Notes From Underground: Get Smart

There are so many things to consider when trading in the current climate. First and foremost, CAUTION is the key word, not FEAR. As Billy Joel would say, “We didn’t start the fire,” but as traders and investors we have to dance on the embers. The trading environment is dangerous because the algo-driven trading shops are being bombarded with an endless flow of headlines and outlets fighting to be the first to report any news story. Let the speed merchants draw markets to levels where risk can be measured rather than trading just to trade.

There are relevant themes that will be playing out for profit. Commodities have been a constant for NOTES FROM UNDERGROUND, especially the precious metals. Food and energy will continue to be a major theme as the Chinese and other nations cannot be caught with food shortages. Credit Suisse analyst Zoltan Pozsar has written two thought-provoking pieces laying out scenarios about the end of the PETRO-DOLLAR system as the U.S. and Europe place a strangle hold on the Russian foreign reserves, forcing them and others to search for an alternative to a dollar-controlled system. Pozsar’s pieces are provocative and his reputation as one of the best financial analysts of the monetary markets makes him very credible. It may take awhile for the ideas expounded in Pozsar’s thesis to play out but his analysis is worth a read.

***On Thursday we heard from the ECB. The statement was more hawkish than anticipated, putting upward pressure on the euro area sovereign debt markets. The central bank intends to end its PEPP purchases — as was announced at the previous gather — but it seems the ECB will taper its purchases each month beginning in the second quarter, ending June at 20 billion euros. This caused spreads relative to German debt to widen.

What was for certain was that ECB President Christine Lagarde couldn’t HIDE the contentiousness of this meeting as the anti-inflation Hanseatic group appeared to be pushing for a quicker pace of NORMALIZATION. Lagarde was adamant that the ECB was not tightening but normalizing. And probably for the first time ever, Lagarde actually acknowledged that the discussions surrounding the pledge to end QE were intense. 

We have no idea where this goes as Brussels is meeting in order to put forward a massive EURO fiscal stimulus plan to support energy and military spending that is necessary to create a stronger and independent EUROPEAN UNION. More broadly, this means that it’s likely the FED will proceed with its 25 basis point RATE HIKE this week. Be patient in dealing with a world trying to comprehend where politics and finance reside at this juncture.

In the meantime, enjoy the podcast with myself and Jacob Shapiro, a non-traditional thinker in the world of GLOBAL MACRO.

Click here to listen to the podcast. 

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18 Responses to “Notes From Underground: Get Smart”

  1. raymack1999 Says:

    thank you Yra for keeping your eye on the big picture!

  2. Asherz Says:

    With Nixon decoupling the dollar from gold, the US was in danger of losing its reserve currency status. The 1974 deal with Saudis Arabia in creating the petrodollar saved the dollars preeminence. This has allowed the trillions of trade deficits for almost the next half century. A boycott of Russian trade is hastening the exclusivity of the petrodollar and will create another reserve currency elsewhere.
    The decline of the standard of living for Americans is somewhere in the not distant future as we will have to live within our means.

  3. Nathan Says:

    Yra enjoy your commentary as always

  4. Michael Temple Says:

    If a sea change is afoot ala Zoltan’s dire outlook, then it is time for the Shamans of high finance to re-examine the logic of risk parity strategies. Additionally, the algos should start to focus more on the reasons to get long commodities and PMs, instead of looking for bearish headlines to trigger paper carpet bombing

  5. richard dreisen Says:

    Our economic world is about to change forever! Thanks for a terrific 2+2 = 5 !!!
    rl dreisen

  6. Richard H Papp Says:

    As i interpret Dow Theory, the end of February, 2022 gave us a Bear Signal. What is it telling us? Is it saying that earnings are headed down, that there are goings to be huge deficits in every segment of business and that monetary inflation is going to be used in an attempt to keep us going?

  7. Econosums Says:

    Why did Putin make a choice so fraught with costs. His army isn’t big enough, his rules of engagement not bloody enough, the politics of his choice so dreadful and the tactical situation favors the defender over time. Why did he do it? Did he intend to break the global financial system, dollar hegemony and the even the Eurozone? As the US and Nato go all in with their economic warfare regime, time doesn’t seem to be their friend either.

  8. ARTHUR Says:

    What happens when you have rising oil prices, inflation, interest rates, and commodities at the same time?

    • David Richards Says:

      You get the next step, by design. Economic destruction, war, and “Build back better”.
      Pepper spray davos.

  9. kevinwaspi Says:

    Did I hear that our friends the Saudis are now accepting Yuan as payment for oil?
    Yes, pepper spray Davos, D.C., Brussels, and the rest of the enlightened centers of “leadership”.

    • David Richards Says:

      Yes, exactly as the aforementioned Zoltan Pozsar explained would happen in a recent note. But the political leadership ignored the experts’ warnings (and even their own Fed Chair), and instead promptly proceeded with ill-conceived knee-jerk reactions not thought through, blindly believing it was effective one-way punishment. But it’ll actually boomerang hard later because “When you believe in things that you don’t understand, then you suffer” [Stevie Wonder]

      • Yra Says:

        David —just so right on and finishing with the great Stevie it shows your in -depth INNER VISIONS which is what NOTES is all about—-what is ostensible everyone can see it is the search for more that is not readily visible which leads to the greatest potential for profit.You have been a great addition to this BLOG for so many years—and the battle cry of NOTES remains PEPPER SPRAY DAVOS because the world’s elite which knows no gender needs to cry as much as those that they have sustained in tears for so many years—ah it seems like only yesterday that Davos proclaimed XI a guardian of free trade–the Saudis have fired a significant shot and back in October,2017 the Saudi King going to Moscow was a seachange—-the protector of Mecca and Medina heading to the Capital of infidelity was certainly noted

  10. Yra Says:

    • ARTHUR Says:

      Three lessons from Bruce Kovner (Caxton 20th Anniv.)

      1. Listen to the market. Listen!!!
      2. The world changes. Take geopolitics seriously!!!
      3. Risk control. Risk control. Risk control!!!

  11. ARTHUR Says:

    What’s a Minsky Moment, and Why the Worries About One

  12. TraderB Says:

    *2.5% interest rate 7.5% inflation = -5% real rate

    *2.5% expected risk free rate + Fed buying $120B less bonds per month + $110 Oil = A risk-on environment (???)

    2+2=5 or something like that…

    Rising short term treasury yields are telling the Fed to leave.
    Falling stocks are supposed to say “Now you’s can’t leave”.

    How do you front run a Fed bailout before we even get a sell off worthy of their “courage to act”? Apparently some people are eager to get a head start. Let’s lever up that bet on these valuation levels even more. Carry trades are the gift that just keep on giving all year long Clark.

    ‘In High Multiples We Trust’
    (New tagline for the $1,000 Bill)

    Inflation is transitory, there is eventually a path to policy normalization, and OJ is still trying to find the real killer.

    $2,000 + $2,000 = $5,000

  13. The Bigman Says:

    More fuel for the bonfire of the USD

    These morons just don’t get it.

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