In the global financial system, the central banks are indeed the are system’s beasts of burden. With the November FED FUNDS contract pricing in 93% chance of a rate cut, Federal Reserve Chairman Jerome Powell will attach himself to the plow and till the soil, spreading more fertilizer for equity purchases and further financial repression of creditors. As we discussed Monday, the week is filled with central bank meetings of importance and further impacted by unemployment and GDP data. But there is so much more in the political realm that we haven’t even entertained:
Archive for the ‘Italy’ Category
Notes From Underground: I Am Not Your Beast of Burden
October 29, 2019Notes From Underground: Why So Much Weight on Italy and Its Gold?
February 14, 2019There has been much discussion this week about how the current Italian government wants the nation’s GOLD to be the “property of the state” instead of on the Bank of Italy’s balance sheet. The coalition of Five Star and League have thought to gain control over the gold and some pundits have raised the idea of Italy selling its gold holdings, the world’s third largest, in an effort to plug holes in the budget. (NOTE: The Italian government is actually the fourth largest when the IMF is included.) Italian Prime Minister Matteo Salvini maintains that the government has no plans to sell any of the people’s GOLD. Maybe the Salvini Government is deciding to take the advice offered for the last eight years here at NOTES and monetize the GOLD by issuing GOLD-BACKED BONDS. (Securitizing the gold by selling bonds backed by one-fifth of an ounce of gold.)
Notes From Underground: Tell Me Why You Are Crying
October 23, 2018The current market temperament is causing angst among investors. A relatively strong earnings season is failing to provide support to the U.S. equity markets that many analysts have been promoting. The media is wondering what will halt the continuing slide in stocks around the globe. We at Notes From Underground have pondered what the primary catalyst would be
Notes From Underground: Going Where Others Fear to Tread
October 3, 2018In a surprise visit with Rick Santelli on Wednesday, we picked up where we left off in our discussion about rising interest rates. This time we had live ammunition as the data releases revealed suggested robustness in the U.S. economy. Now that the “accommodative” language was removed from the FOMC statement, Chairman Powell will have the luxury of FLEXIBILITY in reacting to economic signals. The markets responded to Powell’s new policy by sending interest rates higher, taking out long-time technical resistance on the U.S. 10- and 30-year Treasuries. Is the rise in yields sustainable? Friday’s unemployment report will provide a powerful test for the markets because if wages increase more than anticipated there will be renewed selling all along the curve.
Click on the image to watch me and Rick discuss the rise in Treasury yields.
Notes From Underground: Bored By Italy, But I Digress
June 5, 2018Sorry. The current situation in the European Union has been well forecasted by NOTES FROM UNDERGROUND so until the storm clouds clear and the Italian ruling coalition begins to initiate some of its campaign proposals I treat everything in Europe as a trade and not an investment. Even the talking heads are waking up to the potential financial damage that bank balance sheets loaded with ZERO RISK-WEIGHTED sovereign bonds can cause a healthy bank’s bloated balance sheet.
Notes From Underground: Like Holden Caulfield, I Digress
May 29, 2018As the Italian political situation maintains a boil, the elites of the Davos clique are out in full force trying to calm markets. The only problem is that established elites are so removed from reality that every move they make results in more turmoil. The airwaves were full of establishmentarians portraying themselves as conciliatory but their analysis of the economic consequences of the Italian election outcomes are similar to Ben Bernanke’s claim that the housing crisis was contained in early 2007. Let’s review some of today’s inane comments and analysis:
Notes From Underground: Back On the Floor
May 28, 2018On Friday, Rick Santelli and I discussed the situation in Europe, especially the FRAGILE situation in Italy. An important metric that needs to be watched is the huge amount of sovereign debt that is “comfortably” sitting on the Italian banks’ balance sheets. Under BIS rules (and other global financial regulations) sovereign debt carries a ZERO RISK WEIGHTING, meaning that commercial banks can hold sovereign bonds and hold no reserves against such an asset class.The Italian banks have been the repository of their sovereign bonds, which makes them vulnerable to a rise in BTP yields as the price drops due to the political concerns involving the inability of FIVE STAR/LEGA to come to an agreement on an acceptable cabinet.
(Click on the image to watch me and Rick discuss the Italian situation)
Notes From Underground: The Magician of Frankfurt Will Be Called to Answer
May 22, 2018We’ve been discussing the problems in the Italian debt market at NOTES FROM UNDERGROUND for many years but with the Five Star/Lega coalition coming into government many of the issues that were once theoretical are now an increasing possibility. The Five Star group is openly proposing a debt restructuring for Italy in the hopes of spurring growth and improving the Italian unemployment situation. Economic growth in Italy has lagged the developed world economies and none more so then its neighbor, Germany.
Notes From Underground: The Mother of All Debt Crises
May 14, 2018Everything in global financial crisis emanates from too much debt being unable to be serviced. The current situation in Argentina is that the state and private sector borrowers won’t be able to pay the INTEREST on its dollar-based loans as the PESO weakens. It takes more domestic currency to purchase the needed dollars to pay creditors, resulting in a NEGATIVE FEEDBACK LOOP that brings the economy to a crawl as all the economic actors have to find ways to pay the interest costs or go bankrupt. The Argentinian government won’t go bankrupt. But it will force a debt restructuring if its borrowing costs move higher (yet another burden for a debt-plagued economy).