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.
Archive for the ‘Canada’ Category
Notes From Underground: The Fed’s Dilemma
January 7, 2013Notes 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.
Notes From Underground: Tomorrow, the BOC Will Shine Some Light on Its Plans to Deal With Private Sector Debt Growth
October 22, 2012The 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.
Notes From Underground: Rajoy’s Party Retains Power in Galicia
October 21, 2012In 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.
Notes From Underground: It’s Raining Liquidity All Over the World
September 9, 2012Friday’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.
Notes From Underground: Today Was International Central Bank Day (Very Little to Celebrate)
March 8, 2012First with a hat tip to RF for e-mailing the JOKE of the DAY:
Overheard in the Athens Airport:
Greek Immigration Official:Nationality?
Tourist: German
Greek Immigration Official: Occupation?
Tourist: No. Just On Holiday
Notes From Underground: The Fed Steps Into the Light???
January 3, 2012The release of the FOMC minutes today revealed that the FED plans to be more transparent as it will “publish forecasts of its own interest rates for years into the future.” Previous FED forecasts have proved to be very poor at predicting the path of the economy over the near term or yet for any longer period of time. On first read, this attempt at transparency ought to be labeled the VOLUME ENHANCEMENT FOR THE CME EURODOLLAR CURVE. FED prognostications will move the 3-5 year part of the curve all over the place and be very productive at increasing futures and options volume.
Notes From Underground: A Little Austerity Goes a Long Way
December 5, 2011The new autocratic regime in Italy has agreed to a ramped up AUSTERITY BUDGET in which an extra 30 BILLION EUROS will have to be found and then cut from the public arena. Being that Mario Monti was the Eurocrats’ choice to head the Italian government, it seems that PM MONTI is only concerned about meeting the desires of the powers that insisted on his taking the reins of governance. ITALIAN BOND FUTURES staged a very impressive rally as the BTP (10-year note) dropped 71 basis points to close under 6%. Also, the 2/10 year curve in Italy also steepened to +52 basis points from Friday’s close of +38 points. Spain and the other PERIPHERALS also performed well and the FRENCH/GERMAN 10-year differential closed at a mere 92 basis points. As the BTP futures rallied 500+ points, the EURO actually underperformed and by the close the EURO currency was basically unchanged .
Notes From Underground: “Everybody’s Talking At Me I Can’t Hear A Word They’re Saying…”
December 1, 2011It was a day of dueling flapjawing as the European elite was out talking about everything that needs to be done to save the EURO and Sarkozy promising that there would not be any European defaults. Again to paraphrase Jimmy Breslin: Sarkozy is a little man in search of a balcony. The time for public orations is past and the call to action is immediate and real. Global investors don’t want any more rhetoric. Next Friday is considered the day of reckoning but if the EUROCRATS have any sense all the needed policy will have been put in place by the December 9th meeting so that the markets will have absorbed the “shock and awe” and there will be no disappointment.
Notes From Underground: Housing Is Making It As the Foundation of Obama’s Domestic Agenda … Why Hasn’t Geithner Been Replaced?
October 24, 2011The speeches by FOMC GOVERNOR TARULLO and Vice Chair Yellen were followed up with an Obama speech on a “major” REFI operation and many articles in the media. In today’s Financial Times, Larry Summers just happened to have a piece titled, “WHY THE HOUSING BURDEN STALLS AMERICA’S ECONOMIC RECOVERY.” It seems that the administration has awakened to the fact that the credit crisis has been wrapped in a housing crunch that has kept consumer demand lackluster at best. (Also known as the Geithner plan: Aid the banks first and maybe help the debt-laden consumer/homeowner somewhere down the line.)