Archive for the ‘ECB’ Category

Notes From Underground: Klaatu Barada Nikto (Stop The Printing Presses!)

November 19, 2017

In this famous science fiction phrase from the movie “The Day the Earth Stood Still,” I extract my own meaning: Stop the printing before the world’s financial system is destroyed. Sci-fi writer Edmund North never deciphered the English translation of this “alien” phrase but I believe my interpretation applies to these tumultuous times in central banking. The ROBOT GORT is prevented from destroying the world when the words are spoken to him. Thus I say to Mario Draghi: “Mario Barada Nikto.” The continued use of large-scale asset purchases to enhance global liquidity in a period of increased economic growth is preventing the markets from stabilizing. The proof is in the continued mispricing of corporate debt. Last week, the BBB-rated French firm Veolia sold 500 million euros of three-year notes for -0.026%. Yes, a mediocre credit was able to borrow at less than zero. This is the insanity of the financial world to which the central banks continue to provide liquidity.

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Notes From Underground: It’s Halloween and Nothing Scares the Markets

October 31, 2017

It has been a few days since the ECB announced its intentions. There was no surprise as President Draghi met market expectations by beginning a NON-TAPER, cutting QE by 30 billion euros beginning in January 2018. So as we considered the outcome of PACE and DURATION, the ECB cut the pace in half and extended the program by nine months to September 2018. The most significant piece of the Draghi press conference was his persistence on making the composition of future purchases. It seems that the ECB will utilize the European corporate bond market to meet its requirement and stay true to its CAPITAL KEY. By buying more corporate debt the ECB will find enough German assets to buy. The major problem for the European markets is that UNLIKE the U.S. financial system, European banks are a much more important actor as they provide far more corporate loans on a percentage basis of GDP than U.S. banks. The U.S. financial system relied to a far greater extent on issuing bonds. We have previously discussed the absurd chart showing European high yield debt to have a lower interest rate than 10-year U.S. Treasuries.

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Notes From Underground: Him Or Me, What’s It Gonna Be?

October 24, 2017

President Trump is the ultimate drama queen. The president is drawing out his FED selection as he titillates the markets with the drips and drabs as to who is the most probable choice. Here is my best guess: Because this president reminds the nation how great he is doing using the stock markets as the barometer it would follow that his choice would be the best one for keeping equity prices elevated. Kevin Warsh and John Taylor would be a problem as the equity markets would become cautious for fear of short-term interest rates rising at a quicker pace. It seems that Jerome Powell and Janet Yellen would be the ones to sustain the current stock rally as they are known entities to the Wall street contingent. Of course the ultimate booster of all asset classes would be Neel Kashkari, the latest dissenter to the previous rate increases in 2017.

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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: Some Areas Of Concern and Importance

October 16, 2017

As the tinder of prairie fires builds, these areas of concern are important because of the potential impact they can have on the market:

1. Sunday’s election results in Austria give rise to concerns about the rise of euroskeptic groups in several European nations. Yes, the anti-immigration sentiment appears to be the dominant variable in bringing a right-wing government to Vienna, but the sparks from xenophobia can manifest into an anti-ECB issue as domestic citizens are asked to foot the bill for bail-outs of Italian banks. Many citizens of various European states have borne the costs of bailing out Italy, Spain, Ireland, Greece and Cyprus through negative interest rates, the ultimate tool of financial repression. German two-year notes are currently -73 basis points, even though German inflation is approaching 1.7%, resulting in a real yield of NEGATIVE 2.5% for the savers in German-based banks. Regardless of what the ECB does in terms of quantitative tightening President Draghi has maintained that negative rates will remain lower for longer. Financial repression will be the next theme for the European right.

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Notes From Underground: Trading Strategies For An Automated World

October 10, 2017

Yesterday, I sat down with the group TOPSTEP TRADER to discuss ways I prepare to trade. Topstep is a private group that educates/prepares potential traders for a profitable existence. As the fourth quarter has begun, I thought this video would be beneficial as a review for my readers. Reviewing rules and concepts are important, especially as I BELIEVE WE ARE HEADING INTO A PERIOD OF INCREASED VOLATILITY. A rise in market volatility can be a time of great profit but it comes with a major increase in risk. The complacency of the market because of the central banks continued intervention coupled with the risk selling of the risk-parity crowd. I say crowd because it is not just AQR and Bridgewater involved in risk parity but there are many volatility sellers piggy backing on the power of the largest market players. Remember, when George Soros/Druckenmiller broke the Bank of England in September 1992, it wasn’t just Soros but many of the banks servicing Soros were tailcoating the Quantum Fund. But when the elephants leave the drinking hole many denizens of the jungle get crushed (Niederhoffer).

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Notes From Underground: Angie, Angie (As Told By the Rolling Stones)

September 25, 2017

Mick Jagger was prescient when he sang these words in 1973:

You can’t say we never tried
Angie, you’re beautiful
But ain’t it time we say goodbye
Angie, I still love you
Remember all those nights we cried
All the dreams were held so close
Seemed to all go up in smoke
Let me whisper in your ear
Angie, Angie

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Notes From Underground: German Elections. The Sound of Complacency Shattering?

September 24, 2017

I will start tonight’s BLOG with two very good comments from a long time reader and contributor GREEN AB who hails from Germany. Green has always provided great insight and though we don’t always agree I have great respect for his perspective. On Thursday he posted a very prescient forecast about today’s election and Sunday he followed with a post-election thoughts.

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Notes From Underground: The Sound Of Complacency Shattering

September 19, 2017

First, for all those in the Notes From Underground community who celebrate Rosh Hashanah, have a happy and healthy New Year. For those who don’t I also wish you a happy and healthy New Year. Thanks for your continued support and if I angered you with my thoughts I have to say it was not done to be hurtful but rather to provoke a high-quality discussion around issues in the realm of global-macro finance. When I listened to the Ray Dalio interview on CNBC today it was comforting to know that the mission of this BLOG is similar to what Dalio tries to accomplish with his employees. NOTES FROM UNDERGROUND is not about PERSONAL VALIDATION but about discourse in the crucible of financial ideas, striving to refine the GOLD from the DROSS. Let’s hope the SHOFAR BLAST shatters the complacency of our static thoughts in all matters of our lives.

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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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