Archive for the ‘Debt Market’ Category

Notes From Underground: The Government Shutdown, Or Lots of Media Drama

January 16, 2019

While I was off visiting my children and grandchildren, the government took its own hiatus. However, while I am back at it, the government is still shuttered (partially, at least). For years the pundits have ranted about the negative effects on the economy (and some even singled out the markets). For all of the noise, the bond market is stable and stocks have rallied 8 percent since the shutdown began on December 22.

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Notes From Underground: And To All a Good Year

December 23, 2018

We are heading into the last trading week of the year and it’s setting up to be volatile, to say the least. The FED is in motion. Equity investors are harvesting profits from a long-run bull market. Bond markets are uncertain as how to react to the end of QE since the central banks are now beginning to shrink global reserves (at least the Fed is). Commodity prices are struggling due to the fear of a global economic slowdown. And the political backdrop adds great uncertainty as the Trump administration never misses an opportunity to open its mouth and detract from any policy success it may experience. China, Russia, Turkey, Iran and even Saudi Arabia are watching the Western Democracies to see how they respond to Trump’s efforts to disrupt the current trading system and, more importantly, the rollback of PAX AMERICANA.

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Notes From Underground: The Umpire Strikes Back

December 19, 2018

The Fed chairman is situated as the key arbiter of the economy and rules via its DUAL MANDATE. Given that it has a research staff of at least 500 economists the FED positions itself as ALL KNOWING, which is certainly okay as long as it accepts the consequences and lays aside the use of counterfactuals when its policies may turn out to be very misguided.

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Notes From Underground: Markets Are Rounding Third and Sliding Into Home

December 16, 2018

As we head into the final two weeks of the year, the global equity markets are “sliding into home.” Equities sold off again on Friday as the Chinese tariff saga is failing to provide support to the market. Weekend news conveyed the idea that the market was reacting to this week’s FED meeting and the very high probability of another increase in the central bank’s target range. This is a stretch because investors have been aware of the FED‘s limitations under its own “forward guidance,” trapped into a rate hike for fear of spooking the market if no increase was decided.

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Notes From Underground: A Riddle, Wrapped In a Mystery, Inside an Enigma

December 4, 2018

I’ve been thinking about the Churchill quote referring to Russia. Rather than referencing Russia my thoughts turn to the flattening yield curves that began on Monday. As commodity, global equities markets, the Chinese yuan and the precious metals all staged strong rallies, the long-end of the yield curve also rallied, especially the 10-YEAR. As a result, the 2/10 curve flattened to a 10-year low of 15 basis points. On Tuesday, the curves flattened even more as the 2/10 closed at 10.7 basis points. As Vizzini from the Princess Bride would say, “INCONCEIVABLE!” To support the rally in the long-end of the curve there was a retracement of the recent rally in global equity markets (the NIKKEI, DAX and S&Ps were all down substantially). This suggests that the positive news from the G-20 meeting has now been cast asunder because investors are struggling to comprehend what actually took place in Buenos Aires between the U.S. and Chinese delegations.

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Notes From Underground: Much to Be Thankful For. Now Back to Work

November 25, 2018

Tonight, we at Notes From Underground will clean up some unfinished business. We will discuss a couple of important speeches and articles from the past two weeks.

Then I will answer the questions Mike Temple made on the previous blog post. In responding to some of Mike’s points I come back to the idea of INFRASTRUCTURE, which I addressed in a few other blog posts. The reason I foresee aggressive fiscal stimulus put forth by the G-20 is precisely because of some of the fears that Mike raises about the damage coming to the investment grade corporate bond market while the FED’s shrinks its balance sheet and raise interest rates. It may be having a greater impact than the FOMC wants to acknowledge.

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Notes From Underground: Rome Is Alive With the Sound of Music

October 31, 2018

There was singing in Rome when Angela Merkel announced that she is stepping down as the leader of the Christian Democratic Union. The two most recent German regional elections has solidified the unmitigated truth about the weakened condition of the German chancellor. For the last six years, I have been highly critical about Merkel’s policies. The bumbling French President Nicholas Sarkozy out-maneuvered Merkel in 2011 as he prevented then-Bundesbank President Axel Weber from leading the ECB.

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Notes From Underground: A Fresh Glance at Markets

October 21, 2018

Exactly two weeks ago we at Notes From Underground published, “Powell Seeks To Reestablish The Authority of Markets…Maybe?” While I was off enjoying my daughter’s wedding, the December S&P futures had closed at 2895 on Oct. 5 (unemployment Friday). I warned that the market was misjudging Chairman Jerome Powell as he seemed impervious to equity and bond market corrections. The algos are built on the FOMC being quick to defend the elevated levels of the bond and equity markets.

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Notes From Underground: Going Where Others Fear to Tread

October 3, 2018

In 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.

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Notes From Underground: The World Is Talking Turkey

August 12, 2018

For a long time now, we at NOTES FROM UNDERGROUND have been discussing the danger of Turkish President Erdogan in his role as a potential disruptor to stability in the Middle East. Last week’s violent action in Turkey’s stock and currency markets is just one element of the instability for which Erdogan can be held responsible.

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