Notes From Underground: Was Trump Addressing Mnuchin or Powell?

On Monday, Treasury Secretary Steven Muchin and Federal Reserve Chairman Jerome Powell met with President Trump at the White House where the duo “advised” and “forecasted” the economy to the president as 2020 election posturing is in full swing. NOTES FROM UNDERGROUND has maintained that Trump used the tariff threat to cajole Jerome Powell into lowering interest rates, weaken the DOLLAR and end the balance sheet runoff that the administration believed has held back the U.S. economy. What was Powell buying insurance against?

It was against the unknown impact from the tariff threats against China and potentially Europe. Trump bested the U.S. central bank as he got the Powell team to reverse course by lowering rates. The nascent Treasury bill purchase program was an unforeseen bonus due to the mania in the dollar funding markets. Since then, the Fed’s balance sheet has expanded by more than $200 billion in about two months.

I have a question about the meeting: Was the president targeting Mnuchin or Powell during the powwow? Because on Tuesday, Trump was again threatening to raise tariffs on the Chinese if the U.S. doesn’t conclude a DEAL.

It’s interesting that the renewed threat comes a day after the Powell meeting. Is Trump more concerned about low interest rates or resurrecting U.S. manufacturing jobs and righting past wrongs in regards to intellectual property rights? Will continued FED liquidity additions have a bigger impact on the U.S. economy in 2020 or does the economy benefit more from the removal of tariffs on Chinese goods?

On Sunday, Amity Shlaes published an op-ed in the New York Times noting the impact of president’s attempting to influence FED leaders to keep the throttle open on monetary policy with low interest rates. The always prescient Ms. Shlaes cited the Nixon White House as the paradigm of presidential bullying because of the pressure placed on then-Chairman Arthur Burns. Shlaes wrote: “Later, Ehrlichman would record a typical scolding: ‘The president made you chairman of the Fed, Arthur. You are deeply in his debt. He expects you to be loyal.'”

Inside sources have claimed it was Mnuchin who sponsored Powell for the chairmanship in an effort to thwart the reappointment of former Chair Janet Yellen.

Under Yellen, the Fed was a known entity while Powell was an unknown on monetary policy. The question stands: Was the meeting meant for Mnuchin or Powell? Trump has learned that he can utilize the CUDGEL of tariff threats to prod the FED into lower for longer. Remember that ECB President Mario Draghi was fond of promoting an aggressive monetary policy easing by invoking the global impact from the tariff wars between U.S. and China. As the FED eased so did the other major developed central banks.

There are many analysts VERY BULLISH the DOLLAR but nothing would please President Trump more than a substantial weakening of the U.S. currency. If Trump runs again he will desire an economy running on all cylinders. If the stock market is a barometer then EASY MONEY CERTAINLY PREVAILS OVER THE THREAT OF TARIFFS as equity levels reside at record highs even without a tariff deal.

***I have noted in several blog posts and interviews with Rick Santelli, Anthony Crudele and Richard Bonugli that I held a long GOLD/short Swiss trading bias because of the continued efforts by the Swiss National Bank to keep the franc weak relative to the euro. I AM NO LONGER BEARISH THE SWISS FRANC. After some thought, it seems that the SNB is the SOLE CENTRAL BANK with a viable exit strategy from the inane policy of infinitive QE and negative interest rates.

The SWISS have been printing currency and using it to PURCHASE a massive portfolio of global stocks, including a large position in APPLE. I have nominated the SNB for the ALCHEMIST of the the last 2,000 years: printing currency to acquire real assets — corporate as well as hard — and precious metals. And yet the franc holds its value.

In an EUREKA moment I realized that the SNB is the only central bank with a genuine EXIT STRATEGY for it will be easier to dispose of equities rather than letting a portfolio of debt run off (as the FED learned last year). Yes, if Europe were to begin a viable policy of fiscal harmonization with a EUROBOND and unified banking system, the EURO would strengthen but would the FRANC be negatively affected? It is an important question.

Monday night, BOJ Governor Kuroda addressed the Japanese Parliament and heralded the central bank’s recent QE, which is directed at purchasing ETFs on the Japanese stock market. Kuroda noted the impact of lowering risk premiums on Japanese equities. This is just something to watch as we head into 2020 election season and the DOLLAR vol levels are very low and the daily, weekly and monthly ranges are contracting. Hyman Minsky, phone home.

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20 Responses to “Notes From Underground: Was Trump Addressing Mnuchin or Powell?”

  1. Trader 1 Says:


    How do you think the Senate passing Hong Kong Democracy Bill will play into this puzzle — FED and China Trade Deal ??

  2. Asherz Says:

    Yes Yra, easy money prevails, with the stock market at historic levels. Yet there is an unmistakable slowdown in the global economy. How does one explain this widening gap between economic fundamentals and equity levels? Maybe this chart will help.

    Now with global debt soaring, (now at 255 Trillion dollars, three times global GDP), the historical tracking of debt and gold should also have continued. Yet that has not been the case in the last seven years as the next chart shows.

    How do we explain this change beginning in 2012/13.? The answer is market intervention. Central banks that have been buying physical gold have intervened in the paper gold market led by the BIS, capping PM prices. This has allowed for QEs and now Repos ( the not QEs.)

    The unmooring of the dollar by President Nixon in 1971 has sent our nation’s balance sheet into the toilet. That seems to have benefited 401ks, but the music will stop at some point as it must. And when that happens the doors will not be large enough for all to exit. Even the SNB may find that there are not always bids to be had, as Powell discovered last year. The monetary spigot may not always be available for extinguishing flames.

    • David Richards Says:

      Good chart, which is better than a thousand words. How did you embed it into your reply in here? Did you type a full URL link to an image uploaded at a web image-hosting site, or simply do something else?

    • ShockedToFindGambling Says:

      Asherz…….you said……….

      How do we explain this change beginning in 2012/13.? The answer is market intervention. Central banks that have been buying physical gold have intervened in the paper gold market led by the BIS, capping PM prices. This has allowed for QEs and now Repos ( the not QEs.)

      I don’t think that’s it although I guess there has been some hedging, there has also been huge Central Bank buying of Gold…..To me it’s been the relentless rally in U.S stocks and bonds, which makes them, as yield bearing instruments, more attractive than Gold……Without a recession/depression, why would you want Gold?

      I think the recent buying in Gold is because some investors think we are late cycle, and are buying insurance.

      • ShockedToFindGambling Says:

        Friday’s action (though only a holiday, half day) looked very bearish stocks and bullish Gold.

        The yield curve steepened…..despite what you hear close to 100% of the pundits say, a yield curve steepening is probably bearish the economy, at this point…….a steepening precedes every recession.

        Also the Euro was strongish……sell U.S. financial assets and repatriate the cash.

        If we get follow thru early next weak, I would go with it.

  3. yraharris Says:

    Asherz–you are one blog ahead of me—-not unusual but the issue becomes more difficult in 2013 because Gold became a stale bull as I called it in a Greg Hunt podcast and the equities attained a prominence as the search for return led to “undervalued” assets based on the use of cheap money with the promise of ever more as the Raven quoted —but the raven with its loot in its beak found no zone of genuine safety

  4. Pierre Chapuis Says:

    Ok I had to try. =)
    Mnuchin, Jerome and Trump

    Trump; dammit, don’t you guys realize we are at war?

    Mnuchin: no problem we got this, China’s a paper tiger. They’re already sucking wind.

    Trump: We have no trade deal, the elections are right around the corner. Jerome we don’t need a cautious approach! We need to act now

    Jerome: Sorry sir, but we’re already in trouble, I’m bailing out several banks right now with these repurchase agreements.

    Trump: Banks shmanks, we lower rates to zero. We crash the Chinese economy and pick up the pieces later. You with me?

    Mnuchin: We could always put on more tariffs.

  5. hopgrower Says:

    Yra, you said the BOJ was buying japanese equities, but the SNB was buying US and I assume other countries equities. Could a country ‘weaponize’ equities with this strategy?

    • yraharris Says:

      Hopgrower—yes but it is not Swiss to do that and the amount it would take would be very disruptive and would catch the attention of authorities and regulators.Remember that there is exists sovereign wealth funds that are desirous of making returns and have huge portfolio positions—i don’tbelieve you could weaponize it and the BOJ just uses it invoke its QQE—quality and quantity use of money.But the BOJ is finding that it is aggregating a huge position in Japanese equities as they own almost as much as the Japanese public pension funds—the Swiss have a diversified portfolio

  6. Chicken Says:

    I’m not sure Mnuchen has anything to do with this at all, seems to be he’s a placeholder or yes man? Well, unlikely is my feeling.

    SNB will need to buy CHF (sell AAPL, etc) depending on which way they want currency to move. If euro lifts, by definition CHF will see downward pressure, no? I guess it depends on capital flight from $US.

    I’m not convinced Communism can win out but what do I know, this world isn’t the one I grew up in..

    19th Nervous Breakdown (Rolling Stones)

  7. Mean Chicken Says:

    Wasn’t Milton well thought of, seems millenials and many posters here disapprove of his ideas. Good luck to you and yours.

    • yraharris Says:

      Mean—they despise Milton for his work Capitalism and Freedom but now the Monetary History of the U.S. written with Anna Schwartz would be read as a counter to the MMT crowd.Also,the recent problems in Chile return the mindset to Pinochet and the Chicago School led by Friedman to undue the “damage” caused by the Allende Government.It was the invocation of the Chicago school into Chile in the 1970s that gave rise to Yra’s first law—money is fascist for it craves stability with a decent return –as long as the trains run on time capital cares not how

    • yraharris Says:

      Mean–I walked around with a Allende Si,Junta No pin on my jacket for many,many years—even as I started at the CME

      • Mean Chicken Says:

        I’m simply reflecting on how we got to where we are today (and Cognac helps!).

        Nice parabolic chart Asherz posted, BTW

      • yraharris Says:

        mean–did you read the review of Ford/Ferrari from Bloomberg–then you will know how we got here

  8. Stir Fried Chicken Says:

    The more important question is, are Chicken and Mean Chicken alter egos like Jeckyll and Hyde?

    • yraharris Says:

      Stir fried—woka woka woka—I don’t hink Chicken needs an alter ego—he has always gotten right to the point on all things and states it pretty clear whether agreeing or embarking on a line of discourse to ferret out an idea for profitable trades

  9. GreenAB Says:

    Update from Germany: The SPD has a new leadership. Aaand it´s a left wing couple. Which means after the SPD Convention in December the Grand Coalition could be coming to an end pretty soon. Stay tuned.

    • yraharris Says:

      GreenAB–great to hear from you—hope all is well and getting ready to engage this issue as you know this type of political change in Germany is not a surprise

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