Notes From Underground: Just a Song Before I Go

At this time of great chaos in the world I am going to take a 10 day hiatus to sit back and reflect as it is the time of Passover and Easter. These holidays will take on special significance this year as the Covid-19 impacts our plans.

So as I retrench I put forward the words of the Prophet Micah for something to contemplate: “To Act Justly, and to LOVE MERCY and to walk HUMBLY with YOUR GOD.” Wishing all my readers a meaningful period of the holidays before us. I may post a podcast I recorded this morning with Anthony Crudele but that will be it, although I will respond to all questions in an effort to stay alert to critical issues in a rapidly changing global environment. Now to the issues before us.

OIL prices have rallied in a dramatic fashion on the notion that President Trump has boasted that he has succeeded in getting the Saudis and Russians agree to some type of oil production cut. The market has accepted this but while I respect the oil price rise I am skeptical because there has been no revelation of what was promised to Putin in order for the Russians to capitulate.

NOTES FROM UNDERGROUND has raised the issue for the U.S. to end its sanctions against Russia as a quid pro quo for Russian production cuts. The move by Russia to increase its production followed efforts by the U.S. to prevent the completion of the Nordstream 2 pipeline by placing sanctions on some of the technology firms aiding in the building the last part of Nordstream.

In a more important development, on Friday Foreign Affairs published a piece titled, “To Russia With Love,” about a recent poll taken by the Levadi-Center of the people in Crimea. The initial poll taken in 2014 was deemed to be riddled with fraud but the latest query of Crimeans revealed they don’t mind being attached to Moscow. The authors wrote:

“But when Ukranian activists and Western politicians claim that residents of Crimea are `living under occupation’ they mistake the experience of some for the experience of all. The majority of Crimeans do not experience Russian rule as oppressive, alien or unwelcome. Instead, based on the evidence of our surveys, they are reasonably happy to be living in Putin’s Russia.”

The point is end the U.S. should end sanctions to get some stability into the global financial system with an increase in the price of OIL. If the sanctions are not having the intended consequences and instead are causing financial disruptions, end the HOAX. The global system needs the flow of dollars to the emerging market world. And for all the nay sayers to this I ask: Why does the U.S. have a base in Cuba called Guantanamo? It is very similar to the Russian historical claim on Crimea.

***Last week’s DOLLAR RALLY indicates that the FED hasn’t done enough to create stability in the global financial system. The massive amount of dollar-denominated debt is causing an insatiable demand for the greenback from the emerging market economies at a time of FALLING COMMODITY PRICES.

The central bank is trying hard to meet this demand but the failure by the Europeans to provide a viable alternative funding vehicle is also keeping upward pressure on the U.S. currently. Buyers of EU sovereign debt — think Japan, European banks, insurance companies, sovereign wealth funds and others — wind up hedging their EURO exposure for fear of a dissolution of the EU. So the question of “whose EURO is it” remains on the front burner.

If the German-led northern group were to cause a calamitous break up of the EU, which nations would have the EURO? This is what makes the Lagarde effort for a unified eurobond so significant now. For all those still in doubt about this, read the Adam Tooze piece in the Financial Times. He is one of the best analysts about the global financial system since 2008.

Europe’s inability to decide is causing headaches for the FED and if I were Chairman Jerome Powell I would respond by a unilateral intervention to sell DOLLARS in the open market against the EURO, which would move to drive up the EURO. It is just another tool in the FED‘s toolbox doing a period when no rules.

***A warning: The bond markets are a very good TRADE but a terrible investment until we get some order in global financial system. It is fine to stay in the Treasury bills as the government is issuing vast amounts in an effort to fund the fiscal stimulus programs, with more promised to come.

The impact of the FED, ECB, BOE and BOJ makes any effort to short the BONDS a difficult investment but opportunities arise from a trading perspective. The daily intervention by all the central banks provides opportunity for profit but also great pain.

Once some stability is injected to the financial system there will be time get short long-term debt. Just tell me when. It is interesting that many foreign central banks and sovereign wealth funds are dumping Treasuries. Bloomberg reported that foreign entities dumped $109 billion of Treasuries in March. This is something to keep watching for they are dumping an asset with an artificial price support mechanism: the FED.

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20 Responses to “Notes From Underground: Just a Song Before I Go”

  1. Ariel Bezalel Says:

    Hag sameach

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  2. ShockedToFindGambling Says:


    I think other factors affecting the USD were initially, foreigners selling U.S. assets and repatriating funds, and more recently, seeing the USD as a haven currency (Yen and Euro have been following the SP500 for about the last 4 weeks).

    On oil, there will be a deal……at this price, all frackers are gone, and Saudi, Russia, Exxon, Chevron will be in trouble, soon. Look for a cut of at least 10 Million barrels/day on Thursday, probably ramping to 20 Million barrels, in a few months.

    They may even try to fix the price of oil at 50?

    At $25, not only does most of the oil complex go bust, but EVs and most alternative energy sources are not price competitive……natural gas also very cheap.

    • yraharris Says:

      Shocked–yes,good points and this weeks idea of Tariffs on a fungible global commodity is difficult at best.Politically ,could be a disaster—can you imagine hard pressed consumers paying higher prices for energy then the rest of the world

      • ShockedToFindGambling Says:

        There was someone on CNBC yesterday saying crude was selling for $3 a barrel, somewhere.

        If oil stays down here (20s), it destabilizes the world economy….it should actually be helping the world economy, as you allude to, by helping consumers.

        We got into this mess by subsidizing oil frackers with access to cheap financing, and accepting unrealistic profit projections……IMHO,frackers’ debt may be the new CDOs.

  3. Trader 1 Says:


    At Friday press conference Trump was asked if he would lift Russian sanctions to get oil deal done. He dogged the question quickly but didn’t seem surprised being asked — My interpretation he might have discussed lifting sanctions???

  4. Pierre C. Says:

    Enjoy your time off!

  5. Asherz Says:

    I listened to your hour and five minute podcast with Crudele. I would recommend readers of Notes to tune in. Unfortunately most of us have the time with the virus lurking outside.
    A few comments.
    Your good January had a February setback in gold with margin calls taking the piano player in the paddy wagon with the girls. A replay of 2009. We know what happened over the next two years.
    And yes, Gold is not an inflation hedge play these days but a hedge against CB credibility. And yes owning LT treasuries is nuts.
    And the Putin Saudi fight in crude is nonsense. The flight of Saudi leader to Moscow was a planning session. Goal? My guess is to knock the overleveraged shale oil business out of the box. They need the US to import again and not export. Russia and China want to see the dollar lose its reserve currency status. With US debt to reach 30 T in the next few years on a weakening GDP makes that goal achievable.

    Dollar strength has the EM markets with too much dollar denominated debt scrambling to get the greenback.

    Much more to say re the interview but this is long enough. I still maintain we don’t have a free market on the CME and I hope the directors have adequate insurance.
    Enjoy the holiday and let’s all hope the virus slope turns down soon.

  6. nserebrenik Says:

    Yra Hag sameach, go easy on the matza ball soup! Many of the reflections of pesaj are so important this year.

  7. Alex Says:

    I believe that the purpose of the US sanctions imposed on Russia, which Europe agreed to without conviction, was mostly to remind Putin who the boss is, but also to make any rapprochement between Russia and certain European nations more difficult (I’m thinking Germany but also Italy).

    As a European business man I can say that those sanctions hurt European businesses much more than they hurt Russia. The sanctions came at a time when Russians were coming to Europe as Tourists, and at a time when many business links were being made between Europe and Russia.

    I is my belief, that the sanctions have mostly succeeded stoping the rapprochement that was taking place, even though they have for the most part failed in affecting Russia’s economy in a negative fashion.

    Increasingly, I am noticing that American foreign policies appear directed at keeping Europe in its place as a weak global player, dependent on America. I do fear that these policies are increasingly being noticed in European circles. Especially in Germany with Nordstream 2.

    I know that it is easy to dislike German and French politicians (not to mention EU bureaucrats), nonetheless, we should not play with fire!

  8. yraharris Says:

    Alex–thanks for the very informative view.I think you make very valid points and the recent efforts by US State Department and Treasury to impose sanctions to prevent completion of Nordstream 2 was the one that Putin said ENOUGH–Nordstream 2 is his pride and joy and cements Europe’s dependency on Russian energy

    • yraharris Says:

      Alex—Trump came into office heralding the end of Ameican hegemony but he continues the effort on the cheap.If the DOLLAR goes as the sole reserve currency then we are in for some very great changes

      • Alex Says:

        Hello Yra, Thank you for your very kind answer. I agree with you completely. I am the kind of person who worries too much. 60% of our savings has been in physical gold since 2009. This despite the fact that we live in Geneva, Switzerland. I realise that Swi. is part of the world too, but in these uncertain times there is no other country I would rather live in with my family.
        At this stage, I do believe that, the Powers that be know that they are destroying the Reserve Currency of the world. And I don’t think they have a plan B.
        Which really makes me think that we may well be in for another World War kind of scenario…
        And yes, Trump has been a big disappointment….
        Happy holidays nonetheless!

      • David Richards Says:

        Alex, after a time like this and with what may lie ahead, I’ve come to think that the most important attribute of the best place to live is an abundance and self-sufficiency of locally produced food, available year-round. So places like Thailand and Mexico, and maybe New Zealand. And definitely not where I live as everything is imported, same as my old friends in Cayman. No surprise then that NZ is the location of first choice for billionaires’ boltholes.

      • Alex Says:

        Like I often say: It’s a damn shame that I am not one of them billionaires….

      • David Richards Says:

        lol yeah …. but that wouldn’t have helped you because NZ banned all inbound flights last month, including all private jets and private airstrips, under threat of imprisonment, so billionaires weren’t able to get to their NZ boltholes. Life’s hard sometimes.

      • Alex Says:

        I see! But, without wishing to come across as being too picky… I’m under the impression that NZ has recently been espousing the “woke” notions, (such as Systemic racism, The evil Patriarchy,) and the culture of victimhood a bit too enthusiastically for my liking….

        Another reason to like Switzerland, is that it never went to war, never invaded anybody and so the Swiss people are who they are and who they have always been. Someone wants to tell us they have more rights than us because they come from Pakistan? try Sweden! We actually are quite proud of who we are!

  9. yraharris Says:

    alex—thanks and the swiss have a better handle on the SME bailouts then everyone else as the FT article today articulates

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