Notes From Underground: Going Around and Around

There two issues whose headlines are creating intraday volatility: Brexit and Congressional tweets surrounding another covid stimulus package (or not). As it stands, so many workers are struggling due to job losses — though no fault of their own — and small businesses are trying to keep their doors open.

The Brexit issue hinges on fishing rights to a covert attempt by the French to undermine London as a financial capital in the hope of acquiring many of the service jobs presently domiciled there. The French will never reach the manufacturing status of Germany so future growth is dependent on the service sector. The Germans are very cautious about a hard Brexit because it will be a negative for its manufacturers since the U.K. runs a large trade deficit with the Germans. That could be negatively affected via tariff increases.

The U.S. Congress’s failure to pass a fiscal stimulus is politically directed as fears of an agreement could impact the upcoming elections in Georgia. There is no give as each side plays to its constituents. For democrats, it’s money for state and local governments while republicans desire to protect small and medium businesses from covid liabilities.

The democrats appear to settle for less in actual money in an effort to get relief to those who need it the most, leaving the McConnell Faction to say NO. Someone should tell Mitch that NO is a losing proposition during the time of great stress caused by the times of covid. By late Friday it seemed that there was some agreement in the offing as the 5/30 and 2/10 yield curves steepened dramatically, reversing the early flattening that resulted from weak inflation data. Watch the yield curves as a barometer for investor sentiment on any outlook for a COVID stimulus pact.

***There was an interesting piece by Mohamed A. El-Erian on Bloomberg titled, “ECB Finds Itself Stuck in Conscious Active Inertia.” El-Erian is critical of the ECB’s actions at its Thursday meeting. He wrote:

“Having said this, it is unlikely that the ECB’s actions will have much impact on growth, inflation and the currency. Indeed, doing more of the same on the policy front should not be confused with a material probability of obtaining a SIGNIFICANTLY BETTER OUTCOME than before. It is a classic case of what behavioral scientists  call active inertia-and here it is a conscious choice by the ECB.”

The central banks are all caught in their own trap of having to do something so as not to disappoint markets, especially equity markets. They need to heed the advice of George Kennedy in Cool Hand Luke: “Sometimes nothing is a pretty good hand.” The continued efforts to satisfy ACTIVE INERTIA results in the growing inequality in wealth for asset prices gain while the underlying economies sputter.

The ECB and the FED would do well to disappoint markets in an effort reinject some pain for investors. Capitalism demands it. In addition, central bank inaction would force governments to rely more on fiscal stimulus to generate activity, something all the central banks are promoting. End the active inertia for different results. Chairman Powell, can you hear El-Erian?

***There were lots of comments on the previous BLOG POST about the concept of yield curve control and potential impact on equities and currencies. In a November 26, 2019 speech, Fed Governor Lael Brainard cited the benefits of YCC, especially when policy is at zero or the Effective Lower Bound[ELB]. She said: FORWARD GUIDANCE ON THE POLICY RATE COULD BE IMPLEMENTED IN TANDEM WITH YIELD CURVE CAPS,” (emphasis mine). Brainard pushed for not just the words of forward guidance, a central bank favorite, but the actions of keeping longer duration lower by actually asset purchases.

Listen for this type of policy action from the FOMC at this week’s meeting. By ensuring the FED will be there to BUY the longer duration assets “it could potentially avoid some of the tantrum dynamics that have led to premature steepening  at the end of the yield curve in several jurisdictions.” This would be the final arrow in the quiver of financial repression. Brainard has been silent about YCC lately but this meeting may bring her work back to the fore as the FED is stuck at the zero lower bound while encumbered with an intransigent Congress.

The impact from active YCC would be a negative for the DOLLAR, positive for equities and many commodities. The FED will not be alone in YCC for the Aussies, Canadians, Brits Japanese — and to some extent the ECB — are already there. But the U.S. role as the world’s reserve currency is a variable unknown to the other central banks. These are global financial policies spinning like a dreidel.



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38 Responses to “Notes From Underground: Going Around and Around”

  1. ShockedToFindGambling Says:

    Yra, great article……a few points.

    1) Does MM really think that withholding stimulus checks to consumers around Christmas gets him votes in Georgia?

    2) The 2/10 spread is doing exactly what it typically does, as you enter a recession.

    3) Equity markets are so overvalued by most metrics, that it is likely that they collapse without increasing stimulus.

    • BT Says:

      Great post Yra!

      Struggle trying to manage risk in this craziness and manage a large fixed income allocation. They have restricted the amount you can buy savings bonds. Can’t hold cash (USD); CD’s, MM, short term bonds don’t pay anything, even tips are expensive. Financial repression is no fun – forcing a saver to take risks (higher equity %, riskier bonds in duration or quality) or suffer the stealth tax of guaranteed neg real returns.

      It worked – as my reaction has been to increase equity exposure and increase duration of my treasuries.

    • ShockedToFindGambling Says:

      I know industrial commodities have been rallying, but when looking at the monthly charts, the rallies look like corrections, to me.

      XLE monthly chart looks like a major top…..going a lot lower.

      My guess is the next big move is toward deflation,

      • yraharris Says:

        Shocked –i will be shocked if deflation takes hold in the USA–just don’t see it as a systemic event

      • yraharris Says:

        Shocked –it will also indicate a massive failure on the part of the FED and commodity prices are indicative of not just industrial activity as so many of the responses to this BLOG indicate

      • ShockedToFindGambling Says:

        Yra- you could be right, but my bet is that the asset deflation starts within a few days, after the stimulus bill is passed.

        Loser buys breakfast at Lou Mitchell’s (after Covid).

      • Michael Temple Says:

        Don’t forget the Milk Duds!!!

      • David Richards Says:

        Yeah, I’ve noticed that in the monthly charts too. But on the yearly charts, barring a collapse in the final ten trading days, most are making yearly reversals up (and dollar down). That’s a RARE event that IMO merits paying attention to IMO as it may mark a paradigm shift.

        So I’d look to fade a deflationary move as counter-trend, and accumulate positions in assets that do well in an environment of rising inflation whether economic growth is accelerating or decelerating. Some are very out-of-favor with investors such as non-renewable energy for eg, stuff like oil, MLP’s, uranium/nuclear, coal, etc. Buy on correction. Western SJW and ESG investors hate that stuff and most missed wave 1 up this year. But in Asia, the largest consumer of energy, nobody cares about the SJW’s and ESG. So, perhaps a corrective wave 2 lies ahead, to be followed by a more powerful wave 3 advance when Western institutional money joins the party in order to not underperform and get fired. Let’s watch.

        Bottom line, to me the fundies suggest the primary trend may have shifted to an inflationary regime (given the CB policymakers, disrupted supply chains, years of underinvestment in commodity production, etc) and so do some technicals, from both a long-term perspective as explained above and in non-dollar terms where charts look less frothy than they do in terms of weakened dollars.

      • David Richards Says:

        Just to clarify, when I wrote “yearly reversal” above, I meant a yearly outside reversal.

  2. Financial Repression Authority Says:

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  3. Trading Perspectives from Yra - December 14, 2020 - The Cedar Portfolio Says:

    […] Yra Harris Blog Post – LINK HERE […]

  4. Asherz Says:

    “The ECB and the FED would do well to disappoint markets in an effort reinject some pain for investors. Capitalism demands it. ”
    Our hybrid economy cannot be called Capitalism. The invisible hand came out of its free market obscurity long ago but especially in the last decade. YCC among many other programs have so distorted markets into pretzels that is hardly recognizable to the Austrians. Your correspondent BT is happy now with the returns he is getting by trillions being added to our total debt. If any individual or municipality ran their finances in this way, they would have bankrupted long ago. Can this charade continue long term? We will find out.

    • David Richards Says:

      It can continue until the value of the currency, which is the release valve in this scheme, is completely destroyed. It’s bipartisan US policy now and futile to rage against. You gotta dance while the music is playing, or else change to a different venue that’s less pumped and actually doing better in currency-adjusted terms.

  5. Mike Temple Says:

    Good point that YCC have distorted markets into pretzels.

    Yet, I believe the BIg Pretzel Twister Of 2021 will be the explosion in the inflation of “stuff”—commodities

    QE and YCC have completely turbo charged stocks and created generationally overvalued stocks in many sectors

    Similarly, QE has completely mispriced duration if you believe that the NEG real returns (esp on long bonds) don’t square with recovering economies in 2021 as vaccines roll out.

    As mentioned “everywhere” industrial commodities and the ags are flying. CBOT soy oil is a market nobody much follows. Plain and boring. Yet, Cargill stopped the nearby futures recently even though it was at a premium. Indicative of supply shortfall.

    Here is what I think could easily play out in 2021 as QE and YCC roll along.

    There is a huge dichotomy between all the digital platforms that have successfully sprout up like mushrooms and now provide all manner of “stuff” that can easily be delivered via e-commerce/shipping rather than through brick and mortar distribution

    Just look at the widespread bankruptcies of once proud retailers and others who are Greatly compromised. Their value destruction has been transformed, and then some, into the new digital platforms who have been accorded Icarus-like values.

    But, these platforms now must fulfill these orders with the “goods”
    And since they don’t have brick and mortar, logistics is the name of the game.

    Did you know that the cost to deliver “stuff” the “last mile” has soared this year by 50%. Fedex et al cannot find/lease enough vans and drivers.

    Demand pull inflation is en fuego in all shipping channels. Order books everywhere are strapped. Steel prices are booming. Pepperidge Farm cannot make enough holiday cookies.

    Cargill is turning to CBOT to take delivery of soy oil, something that I don’t think has happened since the 1970s

    More QE is coming, along with stimulus. The QE orgy should keep stocks moving mostly higher in 2021. And it may keep bond yields at heel if they rev it up large enough. But, there is a lot more easy money to be made in owning/handling/trading stuff/COMMODITIES than in trying to squeeze even more billions of valuations in high flying stocks, if you ask me.

    And with so many ESG requirements, supply for many critical commmodiites cannot be easily “turned on”

    Yra is fond of extolling the SNB as the smartest hedge fund in the world. Print limitless CHF and then just blindly buy the FANGS.

    If you are China, print some RMB and just buy corn, wheat etc

    Damn valuable commodities that could become financialized in 2021 as more Cargill soy oil deliveries take place.

    Why bother lining up big lots of copper. Just stop the tickets at LME and take “easy” delivery. After all, the seller is obligated to ship it to you for pick up at the warehouse. Seems rather frictionless, to me

    • yraharris Says:

      Mike—-great summation of the facts.There is a grab for hard assets beyond Ferraris and Picassos as the world’s workshops need inputs to actually manufacture things –who put the AIR is airbnb–the FED did .The Chinese are evidently stockpiling many commodities because like Mt.Everest because they’re there for the taking–what a great way to climb the ladder of financial hypothecation through the massive accumulation of cheap materials—while WE WORK there are those who actually make besides yet another platform by any other name.I believe YCC has to be the end result for the DEBT will be paid in cheap dollars –there will be many YELLEN for Brainard as the brains behind the next full measure of Financial Repression.The world is always about who gets screwed in the end—the math is really quite simple.Read the work of Carmine Reinhart on financial repression after world war two—there is method in the madness

      • ShockedToFindGambling Says:

        Yra, I have a question.

        When the FED buys Treasuries from banks, they pay by giving them credit in their reserve accounts at the FED.

        What do the banks do with these credits?

        Do they use them to increase lending or do they just sit there doing nothing?

      • yraharris Says:

        mike—it depends –during the great Financial Crisis they left them at the FED as it began IOER for the first time and so with balance sheet recession in full banks were content to leave reserves at FED–but if economic activity increases and with IOER presently at 10 basis points i would look for lending to increase especially if fiscal stimulus is ramped up

      • David Richards Says:

        Gosh, all those piles of reserves heading out into the real economy would be inflationary, wouldn’t it. And more so if trillions of dollars around the world head home too, should foreigners lose faith in their USTs and USD as the global reserve currency and therefore sell. On both accounts, tons more currency units chasing after the same amount of real goods and property. Will the Fed actually recognize that inflation or remain in denial until consumers are protesting inflation and it’s extremely painful to stuff back into the bottle? How many children or grandchildren does Mr Volcker have and what do they do?

  6. Michael Temple Says:

    “Grab for hard assets”

    I submit that Cargill’s GRAB of CBOT soy oil via the delivery mechanism is one of the most consequential “financial” stories nobody knows about because who the heck even knows such a futures contract exists!!

    Yet, for the first time since the 1970s (per my source) Cargill did the unthinkable and GRABBED soy oil off the board.

    So gummed up are supply chains for soy oil that palm oil (the dirtiest and most inferior oil in the oilseed chain) now trades higher than soyoil, so great is the demand for cooking oils.

    To me, this is happening in too many disparate markets such as steel, Pepperidge Farm cookies (yes, that’s a fact), and now the anonymous world of soy oil.

    These price explosions are due to supply/demand imbalances and further such strains ahead. I do NOT think it yet reflects algos or financial funds FLOODING into the commodities the way they have flooded into stocks and bonds, producing TSLAs and FANGs and NEG yielding bonds in the face of neg real yields.

    Commodity markets are too damn miniscule to absorb a wave of spillover QE into them. No need for a tsunami of demand.

    To me, the financialization of the CBOT trading pits is a HUGE turn of the worm.

    Need some silver? Go to Comex (folks already have)
    Same for Copper
    Has been taking place in the grains, and you can expect the Chinese to do more of this.

    CBOT was never designed to be an offtake depot of actual commodities. Suddenly, it is dawning on industry players just how EASY it it is to procure STUFF at the warehouse. Cost of taking delivey at that “last mile” is way cheaper and efficient than to try to get Fedex or UPS or some trucker to deliver the same goods to your storefront.

    As I said, the soy oil Cargill story is similar to the proverbial tree falling in the forest. If nobody is there to see it, did it happen?

    To CNBC and even Bloomberg, the soy oil story never happened and, hence, nobody understands its import. Yet, I am sure if you, Yra, tracked down some of your LaSalle Street pals, they could tell you a thing or two about the facts surrounding this extraordinary Cargilll GRAB

  7. Michael Temple Says:

    One more thing. You nail it when you write
    “The world’s workshops NEED INPUTS”

    So many of these workshops are the REAL place where the rubber meets the road for all these digital platforms who are replacing traditional brick and mortar establishments.

    Wayfair has literally put Pier ! out of existence. Yet, those Wayfair “workshops” need STUFF (more than ever)to assemble all those home furnishings that fly “off the shelves” with just the click of a computer mouse.

    Even something as mundane but richly valued as DoorDash has to procure drivers (and their cars/vans) to deliver the “goods” to everybody’s doorstep (the true LAST FEW STEPS).

    These digital platforms have reordered economic supply chains and ways of conducting business. One of the HUGE consequences is the explosion in the cost of handling and logistics to fulfill all those “manufacturing orders”.

    As I said, industry estimates are that the cost of shipping stuff the last mile has skyrocketed by 50% as all this demand is coarsing through a system that has been unable to expand to meet the demand. Heck, the supply chain has shrunk as so many undercapitalized firms were laid asunder by Covid lockdown.

    Hence, things (and logistics assets) are becoming intrinsically more valuable. I contend that some smart Commodity trading shop is going to have a “Eureka” moment in 2021.

    Entirely possible that in “extremis”, CBOT and other futures exchanges may be forced to declare force majeure/CASH SETTLEMENT only for things like soy oil. Besides, who would really notice or care about such a quaint little perterubation.

    Ask yourself this……Where does P&G and Lever Bros now go to get physical soy oil after Cargill SWEPT the Board. Cargill is, I believe, the largest soybean crusher in the US. They KNOW better than anybody not on LaSalle Street how tight soy oil stocks must have been when they decided that the CBOT December tickets were a bargain to be snapped up, even though the market was trading at a huge contango. They could have bought the next delivery month at a big discount to December and taken delivery then.

    Instead, the need/demand for soy oil must be so great that they thought it was still a “bargain” to take it off the board at a premium to the next delivery month.

    When something happens that hasn’t happened in over 40 years, something is up.

    I do NOT disgree one whit with you and the others who foresee YCC in our future. Whether it is hinted at by the Fed this week or we wait until Q1, it is coming.

    Why can’t copper trade to $4/lb?

    Or soybeans take aim at $20/bushel?

    Why not, indeed?

  8. David Richards Says:

    To me, YCC will be the US waving the white flag of surrender. As the US is now a heavily financialized economy in debt with terrible twin deficits and NIIPS, the US faces a choice to either 1) keep propping its markets via YCC + QE and debt monetization to preclude market collapse and a deflationary depression, or 2) retain the USD-centric system with all the benefits of that exorbitant privilege.

    You can’t have both. It’s one or the other. There is no free lunch. While QE and YCC artificially suppress rates across the curve to feign solvency and prop asset prices, there MUST be a loser. That loser will be the US dollar and credit. Then the US will be unable to pay its international bills or project power anymore.

    Make no mistake. YCC will kill cripple the USD, help kill the USD-centric system particularly in the presence of the rapidly emerging alternative of CB digital currency systems already beginning use in east Asia, and severely handicap the international influence and power of the US along with the national security implications that portends.

    Are the Treasury and Fed considering the latter in their dovish policymaking calculus? Doesn’t seem so. If not, China (which is NOT taking the “easy” way out like the US) will win go on to gradually become the financial capital of the world and more, as Martin Armstrong has long forecast will happen by 2032.

    To wit, as written last week by Hank Paulson, the former Treasury Secretary and GS CEO:

    “A fundamental threat is the lack of political will to deal with America’s long-term structural deficit, which undermines confidence in the U.S. economy and the dollar. As the debt level grows, the attractiveness of U.S. debt will gradually decline. A financial system can’t exist in a country that fails to maintain the quality of its credit. It is critically important to bend down the steep trajectory of the rising national debt. Otherwise, the dollar will be debased. Washington won’t be able to pay its bills.”

  9. Recoba Bacci Says:

    I agree with your fundamental premise of where we end upin the long run, however in the short run I wonder if the supply shortages we are seeing are more of a Covid phenomenon (temporary) rather than structural at this time. It is very difficult for supply chains to operate at 100% at this time. Hard to believe that printing a few hundred billions is all it took to revert the prevailing deflationary regime. Long term IR are still below last year.

    • Michael Temple Says:

      Yes, supply chain hell is a direct result of Covid phenomenon.
      But, it is NOT temporary.

      Many supply chains are operating FAR below 100% as suppliers have gone out of business. So, business demand does NOT have to regain 100% for demand/supply snafus to arise.

      The 1970s saw the WORST of both worlds…Stagflation.

      Right now, we are witnessing a similarish phenomenon.

      The stagnation/extinction of so many parts of the economy due to Covid, and to add misery to it all, “stuff” is getting harder to find and much more expensive.

      Go ask Pepperidge Farms why they can’t make enough holiday cookies. Go ask ADM why they got caught with their thumbs up their nose as Cargill swooped in and “stopped” soy oil contracts and shipped it out of the country (most likely)

      US auto sales are rebounding but nowhere near pre Covid. Yet, the price outlook for steel has never been stronger and Wall Street has BUY recommendations on US Steel. Imagine that.

      Covid phenomenon is NOT going to be temporary. Many suppliers are simply NOT coming back into business as many simply didn’t have the fortress balance sheet (or access to Wall Street) to get by.

      All this QE and the more to come will continue to levitate stocks.

      But, some of this “money” is going to begin to migrate into the commodities world where there is a mint to be made trading/handling/fobbing “stuff” where supply crunches are now structural in many cases.

      Freight and logistics experts estimate that the cost of delivering goods the proverbial “last mile” has skyrocketed 50% this year. All these digital platforms that now fulfill consumer orders (think Wayfair instead of Pier 1 as an example) have sky high stock valuations that must be defended by management each day with ever increasing sales. If the cost of “wingnuts” to make a Wayfair sofa increase in price from $50 per 1000 to $200 per 1000, Wayfair procurement office is NOT NOT going to pay the new price. No way they will halt the production line of sofa and chairs that are “flying off the shelves” with the click of a computer mouse.

      Back to the soy oil CBOT “caper”. After Cargill stopped those tickets, where do you think P&G or Kraft Foods is going to go/turn to buy their expected soy oil needs?

      Suddenly, US soy oil is the CHEAPEST veg oil in the world and prices are going to have to RISE to keep it here in the US, instead of flowing overseas where demand is much more keen than US.

      QE and YCC have wildly distorted stock and bond prices for years now. That is a “given”. I think the “easy” money has been made in those markets. It is time for commodities to have their fun.

      Copper, lumber, steel, iron ore (all-time highs, by the way) all kiting much much higher.

      But, you seem fixated on the fact that you don’t see a fire/conflagration. Tell that to the folks whose soy oil “shorts” got shipped out by Cargill or re-visit it when copper “stupidly” hits $4/lb.

      2021 is likely to see the financialization of commodities, in my view.

      Imagine if Wall Street money actually flowed into/discovered “commodities” as an investment (not trading) theme.

      Imagine if some hotshot trading house decided to mimic Softbank and engineered a gamma squeeze in futures options markets by buying up “tons” of out of the money calls on wheat, copper, soy oil etc etc.

      CBOT and other futures markets were never designd to be primary offtake depots for physical. Suddenly, in a world of severe supply shortages, that is what they have become.

      And, in the case of CBOT trading rules, the seller has to arrange for delivery to the “last mile” of the warehouse. Rather frictionless for the buyer, if you ask me.

      None of this means bonds have to collapse. Not at all. QE will do its tricks and the impact of TGA management may actually push the front end of US yield curve towards NIRP. But, further NEG real interest rates will do just as much for commodities as it will for bonds and even gold

      • Recoba Bacci Says:


        If I understand your Thesis correctly, you are stating that Covid has severely impacted the supply chains causing material disruptions in several commodities which will continue into 2021, providing good tradable opportunities for next year. I agree on this point – and furthermore I will stipulate that Spread trading should offer some outstanding opportunities for those interested in playing this theme.

        I do not believe these disruptions will last more than 1yr or so as the vaccine rolls out and or that it has any implications for the prevailing Macro regime. As a member of COMEX I saw the Gold physical/future spread blow out this past spring/summer since there was difficulty sourcing 100oz bars from Europe due to flight restrictions. HSBC blew themselves out on this move while others like JP morgan cleaned up. We all know what happened in Oil. The markets cleared, and the underlying imbalance was worked out. Big picture, 30yr yields havent backed up past the last fall lows. Ditto for Equal weighted Commodity index. To my mind, nothing has changed the underlying deflationary regime except that we have added more debt and there is a growing realization that only MMT offers a way out. Gold has sniffed out the endgame since 2001 when the bull run started, and will continue to do so.

        The only question which matters (to me, anyways) is at what point does the prevailing deflationary regime shift to an inflationary regime? Can we trust the bond market to let us know? With YCC, probably not so commodities will be where the action is. Are they the canary in the coal mine Right Now? I do not believe we are there YET.

        Going forward, we may get a good counter trend Run as Asian demand lifts the global economy (Take a look a Nikkei, breaking out – could be the equity outperfomer) Lookout for pent up demand to be unleashed quickly as the vaccine rolls out; human nature will want to party like its 1999. Coincidence that Roaring 20’s followed the 1918 Pandemic? Will Biden get his infrastructure plan?

        Thanks as always for your thoughts, you always provide great food for thought.

  10. Asherz Says:

    With the ultimate race to the bottom by fiat currencies, this Fed announcement gives you another reason for how the dollar is being destroyed.

    With imports surging and the trade gap opening its maw to unsustainable levels, how much longer will the dollar remain the reserve currency?

    The suppression of precious metal markets by the financial Gutenberg’s, may not have much longer to go. The investor’s risk/reward in the metals hasn’t looked this favorable in some time.

  11. the Bigman Says:

    Well the dollar has lost its 90 handle from its peak of over 100 in March so between real negative interest rate and dollar depreciation cash is down about 11-12% this year. Where to go bitcoin? PM?
    Question now that EU has approved budget and bail out with use of euro bonds what keeps euro from becoming reserve currency According to SWIFT in October there were more transactions in euros than dollars. Certainly the divisions in US are beginning to approach those of the EU. I don’t see much difference other than the negative rates in the EU but will the new bonds pay negative rates?

    • yraharris Says:

      Bigman –tell me where you go to get any type of return on the 40% of your portfolio that is invested in mattresses?Powell was so dovish yesterday unless you have Liesman or Kelly glasses—again when you are the world’s reserve currency you have a fiduciary responsibility unless you abdicate that for a higher purpose as defines by you.McNamara of course defined that in Vietnam and we can continue from there–Now the Covid war is providing the rationale for damn the torpedoes full speed ahead

      • ShockedToFindGambling Says:

        Yra, Bigman,

        The FED has acted petrified since 2008. A few down days in the stock market, and they’re threatening some new type of stimulus, support for bonds, YCC or whatever.

        They must know something.

        I’ve said this here before, but this is a repeat of 2002-08, but several magnitudes bigger….to steal from Einstein, why would you expect a different result,

        We’ve pretty much adopted MMT……seems to be working for now…….but look at M2 Velocity over the last year……. something is not right.

      • The Bigman Says:

        I am coming to the conclusion that real assets are the safest. If you can’t hold it in your hand or touch it then avoid it- it is too risky.

      • Mike Temple Says:


        2021-The Financialization Of Commodities

        Chief Economist of Trafigura just said we are at the start of a multi year bull market in commodities

        Point72 Hedge Fund is throwing resources at the commodity space as it sees big opportunities ahead.

        Many commodities are up 25/30/40% just since October

        Lumber, copper, oil

        Iron ore up 65% YTD

        My rallying cry for the new year is

        “Got Soy Oil?”

        Soy oil tickets got “stopped” for the first time at CBOT since the 1970s!!


  12. The Bigman Says:

    You’re not kidding about something being wrong:

    Also if there is plenty of money why is consumer credit so tight, why the repo crisis, why the need to extend Fed swap lines Why indeed. Hope someone out there has the answers.

    • Asherz Says:

      You know the answers to your questions. As soon as the Fed stops the repos, swaps and QE the markets begin to siege up. The liquidity needs to keep going through this enormous fire hose or the conflagration gets out of hand. The inflation in commodities, precious metals and cryptocurrencies is reflecting this state of affairs. The primary Fed mandate to preserve the value of the dollar is out the window.

      • Mike Temple Says:

        To be precise, it is the remit/responsibility of Treasury, and not the Fed, to preserve the value of the dollar (or not).

        By charter, the Fed is responsible for the safety and functioning of the banking system, and not even safeguarding Main Street (directly). Post Lehman, the Fed bailed out the banks but did zilch for the strapped mortgage borrowers.

        Nevertheless, you are absolutely right. In a super leveraged multi-hypothecated financial system with repos here, shadow banking there, and all other sorts of financial shenanigans everywhere, the rules of the game require the Fed to “be there”/be the backstop for every market hiccup, imagined or otherwise.

        If the entire system is predicated on such lubrication, and the Fed just made clear it will continue to support the system until it is back fully on its feet post-Covid, then it should be no surprise that while ALL assets have a bid, the “basis” which undergirds the assets is falling into disrepute. In other words, the dollar is getting cheaper than the proverbial two bit denizen of the night.

        Final thought. Yellen/Biden/Jerome could give two hoots about a weaker dollar. Just so long as the decline is orderly and the patient doesn’t have any conniptions. DXY was 80ish way back in 2014. We survived.

      • Asherz Says:

        What are the two primary mandates of the Federal Reserve?
        The goals of maximum employment and stable prices are often referred to as the Fed’s “dual mandate.” Maximum employment is the highest level of employment or lowest level of unemployment that the economy can sustain while maintaining a stable inflation rate.
        What are stable prices if not preserving the value of the dollar. Something that is now put into the basement of the Eccles Building.

      • Mike Temple Says:

        By the letter of law, you are right and I am wrong about the Fed mandate.

        Practically speaking, however, the emergency measures enacted this year and post Lehman directly addressed a financial system that was going TILT. We both know that.

        Regardless, the Fed will continue to accommodate all liquidity needs because there truly is no alternative, especially as Treasury faces another gargantuan year of issuance as federal deficit could come in between $2-3T.

        No mistaking the price direction of the dollar.

        Best to you


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