Posts Tagged ‘fiscal stimulus’

Notes From Underground: Too Little Is Worse Than Too Much

October 6, 2020

Following Federal Reserve Chairman Jerome Powell’s speech Tuesday at the National Association for Business Economics, the media (financial and mainstream) ran with the idea that Powell would rather have the government err on the side of TOO MUCH STIMULUS instead of failing to provide the needed boost to an economy that’s beginning to stall after a robust third quarter.

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Notes From Underground: Narcissism Has Consequences

October 1, 2020

On Friday, there’s a new dose of unemployment data. While these blog posts have been infrequent, my view remains the same: The Federal Open Market Committee may be keen on promoting inflation while returning to the pre-Covid employment levels, but no amount of robust jobs growth will move the FEDERAL RESERVE off its current policy of lower for longer.

In regards to the year-end data, I want to know: If unemployment is below 9% while the annualized inflation levels were to rise to 6%, would the FED raise rates? If your answer is no then you agree that the data outcomes are benign. At this juncture much more concerned with the next phase of fiscal stimulus and the DOLLAR.

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Notes From Underground: “It’s Good News Week”

December 10, 2019

What an appropriate song for the band Hedgehoppers Anonymous. This week is loaded with potential market-moving outcomes. On Wednesday we have the final FOMC statement of the year followed by Chairman Jerome Powell’s press conference. The CONSENSUS is for no change in the current fed funds target range of 1.5% to 1.75%. The real key will hopefully be Powell’s press conference as market participants are hoping for any sort of dialogue about the Fed’s role in the repo market.

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Notes From Underground: Same Old Song With a Different Beat

December 1, 2019

There are few questions about the one-dimensional nature of the driving force of markets around the world. Cheap money sustains equity markets as the vast amounts of central bank liquidity continues to provide support for low-cost borrowing and a lack of alternatives for investors. A subset of the cheap cost of capital has been the “hoped” for resolution to the China/U.S. trade conflict which without question has disrupted global trade. South Korea’s recent economic performance is a reflection of the impact suffered by key components of the global supply chain driven export-oriented economy.

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Notes From Underground: I Am Not Your Beast of Burden

October 29, 2019

In the global financial system, the central banks are indeed the are system’s beasts of burden. With the November FED FUNDS contract pricing in 93% chance of a rate cut, Federal Reserve Chairman Jerome Powell will attach himself to the plow and till the soil, spreading more fertilizer for equity purchases and further financial repression of creditors. As we discussed Monday, the week is filled with central bank meetings of importance and further impacted by unemployment and GDP data. But there is so much more in the political realm that we haven’t even entertained:

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Notes From Underground: So Long, Mario

October 24, 2019

A quick summation of ECB President Mario Draghi’s final press conference:

1. The Draghi Era is ending and I have to say that this was one of his best press conferences. Draghi exited, stage left, not PURSUED BY A BEAR and he did it with grace and aplomb. He took a BOW for his self-imposed mandate of PRESERVING THE EURO BY DOING WHATEVER IT TAKES. The desire to keep on keeping on by sustaining QE, TLTRO, MTO and most significantly, NEGATIVE INTEREST RATES will be a testament to the judges at the COUNTERFACTUAL HALL OF FAME. How much QE was enough? What was the political damage that resulted from the bond buying program? This will be an issue that the cheerleaders of lower for longer will never entertain.

2. Again, Draghi stressed the need for greater synthesis of the EU in monetary, fiscal and political harmonization. He was laying the groundwork for Christine Lagarde and what I have maintained is Lagarde’s dual mandate of the creation of the true EUROBOND with a massive EUROWIDE fiscal stimulus program. Drahi urged those with budget room should ramp up spending while the deficit stressed OUGHT to get their fiscal houses in order. This is nonsense for once Germany capitulates to an infrastructure program fiscal stimulus will bloom all around the European Union. As an aside, the Financial Times had a story about how that the progenitor of the SCHWARZE NULL came out in favor of German fiscal stimulus in an effort to replace worn infrastructure. Spend while money is cheap.

3. Draghi still made a statement that the limits on each country’s bond purchases are self-imposed by the ECB so there may be room for the central bank to play with the amount of bonds purchased on any given day. The relevance of the CAPITAL KEY is in the stock of BONDS, not the FLOWS. This is important when trading any individual sovereign under duress. (I think Draghi is on thin ice here but something he failed to note as self-imposed by the ECB is the 2% inflation target.) Lagarde’s task is not to build the balance sheet. It is fiscal. Maybe President Lagarde could dispense with the new round of QE if Germany would ramp up fiscal stimulus.This seems to play to Jens Weidmann.

4. In response to a question about any mistakes the ECB made under the Draghi regime, the outgoing president said there was an overstretched commercial property market in Europe but felt that was a result of foreign investors seeking to be involved in EURO investments. Mario doesn’t see any BUBBLES. He did suggest the  SHADOW BANKING SECTOR was a blindspot because of the lack of transparency. But Draghi said the corporate bonds and leverage markets were not as significant in Europe as in the U.S. because of the structure of capital markets so he was not overly concerned. Enter Christine Lagarde and we will prepare for the change of leadership.

Notes From Underground: For The Sin Of …

October 7, 2019

Let me wish all those celebrating the Jewish New Year a Healthy and Happy New Year (and I wish the same for those who don’t celebrate the Jewish calendar). Tuesday night begins the Day of Atonement in which the individual is obligated to acknowledge any shortcomings, ask GOD for forgiveness and announce the desire to rise to a higher level in the coming year. There is a list of 44 sins confessed publicly, which covers the entire litany of transgressions the individual/community has most probably engaged in. (I’ve linked a list here.)

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Notes From Underground: Rhapsody On the European Union

September 23, 2019

On Thursday Peter Boockvar and I gabbed on all things macro with Richard Bonugli. We covered a great deal of the global financial quilt and as we remind listeners, we have done this to clarify important issues regarding financial concerns in an effort to either reduce risk or enhance  profits.Concerns are still relevant in regards to what actually happened in Saudi Arabia as well as central bank credibility.

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Notes From Underground: The King of Hearts Searches for Sanity

September 15, 2019

The inmates are running the asylum as policy makers are busy putting out old prairie fires. The European Central Bank’s move on Thursday was a final curtain call for President Draghi as he sought to cement his legacy as the man that would do whatever it takes to “preserve the Euro” and would have no taboos in his efforts. But it seems like the opposition to both the rate cut and new QE was far greater than the magician of Frankfurt let on at his final obfuscation. It is amazing how the dissidents find their voice the day after. Oh well, so it goes in the world of consensus-driven outcomes.

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Notes From Underground: The ECB and the Swan Song of Mario Draghi

September 10, 2019

We are coming to the end of Mario Draghi and the “Whatever It Takes” era. Remember, the head of the European Central Bank said he would do whatever it takes to preserve the EURO. This fealty to the currency has resulted in a -40 basis point deposit rate, a massive expansion of the ECB’s balance sheet via sovereign and corporate bond purchases.

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