Archive for the ‘BoJ’ Category

Notes From Underground: Headlines Drive the Algos and the Circle Remains Unbroken

June 12, 2018

I’m going to be off for a few days, even if this Fed meeting proves to be the most market-moving week in many years.

The news from North Korea proves to be a non-event (as suspected). On Wednesday, we get the FOMC statement, which OUGHT to meet market expectations with a 25 basis point increase and some sense of the interest on excess reserve (IOER) rate in reference to fed funds. There is much discussion about the FED reaching “normal” interest rates, meaning neither too weak nor too strong to reach its dual mandate.

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Notes From Underground: Riding High in April

April 25, 2018

In building on the discussions in Tuesday’s POST it is important to note that the debt discussion that has taken place in Notes From Underground is gaining traction as an important piece of the financial narrative. The failure of the SPOOS, NASDAQ, and DOW to gain traction with the robust earning releases is forcing the perplexed to confront the impact and collateral damage from Ben Bernanke’s Portfolio Balance Channel, also known as QE or large-scale asset purchases.

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Notes From Underground: Let’s Enter the Fray

February 19, 2018

First, thank you to all the readers and friends who posted condolences and sent private notes on the passing of my dear brother Ralph. If you want to see his creativity, search for Dwight Ralphy on YouTube. They have provided me a laugh and reminder of how forward Ralph was as this work was created in the ’80s and ’90s.

For the past couple of days I have been reviewing market action and news stories that purportedly raised the volatility levels of equity, bond and currency markets. In my February 5 post I mentioned that the synchronized key reversals of the three major U.S. indices–Dow, Nasdaq and S&Ps–provided a backdrop that we have not experienced in many, many years. In June and August 2017, the Nasdaq 100 futures put in a weekly key reversal. An outside key reversal is when a market makes all-time highs and closes below the previous week’s low. This technical indicator has been a mainstay of the week of high quality technicians and last year’s failure of this long trusted indicator drove market seers crazy.

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Notes From Underground: Putting Things In Perspective

December 5, 2017

Just a few quick points that are relevant to the markets at the end of the year:

1. Tonight I am including charts of the U.S/German two-year yield differentials. The U.S. two-year note is yielding 256 basis points above the German rate. This is relevant because both instruments are high quality assets that play an important role as collateral in the funding markets. I’ve also included a 25-year chart of the U.S. 2/10 yield curve. Note that the last two INVERSIONS occurred before significant equity market corrections. Does this current flattening portend a stock market correction? We can’t be certain because the role of the central banks has certainly created an investment environment where markets suffer from a lack of RISK PREMIA in all asset prices.

 

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Notes From Underground: Prepping For Draghi

October 23, 2017

Another moment in time with Rick Santelli. We reviewed some of today’s early market reactions to the weekend events. A measure of the impact of President Mario Draghi’s ECB policy was reflected in the prices of European sovereign debt. The political news out of Spain and Italy let alone recent elections in Austria and the Czech Republic SHOULD have sent Italian and Spanish yields HIGHER but because of the ECB’s ongoing LARGE ASSET PURCHASES Spanish and Italian yields on 10-year debt actually dropped the most today.

(Click on the image to watch me and Rick discuss the weekend’s events.)

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Notes From Underground: The FOMC, BOJ and German Elections Lead the Way to Quarter-End

September 18, 2017

As the earth rock keeps spinning we continue to monitor global events that could make investors/traders dizzy. This week the FOMC is EXPECTED to announce that it will begin its quantitative tightening (QT) by revealing the date of its plan to shrink its balance sheet by a net $10 BILLION of assets a month ($6 billion of Treasuries, $4 billion of MBS) and increasing the amounts quarterly so the program results in little market disruption. Remember, Chair Yellen has said she believes that it will be “like watching paint dry.” The world’s equity markets — especially the U.S. — are reflecting little concern about the Fed withdrawing “small” amounts of liquidity.

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Notes From Underground: Arthur’s Song, Lost Between the Moon and New York City

August 28, 2017

A long-time reader of Notes From Underground posted a comment to a previous post promoting long GOLD/short YEN. When I asked him about this trade he noted the onset of currency wars. There is no question, as I have regularly shown that many foreign central banks’ currency’s strength is a reason to maintain very low interest rates and if in place QE programs. I certainly agree with Arthur about this narrative. But from a relative value perspective the Japanese yen has already benefited from its weakening versus the EURO, Aussie, Kiwi, Canada and Swiss franc.

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Notes From Underground: The ECB, FOMC Minutes and Dudley’s Speech

August 17, 2017

On Wednesday, I joined Rick Santelli for a chat, which was centered on the ECB and other central banks’ impact on global equity and debt markets. Just before the appearance, there appeared a Reuters story that said President Draghi would not speak about the ECB’s potential Quantitative Tightening, which my readers know supported what I have been steadfast in my conjecturing about possible ECB actions. IN A NOD TO A READER (hello, AGH), while it appears that all central banks pursue a common policy, THERE’S NO MONETARY EQUIVALENCE. Yes, they all purport to raise inflation the political variables each push for different outcomes.

(Click on the image to watch me and Rick discuss the central banks.)

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Notes From Underground: Shelter From the Storm

August 9, 2017

Not a word was spoke between us,there was little risk involved
Everything up to that point ,had been left unresolved
Try imagining a place where it’s always safe and warm
Come in, she said, I’ll give you shelter from the storm

When Bob Dylan released this song 42 years ago it was on the album Blood on the Tracks. When the FED embarked on its QE1, QE2 and QE3 it was to respond to the blood coursing through the streets of the U.S. financial system. The U.S. banking system was threatened with insolvency and the FED‘s monetary injections sheltered the banking system from a storm of forced systemic liquidation of assets. QE1 coupled with a questionable TARP program did prevent a systemic liquidation but QE2 and QE3 I always believed were superfluous but in the land of counterfactuals it is an impossible point to prove.

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Notes From Underground: The BOJ and the ECB Provide the Recipe For … ?????

July 19, 2017

Before I preview the BOJ and ECB I want to expound on the piece that I mentioned in the previous post written by Bloomberg reporter Alexandra Harris, who cites the thoughts of JPMorgan strategists Alex Roever and Kim Harano. The piece lists four arguments for bringing forward the FOMC‘s announcement to shrink its balance sheet:

  1. Economic conditions are supportive of balance sheet run-off;
  2. The vast amount of discussion has already prepared the market and September won’t make it any clearer;
  3. Starting NOW buys a “few extra months” of the measurement of the market impact of normalization;
  4. Finally,September is an “awkward time” because of the murky outlook for addressing the debt limit before funding runs out in October.

I agree with all these arguments and would HOPE the FED announces its intention to start shrinking the balance sheet at next week’s meeting, press conference be damned.

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