Posts Tagged ‘Fed’

Notes From Underground: Pour a Yamizaki, Enjoy 30 Minutes of Harris and Crudele

June 19, 2017

This morning I had the pleasure of sitting with a professional trader and discussing several themes that have coursed through NOTES FROM UNDERGROUND for the past several months, if not years. In staying with the Crudele hit I want to spend some time on offering some views on the significant flattening of the 5/30 curve during the last few weeks. More importantly, the 5/30 curve broke out to new multi-year lows, blowing through the previous low of 100.98. Today we closed at 99.5. The 2/10 curve was very stable and closed at 82.5 basis points holding above last weeks lows. Why is the more SPECULATIVE-oriented curve flattening more than the conventional investment directed curve?

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Notes From Underground: She Does It Backwards and In Heels

June 14, 2017

Commentators on dance technique always maintain the Ginger Rogers was a better dancer than Fred Astaire for she performed everything he did but “backwards and in heels.” At today’s press conference the financial markets were left with the sense that Chair Yellen wants to rollback the massive balance sheet promulgated by Ben Bernanke. The most “hawkish” piece from the day was when Yellen said it’s not unhealthy to have a gap between the FED and MARKET EXPECTATIONS.

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Notes From Underground: Some Perspective on Wednesday’s FOMC Meeting

June 13, 2017

The FED has painted itself into the proverbial corner by pre-announcing a rate hike. The market will be listening to Chair Janet Yellen’s press conference, which takes place at 1:30 CDT, a half hour after the Fed releases its statement and summary of economic projections. The market is expecting some discussion Fed’s balance sheet unwind, but Yellen will be cautious as she won’t want to cause a large selloff in the Treasuries led by the algo-driven headline readers. Tomorrow morning the Bureau of Labor Statistics releases the CPI data, alongside the Census Bureau’s retail sales data. Market consensus is for tepid numbers on both releases.

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Notes From Underground: Is the Yield Curve Taunting the Fed?

June 6, 2017

There were many responses to last night’s post regarding one of my favorite topics: the yield curve. The airwaves have been filled with opinions about the impact of the 2/10 curve on bank stocks and other financial asset valuations. Long-time readers know that I often note the significance of the shape of the curve for hinting at possible investment opportunities. Last year the 2/10 curve FLATTENED (a relative term) to long-term support levels at 74.8 basis points and then steepened out to about 150 basis points as the market feared a Trump inflation scenario.

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Notes From Underground: The Mnuchin Budget — 96 Tears With ? and The Mysterians

May 24, 2017

The rollout of the long-anticipated U.S. Treasury budget brought tears to my eyes. Why? Because it couldn’t help but wonder how supposedly intelligent people could present a politically ridiculous BUDGET and tax plan. The drafters lose the battle when they first present an increase in defense and make it a sacred cow of the Trump White House. You cut many social safety net programs while finding MONEY for questionable foreign entanglements and many unneeded weapons systems. The beauty of the original Bowles-Simpson plan was that all the sacred cows of the budget process were GORED. In my opinion real budget changes and reform must start with reining in the defense sector, but unfortunately too many Congressional districts are the recipients of defense spending and, of course, defense sector jobs. In a GREAT SANTELLI INTERVIEW Wednesday, former Senator Alan Simpson ripped apart the White House budget proposal and noted that it was sprinkled with fairy dust.

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Notes From Underground: A Review of Nehru Versus Nairu

May 11, 2017

Yesterday, Boston Fed President Eric Rosengren filled the airwaves with talk about the FED to be more aggressive in raising rates in order to prevent wage inflation from curtailing the current expansion. The continued concern from Wall Street about the POSSIBILITY of wage inflation because of FULL EMPLOYMENT reflects on the flaws in central bank’s models. Nairu (non-accelerating inflation rate of unemployment) is so 1970s, when globalization was just beginning and private sector unions had genuine bargaining power. The end of the Cold War unleashed hundreds of millions of workers to compete with workers in the highly developed and advanced economies. The fall of the Berlin Wall pressured even the strong German unions as the fear of jobs moving to Eastern Europe resulted in Social Democrat Gerhard Schroeder initiating the Hartz IV labor reforms which resulted in stagnant wages in return for some job security.

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Notes From Underground: Au Revoir, Marine Le Pen

May 8, 2017

Now we can finally put the French elections behind us as its citizens maintained the status quo and elected Emmanuel Macron to a five-year term. Parliamentary elections follow in June but the two main parties, Socialists and Republicans, aren’t expected to face challenges. But, if the more conservative Republicans gain control of the Parliament and the prime minister post it will force Macron to move further to the right-center. If Macron moves away from the Hollande Socialist camp it will result in political protests from the Left. Macron will experience a difficult presidential term if the government is gridlocked by continual demonstrations. The German chancellor is going to ask a great deal from Macron: fiscal austerity, as well as a restructuring of the French domestic economy.

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Notes From Underground: Trump Delivers on Using the Dollar as a Policy Tool

April 12, 2017

In an interview with the Wall Street Journal, the tweeter-in-chief was reported to have said, “The DOLLAR IS GETTING TOO STRONG.” As some pundits discussed, instead of Trump calling China a currency manipulator it seems he wants to use the dollar as a cudgel to pressure others into not embarking on policies to weaken their currencies. As I wrote on April 2:

“The Trump Administration’s efforts to curb the U.S. trade deficit may see the executive branch try to depreciate the U.S. dollar if Secretary Mnuchin and Secretary Ross fail to persuade certain global actors to embark upon policies to adjust their current account and trade surpluses. The Fed’s recent tightening has not rallied the dollar–it actually closed lower on the quarter–so if the political status quo is sustained in Europe and no new political crisis emerges, the DOLLAR will become a barometer of Trump’s policies on trade.”

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Notes From Underground: Nothing Focuses the Mind Like a Hanging

April 5, 2017

First things first, let’s talk about the gorilla in the room, former Richmond Fed President Jeffrey Lacker leaked confidential information and the entire FED has had its reputation tarnished (stifle your laughter). The bigger question is how much is being covered up. Who else was involved in discussing matters of great sensitivity? As my readers know I have raised the issue of the G-30 and Davos being convocations for the exchange of very privileged information. Just google the G-30 and look to see its membership. The dissemination of potentially sensitive market-moving information to highly paid analysts raises serious questions of impropriety. In an effort to the level the playing field (and yes, I was most probably harmed by the leaks to Medley), the FED should not release its speeches or market information to any journalists covering the Federal Reserve.

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Notes From Underground: The Second Quarter Begins

April 2, 2017

First, let me apologize to my readers. I erred when I said Marine Le Pen made it to the second round of the 2012 French presidential election. Reader Al 13 corrected me. It was her father Jean-Marie Le Pen who made it to the second round in 2002 and got trounced, garnering 18% of the vote to Jacque Chirac’s 82%. But read Al 13’s comment on the previous post because he notes that if the second round were to be a choice between Le Pen and one of the two far-left candidates–Melenchon or Hamon–the impact would be highly volatile for European markets.

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