Archive for the ‘Countries’ Category
May 19, 2024
We at NOTES FROM UNDERGROUND are posting a PODCAST that was recorded Thursday, which addresses what I think will be an important for the global economy: the uber weakness of the YEN.
That has been the product of global finance as the decades-long zero inflation rate policy has been the immovable object of higher-for-longer U.S. interest rates. It’s helped sustain the interest carry trade, where financial engineers borrow in low-cost YEN and invest in equities, REITs and sovereign bonds all around the globe. The long Mexico/short yen has been a master class in the functioning of the carry trade: 10% Mexican rates and contained inflation resulted in a rising peso and falling yen with a guaranteed 10% yield differential and a strengthening currency as a kicker.
The question for G-7 officials and of course the G-20 is: Has the weakening YEN resulted in an overwhelming competitive advantage for the Japanese in their effort to be “reshoring” industry after the Japanese economy suffered a hollowing out due to an overvalued currency for many years?
There are so many concerns about the political economics of this potential dilemma and with the G-7 finance chiefs and central bankers meeting this week it is a critical time to look into the issues of the YEN and its global role. On Thursday Richard Bonugli hosted Sam Perry of Pictet Asset Management, an expert on Japanese investment, Tobias Harris a well-known expert on Japanese political economy, and myself as we set out to understand and shine some light where so many analysts fear to go. Judd Hirschberg of White Wave Investing was kind to provide real-time charts on various levels of concern.
Enjoy this podcast with the libation of your choice.
Click here to watch the podcast.
Tags:carry trade, G-20, Japan, Japanese yen, Mexican peso
Posted in Currency, Japan | 4 Comments »
March 20, 2023
… Does it take to screw up banking systems?
For those who may not remember, in July 2012 then-ECB President Mario Draghi said he would use any monetary policy tool in an effort to PRESERVE THE EURO.
During a testimony before EU Parliament on Monday, European Central Bank President Christine Lagarde boasted that the central bank and the
EUROPEAN UNION had all the necessary tools to ensure against a banking situation similar to the US and the Swiss authorities. The problem for Lagarde is that EU banks were progenitors of the
COCO bonds that caused so many Credit Suisse investors a great deal of financial pain. (Speaking of which,
here is a post from 2013 in which we warned about the proliferation of COCO bonds.)
The markets achieved a sense of calm in believing that the global authorities have things “under control” as equity markets rallied, precious metals stabilized and BOND prices fell as now the focus turns to the FOMC meeting that begins Tuesday. Many pundits such as Larry Summers and Mohamed El-Erian are advising Chair Powell to stay the course on the inflation fight and raise interest rates 25 basis points at this week’s meeting that concludes on Wednesday.
The rationale for doing so is that the inflation fight is far from over and because the ECB boosted its benchmark rates by 50 basis points last Thursday some rate increase is warranted. We at NOTES FROM UNDERGROUND VEHEMENTLY DISAGREE. For at least the last four months central bank credibility has been an issue because the PRICE of GOLD was rising even as the central banks became more aggressive in their inflation fight. This has been MY MANTRA for 30 years about GOLD: It’s not an inflation hedge but a hedge against central bank credibility in a fiat currency world. If I were Chair Powell I would confront the PUNDITS with the following wisdom:
The Committee decided to hold rates at 4.75% because of the rapid increase in the TIGHTENING OF FINANCIAL CONDITIONS. We are well aware that last week the ECB raised its overnight bank rate by 50 basis points and applaud their continued efforts to confront their inflation problem. But, the FED has already increased its RATE to 4.75% while our inflation levels have dropped well below those of the EU. It seems that energy and food prices have moderated while FINANCIAL CONDITIONS have tightened just as I postured at the last press conference. We are PAUSING because we believe LENDING CONDITIONS WILL BE TIGHTENING in response to the turmoil in the bank markets, both locally and globally. While the Committee has acted with the Treasury and FDIC to provide enough liquidity to restore calm we believe the present fragility of the banking system requires DISCRETION AND NOT BLIND ADHERENCE TO THEORETICAL MODEL OF FORWARD GUIDANCE.
In closing, I would add this wisdom from former Chair Alan Greenspan in a speech he delivered at Jackson Hole in August 2003:
“Despite the extensive efforts to capture and quantify … these key macroeconomic relationships, our knowledge about many of the important linkages is far from complete and in all likelihood will always remain so. Every model, no matter how detailed or how well designed conceptually and empirically, is a vastly simplified representation of the world that we experience with all its intricacies on a day-to-day basis. Consequently, even with large advances in computational capabilities and greater comprehension of economic linkages, our knowledge base is barely able to keep pace with ever-increasing complexity of our global economy.”
We at NOTES FROM UNDERGROUND have been a consistent critic of the Fed — 13 years and counting — and endlessly warned that QE and all of its baggage was subverting central bank credibility. We have repeatedly cautioned that global leveraged risk in so many forms would result in financial instability as BANKS rushed to curb transitory inflation.
STOP DEPENDING ON EQUITY MARKETS AS THE TELL IN FINANCIAL CONDITIONS it is a methodology promoted by the purveyors of asset peddling. PAUSE AND TAKE A MEASURE OF THE FINANCIAL UNCERTAINTY INFECTING THE GLOBAL FINANCIAL SYSTEM. The political backlash you will be facing from those warning about how workers will pay the price in unemployment while the RENTIERS GET BAILED OUT. It is FIRST REPUBLIC ON THE BOIL NOW BUT WITH LESS LENDING AND HIGHER RATES ON THE HORIZON THE COMMERCIAL REAL ESTATE LENDERS WILL BE NEXT. IS 25 BASIS POINTS WORTH IT? Where is your cost-benefit analysis?
Tags:ECB, European Central Bank, Federal Reserve, financial conditions, Gold, Jerome Powell
Posted in ECB, Fed, United States | 16 Comments »
March 12, 2023
A constant theme at NOTES FROM UNDERGROUND has been that the lunacy of Federal Reserve Chair Jerome Powell finding his inner Volcker belongs in the pantheon of fantasy. As I have said before: Paul Volcker wouldn’t be able to find his inner Volcker in a financial system plagued with HUGE amounts of leveraged risk, coupled with a huge overhang of both PUBLIC and PRIVATE DEBT. And yet FED officials are still out there pondering whether to raise 25 or 50 basis points at the next meeting.
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Tags:2/10 yield curve, debt overhang, Federal Reserve, Silicon Valley Bank, SVB, yield curve inversion
Posted in Debt Market, Fed, United States | 8 Comments »
November 20, 2022
The day after the FED meeting I sat down with the FINANCIAL REPRESSION AUTHORITY and did a podcast with David Rosenberg and Peter Boockvar. The discussion is still relevant as it speaks a great deal about bond, equity and, in particular, currency valuations. Then on Monday, November 7 Richard Bonugli hosted an hourlong discussion with Brent Johnson and myself, which was also about currency valuations and the precarious global situation of massive debt overhang. Finally, I recorded a third podcast with FRA and Eric Peters about crypto and the possible fallout from the collapse of FTX. There’s lots to digest here but as always I remind readers that the only relevance for traders/investors is to find meaningful trades or investments. Otherwise we are just talking to hear ourselves talk, which is in the very real sense meaningless. Also, it is not always what you make through relevant ideas but the capital preserved by not following the herd.
Click to listen to the Nov. 4 podcast with David Rosenberg and Peter Boockvar.
Click to listen to the Nov. 7 podcast with Brent Johnson.
Click to listen to the latest podcast with Eric Peters.
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Tags:central banks, Federal Reserve, Jerome Powell, QE, QT, quantitative tightening, rate hikes, US dollar, yield curves
Posted in Currency, Debt Market, Fed, United States | 9 Comments »
October 25, 2022
There is a great deal of political noise reverberating out of the Chinese political system as President Xi has asserted his Mao-like vice grip over China’s political, social and military reins of power. The rule of the DENG XIAO PING — HIDE AND BIDE — is officially closed. China, through XI, has revealed it will no longer HIDE its wealth/power or bide its time. The newest threat to the Bretton Woods HEGEMON has stepped to the fore to directly compete with the US Empire. The outcomes of Xi’s newest maneuvers will not be revealed for a time period but be assured that changes are afoot in the Pacific Region. How the wealth outcomes are determined will take a long time but if the competition is violent the destruction will be vast. Hopefully, the world — including the US — will engage in firm but friendly competition rising the standards of construction to new and enhanced levels for the entire globe.
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Tags:China, Federal Reserve, Janet Yellen, Jerome Powell, US dollar, US Treasury Market
Posted in Currency, Fed, United States | 16 Comments »
September 25, 2022
As I go into hiatus I am posting a PODCAST recorded on September 20 with world renown Professor Dr. Alhajji, in which we discuss global energy and its implications on global politics and finance. The Financial Repression Authority, under the auspices of Richard Bonugli, has provided a wonderful platform for allowing me to discuss the most relevant global macro topics with the leading thinkers in the realm. The wisdom of Mr. Bonugli allows for ferreting out investment ideas — both long and short — to help provide insight and profit for readers of NOTES FROM UNDERGROUND. Enjoy the podcast and I look forward to writing after the period of the Jewish Holidays as I’m in need of deep introspection. Wishing those who celebrate a coming year of health, peace and prosperity, and for those of other beliefs I wish you the same.
— Yra
Click on the link to view the podcast.
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Tags:Bank of Japan, Fed Funds, Federal Reserve, Japanese yen, Jerome Powell, US dollar, yield curves
Posted in Currency, Fed, United States | 20 Comments »
September 14, 2022
It was a fortuitous day that Richard Bonugli arranged a podcast with Joseph Wang, author of the Fed Guy and an former employee of the New York Fed’s System Open Market Account (SOMA). The podcast was recorded 90 minutes after the release of Tuesday’s CPI data so there was much to discuss in real time about FED policy, the recent moves in the SPOOs, dollar, commodities and precious metals were all reversed because the MARKETS seemed to have been caught off guard by a much higher number than Wall Street pundits anticipated.
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Tags:CPI data, fed funds futures, Fed Funds Rate, Fed guy, Federal Reserve, Joseph Wang, QT, quantitative tightening, US dollar
Posted in Currency, Fed, United States | 3 Comments »
May 22, 2022
Since the Zoltan Pozsar challenged Federal Reserve Chair Jerome Powell to find his inner Paul Volcker and raise interest rates high enough to bring the inflation expectations to heel. (He argued draining liquidity and raising rates to a NEUTRAL level OUGHT to be the medicine needed to truly render the current high inflation levels TRANSITORY.) Last week, Pozsar pushed on the theme again with a piece titled, “Ride of the ‘Volkyries'” in which the issue of financial conditions tightening is discussed in reflection to current FED policy of curbing inflation through the crushing of demand.
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Tags:financial conditions, Janet Yellen, Jerome Powell, Paul Volcker, US dollar, wealth destruction, Zoltan Pozsar
Posted in Currency, Fed, United States | 15 Comments »
May 3, 2022
Yes, Wednesday is FED day and the markets are expecting a 50 basis point increase in the FED FUNDS RATE to a range of 0.75% to 1%. The most important issue will be the size of the balance sheet unwind and whether Chair Jerome Powell is good to his heightened concerns about headline inflation means a full throttle on balance sheet shrinkage, reaching the full $95 billion a month at a quick pace. So Jerome, let’s have at it and let the markets decide the impact on myriad asset classes. In 2018, this double shotgun of QT and interest rate hikes proved too much for the highly leveraged global markets. Now that the Fed’s balance sheet is twice as large let’s see how it will affect the leverage in the global system.
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Tags:balance sheet unwind, Fed Funds Rate, Federal Reserve, inflation, Jerome Powell, QT, rate hikes, U.S. Dollar
Posted in Fed, United States | 10 Comments »
April 28, 2022
In the first post about the YEN/YUAN, we discussed the current significance of the cross, and with it a rising dollar. Now we will provide CONTEXT and NUANCE as to the backdrop of this cross’s significance. It is easy to forget that the Chinese economic miracle is only 40 years old as it began under the direction of DENG in 1978-79 and his rise as China’s leader. By 1994 China is beginning to feel the positive effects of Deng’s policies of white cat/black cat in pursuing modernity and western-style economic growth.
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Tags:China, Chinese Yuan, Federal Reserve, intervention, Japan, Japanese yen, U.S. Dollar, Yen/Yuan cross
Posted in China, Currency, Fed, Japan, United States | 4 Comments »