Notes From Underground: Another FRA Podcast

I am posting the latest PODCAST from the Financial Repression Authority (FRA), in which Peter Boockvar and I talk markets with Richard Bonugli. This PODCAST sets out the market issues that financial markets will confront in the fourth quarter.

Friday was a preview of the chaos that the Italian government can create for global markets. As the Five Star/League coalition defied the Eurocrats in Brussels, the Italian 10-year yield rose by more than 33 basis points. Global equities were affected by the Italian disruption but the U.S. markets recovered by the end of day in “honor” of quarter-end rebalancing. The DOLLAR had a strong rally as fears about European banks led to a flow of funds into U.S. financial institutions. Yields in Germany, the safest European sovereign, actually dropped SIX basis points.

In defiance of the strong dollar, GOLD and SILVER performed with strength. Previous central bank official statements released in the previous eight days revealed that the Reserve Bank of New Zealand is in no hurry to raise interest rates even as “GDP growth in the June quarter was stronger than we had anticipated.” RBNZ Governor Adrian Orr noted there were concerns about downside risks to global growth. Governor Orr also expects a “lower New Zealand dollar exchange is expected to support demand for our exports.”

On September 20, the Swiss National Bank (SNB) kept its overnight deposit rate at -0.75% even though the Swiss economy has performed stronger than expected.

The strength of the Swiss Franc is the primary reason for the SNB to remain active in the foreign exchange market. As the SNB stated, “The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary remain essential in order to keep the attractiveness of the Swiss franc investments low and thus ease pressure on the currency.” It is a fantasy that the G-20 and G-7 always maintain that FX markets are to remain free of government intervention. Welcome to the fourth quarter.

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4 Responses to “Notes From Underground: Another FRA Podcast”

  1. Bellino Says:

    Ira, on CNBC a commentator, from KKR I believe, said the FED and other central banks own the leverage that was, before 2007, owned by homeowners, banks and corporations. So the latter three lost what the central banks won in leverage. Like energy that can neither be created nor destroyed but can change form, where does leverage go if the central banks get it off their books? Who will win ,who will lose?
    Is leverage destined to expand forever like the universe by the FED hand behind the curtain. Would determined leverage reduction cause implosion. Would such a fear make the FED a prisoner of its present situation as long as the rivers flow and the grass grows. Thus, would the stock market flow and grow best in a generalized ETF?

    • yraharris Says:

      Bellino–it is a Beautiful Life whne you can operate with a printing press to buy assets.When you say leverage you have to specify as to what type of instruments you mean–not all mechanisms of leverage are the same.The FED and ECB ,BOJ are prisoners but the Island is so beautiful and the intoxicants so rewarding so they will not acknowledge their predictament –this is why the Italians have captured the Draghi ECB—the banks in Italy are loaded with Italian sovereign debt that carries a zero risk weighting so don’t have to be reserved against—this is a GIANT problem as the BIS under Jaime Caruna has admitted a few years ago–not all leverage is the same

  2. Rob Syp Says:

    In looking at the CNBC screen yesterday German rates .44 Italy’s 3.48 inmates are really running the asylum

  3. Chicken Says:

    Looks like we’re witnessing the effect of rising rates.

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