Archive for the ‘Russia’ Category

Notes From Underground: Just When It Couldn’t Get More Volatile

June 5, 2019

The above reference is from the wonderful cult movie, Putney’s Swope. The CEO of a major advertising firm has a heart attack during a board meeting and the sycophants don’t realize it as they continue peppering him with questions. When he’s unable to respond they ask, “How Many Syllables, Mario?”

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Notes From Underground: Lighthizer, Always At the Ramparts Of Trade Battles

April 8, 2019

As the second quarter begins, the financial markets seem fixated on China/U.S. trade frictions, or lack thereof. This narrative is old and stale. For those new to the realm of international relations, be aware that China will slow-walk these negotiations. There will be many attempts to “agree to disagree.” For example, in Monday morning’s SOUTH CHINA MORNING POST, there was an article titled, “China Refuses to Give Up ‘Developing Country’ Status At WTO Despite US Demands,” about China’s “privileged position” at the World Trade Organization. In the simplest terms, the WTO allows for countries to self-define as developing country status. This brings certain rights that allow for longer transition periods before they have to be in full compliance with WTO rules and regulations. This is described as “Special and Differential Treatment.”

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Notes From Underground: Sympathy For the Devils

September 3, 2018

The world is aflame with the BLOWBACK from policies of the elites who carved a world fit to desired outcomes of a self-established ruling class. The free flow of capital in pursuit of cheap labor has led to the stagnant wages that have given rise to anti-establishment forces, which have upset the Davos crowd’s playbook. As long as capital pursues a maximization of return but is answerable to the Westphalian construct of the nation-state, there will continue to be bouts of conflict that result in less desirable outcomes for global corporations.

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Notes From Underground: The Summer Doldrums

July 10, 2018

There are storms brewing but for the moment markets are stuck in the Doldrums waiting for the winds to increase in velocity. The issues confronting the market are all too familiar as NOTES FROM UNDERGROUND has been categorizing for the previous months.

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Notes From Underground: A Conversation With Bonugli and Ronni Stoeferle

June 10, 2018

On June 6, I had a discussion with the Financial Repression Authority host Richard Bonugli and the highly respected Ronni Stoeferle. We covered myriad of global financial and political concerns as we tried to provide the foundation for profitable opportunities via in-depth analysis of these fragilities.

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Notes From Underground: Come On Wall Street Don’t Be Slow, This Is War a Go-Go-Go

May 8, 2018

*NOTE: THERE IS NO POLITICAL VIEW IN THIS BLOG (AND SPECIFICALLY IN THIS POST) I ascribe to the wisdom of Deng Xiaoping. To paraphrase: Quality analysis doesn’t care if the “cat is black or white,” only if it catches mice.

Come on Wall Street, don’t be slow
Why man, this is war a-go-go
There’s plenty good money to be made
By supplying the army with the tools of its trade
But just hope and pray that if they drop the bomb
[Fill in the target of choice] 
                      — Country Joe, “I Feel Like I’M Fixin’ to Die Rag”

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Notes From Underground: Further Into the Fray

February 20, 2018

On Tuesday the news was filled with the release of an analysis by the research combine at Goldman Sachs warning about the negative outcomes from the increasing amount of debt as interest rates rise, lifting the negative percentage of interest payments relative to GDP. (See the CNBC story, “Goldman Sachs Sees Red Ink Everywhere,Warns U.S. Spending Could Push Up Rates and Debt Levels.”) This is another voice warning about the ill-timed fiscal stimulus and budget deficit increase late in the economic cycle. In an interesting juxtaposition, the WSJ had an article published last week titled, “Cohn Downplays Concerns Over Rising Inflation, Bond Yields.” Speaking in his position as Trump’s top economic advisor, Cohn maintained that the White House is not worried about an overheating economy. Cohn emphasized, “We know how to deal with inflation. We don’t know how to deal with deflation in this country.”

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Notes From Underground: It’s Good News Week (Hedgehoppers Anonymous)

December 20, 2016

The world is fraught with troubling news of assassinations, terrorist atrocities and confrontation between China and the U.S. But in the financial news it is all about the DOW PUSHING 20,000. To quote Mr. Natural: “What does the Dow 20,000 mean? It don’t mean SH*T.” We become enamored with numbers but in real financial terms 20,000 is meaningless on its own. The U.S. equity markets are enthralled with the possibilities that a Trump presidency will present. Three weeks ago Rick Santelli laid it out very well. He noted if trump was successful in reforming the ACA, realizing genuine corporate and personal tax simplification and reform, and rolling back some of the regulations burdening small and medium businesses the Trump administration would be an unmitigated success. If the Dow is the barometer, then Mr.Trump should declare victory and spend the next four years writing his autobiography.

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Notes From Underground: Low Probability, High Impact Events

April 11, 2016

When Alan Greenspan was Fed Chairman he would regularly orate on the concept of low probability events that could create disruption in the global financial system. These events are not BLACK SWANS because by definition a black swan is unknowable nor foreseeable. So it is time to take a survey of what Greenie called low probability:

1. Paul Ryan being parachuted into the candidacy for the Republican Party. There is a possibility but is a potential problem, which could rip apart the GOP. What would the fallout be for financial markets if the U.S. was splintered into a three- or four-party system? The same could be said for the Democratic Party if there was a revolt by the left-wing in response to the super delegates. The issue for the Democrats will rise to the fore if Hilary Clinton were to lose New York. Bernie Sanders is a low probability bet but his impact would be great.

2. The probability of Russia attacking Turkey, which could result in the break-up of NATO. If Putin attempts to seek revenge against President Erdogan by providing support to the Kurds against Turkey, the U.S. and its NATO allies would be forced to decide if they were willing to risk war with Russia to honor its commitment to a friend. Imagine what happens to the political situation in Europe if NATO were demolished because of its failure to honor Article 5, which asserts that an attack on one is an attack on all.

3. The June 23rd vote by the U.K. on Brexit results in a vote to leave. Not sure this is a low probability event but it will certainly have a HIGH IMPACT. The greatest outcome will be that others in the EU will request a referendum for this was certainly articulated in the recent Dutch vote on the EU’s agreement with the Ukraine. The most volatile result of a Brexit would be the pursuit of a referendum by German voters. The myriad articles on German unhappiness with the ECB are a mere prelude to what a vote in favor of Brexit would result in for the rest of EU. If you want a good sense of the arrogance of the European elite, watch Mario Monti’s CNBC appearance from today. Mr. Monti decried the outbreak of democracy in Europe and was very critical of David Cameron for falling in the trap and calling a referendum.

The critical assessment by Monti is an infamia for Mr. Monti was appointed Prime Minister of Italy by a “coup” orchestrated by the Brussels elite. Berlusconi was forced from office by threats of Italian debt downgrade and the Brussels eurocrats’ rejection of the Italian budget. When Prime Minister Monti had to call elections in 2013 after the Berlusconi term expired, Monti and his allies received a mere 11% of the vote. So Mario Monti’s views of popular democracy are subject to further review.

4. A failure of a major European bank, something on the order of Deutsche Bank or a major French institution. The cracks in the Italian financial system are well known. It is the exposure of other EU domestic banks that can cause a blind side hit to the financial system. Part of this issue is the BIS view of how sovereign debt is rated. Currently, all EU sovereign debt carries a zero risk weighting. If this were to change, EU banks would be forced to raise a great amount of capital, a total that would dwarf the amount that was recently raised to support the purchase of non-performing loans from Italian financial institutions. The European nations are struggling even with zero interest rates. Imagine what the budget deficits of Spain, Italy and France would be if borrowing rates were to dramatically increase.

This is just the beginning of analyzing low probability, high impact events. The landscape of the global macro system are rife with such possibilities. Now a black swan in an uncertain event this focus will be on those with a probability of occurring. The floor is open to all suggestions.

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.

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