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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22 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


    • A.S. Says:

      If cutting rates is meant to stimulate why..would they be doing QE..I mean don’t ask in their infinite wisdom, but ..
      I don’t think you ca ..cmon, this isn’t like the Russian Grain Steal, robbery of 1972 (they bought EVERYthing) ..

      • Michael Temple Says:

        Having a hard time understanding your question/point?

        Meanwhile, Powell is once again behind the curve as the Herculean moves in USTs and the yield curve SCREAM RISK OFF.

        And Dr Copper and Oil are showing far more deflationary impulses than anything in the SP pits.

        Those two markets are acting like death in reaction to the Coronavirus.

        Here is one more dark thought.

        China has announced Shanghai Bourse to re-open Feb 3rd. What happens if crisis further takes wing and they decide NOT to reopen the market, matching the extended shutdown of many factories and schools throughout afflicted regions until Feb 9 and as long as Feb 17

      • A.S. Says:

        *scratching head well, b/c the cutting and QE are meant to achieve the same ..

        The Russian Grain Robbery set forth sustained price trends (R Dennis rode it; his million was thanks to that)
        So alluding China not buying as opposed to the Soviets/agents buying it up, buying all ..
        🙂 I’m in on that copper move, as to oil, not my mkt – but – I have exposure thru Aussie ..
        Now, ok; first, you ask me; deflation is an increase in your PPP there’s also the asset-price kind but then there’s that eroding your PPP …

  12. The Bigman Says:

    Understatement of at least the year- Jamie Diamond:

    “The only thing I have trepidation about is negative interest rates, QE, and the diversion between stock prices and bond prices and yield and stuff like that…
    I think it’s very hard for central banks to forever make up for bad policy elsewhere, that puts them in a trap. We’re a little bit in that trap today with rates so low around the world.”

    “…little bit of a trap..”???????? Was the Trojan horse a little bit of a trap? Did the Light Brigade ride into in a little bit of a trap? Were the Woolie mammoths at La Brea in just a little tar? The Central Banks are today’s woolie mamoths and are slowly sinking in the tar of the negative rate pit. Jamie it’s over you just don’t won’t admit it. Got Gold?

    • A.S. Says:

      😉 and btc
      Where’s Yra ..:( ..?
      lol it ludicrous; CBs who bailed out these banks and now he’s lambasting them ..
      chk out the doc Banking on Bitcoin; (as we know) not one banker has gone to jail..

  13. dsiderijr Says:

    “You and I know that one day the orchestra will stop playing and the wind will rattle through the broken window panes. We are all at a wonderful party, and by the rules of the game we know that at some point in time the Black Horseman will burst through the great terrace doors to cut down the revelers; those who leave early may be saved, but the music and wines are so seductive that we do not want to leave, but we do ask, ‘what time is it? what time is it?’ Only none of the clocks have any hands.” – The Money Game

  14. Michael Temple Says:

    Good Morning

    So, the spread between EDH1/EDH0 is now 40 bp, indicating market
    expectations of almost two full 1/4 point cuts over the next 13 months.

    Meanwhile, UST yield curve is pancaking hard, with
    3M/10 YR at +1 BP and threatening to invert
    2/5 YR inverted by 2 BP
    2 YR yield of 1.38% which is 12-37 bp below current FF of 1.50-1.75
    30 YR yield of 2.02%, threatening to trade with a “1” handle.

    It is beyond dispute that CVirus is now an epidemic in China.
    While unlikely to become a huge public health concern in US or Western Europe, reports are beginning to indicate that parts of SE Asia may experience larger outbreaks given the already concluded
    travel of many Chinese throughout the past month.

    Anecdotal evidence of commercial slowdown abound throughout China. If China catches cold/flu, so too does SE Asia, don’t you think?

    I am not making fun of Powell….But, market actions are, once again, racing far far ahead of him and his gang. USD is rallying while
    UST yields are plummeting.

    If matters worsen with CVirus, and if stocks finally catch down to the price action in bonds and commodities, where oil and copper have been monkey hammered (note that FCX CEO has called CVirus
    a Black Swan Event for his industry), I think a 50 bp cut could come sometime very soon in February.

    Final political thought. With no opinions offered about Trump, I believe that if the Senate wraps up this trial THIS WEEK WITHOUT
    calling witnesses, Trump will win the battle but lose the war.

    The outrage from ALL Democrats, a vast majority of Independents and a not so small amount of moderate Republicans is going to make the race to November very very ugly, as cries of a corrupt process/president will be aired daily now that election season officially begins Monday in Iowa.

    Again, political noise, combined with historic epidemic which is causing HUGE China slowdown, is a backdrop for some agita in US equity markets, even if Apple and Tesla, for now, continue to gallop Icarus-like towards the sun.

    While gold has yet to put on much of a rally, the ingredients for a much more dovish Fed are on display. Heck, these guys/gals are already prepping the battlefield with leaks to the WSJ that they may copy the 1940s/1950s playbook of targeting specific Treasury yields with “whatever it takes purchasing” to do so.

    Mon Dieu….That could become Infinity and Beyond.

  15. Michael Temple Says:


    UST 2 yr yield is 1.40%, not 1.38%
    Still, it is solidly below the current FF target range

    Simply put, bond market is SCREAMING that the economic damage from CVirus has already been inflicted as commerce and supply chains in China grind to an extended halt.

    And, don’t forget to add this to your Economic Calendar today.

    WHO will be holding a press conference, with some speculating they may issue a global pandemic warning.

    Apparently, the official wordsmithing would be to declare a PHEIC

    Public Health Emergency of International Concern.

    Yeah, sure, that won’t lead to any further panic behavior, especially as an Italian cruise ship of 6000 sits in quarantine as 2 Chinese tourists seem to have shown signs of CVirus…..

    Of course Powell will be monitoring events. We know it will only become a crisis worthy of Fed action when he next comes to a podium wearing a surgical mask.

  16. mahlonhersh Says:

    Good morning Yra. I enjoy your posts and your discussions with Judd and Max.

    I would like to get one of the books that you are handing out.

    I live close to Phoenix. Perhaps we could meet for coffee.

    Have a good day.

    Mahlon Hershberger Congress, Arizona

    On Thu, Jan 9, 2020, 7:41 PM Notes From Underground wrote:

    > Yra posted: “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 ” >

    • yraharris Says:

      Mahlon–yes would be a pleasure—I am in North Scottsdale so let me know —also to all my readers—thanks for your concern—just been doing work but not writing as have gotten a BIT stale with the quill—will be back on Sunday with a Fresh outlook on the unbalanced world

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