Notes From Underground: What Constitutes Market Forces?

This is a question that plagues NOTES FROM UNDERGROUND, where we believe 2+2=5 is a beautiful thing. The objective force created by markets has always perplexed us? U.S. Treasury Secretary Janet Yellen keeps sounding the alarm that currency values must be established by markets. This is meant to be a threat to nations that attempt to intervene through selling their currencies in the open markets in an effort to keep downward pressure on currency values to support their economies.

But if a country is experiencing positive economic growth and yet chooses to cut its interest rates to negative territory is that an effort to manipulate its currency?

On Monday night, the Reserve Bank of Australia (RBA) announced its interest policy, leaving the current rate at 10 basis points while also keeping Yield Curve Control for the duration of three years or less. In the statement, Governor Lowe said, “In Australia, the economic recovery is well under way and has been stronger than was earlier expected.” The RBA also noted that “the exchange rate has appreciated and is in the upper end of the range of recent years.” While the central bank did hold the rates at the zero lower bound, it did decide “to purchase an additional $100 billion of bonds issued by the Australian Government and territories and states when the current bond program is completed in mid April.”

This added stimulus is coming even as it acknowledged a decline in unemployment to 6.6% and GDP growth of 3.5% over the next two years. Was this an attempt to keep the Aussie dollar under control? Secretary Yellen, market forces want to know if this is a potential manipulation of currency values.

When large Japanese pension funds and insurance utilize the largest pools of savings to purchase foreign bonds in search of higher yields, is this a FORM OF MARKET MANIPULATION quietly directed by the Ministry of Finance to keep the YEN lower than would otherwise be the case based on trade and balance payment fundamentals? Yes, interest rates are certainly a powerful fundamental but when REAL YIELDS are higher in Japan than most other advanced nations why should Japanese institutions seek foreign-denominated investments? Is this a case of market forces, Secretary Yellen?

CNBC was headlining a MELT UP IN THE VALUE OF THE DOLLAR as the overwhelming short dollar positions would be squeezed in a Reddit-like response to countervailing traders. Would such action be determined by Secretary Yellen to be market forces? THE DOLLAR WILL EXPERIENCE A MELT UP AS YELLEN WOULD DIRECT THE FED TO COUNTER ANY ACTION THAT WAS DEEMED BY THE BIDEN ADMINISTRATION TO NEGATIVELY AFFECT ITS GROWTH AGENDA?

Interesting that the Financial Times had an article today titled, “Central Banks Take Rare Step of Flagging Currency Sales in Advance.” Some central banks that have experienced appreciation in their currencies over the last nine months are pre-announcing some selling of their currencies to halt the rise in currency values while not being named a manipulator. “We are in an interesting moment when it comes to central banks straddling the fine line between [foreign exchange] intervention and [foreign exchange] manipulation,” said Alan Ruskin, chief international strategist at Deutsche Bank in a recent note to clients.

Janet, what constitutes market forces? There will be no short squeeze on dollar positions regardless of what the banner headlines say on CNBC. Redittors have never met the printing power of the world’s central banks.

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30 Responses to “Notes From Underground: What Constitutes Market Forces?”

  1. Asherz Says:

    The Reditt traders met the printing press firepower of the Central Banks today, when their attempt to squeeze the Silver shorts were quashed. Billion dollar hedge funds are child’s play when the Bankers with unlimited assets go to work.

  2. RADM.Yamaguchi Says:

    Might be interesting time because starting on February 2, 2021 all assets of those people involved in election fraud and all those aiding and abetting those involved are subject to seizure under President Trump’s executive order. I would imagine that might include sizeable assets that might otherwise be thought of as belonging to the banksters.

  3. David Richards Says:

    That’s awfully rich coming from the head of an institution whose dollar debt issuances were feverishly monetized at a pace far greater than everyone else all year.

  4. David Richards Says:

    Speaking of market forces, FDI (foreign direct investment) into China exceeded that into the US for the first time for 2020. Then what did Trump do?… Delist some Chinese companies, which exacerbated more flight of foreign capital from the US to China (examine the capital flows data). Stick a fork in it Janet, the dollar is done!

    • Pierre Says:

      I talked to a couple who’ve been importing goods, for years, from China to resell in the U.S. About the last 4 years, they told me, the Chinese companies just relocated to surrounding countries and continued selling, (To circumvent the tariffs). They are STILL Chinese.
      Myanmar coup, orchestrated by the Chinese?

      • David Richards Says:

        With the new RCEP Asian trade bloc in force, they’re free to do that and regardless of tariffs, they’d likely do that anyway for lower cost in unskilled-labour-intensive applications. But it’s a two-way street with RCEP as ASEAN will become 100% Huawei and the few that aren’t yet (eg., Oz, NZ, Japan) are quietly reconsidering reopening to Huawei et al, so they’re not ejected from the RCEP bloc.

        But none of that has much impact on FDI or FX. Instead, it’s mostly European and Japanese capital that’s being moved to China from the US. Due to the policy decisions of the latter (i.e., the Fed can repress domestic savers but not foreign investors), as well as the landmark new EU-China investment-trade deal. That and RCEP should have major ramifications for the future.

      • David Richards Says:

        Oh, I don’t know much about the Myanmar coup except that in recent years the Muslim minority there had been forced to flee by Myanmar’s US-supported regime, which severely persecuted (and even killed) people of the Muslim minority, whom even the UN had recognized as political refugees. Many fled down here and throughout the TL-MY-SG peninsula. So I’d “guess” that if anyone wanted the Myanmar regime overthrown, it was their Muslim brothers in Malaysia, Singapore and especially Indonesia, the world’s largest Muslim country, nearly the same population of the US and likely to become a force in the region to reckon with in the future like it was many hundreds of years ago.

        I know little yet about those in the coup and if they’ll also be genocidal, whether against Myanmar muslims, some other group, or hopefully none.

        But I do know Asians everywhere love to dance, even in the midst of a coup:
        https://www.theguardian.com/world/2021/feb/02/exercise-instructor-appears-to-unwittingly-capture-myanmar-coup-in-dance-video

      • David Richards Says:

        Off-track but I hasten to add that even though the US supported the regime of Aung San Suu Kyi, the US by no means condoned the Muslim (Rohingya) persecution.

        China’s official reaction, like most of ASEAN, is that it’s an “internal matter”. For better or worse, China doesn’t care about the politics or human rights in your country, including the Rohingya matter. Instead, the chinese are basically business people, by tradition and culture. Ignore their “communist” name; that was a passing fad in an over-reaction to crisis last century. By definition, communism doesn’t allow private ownership and therefore China is not communist, as private ownership is thriving and increasing in China, with more new private businesses starting each year than almost anywhere. What’s “communist” is Davos/WEF (Klaus Schwab): “In ten years, you’ll own nothing and you’ll be happy”.

        “Myanmar coup, orchestrated by the Chinese?” … No way. China had warm relations with Aung San Suu Kyi. The chinese have large oil & gas investments in Myanmar. So IMO, China will be quite displeased and concerned about the coup. Especially as the Myanmar military is perceived as having a more independent streak that sought to balance against Chinese influence.. In that regard, the US, as a self-proclaimed competitor of China, actually has more to gain from the Myanmar coup than has China.

        But assuming the US concern for human rights in Myanmar is genuine, then both the US and China are upset over the coup, albeit for different reasons.

      • Pierre Says:

        Thank you for the post David! I appreciate the time and energy you took to share this. I learned a lot.
        Klaus Schwab, Our elites are trying to form a one world government in Davos with their money. The Chinese are slowly forming their own with Huawei and its technology. This is a clash of the Titans. Will one gobble up the other or all merge into one?
        The show, I mean aerobics class must go on, even during a government take over.

    • Yra Says:

      Dave these are great posts–thanks and Myanmar coup you are absolutely right in regards the China analysis is dead on but the only point is Suu Kyi is being ransomed for silver bars according to the social media world–also go and read Fernand Braudel –2nd volume –wheels of commerce pages 180-204

  5. John "CNK" Says:

    Remember the tag line on R,B& H jackets?
    “Free Markets for Free Men”…so classic…not sure if Jack coined that or who.
    For the most part the pits seemed to be “free”…unless you count poor Marty…’Trust No One’ the buttons read…

    We only have to review Janet’s new INFINITE Dark Pool, known as the Exchange Stabilization Fund(ESF), to see how [market forces] work!
    Embrace the double-speak George
    God only knows (and probably the shredding machine operator) what the powers that wanna-be will do for our own good within(?) the “free” market- to preserve it!?

    Funny, the balance of the ESF is like Jedd Clampett’s fortune…kind of jumps around from episode to episode…lol…
    “Of the original $2 billion appropriated by Congress
    to the ESF, ALL but $200 million was later used to pay the
    United States’ subscription to the IMF”
    then
    “The ESF has nearly $17 billion in dollar-denominated assets readily available to backstop money-market mutual funds.”
    but wait!
    “The Exchange Stabilization Fund (ESF) holds more than $40 billion that is at the disposal of the US Secretary of the Treasury for use in foreign exchange intervention and international financial support operations”
    …reminds me of a LaSalle Street curb in February…SLUSH!

    Like I said…
    Free Markets for Free Men…and Women too!
    Right Janet?

    • Yra Says:

      CNK–great post thanks—-you are seeing it in the way I believe Janet sees it but others are sending me bullish dollar story and i just don’t see it just because of the 30 year boost and the steepening yield curve which is historically bearish a currency as it has been the short end that had much more effect on currency values

  6. Financial Repression Authority Says:

    […] LINK HERE to the Blog Post […]

  7. Alex Says:

    I wonder if we might be creating a scenario where negative real rates actually threatem employment. If you are able to fund automation capex at negative real rates and the min wage pops to $15, could see widespread layoffs as automation takes over…

  8. ShockedToFindGambling Says:

    Germany using the peripherals to hold down the value of the EURO was/is a brilliant move for German exporters.

  9. Asherz Says:

    This isn’t the stock market that existed for many decades, where price discovery was legitimate. The central bank printing presses have distorted all markets including the bond market. There is not a qualitative difference between GameStop and Tesla. History books will look at this period, like it does at 17th century Amsterdam, as the Madness of, not Crowds, but in our case, Central Bankers.

    https://wolfstreet.com/2021/02/03/the-stock-market-is-broken-now-for-all-to-see/

    • Yra Says:

      Asherz–I just pulled a copy of Mackay’s book ,1852 edition off my shelf —to bone up on the south sea bubble.As Peter Boockvar wrote in a note this week pulling from Charles Kindleberger –it is always money ,liquidity that drives this.In Powell press conference last week he did a great bait and switch claiming asset appreciation was a result of great expectations for the coming fiscal stimulus avalanche [my word] and its impact on growth—jaw dropping in its misdirection which the FED has pleaded for as it continued with its own shovel ready project—-the urn of the spigot.Yanis Varifoukas had a very good piece in the Project Syndicate review as he notes how wrong the establishment economists have been over the last four decades but yet from Bernanke -Powell they have made ever bigger bets

      • David Richards Says:

        Yellen making headlines today similar to that about how to do big stimulus spending. Has she moved from UST to OMB or somewhere?

        Ms Yellen, if you’re still in UST, please get back to the issue of the dollar and remove that fork you’re sticking in it.

  10. RADM.Yamaguchi Says:

    Myanmar is likely a preview of coming attractions for the U.S.

    • David Richards Says:

      Sadly, that’s probably true. So is 20th-century, eastern-style marxism/communism. With Weimar characteristics, in which the US is already partially immersed today and moving toward at speed.

      Most people do not realize that since Jan.2020, it’s no longer possible to fully expatriate from the US if you haven’t already. Same for people from N.Korea and Argentina, and maybe a few other backwaters. No doubt there’ll be more soon.

      Eventually, your money won’t be permitted to leave the US either, likewise from Canada and probably from most of Europe.

      I’m serious and not a tinfoil hat conspiracist nor off-the-grid nutbar like it probably sounds. Things are starting to move. The world is changing.

      This poses major complications to our long-term investment strategies in ways unprecedented in our lifetime, at least for us westerners.

      • RADM.Yamaguchi Says:

        Hi David, You have some very intelligent responses here in these comments for some time. I’m sure you’re not a tin-foil hat conspiracist but maybe you should let go a little bit and join us. When i posted that we are likely to follow Myanmar’s footsteps i really do mean that. They have a constitution. It says that if the leader of the country is elected fraudulently with outside influence then it is the military’s duty to intervene and save the country and constitution. That is exactly what is going on here in the U.S. albeit behind the scenes for now. It is likely to become more obvious very soon.

      • Yra Says:

        David–as always so i agree with you in so many ways and I am not a conspiratorialist as you are very aware.The bottom line as we deal with this dynamic taking place is best summed up by Louis Gave—my clients pay me not to forecast but to ADAPT—and so we will .I believe we should start a SPAC that invests in CABARETS as the animal spirits of covid cooped -upness is going to unleash the animal spirits—-also the great lever of the 30 year bond is back to directing the investment flows as the algos are back in charge as the GAME HAS BEEN STOPPED

  11. Pierre Says:

    Could this be the reason the Euro has been losing ground lately?

    https://mises.org/wire/ecb-playing-dangerous-game-collective-action-clauses-bonds

    • Yra Says:

      Pierre –not in my opinion because i believe in the CAC as a preventive from the likes of Singer and other vultures squeezing the life out of debt plagued sovereigns —this began with the emerging markets and of course as the piece makes known in regards to Greece in the earlier part of the last decade—-for further knowledge read the work of Lee Buccheit .Thanks for the query because it will start some interesting investment ideas—I am a capitalist but I do not succumb to the rape and pillaging of debt plagued peoples–I will leave that for the new Kudlow/Wilbur Ross SPAC —I have also passed on numerous investment opportunities into payday loans but I also do not buy defense stocks–but i love other vice stocks because that his my flawed humanness–but i do not judge others as to their decisions —just like risk I find my comfort zone.No moralizing from this flawed creature as I measure myself to the ten statements but only myself as to how I act—debt is a serious consideration for me and how it is treated

      • Pierre Says:

        Thank you for your reply, it more sense to me now. It always flows downhill.
        To the extent I judge, I will be judged. I thought this was something that would come around at the end of my life, I know better now and follow these words so that I sleep soundly every night.
        Looking forward to finding out how this query starts some interesting investment ideas.

    • ShockedToFindGambling Says:

      Pierre, I think the EURO has been weak because the strength of the China recovery (their biggest trading partner) has been overstated and because the markets are transitioning to Risk Off…..a recession will cause the Peripherals to ask for huge bailouts from Germany, or they will leave the EURO block to devalue their currency…..in a serious recession I think the EURO will have problems.

      • Pierre Says:

        Shocked, I didn’t know China was their biggest trading partner. I do know Germany has a vested interest in China. Siemens and many other German companies there.
        Thanks.

      • ShockedToFindGambling Says:

        Pierre,

        Higher Treasury yields and strong USA stock market have have helped the USD, too…….foreign buying of stocks is increasing.

        It seems like everyone is bearish the USD……the govt. is spending/stimulating like a Drunken Sailor .

        Next week should be interesting…possible lows in Gold/Silver/Treasuries and highs in SP500 and EURO.

        Just my opinion…..do your own research…..I could be (and am often) wrong.

  12. BT Says:

    Yra- what do you make of the treasury yield curve action. We see short duration making all time lows in yields while on the long end of the curve the yields are going to the moon. This in the face if relative dollar strength and gold weakness, and risk on with equities. Is someone trying to force the feds hand in YCC or is this some behind the scenes liquidity event?

    • Yra Says:

      Bt–this is the question of questions.As discussed with my recent podcast with Louis Gave at what rate on the tenyear would the U.S. be foreced into yield curve control?Louis initially forecasted it would be 2% in a December paper for Gavekal and was challenged in this blog by Mike Temple who thought 1.5% on the tenyear would force the hand of the FOMC–I posited it at 1.25%—Louis made a great comment ,not unusual,when he said he had moved to 1% as the FED was seemingly involved in YCC in December by his recent analysis of the FOMC QE purchases—he said his investors pay him to adapt and not forecast—the 30 year yield has become the lever used by the ALGOS as so many asset prices are affected by the chase for nominal yields and thus the U.S. 10-30 curve offers some of the best nominal yields in the developed world—thus the Japanese Yen actually fell through the 200 day moving average for a brief time on Friday.The next BLOG will contain a piece on the search for nominal yields with 15 trillion of sovereign debt yielding negative nominal rates—if someone is trying to force the FED’s hand I wish it was me—as I advise trade the short side but be very careful about increased FED response to rising yields on the longer end

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