Posts Tagged ‘Europe’

Notes From Underground: Beware the ECB’s New Weapons

September 24, 2019

As promised, here is the clip of me and Rick Santelli talking about myriad issues in the market, from the state of U.S. dollar funding to Europe’s issues.

This is a highly relevant discussion about the tasks confronting incoming ECB President Christine Lagarde. On Tuesday, Project Syndicate published a piece by Yanis  Varoufakis titled, “New Weapons for the ECB,” offering a plan that will result in  ECB CONVERSION BONDS. It is a surprisingly TAME essay as the firebrand of the EU is offering resolution to the problem that President Lagarde has been delegated to attempt to resolve. Varoufakis is resigned to the idea that there will no coordinated “sensible fiscal policy.”

The failure of politics necessitates the need for a EUROBOND is paramount to prevent the peripheral nations from embarking on deflationary policies in an effort to avoid insolvency. Varoufakis saw Greece subjected to the terror of INTERNAL DEVALUATION as wages dropped dramatically in an effort to make the country competitive with its fellow EU nations. Primary budget surpluses for a nation struggling to create an environment for GDP growth is a recipe for political instability. A eurobond/conversion ECB bond from its existing asset pool would eliminate the fear of insolvency and allow for a more coordinated fiscal response to an EU recession.

While Varoufakis is too complimentary of Mario Draghi, his piece lays out what it is that President Lagarde must overcome to be deemed a success in her new job. It seems that “agent provocateur is bidding for a position in the Lagarde regime. The coming Lagarde program will result in increased volatility in the EURO ZONE debt markets as politics takes on the opponents from Europe’s heartland who have been financially repressed by negative interest rates. He said, “Technically speaking, ECB conversion bonds are the obvious replacement for the failing quantitative easing program. Only the misplaced fear of debt mutualization stands in their way.”

***Tuesday evening at 9 p.m. CDT, the Reserve Bank of New Zealand (RBNZ) announces its newest interest rate decision. On August 7, we at NOTES FROM UNDERGROUND anticipated the 50 basis CUT because of the strength of the KIWI versus the Aussie dollar. The low made that night on the cross was 1.0361. Now, the cross is at 1.0752 after touching 1.0835 last week. The recent KIWI weakness OUGHT to keep the RBNZ‘s overnight cash rate on HOLD at 1%.

If the RBNZ were to actually cut rates citing global concerns it would involve an outright battle with the Aussies. They would be fighting a currency skirmish, which would force the AUSSIES to lower their rates at the next meeting — and likely generate some response from President Trump. Let’s hope the RBNZ is content with the recent weakness in the KIWI. Keep an eye on the 200-week moving average of 1.0708, which is a critical support level.

***In my analysis of the Middle East, I advise paying attention to the role of Vladimir Putin. His stature is enhanced every day as the tensions build throughout the region. It is Russia that has become the critical variable to any lessening of tensions. It is time to negotiate the SANCTIONS away for the loss of Crimea will remain an issue for the Europeans to resolve, as well as an overall lessening of violence in the Ukraine.

The sanctions have been an irritant to the Russians as Germany and others still rely on Russian energy imports. And the issue of Saudi Arabia continues to  be a “riddle wrapped in a mystery inside an enigma,” leaving me to wonder what all the actors have as their self-interest. Watch all things Russian for a clue.

Notes From Underground: Mexico Tariffs Suffer From the Three Ills

June 2, 2019

And what might those be, you ask? Ill-conceived. Ill-timed. Ill-advised.

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Notes From Underground: Welcome Back, Rick

May 28, 2019

On Tuesday, Rick Santelli and I dissected the European Parliamentary elections. The results weren’t far off the projections as the GREEN PARTY was able to siphon off voters from the established left-leaning parties as they attracted more young voters than in previous EU-wide elections. There will be much to discuss as we head into the “horse trading” of Brussels politics but I stick to my insistence that the ECB needs the leadership of Jens Weidmann.

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Notes From Underground: Relevant Issues for Today’s Global Macro Environment

May 13, 2019

As the latest drama of the U.S./China trade negotiations unfolds, there are several that continue to boil. The president is tweeting less about stock market valuations and more about the revenue impact from the fresh tariffs On Sunday, Fox News’ Chris Wallace disrobed Larry Kudlow. The economic adviser epitomized the age-old adage: “An honest person sent abroad to lie for their country.” Yes, Mr. President. A tariff is a tax on your populace. If tariffs are great for the U.S. economy, then raise them 1000% and balance the budget without inflicting any harm on Americans’ pocket books. [Yes, that’s sarcasm.]

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Notes From Underground: Back to What’s Driving Markets

May 8, 2019

We have all been bogged down with tweets coming from the White House about China. Because high-speed traders force us to parse the messages and assess the immediate impact on the markets, we’re hostage to President Trump’s tariff policy. The bottom line is that Robert Lighthizer is left to inform the world when China will acquiesce to the U.S.’s demand for reliable and hardened enforcement mechanisms to solidify any genuine agreement. From my perspective, the critical point on global markets is that once China/U.S. trade agreement is done the president will set his sights on targeting the ENORMOUS TRADE IMBALANCE that favors Germany.

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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: Things Are On the Boil

February 7, 2019

There are so many things causing angst in the global markets. There was news out of France on Thursday that the government was recalling its envoy to Rome because Italian politicians met with the yellow vest movement. To President Macron I offer this history lesson: In 2011-12 French President Nicolas Sarkozy–with the cooperation of German Chancellor Angela Merkel–crushed the Italian bond market in an effort to remove Prime Minister Berlusconi. The Eurocrats in Brussels parachuted in a preferred bureaucrat, Mario Monti, in an effort to get Italian politicians to halt the fiscal bleeding. The French have a great deal of audacity in complaining about Italian meddling, especially as Salvini/Maio have a legitimate reason: the upcoming European Parliamentary elections.

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Notes From Underground: Markets Are Rounding Third and Sliding Into Home

December 16, 2018

As we head into the final two weeks of the year, the global equity markets are “sliding into home.” Equities sold off again on Friday as the Chinese tariff saga is failing to provide support to the market. Weekend news conveyed the idea that the market was reacting to this week’s FED meeting and the very high probability of another increase in the central bank’s target range. This is a stretch because investors have been aware of the FED‘s limitations under its own “forward guidance,” trapped into a rate hike for fear of spooking the market if no increase was decided.

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Notes From Underground: A Riddle, Wrapped In a Mystery, Inside an Enigma

December 4, 2018

I’ve been thinking about the Churchill quote referring to Russia. Rather than referencing Russia my thoughts turn to the flattening yield curves that began on Monday. As commodity, global equities markets, the Chinese yuan and the precious metals all staged strong rallies, the long-end of the yield curve also rallied, especially the 10-YEAR. As a result, the 2/10 curve flattened to a 10-year low of 15 basis points. On Tuesday, the curves flattened even more as the 2/10 closed at 10.7 basis points. As Vizzini from the Princess Bride would say, “INCONCEIVABLE!” To support the rally in the long-end of the curve there was a retracement of the recent rally in global equity markets (the NIKKEI, DAX and S&Ps were all down substantially). This suggests that the positive news from the G-20 meeting has now been cast asunder because investors are struggling to comprehend what actually took place in Buenos Aires between the U.S. and Chinese delegations.

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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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