Posts Tagged ‘FOMC’

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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Notes From Underground: Fed Forecast — 100% Chance of a 0.25% Rate Hike

September 25, 2018

The market is absolutely, positively certain that the FOMC will increase the FED funds rate by its Greenspanian 25 basis points, although there are some Wall Street pundits suggesting the possibility of a 50 basis point hike because of the recent return of robust data. I have suggested that the FED would have done well by raising rates in a more aggressive fashion. But with the November elections within polling range, Trump’s trade policy causing angst in the emerging markets and several of U.S. trading partners, it’s looking very unlikely (less than 5 percent chance).

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Notes From Underground: Chairman Powell, Ask the Wizard for Some Courage

August 1, 2018

The FOMC issued a very bland statement on Wednesday after its two-day meeting. Why did they bother convening for two days to deliver a policy statement that they phoned in last month. In my opinion, Jerome Powell missed a perfect opportunity to flex the FED‘s independent muscles by NOT RAISING RATES. The recent GDP data, inflation measures and robust jobs market provided ample evidence that the market is in need of another interest rate hike.

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Notes From Underground: Central Bank Palooza

July 30, 2018

Coming 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.

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Notes From Underground: Are We Reliving 1930?

June 25, 2018

Upon taking some time to reflect on the current state of the global macro world it seems that the most relevant are the years between 1928 and 1933. This was when the U.S. Congress was debating the famed Smoot-Hawley tariffs while the Treasury was reining in spending, and the FED was tightening liquidity and credit. While we don’t have a restricted Treasury (quite the opposite, actually), the Fed seems intent on raising rates to curtail the impact from an ill-advised fiscal stimulus at a time of 3.8% unemployment.

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