Notes From Underground: Lighthizer, Always At the Ramparts Of Trade Battles

April 8, 2019

As the second quarter begins, the financial markets seem fixated on China/U.S. trade frictions, or lack thereof. This narrative is old and stale. For those new to the realm of international relations, be aware that China will slow-walk these negotiations. There will be many attempts to “agree to disagree.” For example, in Monday morning’s SOUTH CHINA MORNING POST, there was an article titled, “China Refuses to Give Up ‘Developing Country’ Status At WTO Despite US Demands,” about China’s “privileged position” at the World Trade Organization. In the simplest terms, the WTO allows for countries to self-define as developing country status. This brings certain rights that allow for longer transition periods before they have to be in full compliance with WTO rules and regulations. This is described as “Special and Differential Treatment.”

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Notes From Underground: Quick Note on Friday’s Jobs Report

April 4, 2019
On Friday we have U.S. and Canadian employment. The Canadian report is important because Canada is an important trading partner of the U.S. so any slowing in Canadian employment may reflect of slowing cross-border trade. The consensus is for Canada to have a DECLINE of 10,000 jobs with the unemployment rate holding at 5.8 percent. From a global perspective, Canada is a good look at the continuing narrative about slowing global economy, which is significant as the New Zealand, Australian, European and Japanese central banks have used the slowing global economy as the reason for maintaining their current accommodative monetary policies. The Canadian dollar has been weak versus many of the key currencies so weak jobs should put more pressure on the Canadian dollar.

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Notes From Underground: Fitch Rates U.S. AAA (An Ode to the Printing Press)

April 2, 2019

On Tuesday afternoon the Fitch Ratings assigned a AAA rating for U.S. sovereign debt. This is about as good as rating subprime mortgages AAA up until the housing market crashed, giving way to the financial crisis. The statement acknowledged that the U.S. deficit was 4 percent of GDP this year based on IMF measures, with general government debt reaching 98.9 percent of GDP. Fitch also said by 2028 general government debt could reach 120 percent of GDP.

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Notes From Underground: No Moore. No Kudlow. No MMT

March 31, 2019

In the previous blog post, I suggested that if the FED was afraid of flat yield curves then they OUGHT to CUT overnight rates immediately by 50 basis points in an effort to steepen the curves to a more NORMAL slope. On Friday, in a nod to Notes From Underground, President Trump’s latest Fed nominee Steve Moore and White House advisor Larry Kudlow said that the central bank should slash interest rates by 50 basis points. Unlike my suggestion, the avid supply-siders offered no context for the rate cuts. There was no discussion of yield curves, dollar strength or the problems confronting global growth.

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Notes From Underground: Is The FED Afraid of Inversion?

March 26, 2019

Last week, NOTES FROM UNDERGROUND left off asking, WHAT IS THE FED AFRAID OF? The most ostensible fears are of a global slowdown coupled with a potentially too strong DOLLAR, which would create the possibility of a new global financial crisis. The world has borrowed heavily in dollars because of the FED‘s zero interest rate policy. Rates were too low for too long.

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Notes From Underground: When Doves Coo

March 20, 2019

Wednesday’s FOMC statement and press conference was as dovish as we have heard in many moons. More importantly, the VOTE WAS UNANIMOUS. Even Kansas City Fed President Esther George voted with the group. Why was this dovish?

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Notes From Underground: The Jobs Report Was Not Data Dependent

March 10, 2019

Wow! That was a serious miss by the forecasters on job growth as only 20,000 new jobs were added. The huge miss will prove to be an aberration but doesn’t matter at all. As I pointed out in Thursday’s blog — as well as on the PODCAST Peter Boockvar and I recorded with Richard Bonugli from FRA, the ECB’s pivot toward liquidity addition via cheap bank loans has forced the FED into a policy of “watchful waiting.” And Chairman Jerome Powell reiterated that stance in his speech Friday night as he stressed the need for caution in the search for normalization on rates and the balance sheet.

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Notes From Underground: It’s a Drag Listening to Draghi Get Old

March 7, 2019

ECB President Mario Draghi’s press conference was, once again, another act of flim-flam as he PIVOTED away from any tightening for the next [FILL IN THE YEAR]. There was NO SURPRISE as the TLTRO was well telegraphed various news outlets in recent weeks. What’s amazing is that the currency markets were surprised by Draghi’s press conference as the U.S. DOLLAR staged a sizable rally, reaching its highest level in more than three months. The YEN was stronger as the weak stock markets provided a sense of Japanese repatriation of invested capital, while GOLD performed dismally.

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Notes From Underground: MMT Is Gaining Velocity

March 5, 2019

We at NOTES FROM UNDERGROUND have discussed the issue of MODERN MONETARY THEORY. Now, the battle lines are drawn over the possibilities of a benign outcome to the practical basis of the so-called printing press. Yes, the simplification of MMT bothers its disciples, but the printing press is in essence what the theory purports to avow: Don’t worry about debt, because enough money flooding the system will not push interest rates higher but rather lower as banks take on massive reserves to put out the bid that’s pushing interest rates persistently lower.

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Notes From Underground: The Politics of Money

March 3, 2019

Over the weekend, President Trump blasted a high note from the Conservative Political Action Conference. Again, the president put pressure on the Federal Reserve as he pointed his finger at Powell. He said, “I want a dollar that does great for our country, but not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business.” He didn’t mention Powell by name but added noted that the U.S. has “a gentleman that likes raising interest rates in the Fed, we have a gentleman that loves quantitative tightening in the Fed, we have a gentleman that likes a very strong dollar in the Fed.”

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