Notes From Underground: Thursday In the Park With Louis Gave

I had the pleasure of sitting down with Louis Gave last week and we discussed many of the pressing issues facing the global macro world. In May 2020, Richard Bonugli provided the FRA platform as a place to discuss the global outlook with a little bit of FORESIGHT. We HIT IT OUT OF THE PARK. Hopefully, our most recent analysis will provide similar investment outcomes and maybe succeed in clarifying some important issues facing the investment community as 2021 begins.

A critical point that Louis made was that his investors do not expect them to sit passively as the landscape changes around them. Many financial forecasts are static and fail to adjust to Mike Tyson’s proverbial PUNCH IN THE FACE. The only time static investors ADJUST is when they become fearful and/or stopped out of positions with massive losses. If you are static-oriented you have not benefited from 11 years of NOTES FROM UNDERGROUND (unless it was for comic relief). Pour a scotch and listen to the podcast linked below.

Click here to listen to the podcast.

***Friday’s unemployment number was weaker than expected, although previous month adjustments smoothed the poor results. Average hourly earnings were much greater than expected, though as Dunne/Henwood of the Liscio Report pointed out, it reflects concerns that the loss of jobs at the lower end of the employee spectrum heavily weighted the bonuses and pay raises at the upper income range. This is not welcome news for those seeking to RECTIFY some of the massive damage done from the COVID pandemic to wealth disparity in the U.S. (As Bernie Sanders noted in a tweet, over the last ten months Elon Musk’s wealth has grown from $24.5 billion to $209 billion as of Friday while the minimum wage has not budged.)

The weaker than expected JOBS DATA did nothing to reverse the rise in yields on the long end of the U.S. curve. The 10- and 30-year notes and bonds rose more than 18 and 28 basis points on the week. The short end did not budge moved not at all as the two-year Treasury future closed down a TICK on the week. More importantly, the rise in long-term yields led to the precious metals falling dramatically as the algos have been programmed to use the long end of the curve for the critical variable to affect a wide range of asset classes. A steep rise in 30-year yield created the perfect storm for precious metals, foreign currencies and other commodities.

FOR THE RECORD, gold and silver were the biggest losers as algo selling had the greatest impact on the longest bulls while the DOLLAR INDEX barely moved and the BLOOMBERG COMMODITY INDEX closed on its 200-WEEK Moving Average finally returning to pre-pandemic levels.

This is very important because it raises the question about the significance of long-term yields on asset prices. The YEN was the weakest of the major currencies. WHY? Probably because Japanese investors were seeking higher yields around the GLOBE, but I am looking for YEN support levels to see if the DOLLAR can actually get any momentum. The EURO was steady on the week even though the BUND/ U.S. 10-YEAR differential widened out to levels seen in February 2020, WHICH OUGHT TO HAVE SENT THE EURO LOWER as U.S. yields are nominally much higher. This is something that needs watching as so many analysts persist in the call for a higher dollar.

The question remains for all investors: HOW HIGH WILL THE FED ALLOW THE LONG END TO RISE BEFORE EMBARKING ON YIELD CURVE CONTROL? An increase in long-term borrowing rates for the U.S. government will be politically untenable for the FED and a Democratic administration/Congress with a policy ostensibly intent on narrowing the wealth inequality disaster over the last 35 years and correcting the inequality that minorities have suffered.

If we get a move by the FED to engage in ACTUAL yield curve control, then the investment outlook will become much clearer. Until then be attuned to the manner in which the long end of the curve is programmed by algos to drive trades across various asset classes. But I must warn that the directions are not as clear as the mathematical-dependent algos wish to believe. As Mr. Gave says, “PAID TO ADAPT, NOT FORECAST.”

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20 Responses to “Notes From Underground: Thursday In the Park With Louis Gave”

  1. Michael Temple Says:

    Paid to adapt, not to forecast

    Until further notice, gold is headed to the $1700s as without explicit YCC, the algos and cartel will eviscerate gold, even while CRB explodes higher into 2021.

    Millennials will continue to buy BTC and gold will be for jewelry and not much else here in the West

    • judd hirschberg Says:

      Micheal I’m a big fan of payrolls extremes in the metals. The structure looks weak particularly against the Euro & Yuan, however 1817 has to be violated and closed under for downside follow through.

    • Recoba Bacci Says:

      Right on the Money re the GOLD

      • Turbo Says:

        Michael and Recoba,

        Are you sure you don’t see a reverse head and shoulders forming in gold? When will this $1,700’s number be seen? It’s just as easy for me to say that we will see $2,000 before Q2. It looks to me that after $1,960 it is off to new highs in short order. Especially with the coming Biden bucks stimulus, green infrastructure bill, state and local bailouts, and of course another bank bailout for credit cards, mortgages, and SBA loan defaults, along with rising unemployment due to the coming Biden lockdown. I say up $100 before your down $60. Don’t get me started on carbon taxes and food costs impacting consumer inflation expectations. YCC is for academics fiscal authorities to go hog wild, and BTC is for the 1%. Panic will drive consumers, not the FED. Central banks will send gold higher. The IMF will announce another poverty reduction initiative and the price of gold will double again. Will it be India setting the floor again, or will it be China this time?

      • Turbo Says:

        I stand corrected.

  2. Tamon Yamaguchi Says:


    It is truly amazing how you attract commenters from nearly every point of view. I still find far too many of them convinced of the power of the fed and focusing so much of their concern on what the fed will do. I really believe the fed is just part of a cartel whose power was slowly dying but in the last week is now very quickly on it’s way out. So many people making decisions based on a future Biden administration which is not going to ever exist.

    I believe this week and next will be the most important historical events in years.

  3. The Bigman Says:

    Yra Great podcast with Mr Gave- one of your best. After the last one 6 months ago I shifted into agriculture, commodities, basic metals and renewable energy All up now 30-50% and all paying dividends. I also began to invest in Asia based on my thesis that their control of COVID will strengthen their economies while the West continues to struggle. After hearing your discussion I will further invest in the East where returns are real. I have 2 questions:

    1 what did you think of Mr Gave’s assertion that YCC has begun since the Fed made unprecedented purchases in December given the frothiness of the markets
    2. Now that there will be an euro bond what keeps the euro from becoming the reserve currency? SWIFT transactions the past 2 months show both the dollar and euro even in transaction amounts with the yuan still at only about 2%. Isn’t the euro a more ESG friendly currency?

    Thanks again and if we have coffee sometime I will buy

    • Yra Says:

      bigman—where are we having coffee –let me know.In the next blog–maybe tomorrow I will get into your questions but thanks for all your support as usual

  4. TraderB Says:

    All signs point to lower gold prices. Higher real yields, perceived migration to BTC, technical analysis, etc.

    1- let’s see what really happens here with treasury yields… TBD
    2- A market cap is the number of shares multiplied by the last transaction price. There might not be as much money “going into Bitcoin” as you think.
    3- when all the technical guys get it wrong, that is typically when we see huge moves.

    But of course we all know that here. 🙂

    • BT Says:

      Great podcast. Two strong auctions of the 10 and the 30 UST this week signal the reflation trade is slowing down (ending?) and my guess is the treasuries on the long end will go back to rangebound. I agree with you yra, if you are going to own treasuries, the long end seems the best risk/reward despite weighing 150lbs.

      • Yra Says:

        BT–did you listen to Powell today?I was stressed as again the major theme is that of social justice so how can the FED just pivot before the improvement in the employment in the jobs market to pre-Covid levels for minority employees and women.HOW?If they raised rates before achieving the often stated view of Powell and Brainard—read Brainard’s speech from Yesterday—-sorry with a new regie in the White House and especially with the Secretary of Treasury being a highly respected labor economist can the FED reverse course before meeting JOB 1—and Powell dug in his heels on this ever more–“people on the margins need to be brought in and then their will be consideration for maximum employment

    • Yra Says:

      TraderB–the algos are fully rotating around the 30 year BOND–as Archimedes said—give me a rise in thirty year yields and I will destroy all leverage

  5. Arthur Says:

    JEREMY GRANTHAM: “It is highly probable that we are in a major bubble event in the U.S. market. It will very probably end badly, although nothing is certain. Even now, I know that this market can soar upwards for a few more weeks or even months. My best guess as to the longest this bubble might survive is the late spring or early summer, coinciding with the broad rollout of the COVID vaccine. At that moment, the most pressing issue facing the world economy will have been solved. Market participants will breathe a sigh of relief, look around, and immediately realize that the economy is still in poor shape, stimulus will shortly be cut back with the end of the COVID crisis, and valuations are absurd. “Buy the rumor, sell the news.” But remember that timing the bursting of bubbles has a long history of disappointment.” GMO – Jan 5, 2021

    • Yra Says:

      Arthur—i ask this of GMO–the famous question put forward by Bill White when he was the chief economist at the BIS—LEAN OR CLEAN—-this was his career after playing first base for the St.Louis Cardinals

    • TraderB Says:

      A broken clock is always right twice a day. That is two times more than Jeremy Grantham has been right in the past decade.

      In fairness to him, how could anyone have predicted this amount of non-stop monetary stimulus and global deficit spending.

      The skew in equity options has flipped to the call. People are now HODLing hundreds of different crypto currencies and creating billions of dollars of perceived wealth. I am not sure this meets the “Price Stability” mandate the Fed used to have, but it is right on time with the “Wealth Effect” that Ben Bernanke was trying to create.

      I think this punch tastes a little weak. More Everclear please…


  6. Pierre C Says:

    Headline today, “China Trade Surplus Hits New Record High “. So after all tariffs and so forth, here we are?
    As the Renminbi strengthens and the USD weakens, we should start seeing a rebalancing of trade. (As far as I understand).
    This probably will take some time to play out.

    • Yra Says:

      Pierre—sit back relax and watch the slow process of adjustment in the realm of foreign exchange rebalancing —this is Lyell versus George Cuvier

      • Pierre Says:

        Interesting comparison. You always give me way too much to think about, but I’m not complaining..

  7. Recoba Bacci Says:

    Great point on podcast with Gave regarding static analysis comparing YCC now to the 1940’s-1960’s. Then, the stock of debt was FIXED and DECLINING. Now, the stock of debt is set to RISE – Exponentially.
    Dramatically different outcomes will be the result.

  8. Pierre Says:

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