Notes From Underground: Whistling Past the Tombstones

As we approach 2020, it seems as though the financial world is unconcerned about the dramatic increase in DEBT. Yes, the airwaves are alive with news of the extremely low level of mortgage delinquencies but fail to discuss the growing delinquency of 90-day auto loans and the $1.5 trillion pile of student loan debt, an albatross for college graduates over the 20 years. Corporate debt has increased by the magic of financial engineering in which share buybacks and dividend increases are greased with the benevolence of central banks caught in a trap of their design.

William White, former chief economist of the Bank for International Settlements referred to problem in 2006 as “lean or clean.” Should a central bank burst a bubble by raising rates or just spectate and clean up the mess from a deflating financial bubble? As ongoing global QE and negative interest policies continue to feed the global debt pile, Jerome Powell and other central bank chiefs will be afraid of raising rates for the duress it will cause private and public borrowers alike. This year’s bond rally has only increased the complacency factor for fixed income buyers across various asset classes.

Many bond market participants claim that they are buying long -term bonds as a hedge against recession fears, to which I would argue that the short end is preferred because of a recession arises the US budget deficit will dramatically increase. The 2/10 yield curve in late-August to -5.33 basis points but is currently steeper on the year at 27.03 basis points.

There are rumblings about fiscal stimulus programs from Japan to Brussels in an effort to introduce some much-needed infrastructure programs. Look for even more debt issuance on the premise that it has never been cheaper for governments to borrow. As tombstones (a written advertisement of a public offering placed by investment bankers) proliferate, watch as the long end of debt market become toxic, likely five years or longer.

When the Fed began the first two QE programs — in 2008 and 2010 — the U.S. yield curves steepened for fear of central bank success in igniting inflation. But the SOMA purchases, coupled with global economic headwinds, resulted in long yields falling and obituaries for BOND VIGILANTES (death by a thousand central bank purchases).

For me, 2020 will not be a repeat of the first two FED efforts. The DOLLAR was much weaker at the inception of former QE efforts and as the U.S. strengthened in response to the mega-doses of liquidity. The U.S. economy steadied and over the next few years proved the strongest of the developed economies, especially as Europe embarked upon an existential battle for the EURO and the EU financial system, driving rates into negative territory.

Even by March 2013 the GOLD realized that the FOMC had steadied the ship and it retrenched from six years of gains. As we turn the calendar to 2020, the U.S. dollar is struggling to remain above its 200-day moving average and closing in on the 200-week. The COMMODITY INDEXES are showing signs of life as both the CRB and BLOOMBERG indexes are reflecting recent technical strength. For us, the question will be: Will the U.S. outperform financially in a world of many geopolitical risks?

The U.S. political season may provide much of the high drama. Europe, Japan and China will embark on some fiscal stimulus but NOTHING will be generated by a dysfunctional Washington. But DEBT will continue to fuel government activity. If the U.S. dollar were to decline in value it would be beneficial to a highly indebted global financial system but that would mean that other markets would  OUTPERFORM the U.S. Stop whistling past the TOMBSTONES and get ready for increased volatility. I say this with 20/20 VISION.

***The U.S. is sanctioning the world through the use of old imperial tools. The government is using the long reach of EXTRATERRITORIALITY to impose sanctions on Germany’s NORDSTREAM 2 pipeline under the 2020 National Defense Authorization Act. The U.S. does not want the gas pipeline from Russia to Europe — bypassing the Ukraine — to be completed.

Russia and the Ukraine have reached an agreement over compensation but Washington still wishes to impose its WILL. The U.S. is relying too much on the use of sanctions to change behavior, which is resulting in other nations seeking alternatives to a dollar-dominated international system. The Germans have invested a great deal of capital to attain secure supplies of natural gas as they wean themselves off NUCLEAR and COAL power generation.

This friction between the EU and the U.S. over the use of sanctions will be a growing story in 2020, resulting in the Trump White House threatening all sorts of economic actions. This may even include tariffs from the TARIFF MAN as pressure is stepped up on the Nordstream project. If recent moves by French President Macron are an indication,l ook for the European Union to move closer to Russia.

Hey Mr. President, you have pushed for the end of Pax Americana, which entails the termination of the IMPERIAL DESIGNS OF THE AMERICAN MILITARY INDUSTRIAL COMPLEX. To paraphrase Phil Ochs, I ain’t a whistling anymore for its almost 2020.

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29 Responses to “Notes From Underground: Whistling Past the Tombstones”

  1. asherz Says:

    The year 2020 leaves many Wall St. pundits with myopia leaving them with far less than 20/20 eyesight. You don’t need to be a prophet to see what the next few years portend. What are the chances that the annual national deficit will be less than 13 digits? And if we get a recession at some point, how high does that deficit go? And who will buy all the additional debt that will be issued.? And what does that mean for the currency? And how does the investor protect his wealth and savings?
    The very perceptive readers on this blog can answer all these questions with their 20/20 vision.
    I wish all a happy, healthy and prosperous 2020.

  2. Bob Zimmerman Says:

    It’s always the old to lead us to war
    It’s always the young to fall
    Look at all we’ve won with the saber and the gun
    Tell me is it worth it all

    Phil Ochs

    Thanks Yra!

  3. Michael Temple Says:

    Above all else, VOL is going to EXPLODE in 2020.

    Repoggedon is the first sign that something is out of control/kilter.

    Huge mean reversion in the year (and decade) ahead.

    The upcoming November 2020 election will be epochal, regardless of who wins. Half of America will proclaim, “Not my president” regardless of the winner.

    Expect the Unexpected in markets throughout the year.

    Most of you know favorite investment themes for 2020.

    Best to All

  4. Arthur Says:

    Professor Ram Charan: no recession in America 2020

  5. Neil Says:

    Thank goodness that President Trump is watching out for us (The US) with all of his tariffs. No president in the last 30 years has concerned themselves with us. They were all interested in looking good on the world stage and also blowing up other countries.

  6. Kevin Waspi Says:

    Thank you for another year of great discussion and thoughts. I enter 2020 perfect hindsight with the realization that M2 is now growing at almost 7%, the dysfunctional government has produced a growth of spending of 7% (imagine what a bipartisan congress could do!), and central bankers still want more inflation. Mama warned me not to drink too much, and I now expect one nasty hangover. Hold on tight, here comes the hair of the dog!

  7. Pierre Chapuis Says:

    So Powell tried to engineer a “soft landing” by raising interest rates and QT. Taking note from Yellen, “It will be like watching paint dry”. Maybe watching paint dry on the Titanic more like it.
    Now that they realize the soft landing approach did not work.
    Plan B: a holding pattern.
    Try again later, I don’t think so. I’m leaning more towards, let something break and then come in to clean up. The men that saved the world.
    Thank you Yra.
    20+20= 2020!

    • Chicken Says:

      Indeed, the men who have everyone convinced they saved the world as opposed to manufacturing a crisis.

  8. A.S. Says:

    Excellent. b/c this has been ongoing for some time; the next calamity, it will start in the bonds but car loans no one is talking abt ..

    You don’t even need formal education; suffices if you have a specialized niche in smth ..

    QE that characterized Obama’s era this is genuine like the optimism we saw post Nov 2016 rally which is healthy; the fmr is akin to financial engineering the latter investors seeking yield however now we have a diff situation w/ int. rates artificially low, and have been so for a long time ..
    Raising rates go with a growing economy..One of the ways a bubble is formed is when you keep rates low and print money if you raise rates pop; but this can be avoided w/ Trump; which is why I don’t really get..why he’s upset w/ them/Fed at the moment ..

    .. ogre they’ve made deflation out to be oo scary .. ppl’s PPP increasing oh the horror ..

    This is false. I lived through it; I remember AND in real-time those terms; QE distinctly is ’09 on ..

    TARP is different ..

    lol this is laughable. 2pct (Fed) tgt is a slap in the face of hardworking American families ..and not just; worldwide then, trying to fix inflation by :s doing what causes that, with creating $$ out of thin air ..You lol can’t make this stuff up ..

    .. the spending prob hasn’t gone away in Washington (reckless under Obama, w/ Trump dunno now, seem to spend only what’s necessary)

    The U.S. has been entirely right, correct already during the Obama Admin to oppose Nord Stream and now its successor, 2, this presenting a security threat and, actually, that pipeline stems from Finland (de jure not de facto) (Viipuri)

    I thought we weren’t meant, s’pposed to have politics here? .. I know, it’s/can be tough to discuss w/out, but so was said? ..

    This is actually false. Nuclear under the guise of green such has actually been booming in Germany ..

    I’m not sure/I dunno if Trump is pushing for the end of it; endless, useless wars, sure; w/ Reagan it was peace thru strength

    • yraharris Says:

      A.S.–so much here to consider.Yes sometimes politics SEEPS in but it is met with an immediate response to limit our analysis to political economic impact on potential trades—-The Greens in Germany have gained support in response to the ill-conceived plan of Merkel to Nuclear—again this weekend Draghi and Yellen were opining on low inflation in Europe and US even raising the spectre of Japanization of Europe—but I think it is a false comparison as Japan had real yields of +2 % while US and Europe have only had real negative yields for the entire period—Draghi and Yellen just defending their policies regardless of conditions.Counterfactuals are a dangerous defense—see Trump’s decision to hit the Iranian General in an effort to prevent war—a Presidential counterfactual —-we had to act or things would have been worse—can never be wrong and I think that is a major problem for contemporary policy across a wide spectrum—–but what is the real cost to the actions?

      • A.S. Says:

        Europe pretty much ls already Japanified? I can’t remember the exact procedure, but govt issues bonds, banks buy them and turn around and sell them to the CB ..QE is distinct (?) to the U.S but we do hear of its use in Europe too so .. Or am I totally off here ..

        Counterfactuals, besides never heard of these, are ..well; yeah, for that reason, nonexistant; And Trump never said that (I’m quoting MSM now) ..’act if’ ..but there was nothing to prevent war ..It was in answer to the embassy and, yes, to thwart other/new attempts ..

        The problem w/ Iran is that they have so many sleeper cells in Germany ..bit like France..if you look at a nuclear map you’d be ‘what (are)..’ there’s many tiny bleeping lights it’s all the overseas possessions/atolls France has ..US would win in an eventual confrontation but France would be able to do serious damage ..

  9. Arthur Says:

    Yra, what do you think about that? Thanks!

    James Altucher, investing

    • yraharris Says:

      Arthur –this is a very good link.I have read Altucher over the years and with not much take away—but this is a very good piece —thanks for posting it

    • A.S. Says:

      Arthur, I saw your post but didn’t notice the link.

      Ya, well, Jesus was Jewish so ..

      The universe is ctred around giving ..

      All the great prayers in the Bible are not requests, they are affirmations. Think of the Lord’s Prayer. It goes, ‘Thy will be done on Earth as it is in Heaven. Give us this day our daily bread, and forgive us our trespasses.’ It doesn’t say please can we have some food
      Don’t be discouraged if it doesn’t work right just means smth else is happening ..

      Since the beginning of time man has traded bearskins and so forth.

      An excellent book dealing w/ panics is The Thirty-Second Jewel

      in 1929 the crash was real, but that wasn’t the cause for the Depression; it was the Fed turning off the taps credit constriction which led to the ensuing such ..

      also there was no recession in the 70s it was inflation (erosion of your purchasing parity is constant but) in the asset price sense equally; I mean unusually so ..

      We saw the biggest econ expansion under Reagan..

      On the 2000 bubble as I mentioned to Gail (Dudack) equally, that had nothing to do w/ housing; I don’t know the answer but (forgive me if long) the answer to ’08 is this:

      Paraphrasing, in 1977 Carter, along with a Democratic congress, like previously, created a worthy project with noble intentions; the Community Reinvestment Act. Over strong industry objections it mandated that all banks meet the credit needs of their entire communities.
      Basically, make home loans to those that couldn’t afford them.
      By 1997 good loans were bundled with poor ones and sold as prime packages to institutions both there and abroad. That shifted risk from the loan originators, freeing banks to begin pyramiding and make more of these profitable subprime products.
      Under a young, well intended (or naive this is your call) president big government plans and mandates played a significant role in the subprime mortgage mess and its catastrophic consequences for the U.S. and international economies.
      Hardest hit by the foreclosures have been the citizens that (fmrly us) Democrats always claim to help most; inner city residents. These fell victim to low or no downpayment schemes, unexpected adjustable rates, deceptive loan applications and commission hungry salespeople.
      Now as people, not just U.S. citizens but globally, we had to bail out at huge cost Fannie Mae and Freddie Mac, UBS and Credit Suisse et al the very agencies that were supposed to stabilize the system. In time this should improve, the situation. But Carter that midwifed the mortgage mess and which Clinton tried to tighten up a lil’ on but the Democrats in congress didn’t want to, party (being ideology not nationality) the one that the world most relates (or did) to, then wanted to be trusted to take over and have for one a government run health system other than Hillarycare (which is UHCoverage anyhow therefore centrist not UHCare, Obamacare that clogs the system)
      It began w/ housing both in ’07 and – wow; 3decades prior;

      The world absolutely is.
      I have an issue w/ Dalio’s Principles but..
      You know, not only if in the beginning it is they don’t know what they don’t know but older I get I realize crap do I know :p it comes full circle (like, above, wow..natural laws, balance, that circular snake and all that. Lol)

      Um ..Don’t you (the guy) just say he was a bank trader?

      And (investing) in takeover situations.

      Right. Enron; they can cook the books, but as Mike Covel (don’t like the guy but credit where credit is due) says, stock price would’ve shown you not everything was ok ..

      This is what Buffett in fact does; hiring mngrs ..

      Spy on the CEO? 😀

      AI only good for energy, what’s driving this craze is ppl’s fear of not living forever; where the transhumanism nonsense also stems from.

      Hm ..The author doesn’t get the terms right; I think he means/t to say, it could breach/penetrate/break r, but if not then come back to the level of s(upport) at $6 ..
      (ergo; bounce is always up from down) (He does rectify this later on).

      That’s kinda funny ‘cos, not only is that how I make my money (oh; look) he even asks us to read MW where there’s a plethora of such, tactics ..

      Yra btw is the only one I’ve seen use a 200-WK in addition to the 200-DMA ..If we are to believe Tyler Yell, this is what banks use to reposition nonetheless, if we go by Michael Boutros, technicals are fundamental/s ..

      We should watch the news; for entertainment value, not to do anything by it, or, if, then to be contrarian ..
      you can see this attitude playing out in the MSM. In the past it was at least attempted to do the job with certain standards of integrity.
      But no longer. It’s all hype and sensationalism. No one’s looking for the truth anymore or trying to present it in the most accurate way.
      Journalists are looking for the scoop, the most outrageous perspective-every bit of dirt they can dig up.
      Even if particular accusations have a logical explanation (like business dealings), they are reported anyway, for their impact on ratings (key; KEY) and circulation. In a world where the people are numbed and distracted, the only thing that sells is the unbelievable. And the pity is that this kind of journalism is a self-perpetuating prophecy. A young intern looks at this situation and thinks that to survive in the business he has to play the game. If he doesn’t, he thinks he won’t make it, which is what leads to so-called investigative reports being intentionally faked. It happens all the time.
      It will revert, but ..
      problem then is not them, but the sponsors .
      It’s not hard. Just tell the truth ..That’s it.
      (btw this is also the reason ppl dislike Trump; other than some other prefs imperfect info. They have been lied to, basically.)

      Lmaoo first, if there was no edge neither could you, James, have made money; then if we go by ppl who, whatwasit, like, every phone comes out they change? ..yeah; and good luck trying to get ‘advance notice’ on the nxt 5 models, when not only are corp.s’ sec better than that of nations’, they ..hardly are working on that many at a time ..

      (and MS going down 5days in a row or get in front of a trend ..what is this; TA)

      This is not necessarily true.I cannot corroborate this, but, insider trading on their own ..noo; they don’t do it w/ their own, what they do, on the golf course, exchange tips then trade each others’ ..
      (I mean the legal kind happens intra; but, for the shady one 😉 you know..)

      They not necessarily have wires unless you also consider microwaves, et al. But there is manipulation which Michael Lewis covers (Flash Boys NB; haven’t read it yet) ..

      Yeah; I never understood ppl throwing it up in the air for irrational reasons ..just hold onto it ..
      Edge is risk mngt…

      Yep; Ameduri; if investing with someone make sure it is not his first attempt ..

      Dumb money may w/ these technological advancements not be so dumb anymore but we know they always buy highs /sell lows..which is ok, problem is, it reverses then ..

      You also wanna use options to get the stock; you want it at that price anyhow, plus you can make money waiting ..

      🙂 No, Clinton would be pardoning Mark Ritchie (rumored for which he got $50m.; this of course is top secret).

      p2p is interesting, arb (is) welcome I totally subscribe to it ..Greenblatt specializes in special situation stocks ..

      This is not necessarily true; say you employ a covered call strategy w/ strangles (for absence of dividends but, let me just use this example) (btw, a variation of this equally applies to index, the S&P 500 as well) (..which requires much less active supervision than the aforementioned trading around earnings) you want to be below $300 above that commissions become a factor but you can’t say there’d be no edge ..

      The only part abt d/trading (I employ an overnight strat but execute intraday) is the 40 that I agree with.

      He’s absolutely right in small that grow very big ..The key to sitting on your hands is discipline, and not the buzzword. No it really is..

      Stops do hamper performance but it’s not this; it’s trading according to the framework laid out your firm, or who’s your boss, essentially.
      Like just today was looking at my screen and thanking .. God ..that I lost what I did and it got me out. ..

      He’s right on having researched/not being like gambling but you buy when there’s blood in the streets ..

      Absolutely. Never be wholly invested.

      😉 There is no surefire investment.. If; 1) someone’s auntie is selling you smth 2) they’ve invented time travel ..

      It’s not ridiculous. Neither are 100% yrly returns ..other than (you don’t have to be) the Turtles but that was in a different era, it was done (my mentor) in the corn campaign of ’08 in 5mths ..
      ..or a 5,000% return like the MGE wheat trade in 2008 one could’ve made 25k on a single contract/$5 that was a h&s pattern or like a simple breakout 

      The ending is 100%; entirely correct. I would not be able to shift the volumes of work ..or have written this if I didn’t love it.. but it doesn’t need be so painstaking. If you’re taught, have capitalization and the teaching also which instills confidence in you, then ..
      Then you have the internals and there you’re on your own. As it should be. ..

  10. Arthur Says:

    Can America and China Escape Thucydides’s Trap? Who’s rebalancing whom?

    • yraharris Says:

      Arthur–thanks for yet another good link

    • A.S. Says:

      I had nothing and just when closing this came up .. This is the exact reason why unfair trade practices have to be addressed; w/out questioning Harvard’s impartiality I’ve seen smth to the tune of should China even have been allowed to join the WTO in 1997? ..

  11. Trader 1 Says:


    You have discussed the unhedged Euro Currency against USA debt.

    How do you think the Iran/USA conflict will play into the currencies??

    • David Richards Says:

      I’m not Yra but I’ll put in .02 with a reference…

      If there was a serious escalation of US-Iran conflict (beyond their long, pre-existing conflict, such as US invasion or a hot war, which both seem unlikely), history suggests it’d be a dollar negative factor. Otherwise, it may initially be a Euro negative factor:

      But don’t you think the bigger factor is the exploding Fed balance sheet and the corresponding US debt monetization and funding of the US gov’t out-of-control spending. Disturbing how the Fed denies any QE or debt monetization. They say because there’s a 3-day holding period before newly-printed money buys US debt, rather than instantly purchasing the debt, it’s not really debt monetization. Sure. I’ll bet that Not QE and Not Monetization continue far longer than Powell says, and even accelerates. The consequences for US inflation and civil unrest down this path could eventually become earth-shattering. Like with Venezuala, Weimer, Zimbabwe. This is not Japan, a vastly different set of circumstances.

      • yraharris Says:

        David—can’t agree more as you know that this is not Japan

      • Chicken Says:

        As I recall, gold fell on hard times about the time QE(v1) was announced?

      • David Richards Says:

        Chicken, what is gold a hedge against? Inflation? Deflation? Loss of confidence? Communism? Collapse of the financial system? War? Hip hop? Starbucks?

      • Chicken Says:

        David, prices go up and down, often in a jagged line. That’s all I think I know.

      • David Richards Says:

        Chicken, I think prices usually go down and up, not up and down 🙂 … depending on the market gravity, which is usually pulling markets higher because policymakers want 2% inflation, including “makeup” inflation, using an absurd index that excludes real healthcare and also substitutes things rising in price with things that aren’t. It’s even worse in europe, as in addition, their price index has zero rent or housing component, but a high weight for essentials like personal computers and phones that fall in price over time. Thus european inflation is usually lower than US inflation which is lower than real inflation. End rant.

      • Chicken Says:

      • David Richards Says:

        Chicken, is that larry david or the next President Sanders? His candidacy would be good for gold prices and lousy for stawk indices. Vote accordingly, lol. (Tired of the dumb money lecturing how “stocks still offer good value” and bragging about their portfolios lately while being totally clueless about the concept of liquidity, big repo injections, debt problems and other “chicken little sky is falling” nonsense – and they’re right as they have the portfolio stmt from last year to prove it).

      • A.S. Says:

        The tensions are cooling down now but a hot war seemed v likely .. 

        Well, holy Moses! 😮 (Didn’t I just mention) cells ..ya, but, with this kinda crap out there no wonder ppl get the wrong impression ..aggressor? Um, Saddam (not at all went into) Kuwait..just sayin’..
        😮 The Fed is not denying QE? They’re the ones administering it ..
        Fractional reserve rule; ..for every trillion loaned 10 more is created out of thin air ..
        Smth even more pertinent than cap flows is breakouts …I used to focus my research on this, I’ve run the full gamut from news, to capflows, to time being even more important than price (how Tom Baldwin was able to get the mkt to do pretty much what he wanted/Rick Santelli/liquidity&time)(Mark Fisher), back to news..funny, huh? W/ the only thing being diff/added being breakouts ..
        Chicken, yea, as I’ve said QE is 09 on so .. had a look; at abt the time of Cyprus Bank Robbery it was spiking, actually but QE to me only really began in ’13; prior to that TARP ..
        D Richards (hedge against) I’d go w/ 1, 5, 6 ..Starbucks you need be stoic in the face of protestors coming in with bullhorns ..lit. in your face lol.
        Housing is a crucial component of the economy ..
        I’ve said previously this time round it’s got nothing to do w/ liquidity; this rally ..
        Stock mkt is designed to go up ..
        I would’ve said, if you wanna avoid the noise (aaah *covers both ears/yea, these kinds of scenarios) just go into passive investing; i’ve equally said, don’t try n’ beat the mkt, side w/ it ..however 1) there is no noise, such a concept , as noise, only trading activity 2) some prop firms on the street fact, they don’t even measure that b/cause they do so (beat) by many multiples ..(NB; this doesn’t mean be contrarian it simply means go short as well as go long. If the SP is high, great, so are you; if we have lost decades, that translates into positive P&L).

  12. Mike Temple Says:

    Gold is for losers and stocks are where it’s at.

    Until they are not.


    • David Richards Says:

      … or until Bernie Sanders is leading in the polls for the presidential election. He doesn’t even have to win (I can’t handicap that probability). Bernie just needs to take the lead for awhile, which if he’s the nominee, becomes a high probability per game theory, regardless of the final score.

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