Posts Tagged ‘Jerome Powell’

Notes From Underground: Is The Greenspan Put KAPUT?

April 19, 2018

I am borrowing this phrase from a Bloomberg Radio interview Thursday in which bond reporter Alexandra Harris (my daughter) used these phrase to discuss the speech today delivered by FOMC Governor Lael Brainard titled, “Safeguarding Financial Resilience Through the Cycle.” Alex noted that the tone of Brainard’s speech was spattered with references to the concept of LEAN or CLEAN. The binary analysis of monetary policy analyzed by BIS Chief Economist William White, led to White criticizing Chair Greenspan in a speech at Jackson Hole in 2003.

The recent flattening of the yield curves in the U.S. has precipitated discussion that the FED is moving too fast in raising rates with the market action predicting an impending recession. The discussion has been centered around recent FED speeches utilizing the White use of countercyclical capital buffers (CCyB) to slow the increase of leverage in the financial by having banks build up capital ratios to insure increasing financial vulnerabilities.

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Notes From Underground: Flattening Curves — All Action and No Talk

April 11, 2018

In the political realm, the concern about tariffs has been lessened as Chinese President Xi took the high road with some silky conversation. It is not in the Chinese interest to raise the level of shouting/tweeting, nor to allow the YUAN to depreciate. The last blog post weighed the harm China would do to itself if the YUAN were to depreciate for it would then have to face the acrimony of many nations it is trying to placate. From a TECHNICAL perspective, it appears that the YUAN is going to test three-year lows between 6.11/6.20 to the dollar. As the Chinese tensions eased, the world now turns its eyes to Syria.

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Notes From Underground: No Chinese Devaluation or Massive Liquidation of U.S. Treasuries

April 9, 2018

There are many questions swirling around what possible responses President XI can bring forward to counteract the heightened rhetoric from the Trump administration on imposing tariffs on Chinese goods exported to the U.S. Many news agencies have carried stories about the Chinese responding to Trump tariffs by entering into a policy of depreciating the Chinese yuan, which is currently trading at 6.3075 against the DOLLAR.

This is an interesting view but it would force China to act against the G-20 accord of not manipulating one’s currency. The XI-led government is looking for international support in its effort to combat a trade war so alienating the international economic community would be detrimental to the Chinese interest of global support. The narrative some analysts are spinning is to recall China’s 2 percent devaluation of its currency in August 2015, which sent global currency and markets into a frenzy, especially as stocks were reeling from deflationary fears.

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Notes From Underground: Mr. Powell, the Spotlight Was On You

March 21, 2018

Dear Jerome, You handled Wednesday’s press conference with great alacrity as most of the media tossed ridiculous softball inquiries, following the road map of the dot plots. The summary of economic projections needs to be tossed on the trash heap of academic pabulum. You almost got to that point as the non-financial media kept questioning the decision about three or four rate hikes. You correctly stated that the only decision that the FOMC made today was to RAISE the fed funds range to 1.5%-1.75 % and that the DOT PLOTS were only forecasts and not decisions. Chairman Powell actually got miffed when a reporter began citing the 2020 projections.

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Notes From Underground: Dear Chairman Powell,

March 20, 2018

Wednesday brings the FOMC‘s interest rate decision. The CONSENSUS is for an increase of 25 basis points to 1.50%-1.75%. Chairman Powell, you will have a chance to explain the Fed’s decision as you engage in your first press conference 30 minutes after the announcement. The financial world will have the opportunity to assess whether you will follow the Yellen/Bernanke path of attempting to control markets or to be more respectful of the collective wisdom and allow price to be determined in the tradition of Western democratic capitalist markets. The FED chairman recently acknowledged that headwinds have become tailwinds, and, even more importantly, supported by Janet Yellen’s confidant, Governor Lael Brainard. The volte face by Brainard shook the markets into the belief that the FED would actually raise rates FOUR times or more in 2018. BUT IF I WERE YOU CHAIR POWELL I WOULD RAISE 50 BASIS POINTS TOMORROW (with this CAVEAT).

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Notes From Underground: The President Trumps Powell

March 1, 2018

On Thursday Fed Chairman Powell sat through another day of Congressional interrogation as the Senate had its turn at playing the role of Grand Jury. The legislators tried to portray the Fed as either the greatest economic actor ever or the scapegoat for every social ill in the United States. Chairman Powell was very measured in his responses as he reminded the inquisitors that the FED does not have jurisdiction over many of the problems related to the issue of wage inequalities. The White House had scheduled a morning announcement on trade policy but because it related to tariffs it was canceled for fear of having it become an issue at the Senate hearing. Regardless, several Senators from both parties tried to elicit a response from Powell on trade issues but the Fed chairman was too wise to fall into the trap of “when did you stop beating your wife.” If the hearings told us anything, it’s that there are too many mediocre lawyers in Congress.

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Notes From Underground: Overheated to Overrated

February 27, 2018

In his first Congressional testimony as Fed Chairman Jerome Powell didn’t surprise as he was measured and succinct in presenting a more market-based approach to monetary policy. The equity, currency, precious metals and debt markets were all in sell mode as the prepared statement gave rise to a renewed sense that the FED will lean toward FOUR rate hikes in 2018. The key paragraph was:

“In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an OVERHEATED [emphasis mine] economy and bringing PCE price inflation to 2 percent on a sustained basis. While many factors shape the economic outlook, some of the headwinds the U.S. economy faced in previous years have turned into tailwinds: In particular, fiscal policy has become more stimulative and foreign demand for U.S. exports is on a firmer trajectory. Despite the recent volatility, financial conditions remain accommodative.”

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Notes From Underground: Jay Powell’s Coming Out Party

February 26, 2018

There are several important areas for discussion but first I wanted to post a podcast from the Financial Repression Authority that I participated in last Wednesday with Jim Bianco and Peter Boockvar. Pour your libation of choice and have a listen. Please post any questions or points on information on the blog in order to stimulate a discussion that creates potential profitable trading ideas.The moderator Richard Bonugli does a great job of provoking discourse but allows the conversation to freely flow in search for high quality dialectic. Enjoy.

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Notes From Underground: This Is A Week Filled With …

January 29, 2018

This week for global macro traders is packed with data and policy statements that can ignite the volatility fuse. On Tuesday night, President Trump, the conquering hero of Davos, will deliver the State of the Union address. Chair Janet Yellen will oversee her final FOMC meeting this week. There are also several data releases Thursday and Friday, culminating with the unemployment report.

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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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