Archive for the ‘Canada’ Category

Notes From Underground: This Is a Vinny Barbarino Market (Or, I Am So Confused)

April 25, 2017

The global reaction to the first round of the French presidential election was not confusing. Capital was sitting on the sidelines as the polls reflected a possibility of a second round Le Pen/Melenchon faceoff, which would have been devastating for global investors because fear of an EU break-up would have led to a massive repricing of risk premia. The avoidance of such an outcome led to a rush of capital into European markets, which provided support to Asia and the U.S. The German/French 10-year spread reacted as expected. The yield differential narrowed by a significant 20 basis points. The BUND yields rose against all European sovereign debt as Berlin’s haven status was rendered null and void for at least another two weeks. The GOLD and YEN also performed as expected as money rushed to purchase a risk on profile in a global zero interest environment. The EURO rallied by 2% as global capital flows into European stocks forced previous short euro positions to the sidelines. There’s nothing confusing about any of these outcomes. But let me throw some confusion onto some of the other geopolitical events making the front pages:

(more…)

Notes From Underground: The Stock Market Says, “I Think Icahn, I Think Icahn”

October 15, 2015

One of the great contemporary financiers warned on September 29 that the stock market was “extremely overheated ” and was being “supported by an “unsustainable earnings mirage.” Well, since that video release from Carl Icahn, the SPOOS have rallied more than 7 percent, defying the wisdom of Ichan, as well as many other highly regarded  investors. Today’s equity rally was in the face of what has been a continuing onslaught of negative economic releases. The market has rallied off the August 21-24 lows but has paused when confronted with weak data, such as September’s unemployment report. But today the weak economic releases  failed to dent the powerful rally: a weak Empire State, a weaker-than-expected Philly Fed Manufacturing report.

(more…)

Notes From Underground: Dear Mr. Fantasy, Or, a Tribute to Mario Draghi

February 6, 2014

The ECB and The Bank of England delivered their interest rate announcements, and, as I expected on Tuesday, the result was absolutely no change to current policy. The FED had paved the way for maintaining the present course and the Europeans were certainly not willing to risk upsetting the markets. What surprised me was the fact that the EURO CURRENCY rallied strongly as President Draghi presided over a press conference in which he put on an act of stonewalling and obfuscation that made Alan Greenspan look like a freshman debater. Wow, Mr. Draghi can evade the best of questions and believe me I listened to the entire press conference and the questions were of a very high caliber. Mr. Draghi did invoke a new strategy and that was lengthening his answers so no one could remember what he had really said in the beginning. The bottom line is this:

(more…)

Notes From Underground: Hey Bojangles, Whose Inflation Is It Anyway?

January 9, 2014

No surprises from the ECB or the BOE in their interest rate decisions today. Yesterday I wrote that President Draghi would deliver a Gene Kelly-like press conference, dancing his way through the questions unscathed. I was wrong. Draghi tapped dance his way through the entire Q&A in Bojangles-like fashion. In far, it was so smooth he didn’t even look like he was dancing. (Combine Draghi and the big noise from New Jersey and it was a complete vaudeville show). President Draghi kept insisting that the ECB‘s mandate was inflation and he reminded his inquisitors that inflation cuts two ways and the ECB would be vigilant on any downturn to inflation, which could result in a deflationary spiral. In regards to the recent report of EU-wide inflation coming in at 0.8%, President Draghi assured that he would keep monetary policy on a continued policy of very low interest rates.

(more…)

Notes From Underground: The Fed’s Zero Rate, Quantitative Easing Policies Are Stock Market Fundamentals

March 10, 2013

The continued parade of stock market analysts who proclaim the equity market is rallying merely on Fed monetary policy instead of market fundamentals have spent far too much time doing case studies and not reading economic history. Interest rates as the variable signaling the cost of money are a very critical element and a key fundamental of the economy and especially the equity markets. U.S. multinational corporations are sitting on record piles of cash and also reporting strong profits. Much of the growth in profits can be attributed to two factors: Very low borrowing costs and continued pressure on wages. The FED has created the low interest rates and has hoped that the profitability resulting from low borrowing costs would bleed into higher wages and thus the need for increased hiring. The problem is many fold on the lack of success in aiding jobs creation. Globalization has kept pressure off wages and the deleveraging of the private balance sheets has meant that downward pressure remains on demand.

(more…)

Notes From Underground: The Fed’s Dilemma

January 7, 2013

The Fed’s policy has painted itself into a proverbial corner. A ZEROHEDGE piece shows that in the age group of 16-55 there has been a loss of 2.7 million jobs during the previous few years, while in the 55-69 age group there has been a gain of 4 million jobs. This has been a recurrent theme of Notes From Underground during the last two years. The FED‘s policy of financial repression has resulted in an outcome that its beloved models failed to predict. The baby boomers haven’t been able to retire  because their saving plans have been undermined by the zero interest rate policy. Zerohedge shows that debt-ladened college graduates are unable to find jobs and thus are struggling to repay education loans. Recent college grads are forced to live at home and are not creating new households.

(more…)

Notes From Underground: A Few Quick Hitters As the Market Returns

October 31, 2012

***The Canadian situation became more muddled today with the release of its GDP. BOC Governor Mark Carney and FM Flaherty would love to raise rates in an effort to halt the rise of private debt, but today’s GDP showed a 0.1% decline in growth for the month. It is a real dilemma as the strong Canadian dollar is impacting some sectors of the economy and thus a rate increase to stem credit growth will have a strengthening impact. The GDP release blamed the slowing global economy for the downturn but it has not impacted domestic credit growth because of ultra-low rates. How will the Canadians solve this dilemma as it wants to slow the housing sector to help forestall private loans? This conundrum will test Carney’s position as a leading central banker. Let’s watch to see if it is possible to head off asset appreciation without causing system wide economic pain. Greenspan and Bernanke claim it is not possible. Governor Carney, here’s your chance to help set central banking on a better course.

(more…)

Notes From Underground: Tomorrow, the BOC Will Shine Some Light on Its Plans to Deal With Private Sector Debt Growth

October 22, 2012

The Bank of Canada has been the most responsible actor on the global financial scene for the last six years. The Canadian banking system for the most part avoided the credit splurge that led to a collapse bubble and came though the Great Recession relatively unscathed. The Canadian federal government has a debt-to-GDP level of 34% and a very comfortable trade situation. There is, however, a problem of private debt growing too fast as the BOC has maintained very low interest rates to combat the fear of global recession. BOC Governor Mark Carney is a very astute global economic observer and also serves as the Chairman of the Financial Stability Board, which is the macroprudential advisor of global banking. Mr. Carney would like to curb the borrowing of Canadian citizens but raising rates is a difficult proposition because of the current strength of the Canadian dollar.

(more…)

Notes From Underground: Rajoy’s Party Retains Power in Galicia

October 21, 2012

In what was a very slow new weekend the most significant story is that Spanish PM Rajoy’s political party held on to power in the PM’s home state of Galicia. This was considered to be an important test for Rajoy for if his support in his traditional support base had turned against him, there would be no chance that the PM would have proceeded down the road of further austerity. Now Señor Rajoy may be emboldened to surrender to the demands of German-imposed CONDITIONALITY so as to receive the proposed bailout from the ESM. This should be short-term bullish for the EURO as it will remove one of the obstacles that was blocking a massive dose of liquidity into the Spanish financial system. The trade-off game of financial support for enacting more austerity should help the markets as near-term fears of a Spanish collapse should be postponed.

(more…)

Notes From Underground: It’s Raining Liquidity All Over the World

September 9, 2012

Friday’s unemployment report solidified the TRIFECTA of LIQUIDITY for the week. ECB President Draghi seeded the “liquidity clouds” at Thursday’s press conference by announcing the installation of the OTM (outright monetary transaction), which will allow the ECB/ESM to purchase unlimited amounts of sovereign debt of up to three-year duration–of course with conditions for those asking for help. Draghi is hoping to buy the whole EU project enough time so that a FISCAL UNION CAN BE FORMED WITH THE ABILITY FOR THE EU TO ISSUE A TRUE EUROBOND.

(more…)