Notes From Underground: Woody Hayes’ Advice to Mario Draghi

Football season in the U.S. is just beginning. That said, it would be appropriate for President Mario Draghi to refrain from any type of new QE program or cut in interest rates at next week’s meeting. There have been several comments from ECB members during the past week advising against more QE or additional interest rate cuts.

On Wednesday, the entire rally in euro-area sovereign bonds faded by the close. German and French 10-year yields backed up to still-ludicrous levels of -67 basis points and -37 basis points, respectively. The EURO has actually regained some strength Wednesday as some traders are beginning to rethink the idea of a massive stimulus offering at next week’s ECB meeting.

If legendary Ohio State football coach Woody Hayes were still alive, he could’ve shared with Draghi his philosophy about the FORWARD PASS. Hayes said a pass can have three outcomes: complete, incomplete or interception, so negative outcomes enjoy a higher probability.

For Draghi, an aggressive stimulus policy won’t even provide any positive outcomes:

  • The ECB already knows that negative yields will not promote growth and only be a heavier burden on European banks.
  • If Draghi goes big it will put even greater pressure on Federal Reserve Chairman Jerome Powell because President Donald Trump will point to the ECB rate cuts in an effort to weaken the EURO.
  • The yield on Italian 10-year debt has dropped to 81 basis points as investors are so desperate for positive rates. For a country plagued with economic and political dysfunction, interest rates are priced as insane levels relative to the health of its economy.
  • Draghi will undermine incoming President Christine Lagarde’s on going efforts to promote fiscal stimulus across the entire European Union. The ECB members from the EU’s Northern bloc have opined that further QE next week is not needed. Lagarde is a masterful politician brought in to promote genuine fiscal harmonization and with it a EUROBOND instrument.

Wednesday, in an address before the European Parliament, Lagarde said in reference to Draghi’s famous clarion call of July 2012 to do whatever it takes, “I hope I never have to say something like that–I really do–because if I do it will mean that other economic policy makers have not done what they have to.”

A stimulus package next week would result in more anger from the Germans, Dutch and Austrians, resulting in an ever tougher job for the ECB’s president select. Unlike Woody Hayes’ philosophy of the forward pass a RATE CUT COULD PRODUCE NOTHING POSITIVE. It’s a perfect time for Draghi to PUNT.

***I am linking a podcast I recorded with Anthony Crudele and Matt Kenah last week. It’s a bit stale but it still remains relevant. Matt is an experienced trader, who has been a NOTES FROM UNDERGROUND reader for many years. Pour a libation and enjoy the wisdom of two traders with many years of experience. Matt has worked hard to put the global macro perspective into a disciplined trading regimen. His accumulated knowledge from experiencing the ups/downs of trading are worth a listen.

***On Tuesday, the Reserve Bank of Australia left the overnight rate at 1%. On Wednesday, the Bank of Canada stayed at 1.75% on its overnight rate. The BOC failed to move rates even as its 2/10 yield curve resides at an inverted 20 basis points. If there is a curve that is signaling its central bank is too tight it is Canada, especially as the BOC has never done QE so it is market forces at work.

The 10-year Canadian note is currently at 1.13% so it’s rich relative to the NEGATIVE yields on display in Europe and Japan. However, if foreigners were buying into the Canadian yield story why is the Canadian dollar struggling to sustain any rally. Although the RALLY in crude oil pushed the LOONIE through the 200-day moving average again.

The metals powered on today but be careful in the face of the market sensing that the central banks may hold fire on any new monetary stimulus. Let’s see where this goes. The data is insignificant as most developed nations are experiencing low unemployment levels. As Ben Bernanke advised many times, it is easy to move the goal posts.


Tags: , , , , , , , , , , ,

23 Responses to “Notes From Underground: Woody Hayes’ Advice to Mario Draghi”

  1. asherz Says:

    Yra- The reason for the exuberance in the precious metals is that many are waking up to the fact that Whatever It Takes is the only play that is now in the coach’s play book. When you punt you lose possession. The Central Bankers caused the problems we now are faced with and losing control is a distinct possibility. Negative interest rates are a current manifestation of that. Banks and pension funds have their backs to the wall.
    Even Woody Hayes would be stumped on what play to call. The under owned gold and silver metals are what are becoming viewed as the safe room for the Cat 5 hurricane that is heading to the shore.

    • yraharris Says:

      Asherz—Woody had Archie Griffin to keep him grounded–not sure who has Powell focused but lately seems to be Richard Clarida.The Dudley piece coupled with what happened with Simon Potter and others at the Williams NYFRB has me wondering about dissension in the ranks—intriguing especially at SOMA


    Yra question with the boc resisting easing does, and the curve at historical levels, does this imply further cad strength, looking at AUD CAD soecifically ?

    • yraharris Says:

      Andrew–past history would suggest exactly that but the Canadian has struggled because of fears about the Canadian banks being over extended in the real estate market—–but I am watching the charts to discern a change in sentiment.Right now it is just range bound but today’s strength has me watching closely

  3. ShockedToFindGambling Says:

    Maybe Draghi should shoot for “3 yards and a cloud of dust”.

    I have never heard anyone mention the deflationary side of low/negative interest rates………every penny saved by borrowers is lost by lenders……at this point, lower rates weaken the economy, IMO.

  4. Robert Zimmerman Says:

    The Podcast with Anthony and Matt was excellent. I took your advice and bought the 2 yr. Thank you!

  5. Don H Says:

    As mentioned in an earlier post: /GC has a 1570 target which traded 4 pts shy today. Also, as I post this, /ES has traded back to the August open at 2970.25 which was half jokingly stated last week.
    /ES Bullish above 2955, target 2978; IF 2955 fails to hold bid, then anticipate a deeper pullback.
    /GC Still Bullish on a hold above 1536.
    My .02

    • yraharris Says:

      Don H—thanks for sharing and I don’t promote price levels in my work except some occasional long term moving averages in trying to ascertain low risk entry points after some type of mean reversion prior to either a correction /or a long time grinding market setting up for some move—-see the Eur/Chf trade in January 2015 and Dollar/Yen in October 2012—but if others are finding your posts of value I hope they begin to respond to your efforts—-Yra

      • Rob Syp Says:

        Don H…. 10 days ago ? I commented on the 2907 point. Used it several times as a pivot so just wanted to remind you again saying thanks. Not sure if I was suppose to use it as a pivot but that’s what I did.

      • Don H Says:

        Totally understand that there are many ways to view & trade markets. I post intra day levels everyday & obviously some nights. Hopefully, they add value to shorter time frame folks & are not an annoyance to others.

    • Chicken Says:

      I’ll admit to taking an interest, as well.

      • Don H Says:

        @ Chicken @ Rob Syp (I do remember the post).
        As I post this: /ES IF Buyers hold mkt above 2963.50, then 2994 target; IF 63.50 fails before that target trades, then anticipate a deeper pullback.
        /GC IF Sellers hold any bounce below 1547, then 1507 target; A bid back above 1547 wld be Bullish.
        My .02

      • Chicken Says:

        A nice little tune:

  6. Arthur Says:

    Sorry my ignorance. Question to Lagarde: what the economic policy makers have to do???

  7. Joe M Says:

    Now that equity markets are up, is it time for Trump to turn his attention to Europe with regard to trade?

  8. Pierre Chapuis Says:

    Yra, after reading “The Rotten Heart of Europe” I picked up Yanis Varoufakis’s book, “Adults in the room”. This is affording me a very good look at the inside the workings of the Troika. The thought that comes to my mind is: as many problems that the USD has the Euro is doomed to fail first. IMO
    I would love to find a book that gives me insight to the Chinese monetary workings as these two books have enlightened me about the Euro
    Again, thanks for the lessons Sensei!

    • yraharris Says:

      Pierre—thank you and if you want copies of the rotten heart of europe let me know as I am getting ready of disposing them—the BILL FROM THE CHINA SHOP is an excellent read as is Michael Pettis the Great transformation

      • Pierre Chapuis Says:

        Thanks for the reply Yra, I have my copy of the Rotten Heart, so I’m good with that. I will follow up with your next two that you recommend to read! 👍

  9. Tinky Says:


    I find your insights to be valuable, and have enjoyed lurking on your site for some time. However, I can’t resist pointing out that the Woody Hayes aphorism is rather misleading, given that any reasonably good quarterback will complete over 50% of his passes (Tom Brady – a great one – has a 64% lifetime rate!), thereby exposing the claim that “negative outcomes enjoy a higher probability” to be patently false.


    • yraharris Says:

      Tinky–thanks for your kind remarks.While your analysis in today’s world of football bears credibility did you see the Bears on Thursday night?Also,Hayes view was built on a solid ground gain which led to the ability to control the clock—it is tough to argue with the success of the Hayes era at Ohio State–but the times do change but change for some is not necessarily positive—-see Draghi at the ECB—while this era of his leadership is ending the results will have to be paid forward so while the media applauds his work I remind my readers of the huge support for Neville Chamberlain–

      • Chicken Says:

        “the media applauds his work”

        Therein lies a clue concerning the power of narrative and the constant battle to control it, IMO.

      • Tinky Says:

        Thanks Yra. I grew up in Chicago, and, though the memory is dim, watched Gayle Sayers play at Wrigley Field! Of course the Bears have remained one of the more ‘old school’ teams in the league, at least party because they have never been able to draft a top-class QB.

        I also attended the University of Michigan in the ’70s, so I have some familiarity with Hayes and OSU.

        I am with you 100% on the sometimes dubious nature of “progress”, and none more so than with regard to contemporary economics.

        Thanks again for your contributions, as they allow those of us who are deeply skeptical of the system to benefit from valuable insights that only a veteran insider could produce.

    • yraharris Says:

      Tinky—I spent one of my great afternoons at the Arboretum one spring afternoon in 1972—-of course I had a little help from my friend and friends but Ann Arbor is a beautiful place and I loved studying on my trips there in the UM Law Library—that is where I learned to engross in the books–and Michigan certaintly wasn’t big on airing it out until later–thanks Tinky for your support and more importantly keep the discourse coming and sustained on a high level

Leave a Reply

%d bloggers like this: