In building on the discussions in Tuesday’s POST it is important to note that the debt discussion that has taken place in Notes From Underground is gaining traction as an important piece of the financial narrative. The failure of the SPOOS, NASDAQ, and DOW to gain traction with the robust earning releases is forcing the perplexed to confront the impact and collateral damage from Ben Bernanke’s Portfolio Balance Channel, also known as QE or large-scale asset purchases.
Posts Tagged ‘Peso’
Notes From Underground: Riding High in April
April 25, 2018Notes From Underground: The Power of Big Data In the Time of Correlative Investment
January 30, 2014First, bravo to the Bernanke Fed for staying the course and learning from its September mistake: Don’t mislead the markets with a sudden change of direction. It appears that the Fed will provide investors with enough “forward guidance” if they wish to alter the market’s perceptions. FOMC members had plenty of time to dissuade traders if the recent slew of tepid data was going to steer Bernanke and Company away from another cut in QE purchases. The FED erred on the side of consistency rather than swerving to avoid the skidding emerging markets. Again, a FED pause would have further roiled a very nervous global financial market.
Notes From Underground: Macroprudential Regulation Versus Tapering
September 10, 2013While I was away…
Friday, the unemployment report was much as expected in terms of nonfarm payrolls, wages and hours worked. The biggest surprise was that the previous two months had downside data revisions, but certainly nothing to dispel the FED‘s upcoming move to taper its large-scale asset purchase program.
Also, on Friday the Mexican Central Bank unexpectedly cut its lending rate by 25 basis points to 3.75%. The surprise was that the Mexicans had the backbone to cut in the face of rising U.S. interest rates. The Mexican peso reacted to the rate cut by RALLYING, proving the point that correlating all emerging markets is a fool’s paradise. The inflation rate in Mexico has dropped below the bank’s desired level of 4% as slowing global growth has led to weaker growth and slowing prices. The PESO rallied has continued during the last two days even as President Nieto’s energy and budget plans have been met with a show of public demonstrations. The peso remains well below the highs it made in May but has held up in relation to the other emerging market currencies. A currency that rises in face of an unexpected cut in interest rates is something to watch. (The reverse, of course, was the Aussie dollar and its reaction to central bank cutting rates. )
Notes From Underground: The Japanese Look to Taper Taxes?
August 13, 2013The Nikkei index rallied strongly overnight as the Abe Administration floated the idea of possibly cutting Japanese corporate taxes if the consumption tax increases is instituted. The ABE Government is fearful of negatively impacting the economy so continue to be alert to any “tapering of taxation” to keep the present economic growth story on its path. Tonight I am posting Tobias Harris’s post on the view of the consumption tax from Japanese sources. It is a rebuttal to my piece of last week. (more…)
Notes From Underground: The Fed’s Zero Rate, Quantitative Easing Policies Are Stock Market Fundamentals
March 10, 2013The continued parade of stock market analysts who proclaim the equity market is rallying merely on Fed monetary policy instead of market fundamentals have spent far too much time doing case studies and not reading economic history. Interest rates as the variable signaling the cost of money are a very critical element and a key fundamental of the economy and especially the equity markets. U.S. multinational corporations are sitting on record piles of cash and also reporting strong profits. Much of the growth in profits can be attributed to two factors: Very low borrowing costs and continued pressure on wages. The FED has created the low interest rates and has hoped that the profitability resulting from low borrowing costs would bleed into higher wages and thus the need for increased hiring. The problem is many fold on the lack of success in aiding jobs creation. Globalization has kept pressure off wages and the deleveraging of the private balance sheets has meant that downward pressure remains on demand.
Notes From Underground: IT IS THAT TIME OF THE MONTH AGAIN? (TO VIEW THE PAINS OF LABOR)
July 7, 2011Yes, the ECB raised rates today and Trichet failed to listen to the wisdom offered by NOTES FROM UNDERGROUND. That means I have overestimated the wisdom of Trichet while underestimating the size of his ego. The rate rise to 1.5% was widely anticipated so the EURO was immediately sold but regained some strength after the ECB announced that it was WAVING THE MINIMUM CREDIT RATING FOR PORTUGUESE BONDS USED AS COLLATERAL FOR REPOS. As the ECB raises rates, it allows for weak collateral to be utilized thus allowing for a large liquidity infusion. This is a fine example of Dostoyevsky’s Grand Inquisitor as bread is taken from the people with one hand and returned to them with the other and the people believe it is a miracle. Europe has become a “ball of confusion.” Why raise rates when you are simultaneously lowering credit standards to prevent a sovereign default?
Notes From Underground: Much Ado About Nothing?
December 15, 2009The financial news was sparse today.
Abu Dhabi stepped into the breech and provided the cash necessary to prevent a “default” on the Sukkuk instruments. This is no great surprise as the move buys DUBAI some breathing room to do a credible workout, and the credit markets get a chance to bring some light onto the Islamic debt market. The Greek government came up short on a credible plan to curb the spiraling deficit so the German/Greek 10-year differential increased 15 basis points to 225.
Interestingly, the rest of Europe quieted down and even the GILT market was bid helping to give the British POUND some support. Also in Britain it appears that the battle for CADBURY will heat up as the KRAFT offer has been deemed insufficient so we look for other “players” to enter the game. This could give a bid to the POUND as the bids for the confectionary company get sweetened. Also in the realm of more negative divergence, S&P downgraded the Mexican DEBT market, but the Mexican PESO barely budged. The PESO has shown some strength of late so the fact that the MEXICAN stayed strong makes it necessary to watch. Peso strength may well be a proxy for a positive outlook for North America.
As we noted in undertaking the writing of NOTES, we wanted to generate qualitative discourse in the realm of trading. Yesterday’s post brought forth a need to expound on two separate issues. First,a thinker of the highest order inquired about the line: “When the U.S. truly starts on a growth path this issue will be brought to the fore.” We were discussing what could bring downward pressure on the EURO when we wrote that line. Until now the U.S. has not been a destination for foreign investment as there has been too much uncertainty over U.S. policy, from the FED, and executive and legislative branches.
As the fog begins to clear, foreign investors who are laden with DOLLARS are going to be in search of assets–hard assets besides precious metals. Sovereign Wealth Funds (SWF) will be scouring the U.S. investment landscape for industrial concerns and various types of real estate. Prior to the collapse of Lehman and Bear Stearns, foreign funds had invested heavily in the U.S. financial markets. The fact that they have been so badly shaken by poor timing they will be more cautious this time around. They will avail themselves of using a depreciated asset (THE DOLLAR) in the only place its value has been sustained. In addition, they will be buying at depressed prices rather then at top.We believe that the private equity groups such as Blackstone, Ochs-ziff, Apollo and others, have been seeking out SWFs to help finance the purchases of large real estate portfolios. This is what we mean by the growth path–until now this equity rally has been basically a domestically based carry trade. The next leg up, if it occurs, will be led by foreign investors believing they are missing out on a great opportunity.
Another response came in seeking more info on the misunderstood Maastricht accord. When you hear the talking heads on TV, pay little attention when they pontificate on the European Union. If you need to polish up your knowledge the best book to read is Bernard Connolly’s “The Rotten Heart of Europe.” The original Maastricht accord was crafted to appease the demands of the Bundesbank. Strict guidelines of debt and deficits were to be adhered to so that the peripheral countries would not continue their profligate spending habits and expect to be bailed out by the more disciplined nations. There is no bailout clause as the spendthrifts were actually to be fined and forced back in line. Well as usual the guidelines were very rarely adhered too–especially when it suited the stalwarts of the EU: Germany and France.
Therefore all the peripherals felt that in stressful times the Maastricht strictures should be tossed aside for all. Once the economy went into a major recession in 2007-2008, all rules were laid aside except that Germany was better positioned then the others and wanted the Maastricht rules adhered to and there in lies the problem.Germany has gotten wages under control during the last six years and is in the best competitive position–both in Europe and globally. The German economy is running the third-largest trade surpluses in the world and especially so within Europe. Will the good Bavarian burghers be willing to transfer their hard earned D-marks–sorry Euros–to pay for the profligate ways of her fellow European citizens? The wanton sinners are supposed to be fined not rewarded and their in lies the rub. Something is truly rotten in the state of Denmark!
Oh well, neither a lender or borrower be.