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

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.)

This week we have heard from Boston President Eric Rosengren  and San Francisco President Mary Daly. In both interviews the Fed presidents said the U.S. economy was strong and there’s no recession on the horizon.

Daly said there is no sign of recession and the “U.S. labor market is at or near full employment.” On Monday, Rosengren said “just because other countries are weak does not mean the US should be easy.” These two Fed presidents have failed to heed the words of Jerome Powell and Richard Clarida for the FED Chairman continues to raise the issue of global risks and UNCERTAINTIES while Vice Chairman Clarida has raised the specter of the central bank having a THIRD MANDATE: the global economy.

If you accept the premise that all central banks — BOJ, ECB, BOC, RBA, SNB, BOE, RBNZ — are all reading from the same hymnal, then the concept of FULL EMPLOYMENT has nothing to do with contemporary interest rate policy. Germany is at record employment while Japan and Switzerland also maintain low levels of unemployment. In New Zealand, unemployment is at near all time lows yet he RBNZ recently lowered its Overnight Cash Rate by an aggressive 50 basis points to 1%. In the world of ECB monetary madness DATA is not the key. In a further paean to lower rates in Europe, even after the resignation of Prime Minister Conte, the Italian 10-year BTP dropped 8 basis points.

Mario is DRAGGING the financial world to the abyss. Will Powell leap further into the dark with his Jackson Hole speech? If Powell doesn’t deliver to the demands of the White House will Trump raise the UNCERTAINTY of the impact of tariffs by threatening to target Germany, France and the entire EU with more revenue raising to pay for enhanced industrial subsidies? (Yes, that’s sarcasm) As Rick stressed all day on Tuesday, an ugly feedback loop sending the markets a TWITTER.

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6 Responses to “Notes From Underground: Bringing Europe to the Fore, Yet Again”

  1. Chris Says:

    oh, I see you’re drawing from Bernard’s terminology (EMMA, European Monetary Madness Area).

    • yraharris Says:

      Chris–this is nothing new as I rad the book three times and spent countless hours discussing issues with Bernard—soo I take that as a great compliment

  2. TraderB Says:

    There is no plan to normalize monetary policy or fiscal policy (a decade plus of crisis level deficit spending). US annual deficit this year is more than the 700B “Emergency Economic Stabilization Act” in 2008. Congress is just as complicit as helping us reach the moon as the Central Banks. Now they all have to figure out how to get us back to Earth. So all we can do is just try to buy some more time in outer space.

    • yraharris Says:

      Trader B—as we are walking in space we seem to become untethered as none of the Fed’s models have proven valid.Listening to Fed speakers wax hawkish the media ran wild with the headlines about Esther George see no reason for a July rate cut—DUH,she voted against it so where is the news aspect.In this I warn —if Powell delivers a hawkish sentiment tomorrow I would look for President Trump to play the European tariff card in an effort to trump the Fed—with the present slowdown in Europe the fear of increased tariffs will crush the European manufacturing sector —Macron will finally have something to agree with Trump.Also,the fact that there is no communique from the G7 this weekend plays right into Trump’s hands and Macron reasons for backing offa communique are duplicitous at best–he claims it merely represents the bureaucratic outcomes of the deep state—his words I paraphrase.And this coming from an ENARQUE—wow

  3. Don H Says:

    /GC Obviously range bound. Buyers need to regain a bid above 1530 for any attempt at new highs; and defend bid above 1482 IF tested by Sellers.
    /ES A sustained bid above 2888.50, targets 2948; IF 2888.50 breaks before that target trades, then anticipate a deeper pullback.
    /ZB Still Bearish below 165’20; Bullish above.
    My .02

    • Don H Says:

      As of this posting 08.22 9PM EST nothing has changed for /ES which still targets 2948, as long as, we are above 2888.50.
      /GC Still below 1530 & range bound.
      /ZB Still Bearish below 165’20

      We’ll see IF Jackson Hole comments reset the programs on a different trajectory tomorrow.

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