.I just will always wonder why Schroeder called an early election when he didn’t have to and his popularity was low—it seems he wanted to lose to join Gazprom—Merkel has reaped the benefits of Schroeder—and that was my point about weakened unions made the minimum wage more important.But union leadership in germany also understood that if they didn’t negotiate on wages jobs were headed into eastern Europe at a much faster pace.Thank you for your reasoned voice as always and you are one of the best boots on the ground.With all of my focus on Europe and germany this year we need your voice even when we disagree which is even more important.Imagine though if Bill Clinton had gone to work for a Russian energy concern after he left office—and actually before Schroeder went to Gazprom ,they tried to hire Donald Evans from the Bush administration,Commerce secretary,and the outcry was deafening.

      • GreenAB Says:

        As for early elections after Hartz IV: it was an all out gamble. After the VERY unpopular reforms passed the SPD (a traditional anchor of social security) got punished badly. They lost one state election after another. And with theses losses – influence in the lower chamber (Bundesrat). After a massive defeat in Nordrhein Westfalia – Germany´s most populous state and a traditional SPD stronghold – it was too much. For him and for the party. He felt, that he didn´t have the legitimation of the people anymore and decided to cause early elections.

        The gamble almost played out. He was still very popular. The SPD lost by a very thin margin to the CDU. And the chance was high that a grand coalition would have been led by him instead of a then pretty much unknown Angela Merkel. But he blew it completely in the evening talk show after the election. He looked slightly intoxicated and acted like he had won the election, lacking any respect for the CDU. At this point it was game over.

        As you correctly point out – Merkel has been reaping the awards ever since, while the SPD is still being punished for Hartz IV.

      • Cris Says:

        the Hartz IV “Rhenish”(as a friend of yours would say) labour market reforms have been brilliant for the narrow interest of the German exporters -who happen to be very powerful in their country- but painful for the Germans at large, and extremely damaging for Europe as a whole. Maintaining downward pressure on German relative labour costs, Germany’s current account surplus has ballooned, and has
        harmed growth in other euro-area countries. A typical beggar-thy-neighbour policy you’d expect from a mercantilist country.

      • Yra G Harris Says:

        Cris–what you say seems to be true and supports the rise of the AfD and it populist bent.Yes,Hartz IV has certainly benefited the idiot bankers,exporters and of course the quiet power of old line German revanchists,or what one of my friends refers to as the holy triumverate.But the fact that German unions held wages in order prevent the exportations of jobs to the east ,similar to the role of mexico in Nafta–and your analysis about how Germany received a high percentage of the EURO benefits is without question,which is what Draghi’s fallback position is in his discussions with Weidmann and also allows him to get Merkel to buy into the ECB’s QE program.

  11. Pete Says:


    I’m grappling with Trump’s dollar policy. Given the importance of closing the deficits and bringing back manufacturing jobs, Trump is going to do something. Question is, will he intervene in FX (now or later) or will he put import tariffs on products? I’m undecided. It’s possible that FX intervention would work with a two year lag on the deficit. This however may have the effect of keeping the USD stable as Trump puts in fiscal stimulus and regulatory reforms. If he decides to put import taxes on US products, the problem then becomes USD appreciation and does appreciation negate the tariff? It probably would to a degree. In the end, we need to go one by one with all of our top trading partners.

    My bet is on USD appreciation now, due to import tariffs and other Trump policies, followed by intervention after the USD appreciates.

    • Yra G Harris Says:

      Pete–this is the trillion dollar dilemma for if the dollar rallies that much ,while it may be neutralized the impact on the global financial system will be enormous because of all the dollar borrowing prompted by the Bernanke fed on a global basis—this is the major problem that the Trump plan seems to underestimate

  12. Chicken Says:

    +2.2% growth rate. Exports down, imports up strongly. Given it’s red hot, we need some serious rate hikes for a stronger currency to support imports.

    Full employment, indeed.

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    […] are two points I made back in January that support this view. The first was to pay attention to a quote from former Ford Motors CEO Mark Fields: “Currency […]

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