Notes From Underground: Looking at 2020 With Imperfect Vision

On Monday, I had a chat with Anthony Crudele about the global macro impact on markets in 2020. As I always warn (in an effort to mimic MAO), there are many potential prairie fires in the world that COULD be ignited by a single spark. The Middle East is a potential prairie fire — every year. We were reminded of this over the last week as multiple events in IRAQ/IRAN brought the world to the precipice of cataclysmic outcomes. For now, the situation seems to be contained as GOLD, sovereign bonds and other tools of wealth protection.

The global equity markets suffered severe downturns but as television images failed to sensationalize, calm returned, which elevated equities around the world even higher. Several FED members raised concerns about headwinds developing from heightened fears over IRAN/U.S. tensions leading to economic disruptions. The implication is there’s no need to raise rates. Any HIKE in energy prices due to  middle east conflict would be transitory in FOMC parlance.

On Friday, we will get the last U.S. unemployment report for 2019. My focus will be on the average hourly earnings for as the WENDY’S commercial used to ask: Where’s the Beef? The consensus is for a 0.3% increase in wages. I would love to see a much larger increase as an opportunity to test my view on a steepening of yield curves. The FED will be reticent in this political environment to raise rates so any hint of robustness in the economy OUGHT to result in bond prices falling and sending yields higher.

If the AHE is strong look for lower GOLD prices. But if my theory is correct GOLD support levels should hold. GOLD had rallied well before the recent events in Iraq. (The GOLD this week has been another real-time lesson in not chasing gold higher in reaction to geopolitical events.) As for the unemployment rate and non-farm payrolls, if they are strong but fail to bring wage increases the FED will certainly be restrained in any effort to raise rates or curtail liquidity.
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12 Responses to “Notes From Underground: Looking at 2020 With Imperfect Vision”

  1. Guy Williams Says:

    Thanks Yra … Appreciated and learned from the note and will look forward to listening to the Podcast tomorrow. A good night to you.

  2. David Richards Says:

    Another pressure point on UST bonds and notes should be the comparatively higher yields available in a number of EM markets in currencies that are rising against the weak dollar since the dollar pivot pt 3+ months ago. Or perhaps it’ll manifest into pressure on the Fed to resume buying treasury bonds and mid-dated notes.

    I’m of the opinion that this “temporary” Not QE won’t be so temporary and will broaden in scope, tho some other serious players are convinced Not QE will be history in April. I believe that US stocks will tank if the Fed stops monetizing bills and that short-term US interest rates could spike up as they did for one day in Sept before the Fed was forced to step in.

  3. David Richards Says:

    If the Fed is reticent to raise rates in this political environment, is it also reticent to cut rates? Or to change its pace of debt monetization, which also (indirectly) alters rates?

    If the path of the last few months (and 11 years) continues, with ongoing Fed accommodation and soaring stocks “helping the rich” while Joe Sixpack feels relatively left behind, with a weakening dollar and rising inflation (which he already is starting to feel, anecdotally, especially in healthcare), will Democratic nominee Sanders win the presidency through class warfare populism, promising free nationalized healthcare for all and ranting against the rich and their runaway stock markets? I think it could be a winning formula. Crazy (Trump) can lose to crazier (Bernie). Crazier usually beats crazy. Beware: stawks won’t like Bernie and should feel the Burn, lol. Could happen?

  4. TraderB Says:

    The modern day term “HODL” means to hold and “not sell”. Anyone who has watched their net worth almost triple over the past decade by HODLing equities is certainly very confident in that strategy and has no plans to sell any time soon. The perceived value of their investment is a direct function of their collective decision to “HODL”.
    As long as they all agree to HODL, the valuation of these companies doesn’t have to adhere to any logic or historical norms.
    The moment that changes, people lose faith, and some of these HODLers stop HODLing, it will all be over in a flash.
    Hopefully that day of reckoning comes soon and not because of violence or war, but rather just some series financial calamities as all of this unsustainable debt implodes on itself.

  5. Pierre Chapuis Says:

    Can we draw some parallel between our banking system and the 737 max?
    This system is designed by clowns, supervised by monkeys.

  6. Arthur Says:

    New research suggests that secular stagnation is centuries old

    P. Schmelzing, “Eight centuries of global real interest rates, R-G, and the ‘suprasecular’ decline, 1311-2018”, Bank of England Staff Working Paper No. 845, January 2020.

  7. A.S. Says:

    It will begin in the S China Sea..a military excercise gone wrong ..

    Wendy’s viva their taco salad ..

    Ya, I saw this recently/before re wage prices, they have been increasing ..

    Just had another trifecta of the S&P, NASDAQ and Dow new highs ..So I’ve been saying that BBG et al who think yields are prices? No, higher yields =/= higher prices but the return , rather (ROI) .. ok, but I see now rates also differ from yields..shouldn’t rates command yields? I mean, what they’re set as is what they yield, how much you get, ROI an investor gets ..

    I’m glad you said that b/c if we go by traditional parlance rates should be raised in an overheated econ ..well, already, by that token, can an econ ever overheat can freeze if we think of communist systems, but , ok, well, if look at 20s as an example nonetheless, as it is robust, and we’re discussing/dealing w/ price shocks (think of the 70s, yes, mentioned prior and in this example) I dunno why the Fed would want to raise if the econ is on a strong footing (not as in runaway) ..

    re podcast I say gold shouldn’t be traded; investing is different, safe haven ..but copper; what I’ve replaced it w/ as in fact one mkt wizard can’t remember whom also advocated this..war metal.

    Always get smth out of this, your appearances, Yra ..
    I love that, ‘cos spreading is relative value, well, Yra being a spreader :p too, so ..

    If this helps anyone, EM; if you want growth – China, India (ditto), Vietnam, Indonesia mkts, perhaps also Kenya .. also, the Aussie dollar is a good proxy for EM ..

    But this (again 😉 disagree with, we can apply a litmus test, objective so, if you will..under Obama /QE look at the econ compare that w/ the mkt .. w/ Trump it is booming, manufacturing, et al.

  8. A.S. Says:


  9. TraderB Says:

    “ If you time traveled back to 2009 and told everyone the Fed would be doing QE with $SPX at 3,300 and unemployment at 3.5% they would lock you up in a mental institution.”

  10. Arthur Says:

    Can China Avoid a Growth Crisis? Fortune 500, Japan

    • A.S. Says:

      .. Just a thought; domestic, right? .. China’s FSI equally abroad/global/intl indices ..they’re breaking out (as recent as last yr) of 10yr bases ..

      CAC, DAX, Sg, Italia Borsa, Istanbul, Bursa Malaysia, Egypt, India, Tadawul (Saudi Arabia), MICEX, Canada TSX, Crude oil

      Global Dow..worldwide recession; my posterior..

      Needing immigration in the case of Germany is a misnomer;

      This is true; developing econs have only one way to go – up.

      I’ve previously said that China is a bubble; and w/ its housing sector (ghost cities) a bubble w/ in a bubble ..

      D(iversity)&I(nclusion) .. nice terms. If only they weren’t serving as masquerading for a revolution manifesto, like in in Africa where I could understand it, in the West it’s meritocracy ..equality as in same opportunities to everyone; or as demanded by SJWs? No; equality doesn’t mean we’d all be the same it means accepting inequalities .. and , in fact, as to income, if want more just ask ..I have never come across any law mandating women to be paid less.

      .. ofc they suck out value for their own sake? Natl interest ..ofc we want a good community, value, etc. but make no mistake where the money is going ..

      This has been debated; ie. ambassadors were necessary at the time b/c heads of state were not always able to be there; now they are – teleconferencing, etc. we really need ambassadors anymore? ..

      I can tell you, from having lived n’ grown up in Gva/Swiss, that’s cosmetic; even now w/ the bilaterals, and it certainly wasn’t always like that/was way more difficult before .. ask around as to the Swiss mentality.. not the worst, but, btw/all the more, they’re afraid of their system; it’s a nightmare what they’ve built ..

  11. Michael Temple Says:

    So, is Coronavirus the Black Swan of 2020 that NOBODY saw coming?

    Bonds and bullion have a bid today because of it, and now stocks are showing a twitch of wobble.

    With cases now showing up in Chicago from a woman who flew back from Wuhan on January 15th, it would seem the disease has already propagated outside China.

    If it does metastasize into a pandemic, I guess S&P is headed towards 4000 as the Fed will surely cut rates and do QE.

    Also of note….Why haven’t soybeans surged into the teens with the signing of the trade deal. “Beans in the teens” should be heard up and down LaSalle Street by now


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