Archive for the ‘Fed’ Category

Notes From Underground: Further Into the Fray

February 20, 2018

On Tuesday the news was filled with the release of an analysis by the research combine at Goldman Sachs warning about the negative outcomes from the increasing amount of debt as interest rates rise, lifting the negative percentage of interest payments relative to GDP. (See the CNBC story, “Goldman Sachs Sees Red Ink Everywhere,Warns U.S. Spending Could Push Up Rates and Debt Levels.”) This is another voice warning about the ill-timed fiscal stimulus and budget deficit increase late in the economic cycle. In an interesting juxtaposition, the WSJ had an article published last week titled, “Cohn Downplays Concerns Over Rising Inflation, Bond Yields.” Speaking in his position as Trump’s top economic advisor, Cohn maintained that the White House is not worried about an overheating economy. Cohn emphasized, “We know how to deal with inflation. We don’t know how to deal with deflation in this country.”

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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: This Is A Week Filled With …

January 29, 2018

This week for global macro traders is packed with data and policy statements that can ignite the volatility fuse. On Tuesday night, President Trump, the conquering hero of Davos, will deliver the State of the Union address. Chair Janet Yellen will oversee her final FOMC meeting this week. There are also several data releases Thursday and Friday, culminating with the unemployment report.

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Notes From Underground: Feeding the Ducks (Part Two)

January 10, 2018

Tonight, I’d like to expound on the recent musings from Chris Whalen, titled, “Bank Earnings &Volatility.” Whalen stresses that the FED will not be selling assets but merely ending “its reinvestment of cash when securities are REDEEMED,” (emphasis mine). In what I consider a key point raised, Whalen said, “Yet as we and a growing number of investors seems to appreciate, the FED cannot force up long-term rates so long as it is sitting on $4 trillion worth of securities THAT IT DOES NOT HEDGE. More given that the Treasury intends to concentrate future debt issuance on short-term maturities, downward pressure on long-term bonds yields is likely to intensify.” Whalen also said, “What the FOMC has done to the markets via QE is essentially reduce potential volatility by holding securities and not hedging these securities.” The key point is enhanced by the fact that both the ECB and BOJ do not hedge their security exposure either so volatility has been diminished by the reduced hedging.

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Notes From Underground: The Same Old Song, With a different Beat (Since 2017 Be Gone)

January 4, 2018
After a sharp selloff late on December 29 the market has regained its mojo and rallied 2%. While the first two days of trading for the European markets were not confirming the S&P rally, the DAX and Euro Stoxx 50 rallied with the EURO STOXX 50 closing back above its 200-day moving average on Thursday. The consensus from Wall Street analysts is for emerging markets and Europe to be better alternatives to U.S. investment prospects. Many quality strategists believe the U.S. equity markets are stretched in its valuation while Europe’s recovery is gaining momentum and emerging economies should be the major beneficiary of a synchronized global expansion.

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Notes From Underground: Things On Our Radar Screen in 2018

January 2, 2018

The last trading day of the year, me and Rick took a BRIEF look into concerns about 2018. Three minutes is not enough time but it does afford the opportunity to put some ideas out that are not people’s screens. As the month progresses we will discuss several items in greater detail. I want to tell readers to review the very vibrant discussion that is taking place on the last blog post. Thank you to all the participants for providing insights into the global macro world. The discussion is first class, representing dialectic efforts, not validation. (A tip of the cap to  Dave, Stefan Jovanovich, Chicken, Big Man  and Professor Waspi for enhancing the quality of analysis.) Dave Richards and Asherz have been regular contributors and have certainly been on top of the precious metals markets and the weakness of the dollar. Tonight I will briefly discuss some issues outside the generally accepted narrative.

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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: An Arthur Fonzarelli Moment for Yra

November 29, 2017

Six weeks ago I did a podcast with Anthony  Crudele and Rick Santelli about markets. I brazenly said the S&Ps would experience a 10% break before a further 3% rally. The S&Ps were at 2550 and as of this morning the 3% has been actualized long before the 10%. My respects to Rick Santelli, who was right on target with his call to purchase all equity markets for the next period of time. In true FONZI ways, I was wrong. But I have been liquidating long-held stocks into this rally and will continue to do so as I view this 23% rally since the Trump election as a great gift. If I had predicted on November 9 that the S&Ps would be 23% higher a year later, you would have had me committed.

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Notes From Underground: William Dudley Starts Goodbye With a “Dud” Speech

November 6, 2017

As reported over the weekend, New York Fed President William Dudley is turning in his keys to the printing press and leaving the Fed in mid-2018 to spend more time with his family (Goldman Sachs). In a speech delivered to the Economic Club of New York, the reigning king of the New York Fed praised the central bank for its effort to prevent a collapse of the global financial system. He laid blame for the crisis on all the familiar miscreants but mostly stressed that “the safeguards put in place in response to the crisis are fully appreciated and respected.” President Dudley maintains that the global financial crisis was a result of lacking the tools to regulate the entire financial system and sums up his analysis: “We had woefully inadequate regulatory regime in place,and while it is much better now, there is still work to do.”

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Notes From Underground: An Assessment of Market-Moving Events (Or, Which Narrative is Most Critical?)

November 5, 2017

Three central bank meetings, the selection of a new Fed chair, the release of a major new tax policy and the unemployment report provided the markets with great potential for increased volatility. Instead the markets yawned and carried equities to new all-time highs.The central bank decisions went as expected; the unemployment was a bit weaker than projected but the weather problems from the hurricanes have probably not been fully tallied.

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