Posts Tagged ‘FOMC’

Notes From Underground: Chatting With Bill Laggner of Bearing Asset Management

February 4, 2019

On Jan. 30, I had the pleasure of sitting in with Bill Laggner and Richard Bonugli for another Financial Repression Authority podcast. These discussions provide a forum to discuss pertinent issues regarding the efforts of policy makers that impact the creation of wealth, as well as its distribution. I refer to this as POLITICAL ECONOMY. The podcast was recorded four hours before the release of the FOMC statement and Chairman Jerome Powell’s press conference. The FED chairman provided further insight into the walk-back of “automatic pilot” as he addressed concerns about the headwinds building in the global economy.

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Notes From Underground: The Government Shutdown, Or Lots of Media Drama

January 16, 2019

While I was off visiting my children and grandchildren, the government took its own hiatus. However, while I am back at it, the government is still shuttered (partially, at least). For years the pundits have ranted about the negative effects on the economy (and some even singled out the markets). For all of the noise, the bond market is stable and stocks have rallied 8 percent since the shutdown began on December 22.

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Notes From Underground: The Umpire Strikes Back

December 19, 2018

The Fed chairman is situated as the key arbiter of the economy and rules via its DUAL MANDATE. Given that it has a research staff of at least 500 economists the FED positions itself as ALL KNOWING, which is certainly okay as long as it accepts the consequences and lays aside the use of counterfactuals when its policies may turn out to be very misguided.

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Notes From Underground: Seasons Greetings From 1850 K Street

December 18, 2018

On Wednesday the most discussed FOMC meeting in years will take place. The FED has put itself into a box through its use of forward guidance and of the DOT PLOTS to direct investor sentiment. By skipping a rate hike at its November 8 meeting Chairman Powell put the burden on December with a heightened sense of a rate rise as it has a scheduled press conference. There is a murderers row of financial heavyweights arguing for the FED to ABSTAIN FROM A RISE IN RATES and wait for more data to ascertain whether the equity markets are signaling a genuine concern on economic problems, or are merely repricing risk that had premiums WAY TOO LOW during the halcyon days of harmonized QE. As the FED shrinks its balance sheet, the ECB is finished with liquidity. Once you add the BOJ dancing to the tune of a decimated bond market, global liquidity is being restrained.

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Notes From Underground: Seriously, It Ain’t Rocket Science

November 28, 2018
I know my readers are tired of my typical line of cynicism but it has never been more relevant than this week. On Monday, NASA succeeded in landing a space vehicle on Mars. HOWEVER, the FOMC can’t even define what the NEUTRAL RATE of interest is for the U.S. economy.

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Notes From Underground: Much to Be Thankful For. Now Back to Work

November 25, 2018

Tonight, we at Notes From Underground will clean up some unfinished business. We will discuss a couple of important speeches and articles from the past two weeks.

Then I will answer the questions Mike Temple made on the previous blog post. In responding to some of Mike’s points I come back to the idea of INFRASTRUCTURE, which I addressed in a few other blog posts. The reason I foresee aggressive fiscal stimulus put forth by the G-20 is precisely because of some of the fears that Mike raises about the damage coming to the investment grade corporate bond market while the FED’s shrinks its balance sheet and raise interest rates. It may be having a greater impact than the FOMC wants to acknowledge.

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Notes From Underground: Trump Will Channel His Inner Nixon

November 7, 2018

In 1971, after President Nixon relieved the U.S. of the burden of the gold exchange-standard he paraphrased Milton Friedman by proudly proclaiming, “We are all Keynesians NOW.” In preparing for the 1972 election, Nixon realized that Keynes provided the ability for a sitting president to throw fiscal responsibility to the side and open up the spigots of fiscal stimulus in order to PUMP PRIME the economy. Keynes is focused on demand management.

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Notes From Underground: Mario Draghi, The Magician of Frankfurt

October 24, 2018

After the Swedish Riksbank’s decision on Wednesday to keep rates at -50 basis points and pledging to raise rates in the coming months, the Bank of Canada met market expectations by raising its overnight rate by 25 basis points. The most important information from Governor Poloz is that the BOC raised rates even though last week’s inflation data was much softer than expected. The BOC official statement noted that the global economy is solid, the reconciliation over the USMCA is positive and “rates to rise to a neutral stance to achieve inflation target.”

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Notes From Underground: Powell Seeks to Reestablish the Authority of Markets … Maybe?

October 7, 2018

I am positing this idea because I think it’s critical to current valuations of various asset classes. The nine-year rally in the U.S. (and to some extent the global equity markets) has stretched valuations as ultra-cheap money has pushed investors into taking risks larger than what many money managers and retail investors would do “normal” circumstances. This was ultimately the Bernanke plan the former chairman laid out at Jackson Hole in 2010 (simplified in Bernanke’s Washington Post op-ed as the PORTFOLIO BALANCE CHANNEL). The long-term problem for investors is that Bernanke and Janet Yellen were terrified of market reactions whenever they desired to halt the massive QE programs and their beloved use of FORWARD GUIDANCE.

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Notes From Underground: Powell Confirms It Ain’t Rocket Science

September 26, 2018

Over the last nine years, a major theme from the wit and wisdom of Notes From Underground has been that FED policy is not rocket science, the premise being that no matter how much math is applied the forecasting ability of the FOMC has been less than stellar because of the use of flawed models. Unlike genuine rocket science in which astrophysicists can land a vehicle on the moon and return the capsule to a pre-programmed landing site, the FED cannot predict the economy with any sense of proximity. Yet the FED built a massive balance sheet depending on those flawed models. The financial media was awed by the high maths of the FED‘s models so mainstream pundits offered little to no pushback, genuflecting at the altar of academia.

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