Notes From Underground: A Hard Brexit Is Going To Fall?

February 10, 2019

The economic fallout from a “hard” Brexit has been debated in the media for the last few months. When I say “hard Brexit,” I mean that the U.K. leaves the European Union without any deal about trade rules, movement of people or any other binding treaty rules concerning the contemporary EU/U.K. relationship. I have refrained from forecasting outcomes because they are beyond the scope of economic analysis since it requires using models built of questionable assumptions. The British have a long history of economic intercourse intertwined with the lines of commerce from its empire.

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Notes From Underground: Things Are On the Boil

February 7, 2019

There are so many things causing angst in the global markets. There was news out of France on Thursday that the government was recalling its envoy to Rome because Italian politicians met with the yellow vest movement. To President Macron I offer this history lesson: In 2011-12 French President Nicolas Sarkozy–with the cooperation of German Chancellor Angela Merkel–crushed the Italian bond market in an effort to remove Prime Minister Berlusconi. The Eurocrats in Brussels parachuted in a preferred bureaucrat, Mario Monti, in an effort to get Italian politicians to halt the fiscal bleeding. The French have a great deal of audacity in complaining about Italian meddling, especially as Salvini/Maio have a legitimate reason: the upcoming European Parliamentary elections.

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Notes From Underground: Chatting With Bill Laggner of Bearing Asset Management

February 4, 2019

On Jan. 30, I had the pleasure of sitting in with Bill Laggner and Richard Bonugli for another Financial Repression Authority podcast. These discussions provide a forum to discuss pertinent issues regarding the efforts of policy makers that impact the creation of wealth, as well as its distribution. I refer to this as POLITICAL ECONOMY. The podcast was recorded four hours before the release of the FOMC statement and Chairman Jerome Powell’s press conference. The FED chairman provided further insight into the walk-back of “automatic pilot” as he addressed concerns about the headwinds building in the global economy.

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Notes From Underground: Mario Draghi’s Circus

January 24, 2019

The ECB did exactly as expected, which was less than its deposit rate (if that’s even possible). President Draghi answered questions for an hour and said absolutely nothing except that risks were now weighted to the downside. The structural theme of his composed narrative was the concept of persistence and assessment. Draghi laid the need for continued ECB monetary ease on many factors inhibiting growth:

  1. German auto production slowing;
  2. U.S.trade actions are creating greater uncertainty due to tariff threats;
  3. China slowdown; and
  4. Brexit

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Notes From Underground: Mario the Magician Has Lost His Assistant

January 23, 2019

The Bank of Japan did not surprise the markets as they remained committed to the lunacy of QQE, even with positive growth for many years. In an effort to make the central bank’s policy ever more relevant the BOJ lowered their inflation expectations, which the markets interpreted as lower for longer, resulting in a flurry of YEN selling of against all of the major traded currencies. There was even movement in the Swiss/yen cross as both central banks battle to keep their currencies in check by keeping interest rates negative.

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Notes From Underground: Germany and France Codify the Premise of Europe

January 22, 2019

In a desperate attempt to deflect from the damage to his presidency, Emmanuel Macron on Tuesday codified what Bernard Connolly has written about for 25 years. As Charles de Gaulle supposedly said to Konrad Adenauer: “Europe is France and Germany, the rest trimmings.” In a resurrection of European history, Angela Merkel and Macron signed a new Treaty of Aachen. While the treaty language is vapid, the symbolism cannot be minimized. Germany and France promise to come to each other’s defense if attacked while also promising to work for a more unified financial and fiscal system.

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Notes From Underground: Let’s Not Mince Words, Pepper Spray Davos

January 20, 2019

Let me begin by reiterating that this is NOT a political blog but a place for the exchange of ideas dedicated to those who desire to improve trading and investing in order to increase profits. My STRENGTH is bringing an in-depth knowledge of political economy and 40-plus years of trading my own funds (while also managing other people’s money via hedge funds).

My personal political views OUGHT not to be relevant for when it comes to generating ideas. I adhere to the wisdom of Deng Xiaoping: “I don’t care if the cat is black or white as long as it catches mice.” While I might criticize certain persons in any political administration it is merely to criticize actions as a way of comprehending policy outcomes. (For example, my disdain for Steven Mnuchin is solely based on what I deem to be his incompetence, a similar contempt that I held for Tim Geithner.)

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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: A Podcast With Ronald-Peter Stoeferle

January 8, 2019

A couple of weeks ago I had the pleasure of recording a Financial Repression Authority (FRA) podcast–hosted by Richard Bonugli–with one of the world’s foremost Austrian economic analysts, Ronald-Peter Stoeferle. Mr. Stoeferle had just returned from a GOLD conference in China so he was bringing a fresh perspective on the global demand for precious metals. This podcast provides the view from Asia, a region from which we don’t receive enough information. Enjoy and I will return in full next week.

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Notes From Underground: Hello, 2019

January 6, 2019

“I am a sick man. I am a wicked man.”

So opens the Dostoyevsky novella Notes from Underground. Sometimes I seem to be caught in a similar existential trap as I analyze the global macro data and fundamentals. I am sick because I continue to pursue the opportunities that explode before me. I have taken a turn for the worse and become sick because of the constant flow of manipulated headlines crafted to purposely activate the trading algorithms. Tweets and headlines with no context have become the coin of the realm, especially for high frequency trading operations. But their role in the market jungle does little to dissuade meĀ  from honing my craft. The bottom line: Greater preparation and more patience is needed.

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