Notes From Underground: The August of Our Discontent

August 7, 2019

When August rolls in the markets thin as Europe heads to the beaches and New Yorkers head to the Hamptons before Labor Day. This means every tweet President Trump is amplified by the LACK of market liquidity. On Wednesday, the president was back in full confrontation with Federal Reserve Chairman Jerome Powell because three central banks CUT interest rates last night: India,Thailand, and, most importantly, the Reserve Bank of New Zealand, which surprised most market analysts by cutting 50 basis points instead of 25.

Read the rest of this entry »

Notes From Underground: If You Don’t 2+2=5, Then Read No Further

August 6, 2019

The tagline of this blog has always been “where 2+2=5 is also a wonderful thing.” If you believe that the world is balanced and rational in all things financial then this BLOG is not for you. Unlike Fyodor Dostoyevsky’s character, I am not a sick man, nor a spiteful man. I use my deep knowledge of political and economic history to analyze financial markets from myriad angles. This allows for a belief that context is supreme. In this context I posit that President Trump’s decision Monday to name China a “currency manipulator” is a way out for the U.S. from the dissension that has arisen within Trump’s team of advisers as reported over the weekend. If Bob Lighthizer was opposed then indeed President Trump is in a more difficult position than previously thought.

Read the rest of this entry »

Notes From Underground: Unemployment Data? Frankly, I Don’t Give a Damn

August 1, 2019

Usually, when the first Friday of the month comes around my concern turns to nonfarm payrolls and average hourly earnings. But after the Powell press conference on Wednesday and Trump’s tariff tweets Thursday, my analysis is Gone With the Wind. As I discussed in the last few blog posts, Trump’s tweets on tariffs have cornered the Powell Fed as concerns arise over just how much global growth is going to be negatively impacted.

Read the rest of this entry »

Notes From Underground: We Got Our Answer

July 31, 2019

In Sunday’s blog post I asked whether the tariffs trumped U.S. economic data. Well, we got our answer on Wednesday and it’s a resounding YES. Federal Reserve Chairman Jerome Powell’s press conference Wednesday suggested that he has been sucked into the vortex of President Trump’s media manipulation of the tariff narrative. CNBC’s Steve Likesman asked whether the interest rate cut was an insurance cut instead of a DATA cut. Powell cited these reasons for the Fed’s decision: To insure against global risks /trade tensions, which is unusual as there is not much history of monetary policy responding to economic consequences of trade friction; and the cover all of the world’s largest central banks, which is the need for a faster return to inflation.

Read the rest of this entry »

Notes From Underground: The BOJ Leading Off With the Fed On Deck

July 29, 2019

On Monday night, the Bank of japan announces its policy intentions and consensus is for no change. The ECB remained on hold with promises of more liquidity to come so it is doubtful that Governor Kuroda would do anything ahead of the FED.

Read the rest of this entry »

Notes From Underground: Does Fear of Increased Tariffs Trump U.S. Data?

July 28, 2019

This is not a rhetorical question but a very direct concern about the leverage that President Trump has in dealings with Federal Reserve Chairman Jerome Powell.

After listening to European Central Bank President Mario Draghi’s press conference Thursday and then learning about the White House meeting about the possibility of currency intervention, I am wondering whether the president is using TARIFFS as leverage to satiate his desire for lower U.S. interest rates.

Read the rest of this entry »

Notes From Underground: It’s a Drag For Draghi Getting Old

July 24, 2019

On Thursday morning we will hear from the ECB about its desires to raise inflation to its self-imposed 2% target. But on Wednesday we received more tepid economic data from the EU. Then couple that with the ascent of Boris Johnson to the position of British Prime Minister. The rise of Boris Johnson is a problem for Draghi as the possibility of a HARD BREXIT increases dramatically. The market and its DAVOS media sycophants have sold the narrative of a hard Brexit as being devastating for the U.K. economy, the British GILTS, the British pound and the Footsie 100. President Draghi has to be careful that a severe rally in the EUR/GBP cross doesn’t damage the European exporters, especially Germany, who runs a 50 billion-plus surplus with Britain.

Read the rest of this entry »

Notes From Underground: Torn Between Two Lovers, Feelin’ Like A Fool

July 21, 2019

This Mary MacGregor ballad released in 1976 notes how a woman is torn between two men she loves and it is “breakin’ all the rules.” This is the situation Federal Reserve Chairman Jerome Powell and the FOMC finds itself: The love of its dual mandate and its torrid affair with the beloved Phillips Curve. Now it appears that the FED leadership is abandoning its affair with Phillips Curve while it grows more attached to its other love, Mario Draghi and the European Central Bank.

Read the rest of this entry »

Notes From Underground: Powell Gets Backup From Clarida and Williams

July 18, 2019

Following Wednesday’s short introduction to the significance of the Powell in Paris speech in Paris, we a digestif in the form of Federal Reserve Vice Chairman Richard Clarida and New York Fed President John Williams providing supporting the chairman. As a result, the dollar sold off, there was a major rally in GOLD, and boost to equities even as earnings proved to be TEPID. But what I’m waiting for is a STEEPENING in the U.S. yield curves when the world’s bond investors contemplate that the FED has ABDICATED any sense of FIDUCIARY RESPONSIBILITY for its status as a reserve currency.

Read the rest of this entry »

Notes From Underground: Back from Hiatus

July 17, 2019

I am posting a podcast recorded last week with David Rosenberg and Peter Boockvar (and moderated by Richard Bonugli) that is still really relevant. On Tuesday, Federal Reserve Chairman Jerome Powell delivered a speech in France at a gathering honoring the 75th anniversary of the since the Bretton Woods agreement. The speech epitomized the Fed’s third mandate as espoused by Vice Chairman Richard Clarida over the past five months.

Read the rest of this entry »