Posts Tagged ‘Gilt’

Notes From Underground: The Markets Are Wrong (Or Draghi Lets Us Know Who Is In Charge)

October 25, 2012

Following up last night’s post, Arthur left a note on the blog linking an article from Bloomberg Businessweek, written by Brendan Greeley. The language of the article is crystal clear and provides another example of a Euro policy maker claiming far more insight than the collective wisdom of Mr. Market. “Investors ,he told the Bundestag, are ‘charging interest rates to countries they perceived to be the most vulnerable that [go] beyond levels warranted by economic fundamentals and justified risk premia. This fear is “unfounded. The market is wrong.'”



February 22, 2012

In a relatively quiet trading day, the GOLD market rallied $25 after spending most of the PIT TRADING DAY attempting to break and set up a correction to the recent rally. Shorts ran for cover. WHY? Two stories that gave the rally a rationale:




Notes From Underground: Obama’s Honeymoon Speech was Over-promised and Undelivered

January 26, 2011

This was a State of the Union that was hyped with so much HOPE for restoring real growth and JOBS to America. As I read the entire leaked speech–which was leaked in entirety–I kept waiting for the real thrust to stimulate growth and I missed it. Simplifying the tax code is a noble endeavor but we have all experienced the inability of Congress to crush the self-interests that without presidential leadership it attempts fail under the weight of lobbying dollars. Ending the tax breaks to energy companies so as to finance the switch to clean energy is nice but oil explorers will lobby or else move to exploring in nations that require the advanced technology that U.S. energy companies thrive on and they will entice them with all types of incentives.


Notes From Underground: Short Look at Being Long Russia

November 10, 2010

Allow me, readers, to journey down the rabbit hole. I believe a major theme in 2011 is that many of the high correlative trades are going to break apart and fundamentals will prevail over mere mathematical permutations (hence NOTES FROM UNDERGROUND WHERE 2+2=5 is also a beautiful thing). One of the areas of decoupling will be in the area of DEVELOPING MARKETS where all nations are not equal. Russia is one of those nations that I believe will outperform, as the rising middle class will continue to push for more development that is not just natural-resource based. Now I am not naïve and certainly understand the pernicious nature of Putin and his kleptogarchs and the failure of the rule of law. One of Yra’s laws is the MONEY IS FASCIST, by which I mean that money in search of a high return will tolerate autocratic rule. History certainly bears this out, especially when we are in a greed cycle rather than fear.



October 26, 2010


The best quote to describe today’s market action after the more robust British GDP numbers comes from the column in the London Telegraphby Jeremy Warner. It is an apropos comment that the FED and all policy makers should take to heart and it comes from that master wordsmith, Mike Tyson:


Today, the markets got hit from the British GDP number and it might have sent Britsh and possibly U.S. quantitative ease reeling to a later time. The market consensus was for a 0.4 percent increase while the actual number printed at 0.8 percent–double the predicted release. The British pound had been trading very soft against the world’s currencies making the highest high since the first quarter yesterday. The EUR/GBP cross, which reversed off the highs of Monday, immediately droppped another 1.5 percent, closing around 0.8750.
The FOOTSIE also was sold as British interest rates moved higher on the better economic data, with the 10-year GILT gaining 15 basis points. Until today the market had convinced itself that the Brits were following the FED into a new round of QE as the British economy remained mired in tepid growth and the Cameron government was embarking on an austerity budget program. The more robust GDP number may mean that the new round of QE may not be needed or that the BOE under Mervyn King may take a wait-and-see approach.
The depreciation of the POUND has given ENGLAND some economic relief as British goods have become much more competitive within the European Union. As Cameron has reminded the markets, the brunt of British trade is within the EU and since the beginning of 2007 the British currency has dropped 33 percent against its major trading partners. Now the question arises: Why does the British GDP have possible significance for the Bernanke FED? The quick answer is that the FED policy wonks openly admit that they are in unchartered waters in the QE realm and really don’t know the impact that all this liquidity enhancement will have upon the economy.
The huge buildup in the FED‘s balance sheet is unprecedented so there is no historical basis on which to rely. Some of the most dovish FED board members admit this. We ask if it would not be better to proceed slowly now that global growth may be picking up and the global equity markets are pointing to better growth ahead. Yes, I know that the EQUITIES are being lifted on a pool of liquidity and may not mean that the growth is sustainable. But that is why it may be better to hold some QE for a later date.
A reader of ours, KM, maintains that it may be better to invoke a type of POWELL DOCTRINE–come with everything you got–but we wonder if it is better to hold back reinforcements in case of another downturn. Let’s remember that five months ago Bernanke and company were on the center stage discussing ways to remove the QE. By August we were back looking for new ways to enhance QE while the FED began reinvesting all the MBSs that had been rolling off. This shows that the FED has gotten it badly wrong recently and they be in the middle of another possible misstep. If the economy were to turn up faster than recent FED missives have predicted the FED could really be in a terrible bind as it moves to retract an enormous amount of money from the system.
The FED meeting of next week will bring high market volatility for the conventional wisdom has been for a dynamic QE move by the FED. New York FED President, DUDLEY, openly stated that a 500 billion QE add would be the equivalent of a 50-to-75-basis-point ease. How he knows that I don’t know but it must emanate from one of his beloved models. The FED has the cover of the recent S&P and equity rally to stay its hand. Yes, the stocks, bonds and commodities will sell off but it will be a good test of where all these markets will find support when left on their own without more FED injections. BEN BERNANKE it is time to test the waters to see if the previous bouts of stimulus have had any real success before you dig the HOLE DEEPER. While markets are an important source of FEEDBACK, policy makers cannot be held captive to the talking heads and the wall street money machine. WHAT SAY YEA BEN?