Notes From Underground: From Bully Pulpit to Blabbermouth

ATTENTION: What you are about to read IS NOT A POLITICAL STATEMENT for I don’t care about your politics and you shouldn’t even know mine. The OVAL OFFICE provides the U.S. president a pulpit in which to amplify his/her voice in a an effort to tip the policy debates in their favor. But one a policy is ill advised from a trade/financial perspective and we will shout it from NOTES FROM UNDERGROUND.

On Saturday, Rich Miller of Bloomberg News reported that President Trump said during the Friday press briefing that, “The dollar is very strong. And dollars–strong dollars are overall very good.”

Dear Mr. President, have you lost your mind? The past three years have brought continued emphasis from the BULLY PULPIT that the overly strong dollar was acting against the best interests of U.S. manufacturing.

Trump even supported Ford CEO Mark Fields when he raised the issue after a White House round table on trade early in his presidency, that currency manipulation was the “mother of all trade barriers.” How many times have the White House trade and economic teams referred to the Chinese, Swiss and Germans as currency manipulators in an effort to weaken the dollar? NOW THE FED and TREASURY are trying to contain the strength of the DOLLAR and actually weaken it by flooding domestic and foreign banks with all types of liquidity additions and expansions, especially the swap lines to the foreign central banks.

THE DOLLAR IS NOT A TRADE CONCERN BUT A FINANCIAL CONCERN and the world is in DESPERATE need of a weaker DOLLAR in order to relieve some of the stress on the global financial system. Emerging markets are now struggling to acquire DOLLARS to help meet their burden of $11 trillion of debt accumulated over the last 10 years under the friendly conditions of ultra-low interest rates and many willing lenders at easy terms.

Again, the FED is doing what it can to relieve upward pressure on the DOLLAR. As Maurice Obstfeld, the dean of Global Macro Economists, noted in the story, “There can be circumstances in which a very sharp appreciation of the dollar is destabilizing for the entire global economy.” This is a time when a strong dollar can fracture the entire global financial edifice as too much debt gets resolved by loan defaults and bankruptcies, which will lead to LIQUIDATION of a global magnitude.

Mr. President, a stronger dollar will not get you the higher OIL prices you pretend to be concerned about. What drove the sudden VOLTE FACE? Don’t know, but it followed a story in the South China Morning Post, titled, “China Refuses to be Beholden to U.S. Dollar As Pandemic Creates Shortage.” The article details out how Chinese firms who have issued hundreds of billions of dollar-denominated debt instruments has created stress for Chinese firms seeking dollars to meet debt obligations.

The article notes that the FED‘s effort at providing dollars to the international system via swap lines has eased some of the upward pressure on the greenback but China is not included in those facilities underlining “the difficulty that many foreign governments and companies are having in paying bills and repaying debts denominated in U.S. dollars. In times of a crisis they increasingly need to rely on the US to provide them with the US dollars they cannot create,thus granting the US enormous power and privilege, analysts said.”

It appears that President Trump has adopted an approach  that if is bad for China it good for the U.S. This is the Navarro Doctrine in full force. Unfortunately, it is the wrong time, the wrong issue and the wrong policy to deal with a potential major debt default that will result in a deflationary feedback loop.

The FED is trying to prevent the onset of such a deflationary outcome. The IMF and World Bank are trying to get ahead of a major debt default by promoting a moratorium of sub AAA rated emerging market debt payments. Mr. President, no one on your team will tell you but I will: You are badly misinformed on this new DOLLAR POLICY. Now, about those Germans…

***On Wednesday the ECB is holding an important video conference about the issue of accepting junk debt as collateral. Can the ECB purchase assets paper of a below investment grade in an effort to get ahead of a potential downgrade of Italian debt? You know the 10-year BTPs that currently yield 2%.

If the rating agencies were to downgrade Italy it could prevent the ECB from purchasing Italy’s sovereign debt, which would bring the EU’s banking edifice into a situation of major default as Italian bonds would dramatically decline in value causing huge portfolio liquidation and ever lower prices. It would also bring an upheaval in Italy as borrowing rates would soar in a collapsing economy.

Pay attention to see if this passes as Lagarde needs to get ever closer to a eurobond, thwarting the will of the Hanseatic League (Germany, Netherlands, Austria, Finland). If this gets approved, watch the EURO to see if it can stage a rally.

The bund spread differentials have been widening in favor of Germany as German/Italian and German/French spreads have moved to multi-year highs. Watch and we will discuss why the Europeans could create the deflationary debacle that all central banks are attempting to avoid.

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29 Responses to “Notes From Underground: From Bully Pulpit to Blabbermouth”

  1. Stu f Says:

    You believe the main stream media? Are you senile? ________________________________

  2. Slackdaddy Says:

    Been waiting for years to see The Italian & Greek banks nationalized.

    • yraharris Says:

      Slack–another bailin coming?That is the question plaguing the banks in Europe and we haven’t even discussed the COCO bonds that were all the rage for Alt Tier 1 capital

  3. Says:

    Yra, You have to wonder, when Italy will move to unload some of the 2452 tonnes of gold it owns?

    • yraharris Says:

      nation–will not happen .Run the printing presses for Lira well before that will happen–just an opinion

  4. nserebrenik Says:

    Yesterday we got the swap line in colombia! Hope that contains the peso somehow.
    Better that IMF, but thankfully we have both.

  5. Naomi Fink Says:

    Just wait 5 minutes, he’ll say the opposite 🙂

    If we want to get more academic about it, there’s a paper on the subject…

    ok, that’s also just for a laugh… just trying to keep my sense of humor in these dark days!


    • yraharris Says:

      Naomi–great to hear from you.Thanks for the post and hope you are well.Tobias is coming out –can be preordered a BIOGRAPHY of PM Abe.Stay well and hope to hear more from you

  6. Michael Temple Says:

    Sadly, they know not what to do.

    USD strength is unstoppable right now. That goes hat in hand with the continued grinding lower of UST yields.

    As all manner of markets are simply broken/shattered (eg WTI May futures trading at NEG prices), Risk Off mentalities will keep a bid for USTs and USD for quite some time to come.

    I don’t think there is any Plaza 2.0 Accord any time soon.

    Trump has no conception about any form of reality right now other than try to win re-election.

    He could flip flop tomorrow and say he does want a weak dollar and it won’t change a thing.

    That huge synthetic dollar short of $11T is hard to sweep aside, especially when you consider that the CRB index is bearing down on 1970s lows. While we can try to divine a potential bottom for CRB, it doesn’t seem to be arriving any time soon.

    Although the WTI crisis could serve as the potential washout wipeout.

    Instead of trying to trade the USD, I prefer to press bets in gold miners. How about NEM nearly doubling its dividend today?

    I am still in the camp that says the NEG wipeout in May WTI may portend a reverse blowout in Comex gold come the GCM delivery process.

    USD will not play much of a role in that eventual tug of war


  7. richard d. Says:

    Mike, blowout in June Comex gold delivery looks like an eventuality as we get closer everyday. Many markets are finally showing signs of historical stress as the FED/EU enter unknown waters.

  8. asherz Says:

    This is a picture of the building where the Bretton Woods, New Hampshire conference took place in July 1944.
    Let’s look forward a few moves in our chess game. As Herb Stein said, “Anything that cannot go on forever will stop”. In a deflationary debt laden world economy, dollar swaps will not cure the ever increasing dollar shortages. After many sovereigns, banks and corporations default, the world will decide that the dollar can no longer serve its designated purpose. Not only will China and Russia be leading this demand, but the EU, Latin America and African nations will join in as well.
    The question remaining is: Will Bretton Woods 2 be held in a suburb of Beijing or Frankfurt?

    • Pierre Chapuis Says:

      I’m leaning towards Frankfurt. Who’d want to go to China after all this COVID debacle.

    • The Bigman Says:

      It will be held in Crimea- Sevastapol to rub further salt into the USA self inflicted wound

  9. Michael Temple Says:

    I stayed at the Bretton Woods Hotel 20 years ago on a summer weekend. There were nameplates on each door indicating which
    luminaries stayed in that room during that famous convocation.

    You are most definitely correct. The next such confab will not be in rural New Hampshire. Hopefully, it will not take place virtually over a Zoom conference call.

    It was a very tired hotel when I stayed there. Probably much more threadbare and worn today, much like the structure constructed there nearly 80 years.

    Nice photo.

    I should elaborate on my earlier post about CRB heading towards its 1970s low and why that is USD-friendly. So many EM countries depend on commodity trade/exports and the collapse in trade due to Covid has destroyed the pricing of so many commodities.

    Oil, of course, is center stage.

    Also the reason why silver continues to labor mightily, although there
    are tectonic movements beneath the surface in terms of gargantuan
    investment flows into silver at this time.

    But, not enough to convince anybody that silver is more like gold, instead of lead or kryptonite.

  10. Bosko Kacarevic Says:

    Yra, or anyone else,

    Yra, as you know, I’m a former electronics technician who stumbled into the commodities market in 2004, and I have no formal education on economics or finance, so I’m just learning as I go.
    Regardless, I’d like to propose a thought for anyone’s opinion. We all know that trillions of dollars have been created since 2008 and mostly in the past two months for the COVID-19 scare. The FED balance sheet alone has increased by many multiples in a very short while compared to historical norms. Meanwhile, gold/silver-bugs are screaming from the top of their lungs of EXTREME numbers coming soon, but the reality is — since 2008, when QE started, gold has not even broken it’s 2011 all time high, and silver is a small fraction of it’s all-time high. As a matter of fact silver has not even broken it’s all-time high since 1980.
    It seems to me that some how the “powers that be” have figured out a way to create TRILLIONS of dollars without consequences related to gold and silver. For those of you who were trading in the 70’s and 80’s, just imagine what the price of gold would have been if the FED printed just one trillion back then? This reminds me of what Jim Rogers has been saying about crypto currencies– cryptos are a great idea and we should be allowed to use what ever we want as money, but the fact is the governments have the guns.
    Even though I think no one in their right mind actually wants $50,000 gold because the economic side effect of this is not pretty. Therefore I believe as long as there exists a power structure who make our laws, which allows them to game the system, there may never be the consequences we might expect in a normal functioning market, because this isn’t normal, or maybe it’s the NEW normal?

    So basically my question is…did the central banks around the world just RESET the entire currency system, for the COVID-19 scare, without Bretton Woods or Jekyll Island, and without any serious consequence to gold and silver?


    • Michael Temple Says:


      I am sure Yra will have more cogent insights than I, but I will take a stab at answering your question.

      As Einstein famously said, everything in the universe is relative.

      Your frame of reference determines your observations and “facts”.

      So, while gold in USD has not yet hit stupendous highs, gold in “alternate realities” of JPY/EUR/GBP/CAD/AUD/CHF IS at all-time highs.

      As for USD gold price, the highest average annual price is $1665ish way back in 2012. During the 2011 run up to $1920ish, the annual average price was approximately $1575ish, I believe.

      So, while it is an apples to oranges comparison, gold’s price at roughly $1720 this morning (I prefer to use front month Comex) is already higher than the average annual price from 2012.

      Perversely, I think the Fed wants to see gold go higher, just not skyrocket crazily. Why? They are desperate to create some inflation with all the tinder they are kindling daily with all their QE and the steady stream of trillions of stimulus coming from Congress and Treasury.

      I think the real fireworks in gold come in 2023 and later as our finances truly do crumble. Until then, however, gold is well poised to
      move towards $2000+ this year.

      The BoA report yesterday with a $3000 target in 18 months may finally force its competitors to “get with the program” and readjust their sights. Wall Street is always looking for the next new bull market.

      Gold is lying there waiting to be crowned. The gold miners, frankly, are beginning to try to bust out of some very long range resistance levels. I think they succeed very very soon.

      NEM raising its dividend by 79% yesterday is a HUGE “tell”

      As for silver, it is a dog right now. More kryptonite than monetary metal. CBs don’t buy silver, simple as that.

      However, in big bull markets for PMs, it becomes “poor man’s gold”.

      I think 2H 2020 is when silver finally makes a move. Perhaps it gets to $19-20 as gold approaches $2000 sometime in June (there I predicted it).

      If silver can do that, then I think it could go ballistic in 2H 2020.

      Finally, NO…..The world did not RESET the entire currency system in this post-Covid world. That RESET occurs in 2023, or perhaps 2022. But not now. It is still a USD-centric world as evidenced by the extraordinary debts haunting the system. But, the unwinding/breaking of those debts (Jubilees are now beginning) will usher in the end of the multi-polar currency domain of the USD.

      Until then, just watch as gold finally joins the ALL TIME HIGHS in USD, catching up to the rest of the “universes” out there.



  11. asherz Says:

    My answer to your question is simpler but more troubling.
    Think of it this way. If gold sold at 2000, 5000, 10000 or higher, would the alchemists be able to print the trillions they have? Gold has been the touchstone that all currencies have been measured against for Millenia. You can’t print gold. So as long as gold is kept at a relatively low level, the world will accept fiat currency. But in a free market if gold catapulted, who would want to own the Fed IOU or the BOJ yen or the Draghi euro. In God We Trust as long as gold is not the safe harbor. But once it is allowed to trade freely, think of the papiermark or the Argentine peso.
    The markets are bigger than the CBs and at some point the game will end. In the meantime, sleep comfortably while the powers that be play Whack a Mole.

    Fuel for the fire on a cold winter day:

  12. david Says:

    anybody else’s broker restricting trading in CL or BRN? I use tradestation. And of course due to covid-19 you can’t get a hold of a rep. on the phone.

  13. Michael Temple Says:


    I don’t think the “game” ends with gold at $2000 or even $3000.

    Sometime after 2022 is my timeframe for a reset. Gold will be a lot closer to 10,000 than 3,000 at that time


  14. Chicken Says:

    Smoke From A Distant Fire?

  15. JMH Says:

    I agree with the long term positive scenario for gold.
    HOWEVER: Is it realistic to assume governments will meekly stand by and watch the utter destruction of their fiat against gold?
    If their power is seriously threatened, IMHO they will simply outlaw private gold holdings in some way, like FDR did.
    Where am I wrong in my thinking?

    • Michael Temple Says:

      What do you mean by asking will governments stand by meekly to watch the destruction of their currencies?

      They are actively and knowingly spinning the printing presses 24/7 and trying to beggar thy neighbor.

      For the immediate future (12+ months, IMO), all governments everywhere will spend whatever it takes to save their economies and they could care less about gold. As long as it doesn’t embarrass the authorities with a meteoric rise, nobody will much care.

      At this stage, gold is at all time highs in ALL currencies except USD.
      Nobody seems much bothered so far. $2000 will simply be a 15 minute phenomenon, but will not produce much sturm und drang

  16. asherz Says:

    JMH- I think your concern of a replay of the 1933 FDR move against gold is valid. Governments are very cognizant about the price of gold for the reasons given above and are fighting tooth and nail to prevent gold going into a melt up. The FDR move is a possibility and a risk.
    However there is a big difference between the ’30s and today. China and Russia. Those two nations and some others such as Turkey and Iran own a lot of bullion and have been buying gold bullion aggressively for several years. My guess is that they own considerably more gold than the US. They would take steps to counter a US nationalization of all gold and allow trading in that metal and depose the dollar as the reserve currency.
    Even Germany and some other nations have brought their gold back home from the US and UK where they had been stored for decades.
    We no longer have a lock on real money. And without having the ability to have exclusivity on reserve currency status, we couldn’t print the trillions we now can and keep credibility in the dollar. Outlawing private gold ownership would backfire IMO.
    And just as there was practically no bid in oil this week, sometime in the next few years there will be bid with no offer for physical gold.

  17. JMH Says:

    Thanks for all replies.
    In the short term printing with abandon is the only ‘tool’ CBs have to avoid a general reset of the financial and hence political system.
    But I’m more thinking about the -in the longer term unavoidable- Weimar phase, when gold goes to the moon.
    It’s true that some nations are wisely building up their gold reserves for that moment. However, today virtually all key CBs are pursuing the same printing strategy – and have to, if they don’t want to see their currencies rise strongly against all others.
    Exhibit A is the SNB who against all their natural Swiss conservative and prudent instincts are obliged to participate in the printaton. So if the situation becomes really threatening to the existing financial order / TPTB, wouldn’t these nations have a strong incentive to band together and outlaw the private possession of anything else than their fiat? They have the guns, and if it’s the only way those ‘elites’ can stay on top, if we take history as a guide they’ll use that power. Because they know that they’ll have to hang together or they will surely hang separately.

    • Michael Temple Says:


      Respectively, I think you are veering off into tin foil conspiracy theories at this time.

      That dystopia will occur at a much later date than now or even next year.

      Here in the US, long before they confiscate your gold, the Feds will go where the real money is. If USD is faltering and the Fed can seemingly no longer buy all the USTs that Treasury is, watch for emergency legislation that says all 401Ks and IRA accounts, with trillions in them, must invest 20/30/40/50% of their proceeds into special issued 30 yr USTs or face an immediate penalty.

      That is far more likely than trying to get your gold.

      As Willie Sutton replied when asked why he robbed banks, he impishly said because that is where the money is.

      As we do not live on the gold standard any more (thank you Mr Nixon) no central banker really much cares about gold. In fact, consider this little anecdote

      I listened to Bloomberg radio recap of Wall Street today.

      Lead in was

      S&P up 62 Dow up 450 WTI oil surged 20% Finally, gold is up 1/10th of 1 pct in AH Not even one mention that gold was up nearly 3% during the day, a far better day Than stocks.

      They won’t be coming for your gold, JMH

      Much bigger fish to fry right now. Yes, if gold jumps $100 one night, “they” may try to knock it down to slow its ascent.

      But even they don’t want to see gold collapse and broadcast even more deflationary shock waves.

      Right now, the Grand Poobahs want to make sure Italy doesn’t crash out of the EU/Euro. They want to rescue EMs with debt jubilee/forebearance for the next year. They want to reopen their economies. They want to save oil. They want NKorea not to implode/explode now that nobody knows if Kim is alive.

      Gold is probably about item #247 on the list of CBers and Chancellors of the Exchequers around the world.

      Maybe even #347

      Just my 2 cts


      On Wed, Apr 22, 2020 at 8:55 PM Notes From Underground wrote:

      > JMH commented: “Thanks for all replies. In the short term printing with > abandon is the only ‘tool’ CBs have to avoid a general reset of the > financial and hence political system. But I’m more thinking about the -in > the longer term unavoidable- Weimar phase, when gold go” >

  18. JMH Says:

    Agree with all you say. As I wrote, I’m not thinking about next year, but longer term, when gold goes to 10k+. If those expected juicy gains in gold will indeed materialize, I wouldn’t be surprised if TPTB -at a minimum- will tax those profits to the max. It won’t be their only
    solution, but one of a number, including the one you describe.

  19. Arthur Says:

    Keynesian supply shock (MIT)

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