Notes From Underground: My Fantasy News, “China Swaps U.S. Treasuries For Fort Knox”

March 22, 2020

This headline would have seemed ridiculous eight weeks ago but today it has great relevance. If I ran the PBOC (or rather had the totalitarian impulses of President Xi), the command from above would be trade in the overvalued U.S. debt instruments for a 3,000-year vehicle that’s a reliable store of VALUE. The world’s central banks have confirmed a central theme of NOTES FROM UNDERGROUND: It is not inflation they fear but the onset of a DEFLATIONARY SPIRAL.

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Notes From Underground: Three Cheers for Christine Lagarde

March 19, 2020

While the rate cutters were busy dumping on ECB President Christine Lagarde for not cutting and only announcing an increase in bond purchases I opined that Lagarde was getting more by doing less. Lagarde did not go down the Draghi route and lock up with Jens Weidmann and the Fiscal Austerians in the Hanseatic League. The ECB president played for a bigger prize and tonight she delivered with an announced 750 billion euro bond buying program of both public and private issues.

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Notes From Underground: We Walked Off to Look For America

March 15, 2020

These are challenging times is the understatement of the decade.

The fear of pandemic has arrived and is causing great distress for families and the nation at large as we are tending to the sick and those forced into a change of everyday patterns. Since the beginning of February, we at NOTES FROM UNDERGROUND have been discussing the onset of the DEMAND SHOCK which would cause problems in the financial system because of the massive build-up of debt on a global scale. If businesses cannot operate as people hunker down in an effort to slow the spread of the virus then it goes without saying that DEMAND would suffer. If demand suffers on a global basis borrowers without cash reserves will struggle to sustain their businesses.

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Notes From Underground: It’s Time For the Owl

March 8, 2020

Well things are on the bubble as the Russians and Saudis had a “falling out” as lovers often because the OPEC talks resulted in an ostensible all-out war to break oil prices. The consensus loser will be the U.S. oil patch as the FRACKERS are carrying huge amounts of debt, which will not be paid while prices sharply decline.

There will be talks about a credit crisis as banks and other oil creditors will have to absorb losses and probably restrict lending to other borrowers. Those with private equity investments in the Bakken, Permian and others will be taking inventory on how battered their portfolios will be. The wily Putin will finally have his way as the sanctimonious Americans will have to rescind the ill-devised/ill-advised SANCTIONS that have had little impact.

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Notes From Underground: The G-7 Was All About the Dollar

March 5, 2020

The other day I called question to the tepid G-7 statement, which was followed by a 50 basis point CUT from the Federal Reserve. On Thursday the Financial Times published a story saying the Fed’s move was counter to a history of G-7 collaboration. Let us first dissuade the popular mythology of the G-7 as relevant to any serious global action. The colonial remnants of the authority of the bailiwick of the  mechanism for the containment of the Soviet Empire are a JOKE. During the financial crisis it was the moves made by China that did more to stabilize global growth than any action by the G-7.

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Notes From Underground: Into the Dark Recesses of My Mind

March 3, 2020

Three weeks ago we at NOTES FROM UNDERGROUND suggested the Fed needed to cut interest rates by 50 basis points in an effort to get ahead of the potential negative economic fallout from a DEMAND SHOCK caused by the Covid-19 virus. But the rate cut was to be presented with the caveat that this was an economic cut and financial considerations were not involved. If the demand shock from the VIRUS never materialized the cut would be RESCINDED. After announcing an emergency cut Tuesday Chairman Jerome Powell took a few questions from the media.

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Notes From Underground: A Microscopic Germ Packs a Wallop

March 2, 2020

There is no doubt little organisms can wreak havoc in ways that blowhards could never imagine. People are trying to assess the financial impact by looking at previous pandemics. This is flawed analysis because each pandemic is different depending on the global circumstances and the morass for incubation. During the Cold War people did not move freely so political containment acted as a drag on the spread of disease.

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Notes From Underground: Amid the Tumult…

March 1, 2020

Before we embark on more pertinent market viewpoints it is my pleasure to offer up two podcasts I recorded last week with the Financial Repression Authority’s Richard Bonugli. The first is with Lacy Hunt of the Hoisington Letter. The second is what I refer to as the four horsemen of the apocalypse: Jim Bianco, Peter Boockvar and David Bernstein. We discuss many areas relevant to the past four weeks.

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Notes From Underground: A New Form of Asian Contagion

February 23, 2020

On July 2, 1997 the Thai baht entered crisis mode, kicking off what become known as 18 months of Asian Contagion. The so-called Asian Tigers experienced massive capital disruptions as the Chinese economic miracle undermined the capital expenditure projects that were creating the manufacturing capacity to lift the TIGERS out of poverty and into significance in the global supply chain. The emerging markets learned that as fast as capital flows in to support foreign direct investment it can hurriedly depart as it seeks alternative venues with a better competitive advantage .

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Notes From Underground: And the Concerns Continue

February 18, 2020

On Tuesday global equities were down a very modest amount. The U.S. DOLLAR continued it move higher as the growth story and positive nominal yields is enough to push global investors into the U.S., the center of complacency. Commodity prices started off  weak but OIL, grains and even COPPER found some buyers.

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