We had to get back home
And when we opened up the door
We had to get back home
And when we opened up the door
Tonight I am posting the latest episode from the Financial Repression Authority (click on the blue link to listen). I do these for no remuneration as I think the information flowing out of this group creates great conversation and can generate some very profitable investment opportunities. Yes, it’s 34 minutes long but it is more LEARNATIVE than the network news. So pour a stiff whisky and listen while doing other reading. I share this with, you readers because I am honored to be a part of this great dialectical process. One of the key points in tonight’s post is the development of a narrative in which to analyze the world of Trump. It is not a partisan narrative but one I am developing as I attempt to discern the unfolding global dialogue being put forward by Team Trump.
Let’s be clear about the unfolding political and economic landscape: It is the desire of the Trumpians and the anti-Trumps to control the political dialogue. The media is putting President trump and his appointees under a microscope, which is what the press should always be doing. (My apolitical belief for the fourth estate is that a free press should be responsible in pursuit of the “facts,” but if they have a bias it should be “to afflict the comforted and comfort the afflicted.”) In my opinion, during the past 20 years the U.S. press has devolved into a sycophantic mob as everything becomes about access to those with the greatest celebrity status, which usually means wealthy. The financial media especially bows to the rich because if you are a billionaire your views go unchallenged for fear of being shunned as it undermines the concept of, “if you’re rich, they think you really know.”
Oh yes, we got trouble right here in Frankfurt City! It rhymes with T and starts with G and is spelled Germany. Today (and of no genuine market surprise), the ECB made no adjustments to its current QE and negative rate policy. The press conference was where all the potential market moving “tweets” would take place, but Professor Mario Draghi danced around the very fine questions from the European financial cognoscenti. Draghi was sharp as he insisted that “we need lower interest rates to get higher rates.” Also, when one inquisitor asked if the ECB was ready to DO LESS if inflation reached close to the MAGIC 2% level, President Draghi admitted that we only considered doing more QE (never LESS). Thus, the ECB allowed us a look at the asymmetric BIAS of all central banks. The ECB is far more worried about low growth, low inflation that the main concern is always more. And Draghi’s ultimate fallback position for the construction of counterfactual policy formation is the ongoing deleveraging process in Europe.
I’m still nursing a New Year’s hangover. It takes a long time for the mind to rid itself of all the news the mainstream media deems fit to read. But as the third rock keeps spinning, markets will keep moving and we will strive to untangle the ball of confusion. After today’s tepid ADP data the market has settled into a consensus for 175,000 nonfarm payrolls. Again, I would love to see a number greater than 250,000 just to test the recent market action. BONDS rallied, currencies rallied against the DOLLAR, precious metals are showing early year strength and commodities have held support levels in the age of TRUMFLATIONARY EXPANSIONARY EXPECTATIONS.
Even though Steve Bannon is no Beau Brummel, the music of this early rock song must be ringing in his ears. It seems clear to all but the dumbest media talking heads that the Bannon plan of Trump’s continued flow of tweeting is an attempt to make sure the Trump team controls the NARRATIVE. (See Ben Hunt’s magnificent piece at Epsilon about the significance of narrative.) This is important for investors and traders because of Trump’s ability to control the narrative makes us all focus away from the most events of the greatest possible consequence. Today, the airwaves were echoing the Trump tweet of the President-elect threatening to cancel the orders for two new Air Force One planes, the President’s personal fleet.
The first Friday of the month brings big news for the data dependent Fed. The market consensus is for 185,000 job gain and average hourly earnings increase of 0.2% and the work week to remain unchanged at 34.4 hours. In my opinion, a HUGE increase of 300,000 jobs with another 0.4% increase in wages (similar to last month) would bring great pressure on the FOMC to increase FED FUNDS more than the market’s expectation of 25 basis points. What I am saying is purely THEORETICAL but it would make for an interesting discussion for the DATA DEPENDENT FOMC. It’s especially interesting as the exuberance of the tax cuts, infrastructure projects, rollback of regulation, the equity markets should prompt the asymmetrical nature out of the FOMC decision-making process.
Sometimes looking back provides perspective in moving forward. As December begins we know the year-end is the global market’s attempt to position themselves for the coming year. The rise of populist voices has certainly sent tremors through financial markets. The most interesting aspect is how short-lived the disruptions have been. Brexit, no problem; coup in Turkey, no problem; Chinese economy sputtering, no problem; Donald Trump becoming the U.S. President, no problem; and this week’s Italian referendum, no problem.
The world’s central banks believe that the massive accumulation of bonds in a global condition of continued QE will be no problem. That is something we will continue to examine in 2017. The FOMC is certainly constrained by its continued asset purchases. The question at the FOMC should be: Why don’t we raise rates by 100 basis points if the TRUMP administration is going to pursue a robust fiscal stimulus? The FOMC model maintains the U.S. is at full employment and a retreat from austerity in the time of full employment OUGHT to be met with a rapid rise in interest rates or at the least beginning the aggressive reduction of the balance sheet. The year ahead will be rife with volatility as politics and debt overhang prove the motors of turbulence.
The world is all abuzz with the good feelings radiating from the aftermath of the Trump victory. However, no matter how long the U.S. equity market rallies, be certain that Trump is not draining the swamp of Washington, D.C. He is proving to be a caretaker. Today’s pick of Elaine Chao for Transportation Secretary is just more of the same. Ms. Chao is certainly qualified. After all, she has an MBA from Harvard, but being a past member of the Bush Cabinet means we are using old, worn-out tires. The Transportation Secretary will be overseer of many of the INFRASTRUCTURE PROJECTS the Donald has promised to deliver. The pork barrel these projects will be dipped in will be beyond lucrative and the wife of Mitch McConnell ought not to have been given this role.
Tonight I am posting today’s Santelli and Harris exchange (click on the image at the end of the post). (It is with gratitude that I thank Rick and his wonderful producer Lesley McKeigue for they keep providing me a with a platform to express views that are based on almost 40 of trading experience.) The Santelli Exchange has allowed me to meet and share views with some of the most respected minds in the financial community: Art Cashin, Jim Bianco and the list continues to go on and grow. Thank you my readers for allowing me time to deal in dialectic exchange and be challenged in a constructive method to enhance my knowledge. Remember, it is not validation but dialectic that I strive for in Notes From Underground.