Notes From Underground: What A Week (Or Was It a Month)

July 22, 2021

At the beginning of the week, the COVID DELTA VARIANT was the major concern as the weekend brought news of a widespread increase. It seemed world financial markets were in the throes of concern of another pandemic lockdown with the Olympics being cancelled. We at NOTES FROM UNDERGROUND offered context and stressed that the zero interest-rate markets would provide a far different backdrop than what occurred in March 2020. We did learn that zero interest rates lowered inflation concerns and the Olympics are still taking place, although to empty stadiums. SO THE BULL MARKET MUST GO ON.

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Notes From Underground: Are You Ready When Delta Is?

July 19, 2021

I’ve been away minding my two Floridian grandsons (exhausting yet delightful). I did, however, have time to catch up on some reading, particularly W.E.B. Du Bois’s “Suppression of the African Slave Trade,” as recommended by Chris Whalen. Du Bois looks at how the large state-domiciled banks helped finance the importation of African black slaves. This is high quality prose written in 1896, a well documented and enlightening read about the politics of America at its early beginnings. We could all stand to learn from a genuine scholar rather than shouting at each other.

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Notes From Underground: A Question to Ponder

July 5, 2021

Do China and Russia have state authorities investing in the markets?

If the answer is yes then global investors have many issues to consider. The use of massive amounts of leverage (perfectly legal) utilized by Sovereign Wealth Funds and national pension funds have the power to distort prices as much as the involvement by the FED, ECB and BOJ to cause major distortions in the credit markets. Add in the Bank of Canada, Reserve Bank of Australia, the RBNZ and the price of credit is as overvalued as COPPER during the onset of the pandemic.

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Notes From Underground: Plus ça Change, Plus C’est La Même Chose (An Ode to Jerome)

June 21, 2021

As promised, here is the podcast I recorded with Anthony Crudele. There is a great deal expressed in 52 minutes following the June 16 FOMC meeting. The fact that Chair Jerome Powell kept on keeping-on with full blown asset purchases leaves me in the camp of very little change regardless of the DOT PLOTS. As Powell said about the FED (and Wall Street economists), not a very good record of forecasting.

Click here to listen to the podcast.

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Notes From Underground: From Tweets to Tweaks

June 20, 2021

Happy father’s day to all who are one and have had one. Just nine months ago the markets were experiencing convulsions as the then-U.S. president would unleash tweet after tweet at all hours. We certainly don’t miss the key-word-driven algos creating volatility with the tip of their finger. The markets got a jolt last Wednesday when the Fed tweaked its administered rates — interest on excess reserves and the offering yield on its reverse repo facility — by 5 basis points in an effort to prevent short-term rates such as TREASURY BILLS from pushing into negative territory on a SUSTAINED basis as cash continues to flood the market, a consequence of the central bank’s ongoing QE ($120 billion a month). Adding to the deluge is the U.S. TREASURY, which has been running down its cash balance from an all-time high of $1.8 trillion.

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Notes From Underground: Schauble Pivots, Brainard Postulates

June 6, 2021

The unemployment data was not as robust as expected but not bad since hourly wages rose above consensus, the work week remained elevated and the jobless rate dropped to 5.8%. The headlines are always subject to severe review doing these tumultuous times. The question remains: Why did the BOND market experience a sizable rally even as the DATA was well within range of expectations. There is a great deal of pressure on the U.S. overnight market as vast amounts of liquidity searches for a home.

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Notes From Underground: An Open Letter To the G-7

June 2, 2021

Every G-7 or G-20 meeting homage is paid to the idea of free markets via the market driven value of each nation’s currency. This is hogwash of the highest order in the world of central bank asset purchase programs. The clarion call is that QE is a domestic-based program meant to meet the inflation target set by the nation’s policy makers and any impact on a nation’s currency is just unintended consequences of keeping a country out of a potential disinflationary cycle. Every central bank statement except the U.S. has a sentence or two about the relative value of a nation’s currency and if too strong then concern about a strong currency being a headwind in meeting the illusion and capriciousness of that 2% inflation target.

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Notes From Underground: A Global Macro Podcast for Memorial Day

May 27, 2021

Just in time for the Memorial Day weekend: A fresh podcast well moderated by the Financial Repression Authority’s Richard Bonugli. This was a conversation with South African Piet Viljoen and we go around the world. It is a pleasure to share thoughts with those outside the U.S. Nothing bothers me more than the arrogance of CNBC’s tagline of “Live From the Most Powerful City in the World.” That’s so irritating, especially when many mornings the most market-moving news is coming from Beijing. Well, pour a stiff libation, perhaps Scotch or a Japanese whiskey, and keep the questions and comments coming.

Click here to listen to the podcast.

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Notes From Underground: To Russia With Love (Or Blinken Blinked)

May 23, 2021

Ten days ago, we published a blog post titled, “Sanctions Are Sanctimonious.” And lo and behold, this past week the U.S. moved to remove sanctions on the completion of the NORDSTREAM 2 pipeline, allowing Russian gas to flow freely and readily into Germany without paying the massive transit fees to the Ukraine. This is the culmination of the project promoted by previous German Chancellor Gerhard Schroeder.This story is huge for it shows that the world is — as NOTES portrays it — far more dynamic than the static analysts would have us believe.

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Notes From Underground: Is the Fed In a War?

May 16, 2021

I pose this question as a challenge to all of those traders and investors, and a call to action. There is so much discussion about the onset of inflation but do the inflationists have the fortitude to attack the FED where it hurts: the long end of the yield curve? The primary focus of the FED has been on the part of the QE purchases has been the shorter end as 80% of the FED‘s balance sheet is five years or less. If the inflation concern is of the magnitude suggested by the mainstream media then market participants OUGHT to be selling the longer duration Treasuries because as we know the Wall Street mantra is DON’T FIGHT THE FED.

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