Archive for the ‘SNB’ Category

Notes From Underground: Another FRA Podcast

September 30, 2018

I am posting the latest PODCAST from the Financial Repression Authority (FRA), in which Peter Boockvar and I talk markets with Richard Bonugli. This PODCAST sets out the market issues that financial markets will confront in the fourth quarter.

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Notes From Underground: Is April The Cruelest Month?

April 29, 2018

As T.S. Eliot warned in The Wasteland, April is the cruelest month, as the thaw of winter gives way to hope as the world returns to rejuvenation. April has delivered the first quarter corporate results and it is no exaggeration to state that revenue and earnings have exceeded expectations. However, the equity market results have failed to respond to the robust numbers as the SPOOS have gained a mere 1.25% and remain unchanged on the year. The NASDAQ 100  has been a much better performer as the TECH sector continues to cruise.

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Notes From Underground: Kudlow’s Dilemma, Tariffs Versus King Dollar

March 18, 2018

The newswires were flushed with either praise about the appointment of Larry Kudlow to lead the National Economic Council, or concerns about his past dalliances with drugs and supply-side economics. This BLOG doesn’t care about one’s past human foibles as we all have failings. But the addiction to supply-side economics is and will be an issue of concern as the White House attempts to push forward with a coherent policy. The great showpiece of last week’s media frenzy over Kudlow was the transparency of what I have referred to as the mainstream media’s desire for access versus genuine discourse. CNBC was giddy over the idea that one of the network’s talking heads was going to be a key figure in forthcoming economic discussions and old loyalty OUGHT to provide greater ACCESS. The questions for the consumers of financial news will be who abuses the relationship more. But enough editorializing.

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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: A Celebration Of The Greatest Act Of Financial Alchemy (Ever)

October 25, 2017

The Swiss National Bank (SNB) has pulled off the greatest act of alchemy by printing copious amounts of Swiss francs (CHF) and turning the currency into real corporate assets. The SNB has grown its balance sheet to CHF800 billion¬† from CHF500 billion in 2015, 85 percent of which is foreign exchange holdings in various forms. As the SNB struggled to weaken the franc to prevent the ultimate safe-haven currency from strengthening and putting the Swiss economy into a DEFLATIONARY SPIRAL. The Swiss experiment began January 15, 2015 as the SNB officially removed the EUR/CHF PEG, which it was attempting to HOLD. Yet the market kept buying the franc despite the SNB’s efforts (the PEG had a 1.20 floor).

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Notes From Underground: The More Things Stay the Same, the More the Headlines Change

September 14, 2017

The BOE held true to consensus and kept rates unchanged and maintained its balance sheet at 435 billion pounds, with the votes were exactly the same as the August meeting. The POUND fell on the initial headlines but the algos reversed as it was reported that there MAY be a need to raise rates due to the lessening slack in the economy. Governor Carney is reading from the Mario Draghi book, “Rules For Central Bankers.” He cited Brexit as the cause of a supply shortage because of reduced investment into the U.K. Wow! This is nonsense as stagnant wages are limiting domestic demand but Carney insists the negative fallout is constraining supply. With interest rates at record lows British firms could borrow all the cash they need to finance expansion. Carney needs BREXIT as the cover for his massive error. Remember when he panicked and cut rates following the BREXIT vote?

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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: Yield Curves Are Needles and Pins

August 7, 2017

I saw her today, I saw her face
It was the face I loved, and I knew
I had to run away
And get down on my knees and pray,that they go away
Still it begins
Needles and pins

These lyrics seem to describe the market’s relationship with Janet Yellen and her FOMC board. When I blog about yield curves it seems to elicit the greatest response as traders are trying to position themselves in a low-risk, high-reward trade. There was a question on last night’s POST from RLD concerning the 2/10 curve and the possibility of buying bank stocks, if my thesis about a steepening curve reaction to QT is correct. This is an interesting query and reflects on the intelligence of the readers of NOTES. The mainstream media reports on the relationship of yield curves and bank stocks in a regular fashion and theorizes that the correlation is high: Steeper curves beget higher bank revenues resulting in higher bank stocks.T he correlation is far from consistent as bank stocks were making highs in 2007 even as the curve dramatically flattened.

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Notes From Underground: James Gorman Gets Duped, So He Dupes the Nation

June 15, 2017

It seems that Morgan Stanley Chairman/CEO James Gorman was duped by an e-mail hacker. So in measure for measure the Morgan Stanley chief tried to dupe the world with his op-ed in the Financial Times on Wednesday. In an opinion piece titled, “The Last Thing Banks need Is Yet More Rules.” Gorman said in response to the idea of a reinstatement of Glass-Steagall:

“More than ¬†80 years ago, the U.S. enacted the Glass-Steagall legislation that separated traditional commercial banking from investment banking. Over the ensuing seven decades, as global trade and finance expanded,the divide between commercial and investment banking broke down. Recognising that global companies needed full-service banks, the U.S. embraced a system adopted by most other countries, including Germany, Japan, Canada, the U.K. and Australia. Ending Glass-Steagall [the law was repealed in 1999] had nothing to do with the financial crisis, and there is no reason to return to it.”

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Notes From Underground: Warren Knocks Out Mnuchin

May 18, 2017

In Thursday’s testimony before the Senate Banking Committee, Treasury Secretary Steven Mnuchin took a beating from Senator Elizabeth Warren over the issue of Glass-Steagall. There are many policy issues in which I disagree with Senator Warren but when it comes to Wall Street regulation, she is one of the most knowledgeable people in the Senate and far beyond those walls. During the Great Financial Crisis she appeared regularly on CNBC and Bloomberg television networks. While merely a Harvard law professor, she offered great insights and understood the depths of the problems that caused the crisis. If Jamie Dimon had not blocked her appointment as head of the Consumer Finance Protection Bureau (a wild conjecture on my part), she would not be a U.S. Senator. After president Obama caved in to Wall Street pressure, Warren ran for the Senate in Massachusetts in 2012, defeating Scott Brown.

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