Archive for the ‘United States’ Category

Notes From Underground: Be Very Afraid Of Jerome Powell and His Printing Press

October 3, 2017

Over the past 15 months, I have made light of Fed Governor Jerome (Jay) Powell because of his answer to a question I had asked him at a symposium presented by the Chicago Global Initiative. I asked Governor Powell, “Who guarantees the balance sheet of the ECB?” Without hesitating, Powell said, “THEY HAVE A PRINTING PRESS.” If this is his answer to issues of debt overhang I will be closely watching the precious metals if Powell actually became Fed Chairman. Janet Yellen has proven far more competent than Jerome Powell would be under any top of stressful central bank situation.

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Notes From Underground: Laboring to Comprehend Gary Cohn’s CNBC Interview

September 3, 2017

CNBC promoted its interview with Gary Cohn for a couple of days so the head of the White House Economic Council could not have been caught off guard by any questions from the interviewers. Cohn was giving the recent unemployment data a positive spin, but that’s part of his job description. MY PROBLEM WITH COHN’S INTERVIEW WAS HIS PUSH TO CUT CORPORATE TAX RATES AS AN ANSWER TO FLAT WAGE GROWTH. His analysis that lower tax rates equals higher wages is preposterous and reflects the thought process of a Wall Street account executive. In response to David Faber’s query about the tax cut benefiting middle class workers COHN replied: “How does it not benefit the worker?” Cohn answers his own question by building the straw man argument: Any repatriation of foreign profits would boost equity prices as would any cut in domestic corporate taxes. For who owns most of the equity in the world today (another Straw Man by Cohn)? We know the biggest pool of owned equity are the pension funds, especially the public pension funds (fire, police, teachers municipal workers], “… thus we are helping Americans by delivering returns back to them.”

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Notes From Underground: The Unemployment Data? I Suppose It’s Meaningless

August 31, 2017

It’s the first Friday of the month so that means we will have the jobs report at 7:30 CDT and 7:29:59 if you are a high frequency trading operation you do the math. Consensus is for 180,000 non-farm payrolls and the overall rate remaining unchanged at 4.3%. The most important piece is the average hourly earnings (AHE), which is predicted to be 0.2% which is lower than the July data. Regardless, with the economic impact from Hurricane Harvey still an unknown the FED will be kept from raising interest rates at its September meeting. But if the AHE is strong the FED may move to commence shrinking its balance sheet because Lael Brainard has already informed us that the FED analysts theorize that QT has far less economic impact then a RISE in the fed funds rate.

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Notes From Underground: Missiles Over Hokkaido

August 29, 2017

First of all, no matter what analysis we do it always pales in light of the human suffering that natural disasters bring upon people around the world. I am fortunate to be in a dry room, with warm clothes, food and, of course, an internet connection. It is often said that water is far worse than wind when it comes to the impact of hurricanes and typhoons. The human misery that deals with 40 inches of rain in a three-day period makes our prayers go out to all those affected by the devastation. Stop and take an inventory of the blessings we have on a daily basis. Houston, we can hear you.

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Notes From Underground: Its Was a Great Week for S&Ps

August 20, 2017

The news was extremely positive for the equity markets last week. FOUR key points:

  1. Retail Sales proved to be much stronger than consensus;
  2. The FOMC minutes were very DOVISH as the FED was concerned about the inability of upward inflation to gain traction;
  3. The demise of anti-globalist Steve Bannon was greeted with cheers on the floor of the New York Stock Exchange. News of the removal resulted in a rally in the S&Ps on Friday, but it was short-lived; and
  4. The bobble heads of the access media reported the dismissal as an elevation of the Davos-inspired crowd, represented by the Gary Cohn wing of the Trump administration.

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Notes From Underground: A Guide For The Perplexed? (Maimonides)

June 4, 2017

Friday’s unemployment data showed the addition of 138,000 jobs, weaker than the ADP report. Even though the RATE dropped to 4.3% the all-important average hourly earnings rose by a tepid 0.2% and April’s data was lowered by a tenth of a percentage point. Many readers e-mailed me as to why the S&Ps and NASDAQ continued to rally in the face of weak economic news from the U.S. The BOND rally made sense as investors continued to cover short positions, but what is perplexing is the continued strength in the precious metals and the currencies despite a strong U.S. equity market.

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Notes From Underground: The Mnuchin Budget — 96 Tears With ? and The Mysterians

May 24, 2017

The rollout of the long-anticipated U.S. Treasury budget brought tears to my eyes. Why? Because it couldn’t help but wonder how supposedly intelligent people could present a politically ridiculous BUDGET and tax plan. The drafters lose the battle when they first present an increase in defense and make it a sacred cow of the Trump White House. You cut many social safety net programs while finding MONEY for questionable foreign entanglements and many unneeded weapons systems. The beauty of the original Bowles-Simpson plan was that all the sacred cows of the budget process were GORED. In my opinion real budget changes and reform must start with reining in the defense sector, but unfortunately too many Congressional districts are the recipients of defense spending and, of course, defense sector jobs. In a GREAT SANTELLI INTERVIEW Wednesday, former Senator Alan Simpson ripped apart the White House budget proposal and noted that it was sprinkled with fairy dust.

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Notes From Underground: Warren Knocks Out Mnuchin

May 18, 2017

In Thursday’s testimony before the Senate Banking Committee, Treasury Secretary Steven Mnuchin took a beating from Senator Elizabeth Warren over the issue of Glass-Steagall. There are many policy issues in which I disagree with Senator Warren but when it comes to Wall Street regulation, she is one of the most knowledgeable people in the Senate and far beyond those walls. During the Great Financial Crisis she appeared regularly on CNBC and Bloomberg television networks. While merely a Harvard law professor, she offered great insights and understood the depths of the problems that caused the crisis. If Jamie Dimon had not blocked her appointment as head of the Consumer Finance Protection Bureau (a wild conjecture on my part), she would not be a U.S. Senator. After president Obama caved in to Wall Street pressure, Warren ran for the Senate in Massachusetts in 2012, defeating Scott Brown.

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Notes From Underground: Nothing New to See, Except the Equity Markets Finally Added Some Risk Premium

May 17, 2017

The market did not selloff today. Risk was merely repriced and greater premiums were being offered in an effort to attract buyers. Everything discussed in this blog during the past six months was brought to light and the most important outcome was that the narrative has changed. The Trump agenda of tax and health care reform, and regulatory rollbacks was seen being delayed by the possible legal issues confronting the White House. Notes From Underground is apolitical and is solely vested in understanding the policy impact of any political outcomes, which is why it is geared toward political economy. Or, as Deng Xiaoping would say: “I don’t care if the cat is white or black as long as it catches mice.” Since Trump’s inauguration, the mainstream ┬ámedia has been relentless in its effort to cast Trump in a negative light and the Tweeter-in-chief has certainly provided the tinder to keep the fires lit.

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Notes From Underground: A Review of Nehru Versus Nairu

May 11, 2017

Yesterday, Boston Fed President Eric Rosengren filled the airwaves with talk about the FED to be more aggressive in raising rates in order to prevent wage inflation from curtailing the current expansion. The continued concern from Wall Street about the POSSIBILITY of wage inflation because of FULL EMPLOYMENT reflects on the flaws in central bank’s models. Nairu (non-accelerating inflation rate of unemployment) is so 1970s, when globalization was just beginning and private sector unions had genuine bargaining power. The end of the Cold War unleashed hundreds of millions of workers to compete with workers in the highly developed and advanced economies. The fall of the Berlin Wall pressured even the strong German unions as the fear of jobs moving to Eastern Europe resulted in Social Democrat Gerhard Schroeder initiating the Hartz IV labor reforms which resulted in stagnant wages in return for some job security.

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