Archive for the ‘Commodities’ 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: The Importance of Being Lighthizer

May 24, 2018

The plot thickens as the media is filled with one leak after another in regards to tariffs or threats to embark on a road to perfidy by invoking section 232 of the 1962 Trade Act: Using the broad cover of national security to justify increased import duties on autos. [In a hat tip to A. Limey] It is time to acknowledge that the “brain” of President Trump’s trade team is Robert Lighthizer.

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Notes From Underground: Ghosts (Past, Present and Future)

December 21, 2017

I want to wish every one who celebrates Christmas a very joyous season, and, most importantly I want to wish all my readers a year of good health and peace. The meaning of Christmas, Hanukkah and the spirit of the season should resonate with us everyday of the year. As I have told my children over the years about their wedding day: It is the least important day for it is the next day that matters most as does every day that follows. May we experience the meaning of the season each and every day of the coming year. I was always amazed that wars would halt for a Christmas truce but begin hostilities 12 days later. If you could stop for 12 days why not 12 months?

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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: The Chinese Cite Hyman Minsky

October 19, 2017

First a few jokes: My sources tell me that the new Fed Chairman will be Marc Faber; second, as Lloyd Blankfein is chirping about Brexit and Goldman moving to Frankfurt, Germany, he opined several years ago that Goldman was doing God’s work. Well, being the cyclical time in the Jewish Torah of the reading of NOAH, I remind Blankfein that Noah was also part of God’s work. (Pour a scotch and laugh).

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Notes From Underground: Be Very Afraid Of Jerome Powell and His Printing Press

October 3, 2017

Over the past 15 months, I have made light of Fed Governor Jerome (Jay) Powell because of his answer to a question I had asked him at a symposium presented by the Chicago Global Initiative. I asked Governor Powell, “Who guarantees the balance sheet of the ECB?” Without hesitating, Powell said, “THEY HAVE A PRINTING PRESS.” If this is his answer to issues of debt overhang I will be closely watching the precious metals if Powell actually became Fed Chairman. Janet Yellen has proven far more competent than Jerome Powell would be under any top of stressful central bank situation.

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Notes From Underground: The Unemployment Data? I Suppose It’s Meaningless

August 31, 2017

It’s the first Friday of the month so that means we will have the jobs report at 7:30 CDT and 7:29:59 if you are a high frequency trading operation you do the math. Consensus is for 180,000 non-farm payrolls and the overall rate remaining unchanged at 4.3%. The most important piece is the average hourly earnings (AHE), which is predicted to be 0.2% which is lower than the July data. Regardless, with the economic impact from Hurricane Harvey still an unknown the FED will be kept from raising interest rates at its September meeting. But if the AHE is strong the FED may move to commence shrinking its balance sheet because Lael Brainard has already informed us that the FED analysts theorize that QT has far less economic impact then a RISE in the fed funds rate.

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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: Can Jackson Hole Foster a “Dynamic Global Economy”?

August 22, 2017

This is the topic of discussion for this week’s meeting in Jackson Hole. For the Federal Reserve system, this is a statement, but I raise it as a question. A long-held theme of this BLOG has been that what the Federal Reserve, ECB, BOJ, BOE and other central banks promote as certainty supported by mathematical models I maintain IS NOT ROCKET SCIENCE.

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Notes From Underground: Putting This Week In Perspective

August 10, 2017

Just when the volatility sellers were heading to the beaches to bask in the glow of easy money comes the tweeter-in-chief to crush the complacency. The airwaves were full opiners who warned of a market that is fully valued.Gundlach and Dalio added their two cents for measure, espousing the need to hold GOLD as a hedge against geopolitical uncertainties. Again, it is not political uncertainty but the malfeasance of central banks that should be the concern of global investors. Deflation is the ingredient for central bank panic. As Peter Boockvar reminded his readers today: Gold is a monetary haven.

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