Notes From Underground: Tell Me Why You Are Crying

The current market temperament is causing angst among investors. A relatively strong earnings season is failing to provide support to the U.S. equity markets that many analysts have been promoting. The media is wondering what will halt the continuing slide in stocks around the globe. We at Notes From Underground have pondered what the primary catalyst would be


This has been an issue that the market has been dealing with ever since the Trump/Lighthizer team began to threaten friends and foe alike using the cover of Section 232 of the Trade Expansion Act of 1962 (all in the name of national security). The umbrella of national security issues allows the Trump administration to be very aggressive in pursuing free and fair trade. The long moratorium in applying intellectual property rights against China has been ended as the U.S. attempts to shrink its massive trade balance.

The November elections have provided the rationale to push trade issues to the front in an effort to solidify the Trump administration as one that keeps its campaign promises. Recent polls reflect that the Trump team is gaining in the polls, which is giving credibility to the White House strategy.

One ridiculous analyst raised the idea that the Trump/Navarro team was pushing the tariff agenda against China in an effort to initiate regime change. What a preposterous idea. If the U.S. was pushing for the removal of XI from office it would be an act of war resulting in far more concerns than the present economic uncertainty raised by tariffs. INCONCEIVABLE! The continued uncertainty resulting from tariffs, or what Alan Greenspan called excise taxes on consumers, is an economic negative but right now it’s not large enough to impact the economy. But for investors uncertainty is a negative.


The upcoming U.S. elections seem to have caused enough uncertainty because of fears about both houses of Congress returning to Democratic control and being an albatross around the policies of the Trump White House. The concerns may be valid but with the recent gain in Trump’s popularity the stock markets should have found some support. This is certainly worth keeping an eye on as the market is searching for a positive catalyst. On Tuesday, Bernie Sanders raised the idea that there will be no blue wave. So be aware of political headlines derived from the most recent polling data.


European politics have been a point of contention for the market, especially since negative interest rates haven’t supported the German DAX and STOXX 50 relative to the U.S. markets. Brexit, plus the ROME/BRUSSELS stitch-up over Italy’s budget have probably been most the most vibrant agent for market angst. The rise in Italian yields has raised the specter of a financial calamity involving European banks loaded with Italian debt that are at risk of being downgraded. I believe this is a very low probability outcome but it could have a huge negative impact.

This coupled with a possible hard BREXIT outcome continues to spook investors. What makes the BREXIT situation more precarious is the U.S. is looking to start trade talks with Britain. In an Oct. 17 Financial Times story titled, “Donald trump Looks to Start Formal US-UK Trade Talks,” Trump antagonist exemplar Robert Lighthizer sent notification to Sen. Orrin Hatch, Chair of the Senate Finance Committee, that the White House wants to start formal trade talks with the U.K. as soon as Brexit has reached some resolution. President Trump is eager to move the UK to “the front of the queue for a trade deal,” independent from the EU.

This will be a boon to Prime Minister May as it strengthens her hand in the Brexit negotiations. If Trump were to give a free trade deal to the U.K., the German auto industry would be in a difficult situation. This is because of the German auto capacity built in the U.K. to take advantage of the EU free trade area.

President Trump well remembers being slighted at the G-7 summit in June when Macron, Trudeau and Merkel moved to isolate the U.S. leader after the aluminum and steel tariffs were enacted. As the article said:

“Last year the US and UK set up a working group to explore ways to ensure ‘commercial continuity’ between the two countries, which started ‘laying the groundwork’ for a possible trade deal, Mr. Lighthizer said in his letter. The US and UK traded $230 bn worth of goods and services lat year,with the US posting a small trade surplus with Britain. The US administration is able to begin formal trade talks in 90 days after the notification to Congress.”

Nothing is ever as easy as the popular narrative suggests.

***The Bank of Canada announces its interest rate decision Wednesday morning at 9:00 CST. The consensus is for a 25 BASIS POINT INCREASE to 1.75%. The Canadian dollar weakened last week after soft CPI data so be patient to see if the Canadian currency can hold any rally on a well telegraphed rate rise. Tuesday’s very weak CRUDE OIL market may be another headwind for the LOONIE to overcome. We’ll have to see whether the Canadian can hold a rally against the Aussie, kiwi or EURO. Patience is required as the markets are in a heightened state of uncertainty. Again,t ell me why you are crying?


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9 Responses to “Notes From Underground: Tell Me Why You Are Crying”

  1. Arthur Says:

    39% of Americans say that the development of China as a world power is a critical threat to US vital interests..

  2. Ariel Bezalel Says:

    Hi Yra. To paraphrase Buffett, when the tide goes out we’ll see who’s swimming naked. Fed hikes and qt are proving too much for such a highly indebted world..more bombs will go off if the Fed continues.

    • yraharris Says:

      ariel—your point is spot on –the combination of the two is certainly powerful.Powell may be desirous of a diminishment in risk premiums but is this speed too much and the global volatility too great.The FED’s models are flawed in my opinion because of the failure to take in the global elements—the world has been too U.S. centric for too long in peering into the FED’s calculations.Now Bezalel,take an ingot of Gold and see what a real artisan can create—Regards,Yra

  3. Asherz Says:

    William McChesney MARTIN Jr. famously said that the job of the Fed is “to take away the punch bowl just as the party gets going. “
    Powell’s two predessesors forgot to do that and the party goers were treated to asset inflation that was given a punch drink with one part fruit juice and three parts alcohol. Our drunken speculators and banks are now woozy as the new chaperone in the Eccles Building is saying the party is over. This and China and Italy have by now passed out as the party room lights go out.

  4. Rob Syp Says:

    Go Paul Volcker – my Dad and I once shared coffee with him at Midway Airport waiting on a flight. My Dad on our flight told me he is a man’s man also said he reminded him of the basketball great George Mikan,

    If the Eurocurrency doesn’t hold 114 and the Eurobond does not become reality are we heading to par?

    • yraharris Says:

      Rob—I would agree with your assessment but the Donald will not take that rise in the dollar sitting on his hands

  5. pgrommit Says:

    ” If Trump were to give a free trade deal to the U.K., the German auto industry would be in a difficult situation. This is because of the German auto capacity built in the U.K. to take advantage of the EU free trade area.”

    Yra, how would this be different than foreign firms using the Maquiladora process In Mexico to manufacture stuff there, and exploit U.S./Mexico free trade to sell here? Is it because the final product is still coming out of Germany?

    • yraharris Says:

      Pgrommit–great question and point.I meant to clarify that the UK auto sector would serve just like the Maquiladoras by being able to export to the US at much lower tariffs if any at all which would make german production move to the UK in an effort to protect market share the Japanese car companies also have major capacity in the UK—and the issue will work to May’s advantage as Trump attempts to interfere in the BREXIT negotiations—throw in a weak pound initially and the math i easy—add in a trained and educated work force and Macron also gets nervous–Puegeot anyone

  6. Chicken Says:

    Catch a falling knife and put it in your pocket.

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