Notes From Underground: The Arrogance of Janet Yellen

Since I last wrote, it has been a time for thought, contemplation and discussion. This week I recorded an FRA podcast with Richard Bonugli and Larry McDonald. It was the equivalent of the “Wide World of Sports” as we traveled around the world looking at profitable investment ideas. Enjoy the best 60 minutes in financial global macro analysis.

Click here to listen to the podcast.

But the world does not stop and there are some issues we must address.

1: U.S. Treasury Secretary Janet Yellen has been center stage at the IMF/G-20 meetings as the U.S. is pushing for a minimal corporate tax in an effort to raise revenue for the massive stimulus programs without hemorrhaging jobs and investment from the U.S. in an effort for multinational corporations to reduce tax liabilities. Why does the U.S. government believe it can exert ITS WILL on the world when everyone else seems to be at odds with continued efforts by BIDEN ADMINISTRATION to use the tools of neo-imperialism through the exorbitant privilege of reserve currency status to punish those nations it deems to be in non-compliance of U.S. objectives.

The world has bent to U.S. demands since the Koren War as the military-industrial complex has expended blood and treasure while the world was forced to quietly acquiesce for protection under the U.S. economic and defense umbrella.

Dear Janet, the world you have inherited is far different then the one that had free reign after the fall of the Soviet Empire. TAX HARMONIZATION has been a DIFFICULT TASK for the European UNION, which shares a common charter. So why would the G-20 bow to your needs as the world’s nations seek to gain every advantage they desire? It seems that China and Russia would be very adverse at this juncture. My question stands: Why pose this issue through the G-20? Also, if the minimal tax was to be accepted wouldn’t the Swiss franc and the Swiss economy suffer as the bastion of the world’s kinky money would be under the greatest threat? As the discussion heated up this week the SWISSIE has rallied more than 2%.

In a recent Financial Times article titled, “Yellen Calls For Global Minimum Corporate Tax,” the Treasury Secretary said, “The United States needs to have a strong presence in global markets on a level playing field. We will to co-operate with willing partners to protect and enforce a rules-based order.”

But this may pose some difficulties for those seeking other alternatives in an effort to thwart U.S. desires. Yellen added, “Our economic relationship with China, like our broader relationship with China, will be competitive where it should be, collaborative where it can be, and adversarial where it must be.” Call it what you will but it is either HUBRIS, hegemonic NOBLESSE OBLIGE or just plain old neo-imperialism.

2: In a real-time effort to thwart American desires, China and Iran signed a 25-year agreement on March 27 to increase trade to $600 billion over the next decade. The Asian Times story written by MK BHADRAKUMAR said “wide ranging economic cooperation is envisaged covering investment investment and trade exchanges, banking, financing, mining, transportation, communications, space manufacturing industries, development of ports, upgrade and expansion of Iran’s railway networks, the introduction of express railway systems in Iran, agriculture, water resources, protection of the environment, food security, fighting desertification, water desalination, use of nuclear energy, etc.”

While the U.S. attempts to SANCTION over the UIGHURS — and possibly BOYCOTT THE CHINA-HOSTED OLYMPICS — the Middle East, a bastion of Islamic wealth and holy sites is engaging in economic intercourse with Beijing. SeveralArab nations use the Chinese rationale in discussing the “GENOCIDE” in Xinjiang Province. Saudi Prince MBS refers to the UIGHURS as an issue of internal affairs just as is Hong Kong and Taiwan.

Yellen’s designs are not going to be welcomed by all G-20 nations. It is a changing order. Now, what about Goldman’s call on the DOLLAR this week? If U.S. influence is on the wane can its currency still be supported by mere nominal yield differentials? Much more to follow.

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39 Responses to “Notes From Underground: The Arrogance of Janet Yellen”

  1. Judd Hirschberg Says:

    Taiwanese Americans i speak with believe the mayhem in Myanmar has Beijing footprints all over it. Their belief is that this is just more of the same as China extends its hold over Asia and beyond.

    Team Trump huffed and puffed and accomplished next to nothing, while Beijing accumulated more power.

    I have to agree that team Biden needs a new approach.

    China has been shown over the past 8 years that talk is cheap.

    What are the odds that anyone working @ GS would know that the Euro is unchanged for the past 2 decades?

    • David Richards Says:

      Nah, that makes no sense. I imagine that Taiwanese-Americans in US aren’t likely to be very objective observers of anything China related.

      In fact, the overthrown regime of Aung Suu Kyi was quite close to Beijing and quite cold with the US (and its sanctions), the opposite of the situation years earlier. China has made win-win investments into some Myanmar industries, sometimes jointly with Burmese or numerous Thai interests, is developing Myanmar oil and gas resources on its own or jointly with Malaysia (Petronas), and has engaged Myanmar as an important partner in its BRI initiative. So the Myanmar coup is particularly harmful to the interests of Beijing. In contrast, the coup is helpful to the US and its current strategy that anything that hurts China is good for the US. In addition, Myanmar happens to possess the world’s second-most rare earth mineral deposits, for which the US feels an urgent need. Just a coincidence?

      Although just speculative, a common view here in ASEAN (of which Myanmar is a part, with the union’s poorest people) seems to be that the US helped arrange the military coup in Myanmar, then stabbed it in the back and fanned the blame for the coup on China, while backing the long-organized rebel forces in Myanmar, hoping they will take the country by force and then remove it from China’s orbit into a US client state.

      • Judd Hirschberg Says:

        Thanks David that is a well thought out response which would be unsurprising right out of the U.S. historical playbook

      • David Richards Says:

        You’re welcome. The “speculation” in my last parag above is just what I hear and it could be wrong.

        As for the US playbook, I don’t know, but it’s fairly clever manoeuvering from a US geopolitical perspective. I mean, what do you do now about Myanmar if you’re China? It was a key BRI piece. I read that Petronas is pulling out of Myanmar. It’s very unstable there now.

        Finally, I dislike how I began my last post with, “Nah, that makes no sense”. Sounds very inappropriate, sorry. I was referring to a common MSM notion that China is to blame for the coup.

      • Judd Hirschberg Says:

        I take no offense. I put out the proposition to get a response since it’s difficult to get an alternative view, or even real news, in the U.S.

        Your viewpoint and take on the events unfolding are greatly appreciated.

      • David Richards Says:

        Yes, the news is now BS there and here, at least pertaining to some things about the govt or policy. It’s always been like that in Asia. Including in the few so-called Asian democracies. I’m not comfortable writing any more about it on here or I might get in trouble, nuff said. Censorship and propaganda are bullish, globally.

      • Judd Hirschberg Says:

        Yra has always looked for push back on ideas from his readers since that is how you ferret out thematic ideas. I for one appreciate the feedback. Thank you.

      • Yra Says:

        nice exchange and David very well stated and thought out—-the world David as you have helped explain over the years is far more complicated then msnbc and Fox wish us to believe–2+2=5 is the operative view of the world as it is rather then what we wish it to be—hey some believe Kashoggi was really a journalist

      • Yra Says:

        dave—outstanding response to a difficult question.Your wisdom over the years has been a great add to discussions—–and Ian Bremmer is a darling of the media because he makes foreign affairs so simplistic—but his analysis of global macro has been weak for many years—like Kissinger’s flawed work because o “economics bores him”—thanks for all you do

  2. Arthur Says:

    Myanmar/Burma. The winner is China (?) by Ian Bremmer

    • David Richards Says:

      That piece was written a day after the coup. With the benefit of hindsight, I think it looks misguided. How is China the winner when it and its companies’ investments and factories in Myanmar (along with those of the Thais and joint Chinese-Burmese) have been burned or destroyed by the hundreds now by the rebel group and protestors? (as documented in SCMP). Entire industrial regions have been scorched and/or abandoned, and now O&G ops from Malaysia and China are leaving Myanmar as I explained above with the Malaysian oil giant Petronas exiting its Myanmar ops last week citing “force majeure”.

      The piece correctly notes that Myanmar’s military had previously been cool towards China, so IMO a shift to military rule away from the democratically-elected but overthrown, US-hostile, China-friendly Aung regime can’t be considered a China “win”. Not with a newly-destabilized state on China’s western border that now casts a pall over a key piece of its BRI strategy – namely the new HSR & economic corridor from Kunming in China Yunnan province to Mandalay, Yangoon and the Myanmar deep water port of Kyaukpyu on the Indian Ocean under development on the Indian Ocean – enabling China to short circuit and bypass the straits of Singapore & Malacca, currently the world’s busiest shipping lane with 1000+ ships continuously at any time and a potential chokepoint in an international conflict. The instability in Myanmar might put the previously-considered Malaysian canal back in play as Malaysia is apparently now a more stable and China-reliable state, already working on the Malay Peninsula East-West rail piece of BRI.

      Finally, the piece ends with, “Beijing is happy to do business with anyone in power in Myanmar, but the Western retreat will be welcome news”. I agree the Chinese happily do business with anyone regardless of their internal politics and governance, but I think his argument that “Western retreat will be welcome” and thus a win for China rings empty as the West has a negligible business presence in Myanmar anyway from which to retreat. As according to ISEAS’ JSTOR and Malaysia STAR, regional FDI (foreign direct investment) accounts for 90% of the total FDI in Myanmar, with most investment coming from Singapore, China, Thailand, Hong Kong, Korea (in order).

      So I still think that China loses, ASEAN loses and the biggest loser is the average person in Myanmar, already the poorest per capita in ASEAN before the coup despite economic gains of ~7% per year in recent years, now abrupty thrown into reverse again. Those poor people!

  3. Yra Says:

    To all-thanks for the great comments and adding to this very worthwhile discussion

  4. David Says:

    Yra, I thought wall st was supposed to do the opposite of main st? If the media is right, 570 billion injected in 5 months or so…shouldn’t that mean Wall St is about to sell. Am I the only remaining short seller in equities? Plus, 4113-17 is a pretty number to sell . Had that kind of look…

    • David Richards Says:

      Worry is good for equity bulls as stocks continue to climb the wall of worry. I’m still the same same now as last time here a few weeks ago: more new highs ahead for major stock markets. But major foreign equity markets (except China) may offer more bang than US stocks, adjusted for currency.

      USD is currently about the sickest looking patient in the fiat hospital ward which is a tail wind for asset prices. Technically, the recent USD mini-bounce looks more likely than not to have already ended, tho it’s not quite conclusive yet, but if so, that was a weak countertrend rally (potentially bearish). As for Goldman publicly waving the white flag a week ago on its alleged USD short, Goldman is infamous for betting against their own clients and public calls (pump and dump) so we take them with a grain of salt and certainly they’re secondary to your own charts and levels.

      Expanding on the podcast, Yellen (and the Biden Admin) appear publicly determined to sacrifice the dollar to help lift the US middle class and her favorite causes. Yellen seems like a Social Justice Minister charged as Treasury Secretary – and the Fed seems to be playing ball. I’m unqualified to judge the social or political aspects, but I’ll say “Yikes” to anyone holding dollars or treasuries in the long run – no thanks! Is there any remaining doubt given their “speak” that some kind of US yield curve control seems inevitable?.. The “Financial Repression Authority”, indeed.

  5. Yra Says:

    dave—money is cheap and seems no desire to rein it in—so selling now is a sense of herd immunity but you might get sick for awhile

    • David Says:

      Interesting, thanks for the feedback fellas

      • David Richards Says:

        In my case, you get what u pay for. Not high conviction anyhow and even if it were, it’s just an opinion which, like a mouth, everyone has.

        As I described, USD is doji-like currently (inconclusive) that’ll eventually break and help add clarity, tho not necessarily to stocks. I have a positive bias toward stocks and negative bias toward USD but ICBW (I could be wrong) as I often am – if so then certain market levels will tell me. As Yra’s guest Louis Gave often says, our job is to adapt, not predict.

        Good luck and remember, better lucky than good.

      • David Richards Says:

        Notice that the STOXX Europe 600 finally made a topside breakout after 21 years in a a sideways range! The Bloomberg Dollar Index broke down Friday below a first line of important support on the daily, and for gold mining bulls, the GDX broke above trendline resistance, potentially reversing its Aug-March decline. Let’s see next if there are continuation of the these or whether they’re just temporary throwevers.

        China announced growth at a stunning annualized rate of 18.3% for the first quarter of 2021, topping its equally stunning 18.1% for the last of 2020. So the Chinese policymakers have been increasingly tightening this year. This is why in my post above last weekend, I singled out China as the exception to my globally bullish stock expectations. China does not and will not have the rising nominal values in stocks nor the strong inflation that I anticipate in the future for the West and particularly for the US (because it’s by far the world’s most indebted nation in total). So bearish USD/CNY in the long run too. We’ll see.

  6. Yra Says:

    Dave well stated by Louis Gave –but this issue i will raise–the last time bund/us ten year notes spread differential was this wide–200 basis points –euro was 113/114—so something to be attentive to

    • David Richards Says:

      Yra, that’s a great fundamental point about yield differentials, which are considered to be a key determinant of FX rates. But I wonder whether yield differentials are less relevant on FX rates in a more inflationary environment now, and whether instead we should compare real yield differentials, which are less favorable for USD as US has higher actual inflation than most, due to the relatively weak dollar and rising labor wages/shortages as more US workers stay home to collect “printed” money instead of work.

      We can list many fundamentals supportive of USD (eg, yield differentials) and unsupportive (eg, the worsening US twin deficits) and then be confused about what to conclude from that list. So I also use a technical approach and tend to rely on it, tho I like to see the fundamentals and technicals align.

      So for example, last year DXY broke & continued down below its 10-year trendline, which was quite negative, then this winter retraced up to reach that same trendline and in April turned down from it – a negative pattern (kiss and say goodbye) tho not conclusive on its own. A sustained break of some key horizontal levels, higher or lower, will be a more convicing signal, as I know you know.

      • Yra Says:

        dave–thanks this is a good response and as the fundamentals begin to be sorted out we can raise the level of the global status of the US—it seems that Jake Sullivan and company are all good debaters and well prepared for global conferences but for me Practice is the sole criterion for judging truth so I rate practice over debating skills—the Thucydides Trap is in play and how the US adjusts to the world will be a critical fundamental —and that is why I am nervous about the arrogance of Yellen

      • David Richards Says:

        Good morning Yra. As far as I can tell from reading some thinkers much smarter than me, I agree with your broad statement. And Yellen is on the team. As she along with Powell, the Biden Admin and Deep State are engaged in a coordianted, transformational policy unlike any since the early Reagan era. AYK, back then the US was the world’s largest creditor and inflation was their enemy, but today the US is the world’s biggest debtor nation and inflation is (seen as) their friend.

        So policymakers will keep US interest rates well below both the real rate of inflation and the nominal growth rate of US GDP on a sustained basis for years. They will increasingly continue to misrepresent real US inflation and they’ll deepen negative real US interest rates by doing whatever it takes: jawboning, massive bond buying by the Fed, forced buying of US bonds by the private sector, yield curve control, capital controls, etc.

        Yellen has apparently already adopted a “Weak Dollar” policy and USD will eventually lose its reserve status – sooner than most today expect. This is not her doing in isolation. US intelligence reportedly wants this too, not just Yellen. So she has full support of the Admin and the deep state. They want this to both lessen the US debt burden and revitalize the US economy. As doves believe that a soft money policy helps average people. Their vision is that USD and the rentiers will suffer to benefit the working middle class, instead of vice-versa as they believe happened with the Reagan revolution.

        If so, then the investment implications are that overall, hard assets will thrive, US bonds and USD will do poorly, on a real basis many international stocks will outperform US stocks tho US stocks will outperform US bonds, and most millennials may not be able to afford a decent house for years except through inheritance. US equity markets won’t crash, at least not on a nominal basis, but USD might sometime. I’m thinking a futre USD collapse could lead to a wider collapse elsewhere, like how the big Chinese Yuan devaluation in the 90’s led to the 90’s Asian Financial crisis/collapse thereafter. And because USD is much bigger than Yuan, perhaps the reverberations of a disorderly USD devalution/collapse would make a much bigger impact than we saw in the 90’s Asian Contagion.

        Finally, the speculative story that’s becoming popular now about another “Roaring Twenties” like in the 1920’s is probably misguided. Particularly for big debtor nations. Because if we examine the 1920’s, it was “roaring” only for a big creditor nation like the US, but it was a very different time for a big debtor nation like Germany. In that regard, the US today is more like Germany in 1920, and China today (the world’s biggest creditor nation) is more like the US in 1920.

        I’ve written before about my expectation that East Asia will become the dominant global consumer economy of the world, as indeed has already begun per the recent data for 2020 and 1Q21. Asian currencies rising relative to the dollar over the 2020’s will further enable rising Asian consumption on a relative basis. So if there’s a “Roaring 20’s”, East Asia is more likely where it will occur, not in the US – except for an initial crack-up boom phase in the US, as Germany also initially experienced a century ago.

        As usual, BICBW (but I could be wrong).

      • David Richards Says:

        Follow-up citing others’ new tweets to support my comment a few days ago re a radical US paradigm shift away from the old USD Hegemony – Reserve Currency policy to the new US “Weak Dollar” and High Inflation policies.

        First we have the incomparable Lyn Alden replying to Josh Wolfe and Washington Times which stated “USD [hegemony] has far reaching strategic importance – precisely why China + Russia want it gone”. That has merit but as Ms Alden replies, reflecting the current thinking of the US Deep State and Biden Admin policymakers incl Yellen:
        “Quite to the contrary, USD hegemony continues to benefit Chinese interests over US interests. A small portion of US residents benefit from the system as structured, while most US workers get displaced under the current system. Hence, populism emerges.”

        Click on the link above to also see the maps comparing US trade influence in 2018 vs 2000, which has since become considerably more lopsided in 2021, as the US lost its “trade war” per today’s trade data with the US twin deficits at record-highs and 80% of countries in the world trading more with China than anyone else versus only 9% for the US – including all of Eastern Europe and key “allies” Germany-Austria who now all sell more to China than anywhere, never mind the increasing European economic dependency sales to East Asia which is now formally integrating under the China-anchored RCEP bloc newly signed by nearly all of Eastern Asia, leaving the US economically isolated on the outside looking in at the world’s fastest growing and largest economic bloc.

        Ms Alden’s tweet also contains a link to a long piece she wrote about the dissolving US Petrodollar And Currency Reserve System in which she proposed alternative solutions (which will be painful, as will be doing nothing).

        Likewise, the brilliant Luke Gromen succinctly tweeted:
        ” Gold going to $50,000 or BTC going to $1m is not a threat to the USD…it’s the only way the US can win its so-called Great Power Competition. If gold or BTC don’t go to the moon, the US loses to China, full stop.”

        Finally, consider the also-brilliant President Putin.
        The US Rules-based International Order and Petrodollar System says: “We give you rapidly depreciating, real negative yielding, infinitely-growing supplies of paper for your finite oil reserves.”
        Putin says: “No thank you. I’ll take gold instead, and if you don’t like it, I’ll just sell my oil to China for Shanghai Physical Gold or Yuan useable to buy stuff we actually want, and then you can ask your Fed to print you the oil.”

        Note from Underground: Is Saudi MBS thinking like Putin too now?

      • Yra Says:

        David–a magnificent response.I have used dark humor to convet this –when people ask me what I am doing for investments I suggest CABARETS—I am seeing Weimar more then roaring 20s –many things to be vigilant about.I have been exhausted from the labor of the last month but I am sitting on a blog “sanctions are sanctimonious”—interesting last night I am reading the end of Ezra Vogels biography of Deng Xiaoping and Mr.Deng warned the U.S. in 1989/90 about using sanctions in response to Tiananmen.[side bar is that I still wear a t-shirt with a picture of the lone student confronting the tank with Chinese on the back saying you can not massacre an idea] Kevin Mc Carthy and I printed up 200 of them and gave them away.Deng warned that the sanctions would prove short-lived and would actually result in a growth of Chinese Nationalism to confront the western imperialists.Deng proved correct when James Baker bought Chinese co0operation on the resolution to remove Iraq from Kuwait in November ,1990—the arrogance of the washington elite with their fervent desire to economically sanction those with alternative policies is getting stale and see how Putin just played Biden—arrogance from the Biden administration is going to be met with intransigence and it will result in a Chinese precious metal backed CBDC and disrupt the entire post World War Keynesian order especially the Post–Bretton Woods “rule of law”–remember,Sanctions are Sanctimonious

  7. Pierre Says:

    Remarks from Christopher Waller March 29:
    “Because of the large fiscal deficits and rising federal debt, a narrative has emerged that the Federal Reserve will succumb to pressures
    (1) to keep interest rates low to help service the debt and
    (2) to maintain asset purchases to help finance the federal
    government. My goal today is to definitively put that narrative to rest. It is simply wrong. Monetary policy has not and will not be conducted for these purposes”

    These were my thoughts all along, in the end they will have to protect the USD, they are just seeing how far they can push it for now.

    • David Richards Says:

      Pierre, I could be wrong but I’m on the other side, thinking that a generational regime change in US financial & dollar policy has already been made this year which will usher in a new paradigm with profound implications. It’s a large topic, but for some further details, you may reference the several posts appearing on the Notes blog appearing directly above this post of yours.

  8. Arthur Says:

    Fed Chairman Jay Powell told 60 Minutes interviewer Scott Pelley Sunday night that these are not the “bad, old inflation days that we had when you and I were in college back a long time ago.”

  9. Hopgrower Says:

    My problem with statements like the one from Waller is the options. If you don’t keep interest low, maintain assets and get inflation going what are the options? Tax, which will slow growth and hit the lower socio economic classes in turn stopping the stated goals of helping those classes. I just don’t see it.

    It is a very small scale of my business’s perspective, we are having large wage inflation trying to get people to come back to work. This will lead to me rising my prices, we have demand it is just a matter of producing and filling the demand and the two factors we are struggling with right now are labor supply and some problems getting basic supply of materials. They are tied and prices are reflecting. Doesn’t mean much but in our area this is the story.

    • Pierre Says:

      Good to hear feedback on whats actually really going on in the real world.
      Our system seems to always hit harder the “lower socio economic classes”. More checks in the mail coming to keep the masses content, likely. Sad

  10. Chicken Says:

    Proposed 100% increase in capital gains taxes.

    • David Richards Says:

      IMO (which is admittedly worth nothing) that won’t happen, not even close to that much. Because that would be unhelpful for equities and, you see, the thing is that the US is a tinancialized economy nowadays. Means that US asset prices must rise in perpetuity as a matter of policy or else the US economy collapses in a hurry. As we saw about 14 months ago and about 14 months before that, to which US policymakers both times rapidly reacted by injecting bigger doses of financial policy medicine into the patient.

      Therefore, even if they did that 100% increase in cap gains tax rate, they’d quickly see the (bad) result in markets and reverse it. Which could be a good trade opportunity for nimble traders.

      I’m gussing they’ll probably do some lesser tax on the “rich” because it’s the SJW, politically correct thing to do now by the new admin? Maybe it’s even the right thing, I don’t know, that’s a political question and I don’t go there. Not my country anymore. But here, I’ve zero tax on capital gains, property, dividends, interest, crypto and all investments held locally & globally… I don’t even have to ever report, track or file anything about it with the govt. It’s an unitary-party, authoritarian govt but I enjoy financial liberty & privacy. In my book, that’s freedom.

      OTOH, currently the US in 2021 seems to me to be the place that most respects individual rights & freedom in its policies regarding the “pandemic”. Particularly in several specific states, so a big hat tip to them as that’s a big deal to me. I also see they’re attracting people and capital, so this isn’t necessarily a political view but also an economic/market observation. For example, house prices have gone nuts, like especially in Florida, rightly so. Full respect.

      Again, just my worthless opinions & observations, which could be wrong and certainly aren’t meant to offend any who disagrees.

  11. Yra Says:

    will be back in the saddle very soon–thanks everyone for all the support to this blog

    • David Richards Says:

      Yes, sanctions are sanctimonious. So is that absurd Treasury list of so-called currency manipulators. The “arrogance of Janet Yellen”, indeed. Top of her list should be the USD that Yellen and Powell are driving lower on purpose.

      • Yra Says:

        David–now I can retire in peace although we may have to coordinate a podcast on a regular basis

  12. Judd Hirschberg Says:

    David I love your insight. Keep the posts coming. Thanks Judd

  13. Pierre Says:

    I agree with Judd, thank you David for everything you share.

    • David Richards Says:

      Thank you’s. So how about this one, Pierre? Your governor for President?!! That’s not really meant as a political comment. But apparently during the pandemic Florida boasts the best state economy, the most freedom and the most effective results per Bill Maher of all people in a comic bit:

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