Notes From Underground: Have You All Lost Your Minds?

No, I am not referring to the gyrations in the realm of heavily shorted stocks and the attacks by the populace of Sherwood Forest to drive valuations ever higher.

The insanity following Wednesday’s FOMC statement and the Powell press conference leaves me contemplating the works of Kindleberger and Minsky. Complacency in financial markets relying on the kindness of strangers is setting the course for continued madness in all financial asset classes. The POWELL PRESS CONFERENCE YIELDED WHAT OUGHT TO HAVE BEEN THE HEADLINE FOR ALL FINANCIAL NEWS: FED CHAIR POWELL SAYS REAL UNEMPLOYMENT RATE IS 10%.

In response to a question from CNBC’s Steve Liesman about potential risk of financial  instability rising due to the FED‘s easy money policy, Powell noted that continued easy policy was mandated because of the real unemployment level being close to 10%. THIS JUSTIFIES EVERYTHING THE FED HAS DONE AND WHAT THE BIDEN ADMIN PLANS TO DO. Powell maintained that financial stability across the gamut of asset classes is MODERATE, especially in regards to the use of leverage in the banking system.

THE FED CHAIR MAINTAINS THAT FINANCIAL ASSETS ARE HIGH BECAUSE OF THE ANTICIPATION OF THE COMING FISCAL STIMULUS PACKAGE. Wow, this is the perfect feedback loop and the FED denies all responsibility while it pleads for ever more fiscal stimulus. And yet the headline concern remains GAMESTOP! The irrational exuberance in the global equity markets are an effect of uber low interest rates around the world, and the gatekeepers.

***Need proof? Before the FOMC decision Wednesday, there were several voices from the ECB chirping about the possibility of cutting rates to even more negative levels if inflation fails to rise, especially given the recent strength of the EURO. Even “hawkish” Dutch Banker Klaas Knot opined that the central bank had the tools to lower rates and thus prevent a RISE IN THE EURO. ECB economist Philip Lane added his voice for lower negative rates.

ECB board members OUGHT to be extremely careful in trying to JAWBONE the EURO LOWER because Secretary Yellen is adamant about allowing markets to establish currency values. If currency values are to be set by markets then it is a RACE TO THE BOTTOM IN POLICY SO AS ESTABLISH THE WEAKEST FUNDAMENTALS. A note to the WSB and Robin Hood crowd: YOU DO NOT HAVE ENOUGH LEVERAGE TO SQUEEZE CURRENCY POSITIONS.

But if poor fundamentals are the clarion call for policy makers beware of all fiat currencies except one, China. It seems that the Chinese have embarked upon a new policy as they continue to drain reserves even as the Chinese yuan APPRECIATES. This is in contravention to its previous policy over the last ten years when the PBOC would loosen monetary conditions to prevent an appreciation of the YUAN. Again, the Chinese government is POSSIBLY attempting to implement the Michael Pettis plan of shifting to a more consumer-based economy–a stronger currency makes imports cheaper enriching the Middle Class.

The hypothesis continues to have validity as global commodity prices remain near their recent highs. An important barometer for this is the Bloomberg Commodity Index, which has returned to its 2020 pre-covid levels. Currently, the BCOM is holding at the 200-week moving average even as the fear of slowdown grows and the virus mutates.

Will 2021 mimic 2020?

This is the critical question. And if it proves to be true, what could the central banks possibly do to  mitigate its destructive economic potential? I have not lost my focus or my mind. Global macro fundamentals are as critical as ever, even as we are mesmerized by the movements in equities. GameStop doesn’t stop the game.

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20 Responses to “Notes From Underground: Have You All Lost Your Minds?”

  1. Michael Temple Says:

    It is all GameStop, all the time.

    The rest is just Romper Room.

    Markets heading ever higher.

    To Infinity and Beyond

  2. Greg SLUTSKY Says:

    How does anyone know WHO is on these “message boards”? Does anyone really believe that a bunch of Retail robin hoods are spiking these Stocks? Ha ha
    Remember this…. much like every asset class thats exploded.. fundamentals have never mattered in the moment. Keynes was right.. its irrelevant that gamestop was worth more than delta. Right?? Tesla should have its crazy multiple?? Sign of the TIMES
    Never forget CMGI. 1999 ( look it up)
    Be well yra

    • Yra Says:

      Greg–thanks for the very good post.Also,all should watch the Frontline piece from 2009 about Brooksley Born and wall Street–will post it her now

      • Greg SLUTSKY Says:

        This infamous herbal life war between Icahn and Ackman could easily be happening with these so called angry retail investors. I hope the ” little guy” is scalping the heck out the trade, profitability . BUT bar stool Dave is the only guy who knows who’s short big? What a brand new concept? Lol.
        Solution. Make everyone out their use.their REAL NAMES .. No handles, monikers etc bots
        Complete transparency. Hft is responsible, block trades. Etc

  3. RADM.Yamaguchi Says:

    Could be really fun if they really push on silver.

    Military rule this weekend?

  4. Yra Says:

    https://www.pbs.org/wgbh/frontline/film/warning/

  5. Bosko Says:

    I’d love to hear Brooksley Born’s opinion on cryptocurrencies?

  6. mikegre2014 Says:

    If the Redditors can force the hedge fund shorters to liquidate their long positions, and they might, that might trigger a selloff (to put it mildly).

  7. Barbara Diamond Says:

    Not good for business. We need the 1972 lecture on “Respect for the Marketplace” lest we lose that too.

  8. The Bigman Says:

    Guess I have been reading this blog so long that now I am finally thinking straight Had the same reaction as you Yra- I would never play poker with Senor Powell how does he keep a straight face when saying Fed policy takes third place to anticipation of vaccine success and further fiscal excess as the cause of excessive asset values- guy is a regular Phil Ivey.. Also said the Phillips curve is flat??? the Phillips curve is dead. And maybe someone here can explain to me how 2% inflation equates to price stability.. What a load of crap.(strong letter to follow).
    As far as 2021 this Covid thing is far from over Sorry but the rollout here in California is painfully slow and now early indications are that the current vaccines may have much lower efficacy against South African strain which now has reached the US I read El Pais- Spain is a disaster right now with new shutdowns every day. Agree, though hate the thought as their government is a bunch of thugs, China is the place to be. Odd aren’t they the ones whose travel policy spread the virus to the rest of the world?

  9. Bob Zimmerman Says:

    Great post Yra!
    The Kids did the dirty work for the Dark Side.LOL

  10. kevinwaspi Says:

    Three biggest lies?
    1) The check is in the mail,
    2) The Mercedes is paid for,
    3) I won’t …….
    3a) Inflation is less than 2% and it needs to run hotter.
    Note to self: When you can’t sell what you want to, sell what you can.

  11. Pierre Says:

    This blog was AGAIN ahead of the curve. CYB up on Fri while markets are crashing. Is the Yuan the safe haven play now?
    Powell and company, IMO are playing with fire. Jerome keeps saying “We know how to handle inflation” What makes him so sure that the next bout of inflation will be similar to the last??
    Yra, I haven’t forgotten about Marillac St. Vincent and send them what I can each month in APPRECIATION of this blog.

    On the virus front, as a hospital worker, I remind everyone to not forget about strengthening your own immune system, Real foods and healthy living, not pushed by the media. Stay well!.

    • Yra Says:

      Pierre—-your support to any level is so greatly appreciated.The readers of this BLOG have sustained so many people as Mike Sturch continually reminds me—-high level of discourse along with rightgeousness—–what a compliment to the Praxis of LIFE

  12. Tinky Says:

    Not sure if Yra will be able to comment, but do any other contributors have any predictions relating to the Reddit group now possibly targeting silver?

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