Posts Tagged ‘China’

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: How Many Fed Speakers Does It Take To Make a Greenspan?

February 24, 2019

More than two decades ago, then-Fed Chairman Alan Greenspan said, “I know you think you understand what you thought I said but I’m not sure you realize that what you hear is not what I meant.”

It seems that the cacophony of Fed speakers on Friday accomplished what the so-called Oracle did by his own design .The headlines pulled out the narrative of the FED leaving a larger balance sheet and more reserves thus allowing for more liquidity in the U.S. financial system. Equity markets, bond markets and hard assets all experienced a sigh of relief and rallied in anticipation of removal of what Druckenmiller referred to as the double-barrel approach of FED tightening policy. Fed Vice Chairman Richard Clarida spoke about the FED‘s use of balance sheet and forward guidance dynamics as two exceptional tools the Fed used to combat the Global Financial Crisis. If policy was already at the “effective lower bound” the Fed may invoke a Bank of Japan-type policy of yield curve control (YCC) by capping the rates on longer maturities.

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Notes From Underground: Bye, Bye Pappy Van Winkle

December 6, 2018

At the end of 2017, my readers may recall that I did an unusual thing. I made a prognostication as where the 10-year yield will end the year. I said the 10-year would end the year at 3.41 percent, to which a friend offered up a bottle of Pappy Van Winkle bourbon if the rate reached that level. (The yield was 2.60 percent at the time.) Well, I’m throwing in the towel as it looks like 3.26 percent looks to be the top for the year. I guess I will have to enjoy a lesser-quality libation.

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Notes From Underground: Xi, Am Putin My Readers On?

November 29, 2018

The Twitterverse is atwitter with news bits about the coming meeting this Friday and Saturday. There are rumors that Putin and Trump were going to meet but now the get-together is off. The once-scorned Peter Navarro is to be at the Xi/Trump summit after all. An Argentinian Judge has suggested that Saudi Crown Prince MBS may be arrested for the killing of Jamal Khashoggi. There will be no agreement on free trade in the G-20 communique, especially as Trump has renewed threats against German auto firms with a 25 percent tariff on its exports to the United States. When Donald Trump comes to town it truly portends a three-ring circus.

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Notes From Underground: Irony of Irony

November 15, 2018

President Donald Trump maintains that the Facebook, Google, Twitter bias is the “real collusion” … oh wait, he tweeted that. Seriously, nobody spots the irony?!? Every day, this madness infects the algorithmic condition of the markets. I prefer real intelligence instead of artificial intelligence for genuine intellect understands nuance and irony. (Again, this is not a political statement as we analyze all aspects of politics in an effort to secure profits in global financial, commodity, currency and equity markets.) As Deng Xiaoping would say: “It doesn’t matter whether the cat is black or white, as long as it catches mice.”

It has been more than a week since the last blog post. As Trump’s inner Nixon spills outs, we will continue to monitor the idea of a MASSIVE GLOBAL INFRASTRUCTURE effort, especially since there’s a G-20 meeting in Buenos Aires the weekend of November 30.

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Notes From Underground: Depending On the Outcome of Rational Actors?

August 19, 2018

So much of social science is dependent on various actors making rational decisions. Economics has regularly proven that “actors” certainly fail to act rationally as manias, crashes and panics in repeated form are proof (see Charles Kindleberger). In the realm of politics, the dependence on nation-states to behave rationally has led to many major policy errors. During the Cold War the balance of nuclear weapons prompted both super powers to remain reticent to embark on direct confrontations and avoid an unthinkable shooting war. The fear of world destruction also meant that the USSR and UNITED STATES would leash their “allies” to prevent any direct conflict between the two major hegemonists.

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Notes From Underground: In Light of Declining Volume and Volatility … A Repost

August 7, 2018

The markets remain locked into the latest tweet from either politicians or CEOs. Whether it’s about tariffs or taking a company private, the Twittersphere has the ability to move markets for a nanosecond. Regardless of the algos and the continued march of passive investing NOTES FROM UNDERGROUND believes that Hyman Minsky has entered the room. A Minsky moment occurs when complacency leads to increased risk-taking while using increasing leverage. It is not market valuations that disrupts markets but rather the amount of debt that needs to be serviced. Can future cash flows ensure that the vast amount of debt can be managed? Leverage is a great aphrodisiac but if priapism results the exit strategy can elicit great pain. The markets are built on record debt.

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Notes From Underground: The Summer Doldrums

July 10, 2018

There are storms brewing but for the moment markets are stuck in the Doldrums waiting for the winds to increase in velocity. The issues confronting the market are all too familiar as NOTES FROM UNDERGROUND has been categorizing for the previous months.

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Notes From Underground: The Tweets Controlling the Market Gyrations

July 1, 2018

Now that the first six months of the year have come and gone, the markets have a cacophony of events to look forward to as algos react to price, and fundamental macro analysts are trapped between WHAT OUGHT TO BE. The current concerns over tariffs, trade wars, strife between friends/allies, political uncertainty in Europe, Middle East conflagrations, the Russia/Saudi alliance on energy, Chinese growth concerns, RISING U.S. INTEREST RATES AND INCREASED QUANTITATIVE TIGHTENING (along with elevated TREASURY FUNDING NEEDS), decrease in capital inflows into emerging market economies leading to potential dollar funding concerns and U.S. Congressional elections. Yet, the markets remain are not pricing in the relevance of such concerns. Wise traders and investors do not fight markets but profit from the opportunities presented. To do otherwise is mere commentary. So to paraphrase John Maynard Keynes: When the facts change so do I, what do you do madam?

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Notes From Underground: Flattening Curves — All Action and No Talk

April 11, 2018

In the political realm, the concern about tariffs has been lessened as Chinese President Xi took the high road with some silky conversation. It is not in the Chinese interest to raise the level of shouting/tweeting, nor to allow the YUAN to depreciate. The last blog post weighed the harm China would do to itself if the YUAN were to depreciate for it would then have to face the acrimony of many nations it is trying to placate. From a TECHNICAL perspective, it appears that the YUAN is going to test three-year lows between 6.11/6.20 to the dollar. As the Chinese tensions eased, the world now turns its eyes to Syria.

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