Notes From Underground: Tomorrow the Fed, Then the ECB

On Monday, the Bank of Japan promised to buy all the bonds (or as much as necessary). On Wednesday, the FEDERAL RESERVE will offer little as they will be following Dr. Fauci’s lead and proclaim to know little about the end of Covid-19, as Chairman Jerome Powell should. But the key will be the market’s search for a timeline in response to a turn in the economy. Wall Street is looking for forward guidance as to when the Powell Fed will PIVOT from the massive liquidity injections. Will it be an inflation target, employment condition or a return to positive GDP? Powell will use DON’T KNOW and will be patient in removing stimulus as wanting to see any secondary effects.

The loud voices and certainly the qualitative measure of the deflation camp means the FED CAN RESOLVE TO REMAIN AT ZERO AND HIGH POWERED QE FOR LONGER. Going forward, the key component will be average hourly earnings as an indicator of returning strength in the job market. Declining hourly earnings will be interpreted as a sign of major weakness as many high paying jobs are removed from the economy (think energy and the realm of fracking).

If I was asking a question at the press conference it would of course be about the Treasury’s and FED‘s concerns about the DOLLAR. For the Treasury it is a trade concern while for the FED it is a financial concern.

But the strength of the DOLLAR with all the liquidity added to the system ought to prompt a question about the impact of the global reserve currency on emerging market economies and commodity prices going forward. Be patient and listen to the press conference as there will not be much offered in the official FOMC statement.

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31 Responses to “Notes From Underground: Tomorrow the Fed, Then the ECB”

  1. Michael Temple Says:

    Fed and Treasury care only about the S&P and broken credit markets.

    Dollar isn’t even on their radar.

    King Kong Dollar is going higher!!

    Just ask your friend, Lacy Hunt.

    • yraharris Says:

      Mike–it doesn’t matter—I just want the question asked and hear his direct response.I don’t doubt that it must go higher to get the Fed’s attention in full—but the question NEEDS to be asked ina very public forum to get a sense of what they are actually concerned about on a global basis.I know the deflation discussion but for all those comparing to Japan –show me the deflation numbers and then we can compare .Unlike Japan we do not have zero interst rates presently resulting in positive real yields regardless the price of OIL—that is my only concern—ask the question and let’s hear it from the Fed Chair and his side-kick Clarida

      • yraharris Says:

        Also to all–is the recent strength of the YEN causing concern for anyone besides me?

      • ShockedToFindGambling Says:

        Yra….Yen strength bothers me in that they have massive Federal debt and QE, economic stagnation, seem always on the brink of deflation, and still the Yen is gaining on the USD.

        Really says how weak the USD is in reality, even if it gains on EURO.

      • Pierre C Says:

        When I go on Shilller’s charts

        The real US treasury yields, 5 through 30 are ALL negative.

  2. Michael Temple Says:

    Nope….the rise in the yen doesn’t bother me much.

    As to how Jerome might answer your query, he would probably just kick it over to Treasury as no Fed Head is in charge of USD policy and is probably why Jerome’s gaze and attention doesn’t extend much beyond the 12 mile territorial boundary of our offshore waters.

    Sorry to be wrinkly on this topic, even though I know you have strong feelings.

    No matter how high Jerome has managed to inflate the S&P balloon, UST yields are grinding inexorably lower. 10 yr is WAY below 1% and front end might even go NEG once again.

    USD will go even higher as stocks possibly stumble from these rebound highs. And if stocks go higher, don’t think USD is ready to tumble.

    USD is the best bet going in a world of blind drunken sailors. EM currencies are all in the toilet and will remain there for foreseeable future.

    King Kong Dollar, sayeth I.

    • Bosko Kacarevic Says:


      In a round about way, aren’t we going through a kind of currency RESET that many gold-bugs have been talking about for years? Especially when considering the EM currencies? Maybe it’s a slow and steady approach instead of a shock like what Nixon did?


      • TraderB Says:

        Unless there is some sort of global repayment plan none of us know about, then I am pretty sure this is all just the New Normal (AKA ‘MMT’).

        MMT is basically driving a car at 200 MPH. When it crashes into a tree, then that is called the Global Reset.

        Mike Temple thinks that tree is about 3 years down the road. Maybe if we drive a bit faster, we can get there sooner.

        2 + 2 = 5

    • David Richards Says:


      Some good points. If stocks fall. But don’t you think policymakers have a very strong incentive to keep stocks from falling, whatever it takes, and to even levitate them? For example, I understand that stocks have been the largest source of revenue for IRS. And economic well-being in this financialized economy, sigh.

      OTOH, there was a good, short piece days ago by Ben Hunt on Epsilon Theory about Stocks and the Narrative-driven bounce, comparing today with the Bear Stearns Bounce in spring 2008. Food for thought, as he could be onto something. AYK, that didn’t end well. IDK.

  3. Michael Temple Says:


    Fed keeps pumping out the Benjamins, but they are not winding up in the real economy in the form of actual stimulus.

    Instead, dollars are flowing once again merrily into risk assets on Wall Street.

    Folks aren’t lining up to spend $$ on new consumption. Sadly, too many folks are sitting on line for hours at food banks.

    USDs are getting destroyed in the real economy as personal and small businesses are OUT of MONEY and cannot pay the rent.

    Cash strapped cities don’t know how they are going to pay their bills
    as revenues are plunging.

    I received a reduction in my minimum EZ Pass required balance because the algorithm has noted that my frequency of driving through toll booths has dropped considerably.

    So, while we have long watched the misery of EM countries get transmitted into weaker currencies vs King Dollar, a similar phenomenon has taken hold here in the US.

    As unemployment has spiked, many of the unemployed now need to pay for their own health care (if they can get it), a new budget expense after losing their job.

    Commodity price action still shows that the big rebound is not yet here, although we could be approaching the lows here soon as the global economy slowly groans back to life.

    But, until later in the year, USD reigns supreme. While the Fed may be pumping out more than ever, the destruction of debts seems to be keeping pace.

    If USD were truly in trouble, and “inflation” was nigh, Silver would not be trading like kryptonite, instead of like gold. Silver has captured nobody’s investment imagination in the real world of institutional behemoths. Why isn’t the dog barking?

    The answer points strongly to why your USD short thesis is not yet ready to hunt at this time.

  4. Michael Temple Says:

    I agree. It will be a slow and steady approach until it is not.

    But, the “not” doesn’t take place until at least late 2022 as the USD will no longer be a bankable currency.

    • Bosko Kacarevic Says:


      Sorry, I have no fundamental education in economics, but is there something special about 2022? How does one forecast such a thing?


      • Michael Temple Says:

        No, nothing special about 2022.

        I simply figure that the next administration will be given one year to address our many financial and societal ills. After one year, the chickens will begin to come home and roost.

        For now, the world still can’t get enough of USTs. Even on a huge RISK ON day like today, UST 10 yr yields have hardly spiked.

      • David Richards Says:


        I think you already know better than to use US credit as a market signal anymore. Because UST, IG and HY are no longer free markets. Rejoice, comrade.

        Overall, the world has been net SELLING of UST’s. Even UST TIC reports have shown the bleed, and that’s just part of the picture (the less bad part). The Fed is picking up the slack by buying UST’s, indirectly to skirt the Act, which provides artificial UST demand, “finances” the US gov’t and controls the price of money (interest rates). Rejoice, comrade.

        Absent an economic depression (high-risk per Raoul Pal as mentioned last time), USD should take it on the chin if the US continues to pin down its interest rates and/or yield curve control. Some point to Japan as a counterexample, which is a bogus analogy because Japan is a large creditor nation running a surplus whilst the US is an enormous debtor nation running twin deficits.

      • Chicken Says:

        2+2=? Is a matter of perspective?

  5. David Richards Says:

    An interesting story this afternoon in SCMP that the HKMA had to intervene six times during the past week, buying 85-billion dollars, to keep USD from falling thru the floor of the USD/HKD peg range.

    How can that be with the strong USD and crashing EMFX?

    AUD/USD is now up 19%. And some others are up double digits.

    Gold rejected at the confluence of my weekly pitchfork upper TL and the 786 fib retracement of its entire collapse of 2011.09 – 2015.12 (Looks corrective)

    Price is truth.

  6. Michael Temple Says:

    Yes, the Fed is buying everything. Still, with S&P at nearly 3000 tonight, UST 10 yr is still down at 62 bps.

    Yes, TIC data points to foreign selling. Yet, Fed has also slowed its QE buying of USTs and 10 yr is still 62 bps, and not 1%+ back in Feb/March just before the markets went TILT.

    We also saw some very strong buying at this week’s Treasury auctions and that was not the Fed buying.

    I am open minded about markets. But, I don’t see how the dollar bears have yet to produce any real selling impulse into USD.

    USD should have collapsed today with the stock bulls running wild. And yet, no such thing.

    EM economies are still in trouble. Today’s stock rally doesn’t erase the need for Jubilee forebearance of the most indebted.

    Corporate bankruptcies in US are not about to halt just because a manipulated stock market is rip roaring.

    Dollars continue to get extinguished both here and abroad. Powell even said the Fed stands ready to do more to keep markets going. He also hinted to Mnuchin that more fiscal action is necessary.

    And bonds and USD didn’t much sell off.

  7. ShockedToFindGambling Says:

    SPX cash closed right near .618 Fib retracement today.Momentum is weakening.

    Sneaky rally in Precious Metals and miners late in the day.

    AMZN reports tomorrow……expected to be very strong.

    Yield curve starting to re-steepen.

    • yraharris Says:

      Shocked—as an avid curve trader I have to say I have not traded a treasury curve since the Sunday night a few weeks ago when the discussion was all about YCC—I told avery good rader,Zach, that I was not going to fight the FED on this especially as Brainard and a few others were calling for the institution of another ACCORD—as Dave Richards notes above—-the signaling mechanism of the market is dead and every time it comes back to life the Fed kills it—

      • ShockedToFindGambling Says:

        Yra…..Good points.

        Powell said something yesterday, to the effect that this no time to worry about Federal deficits/debt…..Then when do you worry about it?…….No one was worrying about it for the last 10 years, when the economy was doing fairly well.

        Hearing that, I don’t want to buy longer term notes/bonds.

  8. The Bigman Says:

    Shocked You are right Not only does Powell look like Alfred E Neumann he sounds like him as well!

  9. Pierre C Says:

    The dollar, (as well as all other currencies) is a debt instrument. The absurdity of it all is trying to extinguish debt with more debt. Like fighting fire with fire.
    My view, from the very cheap seats, more like tailgating in the parking lot. The Fed is buying the very assets that these banks had pledged for collateral to do business between themselves. Keep the banks alive!, Credit flowing, where have I heard that lately.
    The American consumer is (for now) being protected with a strong dollar. They need it, job losses, COVID deaths, 401k dropping, stress, kids…god forbid that they get hit with higher prices for staples at this time.

    So, disruption in supply chains both internationally and domestically will start to soon have there effect. What if Saudi Arabia implodes in near future? Revenue from oil sales are drying up. All leading up to inflation. With wages still having not risen and minimal employment. Isn’t this the definition of STAGFLATION. Now, this sets up a rise in interest rates,

    All these real estate guys licking their chops right now, waiting for the next housing crash will get a nice surprise. After picking up homes on the cheap and interest rising Their house values will stagnate, counties raising property taxes and renters with no money.
    These bottom feeders will think to themselves: “Is this worth it?, This is NOT what happened last time”

    When I checked Shillers’ charts all US treasury REAL rates are at negative return, The 5 through the 30. Does anyone track the REAL curve.

    I know I’m a amateur economist with NO formal training,
    Grateful to be part of the peanut gallery even from the back row.

    Amateur: [French, from Latin amātor, lover, from amāre, to love.]

  10. Michael Temple Says:

    Sounds rather bullish for USD. TRILLIONS of likely defaulted bonds. In a best case scenario, the developed world will strike debt Jubilees. But then some who hold as assets these very same bonds/liabilities will have to sell their $$ bonds at big losses.

    Not sure Plaza Accord way back when addressed EM crises. I seem to recall it was done to address huge trade imbalances as an overvalued dollar strangled US manufacturers.

    Still quite good for gold. But I think the magnitude of this problem keeps the bid for USD painfully alive.

  11. Michael Temple Says:

    Add Trumpian fury at the Chinese to the mix of potentially dangerous mix of ingredients that could possibly send USD soaring.

    Not a very pretty picture painted above. CNY already weakened to 7.18 although Asian markets were closed today.

    Trump seems determined to engage in some very real fisticuffs with China over the Covid subterfuge and obfuscation. And while I am not a conspiracy theorist, lord help us all if it can ever be proven that the Coronavirus outbreak was, indeed, a horrible accident at the Wuhan Biolab. NOT a man-made strain of warfare. Simply a horrible lapse in protocol that allowed the natural virus to escape.

    Again, doesn’t matter really what happened. Trump seems fixated on making the Chinese pay for the damage he is suffering in the pools and the decimation of his beautiful economy.

    Will cooler heads prevail, or will Trump indulge his Executive Authority in matters of international relations. Besides, he has good company as the state of Missouri has already filed suit for damages against China, as frivolous as that might be.

    No, Trump will never collect a yuan in compensation from Xi. But, he can try to extract his by any manner of executive orders.

    Requiring onshoring of all US products made in China within 12-18 months. If not, face punitive tariffs. He doth love tariffs.

    If CNY weakens against USD, expect all other SE Asian currencies to weaken, as well.

    • ShockedToFindGambling Says:

      The rumor yesterday that the U.S. was considering seizing China owned Treasuries, has got to have them thinking about dumping Treasuries/USD.

      • Michael Temple Says:


        And the market will continue to gobble up all the USTs they desire to sell, along with their USDs.

        USD weakness does not arrive until much much later, in my view

  12. Michael Temple Says:

    CNY traded down to 7.128…NOT 7.18

    But, the direction ain’t pretty

  13. Arthur Says:

    Kiril Sokoloff: ‘There will have to be massive debt relief’

    • yraharris Says:

      Arthur–read this five times.It is the best FT Lunch and had its best journalist doing it unlike the puff piece with Stephanie Kelton.I had never read any of Kiril Sokoloff but as my wife said—how is that possible—he has me at his deep knowledge and reads of history—this is a must read —thanks for posting and get out ahead of tonight’s blog—in your typical fashion–you have been a wonderful addition all of these years

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