Notes From Underground: Recapping a Week of Notes

Lately, the primary themes in the media revolve around the bombastic rhetoric from the leaders of the U.S. and North Korea. Again, the key to a genuine possibility of warfare will be the beginning of the evacuations of Americans from Seoul, South Korea. The more important elements for global financial markets seems to be directed at ECB President Mario Draghi’s upcoming Jackson Hole speech. In Thursday’s Financial Times, Mohamed El-Erian asked the paramount question concerning the shrinking of central bank balance sheets: “… how many systemically important central banks can effectuate the policy pivot without undermining the over-all liquidity support that has been critical for decoupling asset prices from fundamentals.”

In the FRA podcast with Peter Boockvar on Wednesday, I opine that (and readers are familiar with this idea) Draghi will be very slow to begin QT for the ECB has a very different agenda than the FED and the BOJ, until proven otherwise. Many traders are positioning for a Draghi announcement from Jackson Hole. If you think this is the case, I would be buying bunds and selling French debt because the recent compression in the 10-year spread should reverse since there will be less upward pressure on German yields. (Another reason: Newly elected French President Macron’s poll ratings have been slipping and his confrontation with the French unions has not even begun.) This theme will be developed as the week progresses. Pour the scotch and enjoy the PODCAST.

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8 Responses to “Notes From Underground: Recapping a Week of Notes”

  1. peter Says:

    I would be buying bunds and selling French debt because the recent compression in the 10-year spread should reverse since there will be less upward pressure on German yields.

    Ira,

    I have read you comments for many years. I guess I am too stupid to understand spreads. What would be your objective in closing this spread – how much profit, based on capital put at risk.

    Why don’t you just go long the Bund and forget the rest. If the Korean Peninsula blows up, everyone will go into Sovereign debt (ex-South Korea, Japan and China).

    Regards,

    peter

    • Yra Says:

      Peter–if and i stress IF the ECB were to curtail its bond purchases the market would be mor eprone to purchase the higher quality debt –German and sell the weaker countries–this is a very conservative play and with Bund yields so low ther ei s not much gain to be had from outright long BUNDS while the risk to a hard sell-off on any hint of QT would cause major loses in a long BUND only position—look back at Draghi’s late June speech from Sintra Portugal as a possibility—before I strive to make money I work hard to limit risk

  2. david Says:

    can someone tell me why my tradestation platform at Sunday 13 Aug ’17, 23:00 NY time shows Nikkei futures up by a good margin ~75 basis points, but news services show it down by roughly same margin? I’ve noticed this more than once but only reached out now…Seems something is lagging and setup for a bluff…
    thanks,
    david

  3. david Says:

    and furthermore, Yra, I have followed you’re blog for years and the education I gain from here is superb. I truly believe the ideas mentioned here are being used as ammo by the players spoken of so often (davos elite, draghi minions, large algo headline news traders etc). Seems to me you know more than the majority of the aforementioned players, and they can use this as a way to crush the retailers following our ideas. However, being an ag trader, I feel we are somewhat protected of the bluffing and rigging in the hot products of the elite over the past few years. The fundamental selling in corn and wheat over that time frame seems, well, real. But when will the elite cash in on the tech money of retail investors and start buying the commodities that people, I suspect, will be eating for many years to come; corn, wheat… Fundamentals aside when will ag be used as a vehicle to park cash and move these products higher and have the retailers chase and chase and corn from 356 to a more realistic 480-560??Seems capitulation could be close.

    • Yra Says:

      David—the weather market is upon us but i believe the overhang from Latin America is a bigger factor but in the end the Chinese and other emerging economies is and has bent the demand curve–the fact that the world has had two straight years of record crops and yet BEANS are still in the 9.30 to 9.50 range is unbelievable.Twenty years ago we have been pinned to the 4.50 level for beans.The strong Brazilian real will have an impact on Brazilian plantings so let see where the U.S. harvest takes prices to

      • david Says:

        awesome, thanks for the feedback Yra. To you’re knowledge have you known of any commodities that once were a darling and priced as such but have since fallen out of use and favour and the price is now reflecting that? Corn really maybe? never hear of ethanol much anymore and other than corn on the cob every once in awhile, people don’t seem to be big corn fans anymore….Personally though wheat I think will come back in favor once people realize wheat is great for you if you are doing lots of cardio….sorry got off subject but I like to use fad/fashion in analysis

  4. Rob Syp Says:

    In NFL football a couple years ago many teams were running an offense called “get what you can” well so true in the S&P’s on Thursday’s break with no follow through on Friday was a clear sign to get what you can cause the SPOOS are currently 24 handles higher on Monday mid day!

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