Notes From Underground: Yra and Gary Talk Deflation

On Wednesday, I had a long discussion over Zoom with the eminent Gary Shilling, courtesy of FRA. There is much we agree on but as my readers are aware, my view on a coming deflationary spiral is measured as a low probability outcome of the current financial and economic situation. If deflation were to take hold it would be deemed a major failure of FEDERAL RESERVE policy aided and abetted by 535 fools on Capitol Hill. Before getting to the PODCAST, I offer up this advice on this week of major macro-economic importance (and NO, NOT THE U.S. ELECTION). There were three central bank meetings this week: The Reserve Bank of Australia; the Bank of England; and the Fed.

The Australian DOLLAR appears to be the canary in the coal mine as the RBA cut interest rates to 0.10% from 0.25% while increasing its QE purchases and extending its duration of YIELD CURVE CONTROL. These actions are very dovish and as the RBA ascertained would help to keep pressure on the Aussie dollar. As the bank said in its statement, “The combination of the RBA’s bond purchases and lower interest rates across the yield curve  will assist the recovery by:lowering financing costs for borrowers; contributing to a lower exchange rate than otherwise;and supporting asset prices and balance sheets.” RBA Governor Phillip Lowe also maintained that the Reserve Bank was not expecting to raise the overnight rate for three years.

To make the AUSSIE even more suspect for a selloff, the Aussies and Chinese are having a conflict over tariffs on Aussie exports and yet the currency is almost 4% higher on the week (as of Thursday evening).

The BOE kept rates unchanged this morning but UNEXPECTEDLY boosted its QE asset purchases by 150 BILLION POUNDS. Coupled with the continued uncertainty of BREXIT negotiations the POUND OUGHT TO HAVE MET WITH SELLING, but the POUND too is higher on the week by 1.5%.

The FED left everything unchanged. And, the elections are not settled but the U.S. equity markets have outperformed all others, gaining 6% on the S&Ps even as political uncertainty still remains about final outcomes of the vote. The DOLLAR is 1% lower on the week, and it seems it wants to head lower.

We will watch for the decoupling on the risk-on/risk-off algo correlation, especially as precious metals head higher along with EQUITIES. Enjoy the PODCAST.

Click here to listen to the podcast.

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15 Responses to “Notes From Underground: Yra and Gary Talk Deflation”

  1. GreenAB Says:

    Yra, I´d like to get your take on the election results.

    When will the market realize, that a President Biden vs. a Republican Senate will mean LESS stimulus going forward?

    Or do you think that the race for Senator in Geogia will put pressure on the Republicans to agree to a larger package at least in the short term?

    Stay healthy in these turbulent time. Thank you and best wishes from Germany!

    • yraharris Says:

      Green AB—not in the camp of Republicans continuing to go down the path of NO—fiscal austerity in these trying times is not a policy of responsible policy making.They will force the FED into ever more drastic action –time to be responsible in an effort to rebuild the party—they need to think like PM ABE and the way he turned the new conservatives of the LDP.With the Georgia election being the hot button issue the Republicans cannot afford to be blockers

      • The Bigman Says:

        Good to hear from GreenAB again. Here is my take for FWIW. There will be no stimulus deal before Georgia senate races decided as victory for either party gives them a distinct deal making advantage. Especially since Nancy and Chuck want to bail out the failing states like Illinois and New York Also Trump will be in no mood to deal for quite a while if ever making Munchin a lame duck. So that puts the December Fed meeting front and center. Without a fiscal deal I believe thatFed will act in the face of the worsening pandemic and return to lockdowns(we are locking down again in San Diego this Saturday for the third time- it worked so well the first two). What will they do? Not sure but I hear yield curve controls mentioned frequently. So is the trade to buy longer Treasuries?(Just for a trade)given the recent uptick in rates? GreenAB curious how your country people are warming up to the proposed euro bonds.
        Best to all and stay safe TBM

      • yraharris Says:

        Bigman—the FED people have not mentioned YCC since August but this morning we hear from Powell so listening closely will be important–actual yield curve control would be the key we are looking for to unlock opportunities and the breaking apart of algos built on out of date models–YCC will get lower dollar and the next leg up in the metals

  2. Arthur Says:


  3. GreenAB Says:

    Thanks to both of you!

    So it all depends on Georgia, I guess. If the Senate stays Republican, then I see hard times comming for the markets. Republicans simply have no incentive to swallow another round of huge deficits that favour a Democratic President.

    There´s not much the FED can do imo. The previous stimulus package like generous unemployment benefits was way more effective that trickle down stock markets. But I just don´t see Republicans go down this road again. And with Covid vaccines promising an end to the pandemic they have the perfect excuse to adopt a more wait-and-see approach to fiscal policy.

    Bigman, Eurobonds are no issue over here at all. Covid19 is the one and only. Maybe we´ll here about it next year, when we elect a new Bundestag.

  4. The Bigman Says:

    Hey Yra What is your take on Poland and Hungary threatening to block the EU bailout(and as a result the EU bonds) over issues of sovereignty? It looks like there has not been any impact on the euro which suggests to me that it is a hollow threat.

  5. The Bigman Says:

    Say it ain’t so Joe(Yra) Janet Yellen as Biden’s Treasury pick??????

    • Chicken Says:

      Bigman, you beat me to it! 😉 Likely more of the same ‘ol thing and answering uncertainty questions?

      • Chicken Says:

        But why not Branard, infamous architect of NAFTA?

      • yraharris Says:

        Chicken –one of the best things about Yellen being named is that again it disproves the arrogance of the NYT and its masthead—all the news that’s fit to print—-the sense at the NYT is that it is all the news that is fit to read but that is only for those who desire leaks as facts—the NYT is itself the proverbial Straw Man of thoughtful analysis.

    • yraharris Says:

      Bigman —now if Powell will resign and head back to private equity –he leaves with a reputation in tact and having outlasted the fingers of Donald Trump.Brainard then becomes the Fed Chair as it elevates Powell as a man of principle allowing President Biden to have his own pickatop the Fed—the one,teo punch of Yellen and Lael B. will finesse the massive infrastructure program that is a SURE THING and makes the Fed a willing participant in the Grand Marshall Plan for America—see 1946-51.Chair Powell has already capitulated to having the FED maintain itself as the Ministry of Social Justice and with Yellen the progenitor of the FED Listens and Brainard as the matron of Yield Curve Control—-ain’t no stopping us now..REV the digital currencies and full bank accounts ahead

  6. The Bigman Says:

    With apologies to the Vapors

    We’re all turning MMTs, I think we’re turning MMTs, I really think so
    Turning MMTs, I think we’re turning MMTs, I really think so
    We’re all turning MMTs, I think we’re turning MMTs, I really think so
    Turning MMTs, I think we’re turning MMTs, I really think so

    Good to hear from you Chicken- maybe the sky is falling

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