For a long time now, we at NOTES FROM UNDERGROUND have been discussing the danger of Turkish President Erdogan in his role as a potential disruptor to stability in the Middle East. Last week’s violent action in Turkey’s stock and currency markets is just one element of the instability for which Erdogan can be held responsible.
Posts Tagged ‘ECB’
Notes From Underground: The World Is Talking Turkey
August 12, 2018Notes From Underground: Central Bank Palooza
July 30, 2018Coming on the heels of my first Kenny Chesney concert I am viewing the synchronicity of central banks as a reflection of the rhythms of global financial repression. Last Thursday, the ECB issued its last statement before the summer recess, while this week we have the Bank of Japan tonight, the FED on Wednesday and the Bank of England on Thursday.
Notes From Underground: Areas of Global Macro Concern
July 24, 2018President Donald Trump’s continuous tweeting creates volatility in the markets but the impact lessens as participants become hardened to the vagaries of the tweets. An area that does concern me, though, is the amount of insider trading I suspect is taking place.
Notes From Underground: Headlines Drive the Algos and the Circle Remains Unbroken
June 12, 2018I’m going to be off for a few days, even if this Fed meeting proves to be the most market-moving week in many years.
The news from North Korea proves to be a non-event (as suspected). On Wednesday, we get the FOMC statement, which OUGHT to meet market expectations with a 25 basis point increase and some sense of the interest on excess reserve (IOER) rate in reference to fed funds. There is much discussion about the FED reaching “normal” interest rates, meaning neither too weak nor too strong to reach its dual mandate.
Notes From Underground: Bored By Italy, But I Digress
June 5, 2018Sorry. The current situation in the European Union has been well forecasted by NOTES FROM UNDERGROUND so until the storm clouds clear and the Italian ruling coalition begins to initiate some of its campaign proposals I treat everything in Europe as a trade and not an investment. Even the talking heads are waking up to the potential financial damage that bank balance sheets loaded with ZERO RISK-WEIGHTED sovereign bonds can cause a healthy bank’s bloated balance sheet.
Notes From Underground: Back On the Floor
May 28, 2018On Friday, Rick Santelli and I discussed the situation in Europe, especially the FRAGILE situation in Italy. An important metric that needs to be watched is the huge amount of sovereign debt that is “comfortably” sitting on the Italian banks’ balance sheets. Under BIS rules (and other global financial regulations) sovereign debt carries a ZERO RISK WEIGHTING, meaning that commercial banks can hold sovereign bonds and hold no reserves against such an asset class.The Italian banks have been the repository of their sovereign bonds, which makes them vulnerable to a rise in BTP yields as the price drops due to the political concerns involving the inability of FIVE STAR/LEGA to come to an agreement on an acceptable cabinet.
(Click on the image to watch me and Rick discuss the Italian situation)
Notes From Underground: The Importance of Being Lighthizer
May 24, 2018The plot thickens as the media is filled with one leak after another in regards to tariffs or threats to embark on a road to perfidy by invoking section 232 of the 1962 Trade Act: Using the broad cover of national security to justify increased import duties on autos. [In a hat tip to A. Limey] It is time to acknowledge that the “brain” of President Trump’s trade team is Robert Lighthizer.
Notes From Underground: The Magician of Frankfurt Will Be Called to Answer
May 22, 2018We’ve been discussing the problems in the Italian debt market at NOTES FROM UNDERGROUND for many years but with the Five Star/Lega coalition coming into government many of the issues that were once theoretical are now an increasing possibility. The Five Star group is openly proposing a debt restructuring for Italy in the hopes of spurring growth and improving the Italian unemployment situation. Economic growth in Italy has lagged the developed world economies and none more so then its neighbor, Germany.
Notes From Underground: The Mother of All Debt Crises
May 14, 2018Everything in global financial crisis emanates from too much debt being unable to be serviced. The current situation in Argentina is that the state and private sector borrowers won’t be able to pay the INTEREST on its dollar-based loans as the PESO weakens. It takes more domestic currency to purchase the needed dollars to pay creditors, resulting in a NEGATIVE FEEDBACK LOOP that brings the economy to a crawl as all the economic actors have to find ways to pay the interest costs or go bankrupt. The Argentinian government won’t go bankrupt. But it will force a debt restructuring if its borrowing costs move higher (yet another burden for a debt-plagued economy).
Notes From Underground: Don’t Cry for Me Argentina
May 6, 2018It is far too early in the situation circling the emerging market debt to make a prognosis. The financial media is filled with stories about the rising U.S. dollar coupled with a FEDERAL RESERVE that is rising short-term rates while simultaneously enacting quantitative tightening (QT). This is certainly having an effect upon global liquidity but at this point I would caution about the CONTAGION and fallout from this process, especially as the ECB and BOJ still are adding liquidity while standing ready to increase their QE if economic growth begins to falter. My phone and internet haven been inundated with questions about the Argentinian central bank raising short term rates to 40 percent. The Argentinians are in the middle of a reform process that is causing major disruptions in their economy, in addition to a severe drought that is having a major impact on the economy, especially for one relying on the agricultural sector.
