Posts Tagged ‘Italy’

Notes From Underground: The Unemployment Number is Wall Street’s Version of Picasso’s `The Dream’

March 11, 2018

It was the best that Wall Street could dream of: It was a huge headline nonfarm payroll number with a large number of workers jumping into the labor market, which kept the unemployment rate at 4.1% and wage growth at a very tepid pace. Average hourly earnings were 0.1%, which is nirvana for the wealth managers: solid economic growth with stagnant wages. This may certainly be a one-off month as NFP could return to its average or wages begin to rise by at least 0.3% every month. Rick Santelli and Ed Lazear made the case that the increase in the labor participation rate was a great outcome as long time unemployed are gaining confidence in the genuine strength of the economy. The return of the long-term unemployed will show the real amount of slack in the economy, reflecting even more downward pressure on wages. If the slack is greater than the FOMC has previously believed, then the FED may well slow its rate increases. People returning to the labor force is a positive but it may be another kink in the Fed’s models.

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Notes From Underground: Feeding the Ducks (Part Two)

January 10, 2018

Tonight, I’d like to expound on the recent musings from Chris Whalen, titled, “Bank Earnings &Volatility.” Whalen stresses that the FED will not be selling assets but merely ending “its reinvestment of cash when securities are REDEEMED,” (emphasis mine). In what I consider a key point raised, Whalen said, “Yet as we and a growing number of investors seems to appreciate, the FED cannot force up long-term rates so long as it is sitting on $4 trillion worth of securities THAT IT DOES NOT HEDGE. More given that the Treasury intends to concentrate future debt issuance on short-term maturities, downward pressure on long-term bonds yields is likely to intensify.” Whalen also said, “What the FOMC has done to the markets via QE is essentially reduce potential volatility by holding securities and not hedging these securities.” The key point is enhanced by the fact that both the ECB and BOJ do not hedge their security exposure either so volatility has been diminished by the reduced hedging.

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Notes From Underground: Did I Miss Anything?

December 17, 2017

There were myriad central bank meetings last week as the FED, ECB, BOE, SNB, Bank of Mexico and others rendezvoused. With the exception of the Fed, all maintained their current policies. (The U.S. FED raised rates, which was 99% baked in.) The ECB was as dovish (as expected) and President Draghi has a few new issues to confront as Italian elections are scheduled for March 4, 2018. The Italian situation is already impacting sovereign bonds as the Italian 10-year yield rose against the German and French equivalents. BUT I FULLY EXPECT FOR THE ECB TO BREAK THE CAPITAL KEY RULES BY PURCHASING MORE ITALIAN DEBT THAN ALLOWED. POLITICS WILL BE DRAGHI’S MAIN CONCERN.

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Notes From Underground: Elections In Japan, Czech Republic and Italy

October 22, 2017

First: On Oct. 18 I talked with Richard Bonugli from the Financial Repression Authority and financial analyst John Browne, a former member of the British Parliament. I am linking to the transcript of the chat. The conversation was free-flowing and was heavily tilted toward geopolitical concerns and shed light on investment possibilities. But as readers of NOTES well know, many of out best trade outcomes are based on political economy as well as mere yield curves. Last week the 2/10 did challenge the 73.5 basis point level (again) and by Friday the 2/10 had bounced back to 81 basis points.

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Notes From Underground: Brexit, Two Years Is A Long Time

March 30, 2017

The biggest news in a very slow week of news is the beginning of the Brexit plan as Prime Minister May sent a six-page memo to Brussels as Article 50 begins and the two-year time period allotted for extrication from the EU starts the clock ticking in a very formal fashion. I SAY THIS TO ALL MY READERS: Two years is a very long time. There are many political and economic events (unforeseen by the static minds of entrenched power elites) that can dynamically change currently perceived outcomes. The fragility of global politics can wreak havoc with the certainties laid down by the likes of Jean Claude Juncker. The current position of the Brussels bureaucrats is the desire to punish Britain for the temerity of its citizens to vote to exit the “UTOPIAN” construct of the European Union.

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Notes From Underground: Things That Go Trump In the Night

February 8, 2017

Please Donald, will the POTUS STFU, PLEASE. This is not a political statement. It is free advice because the more you communicate the less impact you will have. You may be trying to use the bully pulpit to jawbone the DOLLAR lower but every tweet diminishes your influence. Peter Navarro tried to create a weaker dollar but you have lessened the impact of his misinformed missives. Historically, jawboning has had a short-term market effect, but your late-night 140 character references are losing the power to persuade. You must learn that words are like your campaign sexual references, less is more. SO PLEASE, STFU.

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Notes From Underground: How Many Syllables, Mario?

December 7, 2016

In the 1969 cult classic Putney Swope written by Robert Downey, Sr., the film opens with the death at the board room table of the firm’s chairman, Mario. Not realizing he has had a heart attack the sycophants play charades to get at the message Mario is trying to convey, thus asking HOW MANY SYLLABLES MARIO? Tomorrow, the world will be asking Mario a different question. How much QE, Mario? How long? The European equity markets were en fuego early this morning, led by the German DAX, even as the SPOOs were lower to unchanged. There were rumors about a nationalization of Monti Paschi but it seems that the Italians were trying to delay an actual bailout of the troubled lender and wanted more time from the ECB. MY OPINION IS THAT THE ECB WILL ANNOUNCE SOME EFFORT TO BUY FINANCIAL DEBT FOLLOWING TOMORROW’S MEETING. The ECB has avoided buying financial debt in its QE program because it is also the banking supervisor for the EU.

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Notes From Underground: Mario Draghi Brings New Forth a New Standard of Bureaucratic B.S.

October 23, 2016

The Mario Draghi brought forth a new and improved standard of “truth obfuscation” at Thursday’s ECB press conference. When Draghi answered a question about the ECB basing its policy on politics he answered: “We are not in a political game.” In his “perception” there is NO POLITICAL WAR BETWEEN THE ECB AND ITS MEMBER NATIONS. This is of course unadulterated nonsense as everything the ECB does is political. During the ECB’s initial state of decision-making, then-President Wim Duisenberg said, “WE HEAR BUT WE DO NOT LISTEN.” The ECB claimed it pays attention to political discussion but its policy is set by objective criteria. Duisenberg brought proof to the nonsense of objectivity as the ECB kept its interest rates ridiculously low to aid the Germans in their cost of financing German unification and making the implementation of the HARTZ IV labor restructuring easier to easier to absorb for the German government. Duisenberg’s policy of negative real yields put severe pressure on the EURO as it dropped in value from its initial price of 117.5 to 82.5 which created credit problems for all of Europe but the Germans. As usual, it raises the question,  WHOSE EURO IS IT?

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Notes From Underground: Japanese Elections, Italian Banks and May Day in the U.K.

July 11, 2016

Just some summary points as this year the summer doldrums will prove to be anything but:

1. The Japanese elections for the upper-house unfolded true to expectations but the impact of the win for P.M. Abe will take time to play out. There are winners and losers in Abe’s victory. One of the losers could well be the prime minister as the final results do not provide enough margin to pursue constitution revision because the LDP does not have enough votes without the support of its partner Komeito. More importantly, the TPP (TransPacific Partnership) may not pass because of several opposition victories in the rural prefectures. As Tobias Harris maintains, the “bleak outlook for ratification in the U.S. … the {Japanese} government will have to decide whether it is worth expending political capital on an agreement that may not come into force.”

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Notes From Underground: People Get Ready, There’s a Train (Chambers Brothers & Curtis Mayfield)

May 11, 2016

“There ain’t no room for the hopeless sinners,

who’s hurt all mankind just to save his own,

have  pity on those whose chances grow thinner

’cause there’s no hiding place from the kingdom’s throne.”

The sentiment is aptly described in this song but also in Niall Ferguson’s book, “War of the World.” In the book, Ferguson explains that European bond markets were initially unfazed at the start of World War I. They traded at a steady valuation, even as the troop trains were heading for the front.

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