Archive for the ‘Europe’ Category

Notes From Underground: Europe Takes Center Stage (Again)

January 15, 2018

It is always a pleasure to talk with the Richard Bonugli at the Financial Repression Authority. Like Anthony Cruedele of Futures Radio, Richard is a very astute financial mind, which allows for deep discussions in a longer format. We cover several issues discussed in Notes From Underground so I’m sorry if it seems redundant, but I will say that we take a deeper dive on the issues. The segment taped on Wednesday, January 10 so from a trading perspective the information may be stale. But from an investors’ perspective it will still be relevant as the markets begin to unravel the mysteries of a new year. We dive deeper into Europe as I am certain the continent will provide much of the tinder for market volatility in 2018. This weekend proved the case as several stories from Europe propelled the DOLLAR lower as U.S. markets were on holiday for Martin Luther King Jr.’s birthday.

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Notes From Underground: Feeding the Ducks (Part Two)

January 10, 2018

Tonight, I’d like to expound on the recent musings from Chris Whalen, titled, “Bank Earnings &Volatility.” Whalen stresses that the FED will not be selling assets but merely ending “its reinvestment of cash when securities are REDEEMED,” (emphasis mine). In what I consider a key point raised, Whalen said, “Yet as we and a growing number of investors seems to appreciate, the FED cannot force up long-term rates so long as it is sitting on $4 trillion worth of securities THAT IT DOES NOT HEDGE. More given that the Treasury intends to concentrate future debt issuance on short-term maturities, downward pressure on long-term bonds yields is likely to intensify.” Whalen also said, “What the FOMC has done to the markets via QE is essentially reduce potential volatility by holding securities and not hedging these securities.” The key point is enhanced by the fact that both the ECB and BOJ do not hedge their security exposure either so volatility has been diminished by the reduced hedging.

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Notes From Underground: The Same Old Song, With a different Beat (Since 2017 Be Gone)

January 4, 2018
After a sharp selloff late on December 29 the market has regained its mojo and rallied 2%. While the first two days of trading for the European markets were not confirming the S&P rally, the DAX and Euro Stoxx 50 rallied with the EURO STOXX 50 closing back above its 200-day moving average on Thursday. The consensus from Wall Street analysts is for emerging markets and Europe to be better alternatives to U.S. investment prospects. Many quality strategists believe the U.S. equity markets are stretched in its valuation while Europe’s recovery is gaining momentum and emerging economies should be the major beneficiary of a synchronized global expansion.

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Notes From Underground: Some Areas Of Concern and Importance

October 16, 2017

As the tinder of prairie fires builds, these areas of concern are important because of the potential impact they can have on the market:

1. Sunday’s election results in Austria give rise to concerns about the rise of euroskeptic groups in several European nations. Yes, the anti-immigration sentiment appears to be the dominant variable in bringing a right-wing government to Vienna, but the sparks from xenophobia can manifest into an anti-ECB issue as domestic citizens are asked to foot the bill for bail-outs of Italian banks. Many citizens of various European states have borne the costs of bailing out Italy, Spain, Ireland, Greece and Cyprus through negative interest rates, the ultimate tool of financial repression. German two-year notes are currently -73 basis points, even though German inflation is approaching 1.7%, resulting in a real yield of NEGATIVE 2.5% for the savers in German-based banks. Regardless of what the ECB does in terms of quantitative tightening President Draghi has maintained that negative rates will remain lower for longer. Financial repression will be the next theme for the European right.

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Notes From Underground: Welcome to 4Q, May We Not Be Drawn and Quartered

October 1, 2017

The political and economic landscape is fraught with danger even as the global equity markets remain mesmerized by the continued liquidity from the ECB, BOJ and the Swiss National Bank. It is not only the massive amount of asset purchases sustaining the elevated equity levels, the siren call of a HUGE U.S. tax cut (OR IS IT REFORM), which will be aided by being revenue neutral, keeps Wall Street pushing for lower risk premiums, or conversely increased stock market valuations. As I noted last week, the S&P/BOND RATIO has broken out to all-time highs as it has struggled for several years to climb above the record made in December 1999. The ratio moved to an all-time monthly high Friday, an indication that stocks are the highest price to Treasury debt, ever. Are stocks over extended on a fundamental basis?

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Notes From Underground: Mario the Magnificent Keeps the Crowd Enthralled

July 23, 2017

Let me be perfectly clear: THE ECB’s THURSDAY PRESS CONFERENCE WAS DOVISH.

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Notes From Underground: G-20 Photo Ops Become Relevant … For a Moment

July 10, 2017

All of the words and photos emanating from Hamburg are figments of the media’s confirmation bias. In Monday’s Financial Times, Wolfgang Munchau had a splendid op-ed titled, “From Brexit to Fake Trade Deals–the Curse of Confirmation Bias.” Munchau calls out the Euro-Japan trade deal headlines for as he points out it was announced on the eve of the G-20 summit in order to embarrass President Trump. I laughed when I read the stories about the aforementioned trade agreement because while EUROCRATS presumed a signed agreement, the FACT is each EU state will have to approve the agreement. So the acrimony from the Euro/Canada trade agreement still reverberates.

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Notes From Underground: Month-End, Quarter-End … Oh My

June 29, 2017

In Thursday‘s post I am reissuing part of a post from June 11 in which I cited a very important signal from the Nasdaq 100 futures. The signal suggests the equity markets have been in a much more defensive mode as rallies have failed and new selling has emerged. Well tonight I warn of a possible new development and that is in the DAX FUTURES. The German index has been my favorite long equity position because the fundamentals are most positive for Germany: negative interest rates, current account surplus and a very strong fiscal position. The strong EURO this week seems to be a potential drag for German stocks, but the biggest factor is that the continued use of negative interest rates at the Draghi-led ECB makes the high-yielding German equity market a desirable choice for investors. HOWEVER, IF THE DAX DOES A MONTHLY OUTSIDE REVERSAL THIS WILL SIGNAL A MAJOR WARNING FOR ALL GLOBAL EQUITY MARKETS.

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Notes From Underground: Angela Merkel Finally Faces Facts

May 22, 2017

Angie Angie

where will it lead us from here

Oh, Angie don’t you wish

Oh your kisses still taste sweet

I hate that sadness in your eyes, but Angie Angie

Ain’t it time we said goodbye  [Richards and Jagger]
Today, German Chancellor Angela Merkel openly admitted that the German trade surplus was large because the ECB‘s monetary policy rendered the EURO to a bout of severe weakness, which helped make “German products cheaper.” It continually amazes me how forthright politicians become once the political storm clouds have lifted. When President Trump noted a similar view he was criticized for trying to force a break-up of the European Union. What was Angie’s angle in challenging the policies of the ECB and Mario Draghi? As I have written for the last six months, the ECB was going to become an issue in the upcoming German national elections. It appears that the Chancellor is getting ahead of the AfD and other challengers about the negative impact of Draghi’s policies that punish and financially repress German savers.

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Notes From Underground: Au Revoir, Marine Le Pen

May 8, 2017

Now we can finally put the French elections behind us as its citizens maintained the status quo and elected Emmanuel Macron to a five-year term. Parliamentary elections follow in June but the two main parties, Socialists and Republicans, aren’t expected to face challenges. But, if the more conservative Republicans gain control of the Parliament and the prime minister post it will force Macron to move further to the right-center. If Macron moves away from the Hollande Socialist camp it will result in political protests from the Left. Macron will experience a difficult presidential term if the government is gridlocked by continual demonstrations. The German chancellor is going to ask a great deal from Macron: fiscal austerity, as well as a restructuring of the French domestic economy.

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