Archive for August, 2019

Notes From Underground: Dudley Do Right Gives the Markets Snidely Whiplash

August 29, 2019

Ok, I couldn’t resist the obvious joke. It seems that former New York Fed President Bill Dudley penned an op-ed for Bloomberg in which he elevated the Fed into an actor in the U.S. political process. The message that Dudley initially tried to convey is one that NOTES has actually expressed concerns: That President Trump has trapped Chair Powell by using TARIFFS as a mechanism to bludgeon the FOMC into lowering rates to counter any of the negative impact from trade frictions unleashed on the global economy. Dudley admonished Powell to play the role of Bartleby the Scrivner in Melville’s short story, that when it comes to cutting rates in response to financial implications of the China/U.S. trade war, simply say “I choose not to.”

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Notes From Underground: Time It Was, What a Time It Was

August 27, 2019

These Simon and Garfunkel lyrics could apply to the events of this past weekend, the bookends of Jackson Hole and the G-7 meeting. The meaning was best summed up i a Financial Times story that quoted St. Louis Fed President James Bullard, who said, “Something is going on ,and that’s causing I think a total rethink of central bankingĀ  and all our cherished notions about what we think we’re doing. We just have to stop thinking that next year things are going to be normal.”

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Notes From Underground: When the Paradox Of Thrift Doesn’t Apply

August 25, 2019

John Maynard Keynes’ critical theory said in times of uncertainty economic actors tend to save more, which leads to a negative feedback loop that slows the economy as demand shrinks. This is why governments need to increase fiscal stimulus to boost demand. It’s too bad that President Trump doesn’t exercise the paradox of thrift when it comes to WORDS. Let there be no mistake: We at NOTESĀ have been expecting a response from Trump like this.

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Notes From Underground: Bringing Europe to the Fore, Yet Again

August 20, 2019

Whenever I have an appearance on CNBC with Rick Santelli, Europe proves itself as critical to U.S. monetary policy. The past five years have led to dialogue that questions the efficacy of ECB policy and the slight of hand moves by President Mario Draghi. As BUND yields drag all sovereign debt yields even lower, the central bank is struggling to find policies that will keep LOWER FOR LONGER going. It seems that the last play in the book is to provoke Jerome Powell to abandon any NORMALIZATION of interest rate policy regardless of the economic data reported by the U.S.

(Click on the image to watch me and Rick discuss Europe and monetary policy.)

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Notes From Underground: Another Fine Mess You Got Us Into, Olli Rehn

August 18, 2019

The Federal Reserve just won’t admit that President Trump and the European Central Bank are holding its policy designs captive. Trump ramps up talk of tariffs in an effort to keep the financial markets uncertain while the ECB wishes to pursue an ever expanding balance sheet in an effort to reach an ambivalent inflation target. There is no doubt that REAL YIELDS throughout the European Union are NEGATIVE. Even the Italian 10-year is trading around 1.35%, which is below the inflation level however dubious it is calculated.

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Notes From Underground: Jerome Powell, Meet Jerome Kerviel

August 14, 2019

The die has been cast as the U.S. 2/10 curve did the unthinkable. It inverted. This cause panic among the talking heads, who scoured the earth for analysts to give purpose to the bogeyman of bullish equity market pundits. The financial television media interviewed analysts all day, who explained ad nauseam why an inverted curve is truly different this time as it mainly reflects the desire for foreign investors to send their savings to the welcoming shores of the United States.

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Notes From Underground: The August of Our Discontent

August 7, 2019

When August rolls in the markets thin as Europe heads to the beaches and New Yorkers head to the Hamptons before Labor Day. This means every tweet President Trump is amplified by the LACK of market liquidity. On Wednesday, the president was back in full confrontation with Federal Reserve Chairman Jerome Powell because three central banks CUT interest rates last night: India,Thailand, and, most importantly, the Reserve Bank of New Zealand, which surprised most market analysts by cutting 50 basis points instead of 25.

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Notes From Underground: If You Don’t 2+2=5, Then Read No Further

August 6, 2019

The tagline of this blog has always been “where 2+2=5 is also a wonderful thing.” If you believe that the world is balanced and rational in all things financial then this BLOG is not for you. Unlike Fyodor Dostoyevsky’s character, I am not a sick man, nor a spiteful man. I use my deep knowledge of political and economic history to analyze financial markets from myriad angles. This allows for a belief that context is supreme. In this context I posit that President Trump’s decision Monday to name China a “currency manipulator” is a way out for the U.S. from the dissension that has arisen within Trump’s team of advisers as reported over the weekend. If Bob Lighthizer was opposed then indeed President Trump is in a more difficult position than previously thought.

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Notes From Underground: Unemployment Data? Frankly, I Don’t Give a Damn

August 1, 2019

Usually, when the first Friday of the month comes around my concern turns to nonfarm payrolls and average hourly earnings. But after the Powell press conference on Wednesday and Trump’s tariff tweets Thursday, my analysis is Gone With the Wind. As I discussed in the last few blog posts, Trump’s tweets on tariffs have cornered the Powell Fed as concerns arise over just how much global growth is going to be negatively impacted.

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