Posts Tagged ‘Kiwi’

Notes From Underground: Beware the ECB’s New Weapons

September 24, 2019

As promised, here is the clip of me and Rick Santelli talking about myriad issues in the market, from the state of U.S. dollar funding to Europe’s issues.

This is a highly relevant discussion about the tasks confronting incoming ECB President Christine Lagarde. On Tuesday, Project Syndicate published a piece by Yanis  Varoufakis titled, “New Weapons for the ECB,” offering a plan that will result in  ECB CONVERSION BONDS. It is a surprisingly TAME essay as the firebrand of the EU is offering resolution to the problem that President Lagarde has been delegated to attempt to resolve. Varoufakis is resigned to the idea that there will no coordinated “sensible fiscal policy.”

The failure of politics necessitates the need for a EUROBOND is paramount to prevent the peripheral nations from embarking on deflationary policies in an effort to avoid insolvency. Varoufakis saw Greece subjected to the terror of INTERNAL DEVALUATION as wages dropped dramatically in an effort to make the country competitive with its fellow EU nations. Primary budget surpluses for a nation struggling to create an environment for GDP growth is a recipe for political instability. A eurobond/conversion ECB bond from its existing asset pool would eliminate the fear of insolvency and allow for a more coordinated fiscal response to an EU recession.

While Varoufakis is too complimentary of Mario Draghi, his piece lays out what it is that President Lagarde must overcome to be deemed a success in her new job. It seems that “agent provocateur is bidding for a position in the Lagarde regime. The coming Lagarde program will result in increased volatility in the EURO ZONE debt markets as politics takes on the opponents from Europe’s heartland who have been financially repressed by negative interest rates. He said, “Technically speaking, ECB conversion bonds are the obvious replacement for the failing quantitative easing program. Only the misplaced fear of debt mutualization stands in their way.”

***Tuesday evening at 9 p.m. CDT, the Reserve Bank of New Zealand (RBNZ) announces its newest interest rate decision. On August 7, we at NOTES FROM UNDERGROUND anticipated the 50 basis CUT because of the strength of the KIWI versus the Aussie dollar. The low made that night on the cross was 1.0361. Now, the cross is at 1.0752 after touching 1.0835 last week. The recent KIWI weakness OUGHT to keep the RBNZ‘s overnight cash rate on HOLD at 1%.

If the RBNZ were to actually cut rates citing global concerns it would involve an outright battle with the Aussies. They would be fighting a currency skirmish, which would force the AUSSIES to lower their rates at the next meeting — and likely generate some response from President Trump. Let’s hope the RBNZ is content with the recent weakness in the KIWI. Keep an eye on the 200-week moving average of 1.0708, which is a critical support level.

***In my analysis of the Middle East, I advise paying attention to the role of Vladimir Putin. His stature is enhanced every day as the tensions build throughout the region. It is Russia that has become the critical variable to any lessening of tensions. It is time to negotiate the SANCTIONS away for the loss of Crimea will remain an issue for the Europeans to resolve, as well as an overall lessening of violence in the Ukraine.

The sanctions have been an irritant to the Russians as Germany and others still rely on Russian energy imports. And the issue of Saudi Arabia continues to  be a “riddle wrapped in a mystery inside an enigma,” leaving me to wonder what all the actors have as their self-interest. Watch all things Russian for a clue.

Notes From Underground: The August of Our Discontent

August 7, 2019

When August rolls in the markets thin as Europe heads to the beaches and New Yorkers head to the Hamptons before Labor Day. This means every tweet President Trump is amplified by the LACK of market liquidity. On Wednesday, the president was back in full confrontation with Federal Reserve Chairman Jerome Powell because three central banks CUT interest rates last night: India,Thailand, and, most importantly, the Reserve Bank of New Zealand, which surprised most market analysts by cutting 50 basis points instead of 25.

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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: Consensus is the Last Refuge of Cowards (Michael Crichton)

April 27, 2016

Today the Fed delivered as expected, leaving rates unchanged and the market conjecturing about the sincerity of the FED’s data dependency (again). Some analysts and algo readers initially thought the FOMC statement was “hawkish” because the FED removed most of the rhetoric about the headwinds of international global and financial developments. I say most because the Fed left in “net exports have been soft.” This is either a concern about the lack of global growth and/or an overly strong U.S. dollar. It is MY OPINION that the Fed removed the language about international financial risks as an offering to the HAWKS as a way to get consensus.

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Notes From Underground: Some Quick Hits Before the FOMC

April 28, 2015

Tonight is a brief set of bullet points as I have been sidelined with a sinus infection from the high pollen counts. But the world continues to spin (as does my pillow). The Greek situation continues on with the same cast of characters shouting at each other about prior promises made and the need to adhere to the previous economic and political efforts for Greek solvency. We are getting close to the end because Prime Minister Tsipras launched his final salvo with the Brussels Brigade. It is what NOTES FROM UNDERGROUND offered up as the third rail of European politics: SYRIZA WILL CALL A REFERENDUM ON ANY DEAL STRUCK WITH THE TROIKA.

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Notes From Underground: The FOMC Is a Meaningless Statement

October 29, 2014

Why do I say this? As expected, the FOMC ended QE3 and left in the forward guidance of “considerable time.” Some analysts believe that the balance of the statement was HAWKISH because the phrase of  “significant underutilization of labor resources” to “underutilization of labor resources is gradually diminishing.” The problem is that Chair Yellen has adopted the Labor Market Conditions Index (LMCI) and its 19 variables so without a press conference or until we read the FOMC minutes we have no basis for the change in “significant underutilization” language. The lack of a press conference left investors dazed and confused because there was no explanation for the Fed’s decision. In September we heard about the headwinds of global slowdowns and a strong dollar, but there is no a word about GLOBAL HEADWINDS in the Fed’s statement.

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Notes From Underground: Its a Very Cold Day In July … When Bundesbank Capitulates

July 23, 2014

The financial press is filled with articles about the recent EURO weakness. During the last week the EU currency has fallen about 1.5 percent. Many pundits have opined that it is the Ukraine situation and Gaza that have made investors uneasy, thus the move into U.S. dollars. In a July 22 Bloomberg article, “Draghi Cedes Euro Control to Yellen on Fed Bets,” it is suggested that the DOLLAR is rising in anticipation of moves by the FED, especially now that the ECB has gone to negative yields on reserves. The problem for the Fed argument is that yields in the U.S. have actually softened during the last week and Fed communication has been muddled over when interest rates might possibly rise. When the ECB announced a negative interest rate June 5 the EURO/DOLLAR made a low of 1.3503. Today we are trading at 1.3465, a little below the 1.35 low but well below that day’s close of 1.3650.

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Notes From Underground: A Single Spark Can Start a Prairie Fire (Mao)

June 11, 2014

The tinder of the financial world has dried under the roaring blaze of asset appreciation. Global bond and equity prices reflect that all is well and the world’s major central banks have control of the world’s finances. But in the parlance of Mao, a single unexpected spark can initiate a huge fire. (Also, it is important to note that Mao never missed a PMI number either.) Financial history is replete with events of which investors and bankers were never aware of the depth. It was only in 2007 that Chairman Bernanke called the housing situation and its financial repercussions, “well contained.” Today, the news brought two events that can have far greater impacts than the markets’ calmness revealed.

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Notes From Underground: Pritchard Raises An Important Issue– Is China Exporting Deflation?

April 24, 2014

The equity markets were gaga over the news from Apple and Facebook and trying to push through March’s highs when Twitter was busy raising the issue about a possible Russian incursion into Eastern Ukraine. The “breaking news” failed to gather strength and the markets were soon back into positive territory. Just as the equity markets were absorbing the Russian rumors, the precious metals were making recent lows on the back of stock market strength and better economic news from the U.S. For all you technical-oriented market watchers, the gold and silver both put in outside reversal higher days so we will watch to see if there is any follow through in the metals market tomorrow.

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Notes From Underground: CRUNCH TIME! Liquidity Addition Coming Through Strengthening ABS

April 22, 2014

If my radar is right, the coming European Central Bank QE program will be a concoction of asset-backed securities in an effort to remove non-performing loans from bank balance sheets. There have been a multitude of  “conjectures” about how the ECB is going to pump liquidity into a very low growth economy. Previously it seemed that some at the ECB wished to install negative yields on bank reserves. This would be an experiment fraught with danger as it could cause great problems for the money funds that have recently returned to Europe. The problem for money market funds was epitomized in a statement from Bank of New York Mellon’s CFO Todd Gibbons after today’s earnings release and reported in tomorrow’s Financial Times:”If the eurozone were to go to negative rates that would actually present the opportunity for us to charge for deposits and we are giving that very serious consideration.” The idea of  “negative interest rates on reserves” has been bandied about as some members of the ECB board have tried to stem the euro currency’s recent strength. It has been surmised that charging banks for parking excess reserves at the ECB would force European banks to reverse course and put the funds out to lending rather than having to pay a fee for the safety of the ECB.

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