On Tuesday the news was filled with the release of an analysis by the research combine at Goldman Sachs warning about the negative outcomes from the increasing amount of debt as interest rates rise, lifting the negative percentage of interest payments relative to GDP. (See the CNBC story, “Goldman Sachs Sees Red Ink Everywhere,Warns U.S. Spending Could Push Up Rates and Debt Levels.”) This is another voice warning about the ill-timed fiscal stimulus and budget deficit increase late in the economic cycle. In an interesting juxtaposition, the WSJ had an article published last week titled, “Cohn Downplays Concerns Over Rising Inflation, Bond Yields.” Speaking in his position as Trump’s top economic advisor, Cohn maintained that the White House is not worried about an overheating economy. Cohn emphasized, “We know how to deal with inflation. We don’t know how to deal with deflation in this country.”
Posts Tagged ‘LIBOR’
Notes From Underground: Further Into the Fray
February 20, 2018Notes From Underground: The FED IS WAY OFF BASE — A RATE HIKE IS NOT NEEDED
August 24, 2016Janet Yellen and company are discussing the wrong issue. A FED FUNDS rate hike has already taken place due to the increase in LIBOR rates, which has led to a pricing of the December eurodollar futures contract, currently trading at 99.08–an effective six month yield of 92 BASIS POINTS. This due to the Oct. 14 regulatory compliance deadline for money market funds. In order to ensure there’s enough liquidity to protect against unknown outflows, institutional prime funds are shortening the maturities of their commercial paper, CD holdings, pushing up the CP/CD rates and LIBOR with it. Some prime funds have converted to government-only to circumvent the impending regulations, which has created more demand for U.S. Treasuries. (According to the SEC’s July money market report, govt funds had inflows of $77 billion while prime funds saw outflows of $41 billion.) As a result, the TED spread has widened 15 BASIS POINTS during the past two months. The September eurodollar/fed fund futures spread is trading at 53 basis points. WHAT THE FED HAS TO DO IS BEGIN SHRINKING ITS BALANCE SHEET BY 100 BILLION ASSETS A MONTH. Why?
Notes From Underground: SHIBOR, My View On Its Significance
June 20, 2013Many want to believe the FED is the responsible party for causing the massive unwinding in all variety of markets. The deleveraging of all assets classes in a zero interest rate environment can and will cause massive pain for those who utilized ultra cheap money to attain assets that looked so good riding the momentum wave, but the undertow from deleveraging can drowned many swimmers. But is the source of deleveraging Chairman Bernanke? Maybe. But the more important impact may be from the Chinese. The SHIBOR, or overnight lending rate similar to LIBOR in the western capitalist countries, has skyrocketed during the past week, rising to double-digit levels–almost 25% at some point. The impact on the Chinese markets has been devastating but more importantly it has caused fears of a major crisis in the Chinese financial system and a negative impact on the entire fragile global financial system.
Notes From Underground: Bernanke, Act I
July 18, 2012Today’s SEMIANNUAL MONETARY POLICY REPORT TO THE SENATE: All posturing and no substance. In the usual scene of playing for the folks back home, Chairman Bernanke was lectured to about the need to do his job and feed the system with so much liquidity that “job growth” would have to take place. (Mr. Schumer, to you a copy of the work of Richard Koo and the concept of a balance sheet recession). Some Senators were berating Bernanke for the LIBOR scandal in an effort to show that the U.S. Congress was serious about banking abuses. For the record: When the banking sector is under stress the FED’s only concern is the repair of banking balance sheets and if the profits come from manipulating the setting of a short-term bank rate, the means justifies the ends.
Notes From Underground: Three Negatives Can’t Make A Positive
July 9, 2012Notes From Underground: Unemployment Friday and the market has built in huge expectations
June 3, 2010Friday brings the May unemployment report. The consensus jobs number is for 500,000-plus on the NFP, a 9.8 percent jobless rate and average hourly earnings to rise 0.1 percent. The headline number will be difficult as we will have to factor out the census hiring, but we will wait to decipher construction and manufacturing as being very important.
Notes From Underground: G20 Dead as Geithner comes up short in effort to criticize the German austerity measures and the ban on shorting and naked CDSs
May 27, 2010Oh well, another day of market volatility emanating from the four corners of the globe. The Korean Peninsula sits on edge, the Chinese say that they are still investing in Europe, the U.S. Congress is still in the throes of financial regulation, and Treasury Secretary Geithner stops in Europe to add to confusion to a muddled mess. The Chinese denial of the SAFE rumor led to a sharp equity rally and in general a market profile of risk on: the dollar sells off as money searches for return rather than safety. The financial world is truly the soap opera “As the World Turns.” Volatility is here to stay and the most important task is to find the dynamic that is in play at any one time. Is it LIBOR, commodities, easy money? Which ultimately drives the risk-on/risk-off drama?
Notes From Underground: CNBC-Back to the Futures
May 27, 2010
Click on image to listen to Yra talk about the China rumors and debt market.
Notes From Underground: Just when the market thought it was safe to rally … SAFE is rumored to signal OUT
May 26, 2010We thought we were finally getting a little relief rally in the equities, with a thaw in the Libor/OIS and the EURO FX market attempting to hold onto its late gains of yesterday, when rumors about the Chinese State Administration of Foreign Exchange (SAFE) wanting to dump euro-denominated assets. There was no name to the spokesperson who made the statement. We are very skeptical of this rumor because if the Chinese were serious about wanting to dump euro debt, we doubt they would announce their intentions. As we mentioned yesterday, it was the Chinese deciding not to buy Greek debt that set the current debt crisis into motion. Adding to the euro’s problem was the 5 year BOBL auction in Germany that did not get the fulfillment of BIDS, thus a “failed” auction.
Notes From Underground: With allies like these who needs dollars?
May 26, 2010The case for a bullish DOLLAR has certainly been made in NOTES FROM UNDERGROUND during the past five months. Since the Chinese walked away from a potential bid on 25 billion of euro-denominated Greek debt, the pressure on the European debt markets has led to a reduction in EURO-based assets by large private investors, pension funds and even some central banks. The overall effect has been a further deleveraging of the global financial system and thus the increased fears of global deflation taking firm control of the credit markets.