Archive for June, 2017

Notes From Underground: Month-End, Quarter-End … Oh My

June 29, 2017

In Thursday‘s post I am reissuing part of a post from June 11 in which I cited a very important signal from the Nasdaq 100 futures. The signal suggests the equity markets have been in a much more defensive mode as rallies have failed and new selling has emerged. Well tonight I warn of a possible new development and that is in the DAX FUTURES. The German index has been my favorite long equity position because the fundamentals are most positive for Germany: negative interest rates, current account surplus and a very strong fiscal position. The strong EURO this week seems to be a potential drag for German stocks, but the biggest factor is that the continued use of negative interest rates at the Draghi-led ECB makes the high-yielding German equity market a desirable choice for investors. HOWEVER, IF THE DAX DOES A MONTHLY OUTSIDE REVERSAL THIS WILL SIGNAL A MAJOR WARNING FOR ALL GLOBAL EQUITY MARKETS.

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Notes From Underground: Disabusing You of an ECB Tapering

June 28, 2017

On Tuesday, Mario Draghi, the Magician of Frankfurt, created a temporary maelstrom in global bond markets by hinting at a possible end to the ECB’s current QE program. While Draghi suggested that low rates were still a necessity to ensure that the European recovery remains on pace, the ECB president raised the issue that deflation was no longer a threat for the EU. Sovereign debt YIELDS rose dramatically as volatile hedge fund positions were liquidated and speculators sold bund, oat and BTP futures. On Wednesday, the ECB “explained” that Draghi’s statements were misconstrued and did not deviate from current ECB policy. ECB Vice President Vitor Constancio claimed Draghi was “totally” in line with existing ECB policy.

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Notes From Underground: Ben Bernanke Channels Karl Marx

June 26, 2017

Set your way back machines to and visit the philosophy of the Young Marx in his famous musings, The Economic and Philosophic Manuscripts of 1844. Read the concerns that Marx raises about the ALIENATION of LABOR. In the book edited by Dirk J.Struik, I am citing pieces from the chapter, “Wages of Labor.”

  1. “Wages are determined through the antagonistic struggle between capitalist and worker.”
  2. “The demand for men necessarily governs the production of men,as of every other commodity. Should supply greatly exceed demand, a section of the workers sinks into beggary or starvation.”
  3. “The worker need not necessarily gain when the capitalist does,but he necessarily loses when the latter loses.”

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Notes From Underground: Pour a Yamizaki, Enjoy 30 Minutes of Harris and Crudele

June 19, 2017

This morning I had the pleasure of sitting with a professional trader and discussing several themes that have coursed through NOTES FROM UNDERGROUND for the past several months, if not years. In staying with the Crudele hit I want to spend some time on offering some views on the significant flattening of the 5/30 curve during the last few weeks. More importantly, the 5/30 curve broke out to new multi-year lows, blowing through the previous low of 100.98. Today we closed at 99.5. The 2/10 curve was very stable and closed at 82.5 basis points holding above last weeks lows. Why is the more SPECULATIVE-oriented curve flattening more than the conventional investment directed curve?

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Notes From Underground: James Gorman Gets Duped, So He Dupes the Nation

June 15, 2017

It seems that Morgan Stanley Chairman/CEO James Gorman was duped by an e-mail hacker. So in measure for measure the Morgan Stanley chief tried to dupe the world with his op-ed in the Financial Times on Wednesday. In an opinion piece titled, “The Last Thing Banks need Is Yet More Rules.” Gorman said in response to the idea of a reinstatement of Glass-Steagall:

“More than  80 years ago, the U.S. enacted the Glass-Steagall legislation that separated traditional commercial banking from investment banking. Over the ensuing seven decades, as global trade and finance expanded,the divide between commercial and investment banking broke down. Recognising that global companies needed full-service banks, the U.S. embraced a system adopted by most other countries, including Germany, Japan, Canada, the U.K. and Australia. Ending Glass-Steagall [the law was repealed in 1999] had nothing to do with the financial crisis, and there is no reason to return to it.”

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Notes From Underground: She Does It Backwards and In Heels

June 14, 2017

Commentators on dance technique always maintain the Ginger Rogers was a better dancer than Fred Astaire for she performed everything he did but “backwards and in heels.” At today’s press conference the financial markets were left with the sense that Chair Yellen wants to rollback the massive balance sheet promulgated by Ben Bernanke. The most “hawkish” piece from the day was when Yellen said it’s not unhealthy to have a gap between the FED and MARKET EXPECTATIONS.

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Notes From Underground: Some Perspective on Wednesday’s FOMC Meeting

June 13, 2017

The FED has painted itself into the proverbial corner by pre-announcing a rate hike. The market will be listening to Chair Janet Yellen’s press conference, which takes place at 1:30 CDT, a half hour after the Fed releases its statement and summary of economic projections. The market is expecting some discussion Fed’s balance sheet unwind, but Yellen will be cautious as she won’t want to cause a large selloff in the Treasuries led by the algo-driven headline readers. Tomorrow morning the Bureau of Labor Statistics releases the CPI data, alongside the Census Bureau’s retail sales data. Market consensus is for tepid numbers on both releases.

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Notes From Underground: Wake Up! Wake Up! For Your Light Has Come

June 11, 2017

This line comes from the Jewish liturgy of welcoming the Sabbath. I use it here to make a note to my readers about a possible signal that the NASDAQ 100 sent on Friday. Now I don’t hold myself out as anything but a third-rate TECHNICIAN (reader of chart formations), but having been taught by one of the greatest technical minds (thanks H.G.), I know to watch certain formations for signals in a POSSIBLE change in sentiment. THE CHART THAT CAUSES CONCERN NASDAQ 100 made ALL TIME HIGHS LAST WEEK BUT CLOSED BELOW THE PREVIOUS WEEK’S LOWS. Do I know when the market will reward a short position?

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Notes From Underground: Is the Yield Curve Taunting the Fed?

June 6, 2017

There were many responses to last night’s post regarding one of my favorite topics: the yield curve. The airwaves have been filled with opinions about the impact of the 2/10 curve on bank stocks and other financial asset valuations. Long-time readers know that I often note the significance of the shape of the curve for hinting at possible investment opportunities. Last year the 2/10 curve FLATTENED (a relative term) to long-term support levels at 74.8 basis points and then steepened out to about 150 basis points as the market feared a Trump inflation scenario.

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Notes From Underground: Putting Qatar On Our Screens, A Potential Disruptive Force

June 5, 2017

Many times I have written that you don’t buy gold/silver on the outbreak of war but merely trade it. Over the last 35 years any GOLD rally on the outbreak of any world conflicts has been a mere short-term trade. Sometimes situations represent potential paradigm shifts which unfold over time. Yesterday’s announcement by Saudi Arabia, Egypt, United Arab Emirates, and Bahrain to sever ties with Qatar may be representative of a significant change in the fabric of Mid-East relations. I stress MAYBE because certain events will have to follow develop signal a seismic shift. THE QUESTION TO CONSIDER: WHY THE SUNNI COALITION CHOSE THIS TIME TO DENOUNCE QATAR?

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