First, our hearts go out to all suffering in the world of insanity brought on by senseless wars that diplomacy OUGHT to have been able to prevent. The world always returns to the insanity that brought us to World War I when nobody could stop the trains once set in motion. As Phil Ochs sang, “It’s always the old who lead us off to war, it’s always to fall, look at all we won with the saber and the gun, tell me is it worth it all?” But here we are and as always the world continues to focus on the minutiae of life, including the financial outcomes responding to the high-speed headlines driven by algorithmic speed machines. There is no context to any news just manufactured volatility fabricators of the latest musings of some “news” outlets’ favorite expert. But as Hyman Roth said so clearly: “Michael this is the profession we have chosen.”
Posts Tagged ‘Putin’
Notes From Underground: The Exciting Game Without Any Rules
March 24, 2020Well, the apocalypse has fallen upon the financial markets much as we have discussed at NOTES FROM UNDERGROUND on February 2. The onset of the DEMAND SHOCK has unleashed the fears of a deflationary spiral. My readers have been WAY AHEAD of the CNBC crowd in analyzing the potential outcomes and predicting quality trades as the PANIC IN NEEDLE PARK fostered by the central banks was/is beginning to unfold. Any person who thinks any economic release has market value raise your hand but keep it six feet away as you are likely contagious.
Notes From Underground: Sympathy For the Devils
September 3, 2018The world is aflame with the BLOWBACK from policies of the elites who carved a world fit to desired outcomes of a self-established ruling class. The free flow of capital in pursuit of cheap labor has led to the stagnant wages that have given rise to anti-establishment forces, which have upset the Davos crowd’s playbook. As long as capital pursues a maximization of return but is answerable to the Westphalian construct of the nation-state, there will continue to be bouts of conflict that result in less desirable outcomes for global corporations.
Notes From Underground: Depending On the Outcome of Rational Actors?
August 19, 2018So much of social science is dependent on various actors making rational decisions. Economics has regularly proven that “actors” certainly fail to act rationally as manias, crashes and panics in repeated form are proof (see Charles Kindleberger). In the realm of politics, the dependence on nation-states to behave rationally has led to many major policy errors. During the Cold War the balance of nuclear weapons prompted both super powers to remain reticent to embark on direct confrontations and avoid an unthinkable shooting war. The fear of world destruction also meant that the USSR and UNITED STATES would leash their “allies” to prevent any direct conflict between the two major hegemonists.
Notes From Underground: Come On Wall Street Don’t Be Slow, This Is War a Go-Go-Go
May 8, 2018*NOTE: THERE IS NO POLITICAL VIEW IN THIS BLOG (AND SPECIFICALLY IN THIS POST) I ascribe to the wisdom of Deng Xiaoping. To paraphrase: Quality analysis doesn’t care if the “cat is black or white,” only if it catches mice.
Come on Wall Street, don’t be slowWhy man, this is war a-go-goThere’s plenty good money to be madeBy supplying the army with the tools of its tradeBut just hope and pray that if they drop the bomb[Fill in the target of choice]— Country Joe, “I Feel Like I’M Fixin’ to Die Rag”
Notes From Underground: Further Into the Fray
February 20, 2018On 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.”
Notes From Underground: Low Probability, High Impact Events
April 11, 2016When Alan Greenspan was Fed Chairman he would regularly orate on the concept of low probability events that could create disruption in the global financial system. These events are not BLACK SWANS because by definition a black swan is unknowable nor foreseeable. So it is time to take a survey of what Greenie called low probability:
1. Paul Ryan being parachuted into the candidacy for the Republican Party. There is a possibility but is a potential problem, which could rip apart the GOP. What would the fallout be for financial markets if the U.S. was splintered into a three- or four-party system? The same could be said for the Democratic Party if there was a revolt by the left-wing in response to the super delegates. The issue for the Democrats will rise to the fore if Hilary Clinton were to lose New York. Bernie Sanders is a low probability bet but his impact would be great.
2. The probability of Russia attacking Turkey, which could result in the break-up of NATO. If Putin attempts to seek revenge against President Erdogan by providing support to the Kurds against Turkey, the U.S. and its NATO allies would be forced to decide if they were willing to risk war with Russia to honor its commitment to a friend. Imagine what happens to the political situation in Europe if NATO were demolished because of its failure to honor Article 5, which asserts that an attack on one is an attack on all.
3. The June 23rd vote by the U.K. on Brexit results in a vote to leave. Not sure this is a low probability event but it will certainly have a HIGH IMPACT. The greatest outcome will be that others in the EU will request a referendum for this was certainly articulated in the recent Dutch vote on the EU’s agreement with the Ukraine. The most volatile result of a Brexit would be the pursuit of a referendum by German voters. The myriad articles on German unhappiness with the ECB are a mere prelude to what a vote in favor of Brexit would result in for the rest of EU. If you want a good sense of the arrogance of the European elite, watch Mario Monti’s CNBC appearance from today. Mr. Monti decried the outbreak of democracy in Europe and was very critical of David Cameron for falling in the trap and calling a referendum.
The critical assessment by Monti is an infamia for Mr. Monti was appointed Prime Minister of Italy by a “coup” orchestrated by the Brussels elite. Berlusconi was forced from office by threats of Italian debt downgrade and the Brussels eurocrats’ rejection of the Italian budget. When Prime Minister Monti had to call elections in 2013 after the Berlusconi term expired, Monti and his allies received a mere 11% of the vote. So Mario Monti’s views of popular democracy are subject to further review.
4. A failure of a major European bank, something on the order of Deutsche Bank or a major French institution. The cracks in the Italian financial system are well known. It is the exposure of other EU domestic banks that can cause a blind side hit to the financial system. Part of this issue is the BIS view of how sovereign debt is rated. Currently, all EU sovereign debt carries a zero risk weighting. If this were to change, EU banks would be forced to raise a great amount of capital, a total that would dwarf the amount that was recently raised to support the purchase of non-performing loans from Italian financial institutions. The European nations are struggling even with zero interest rates. Imagine what the budget deficits of Spain, Italy and France would be if borrowing rates were to dramatically increase.
This is just the beginning of analyzing low probability, high impact events. The landscape of the global macro system are rife with such possibilities. Now a black swan in an uncertain event this focus will be on those with a probability of occurring. The floor is open to all suggestions.
Notes From Underground: Wishing Everyone a Very Festive Holiday Season
December 23, 2014TO MY READERS: This is the festival of lights in which the bright lights of the menorah and the festive lights of Christmas Trees and ornaments seek to brighten the day when darkness envelopes the world. It is no accident that December 21 is the shortest day in terms of sunlight. Let’s hope that there is less darkness and more light in 2015. In terms of trading and investing I hope that Notes From Underground has provided some light in an effort to sort through the global macro scene. In the coming days I will put forward some thoughts on Europe, Russia, Oil, and, of course, yield curves.
Notes From Underground: Janet — Klaatu Barada Nikto (The Day the Earth Stood Still)
July 29, 2014Tomorrow is a big day for disseminating information with market-moving potential. The market is bored with war, pestilence and famine so it must be FED pronouncements and GDP data that can provide a volatility boost. The markets did twitch today as the European Union and the U.S. both upgraded the sanctions against Putin’s Russia. It will be very difficult for Russian banks and large energy consortiums to raise dollar- and euro-based capital. Even with the advent of new and improved sanctions the global equity markets barely moved, especially as corporate earnings in the U.S. continued its string of “beats.” The counter to the continued strength of the equity markets is the behavior of the global debt markets as European sovereigns from Spain to Germany have reached record low yields. The U.S. yield curves continue to flatten as investors continue purchasing 10- and 30-year debt driving long-term yields lower. Again, I will state that while the curves are flattening the 2/10 U.S. curve is not historically flat.
Notes From Underground: It Would’ve Been Enough
April 14, 2014In an effort to state how badly the markets are ignoring risk, we at Notes From Underground warned about being short volatility. As we head into the Passover and Easter holidays there is much on the table that financials fail to appreciate. A global market focused on the pantheon of central bankers it is the my task to remind of the major issues facing the world’s POLITICAL ECONOMY.
- The BOJ and the Abe government have gone to great lengths to create a recovery in Japan and with it a modicum of inflation. At this point economic growth in Japan is stalling. With the initiation of the sales tax increase of 3 percent April 1, Japan’s central bank has a great deal at stake. If growth stalls the BOJ will be hard-pressed for even more radical efforts to jump-start the economy through increased bond purchases both of a domestic and foreign nature. The YEN will be under pressure causing stress throughout the global financial system.
- What will happen in China as it tries to stem any debt crisis from too much credit being advanced through the Chinese shadow banking system?
- The problems in the Eurasian land mass as President Putin attempts to undermine the sanction regime of the G7 nations
- The potential for a banking crisis in the European system as the mass of debt becomes a larger burden in a low inflation environment. Compounding the problem is that European banks own a vast amount of sovereign debt of Greece, Spain, Italy, Ireland and Spain,resulting in an adverse feedback loop of monstrous proportions; and
- The Federal Reserve has adopted a position of primary concern for a high unemployment/low wage environment and is pretending that a zero interest rate policy can provide the solution. The FED is putting its credibility on the line in pursuing a jobs-at-all-cost position for if the self-imposed jobs threshold can be easily forsaken, why should investors believe that the inflation threshold will be followed? Keep an eye on the 2/10 yield curve for any signs of the market’s concern with regards to the credibility of the Yellen Fed. For now, the SPOOS and NASDAQ are the default mechanism for all investors for when in doubt, buy equities. As Jefferies’ David Zeros said on CNBC Monday afternoon, SPOOS ARE FOR LOVERS AND GOLD IS FOR HATERS, which may well be … for now. But being short volatility is for the clinically insane. Just hope I have a ticket on the volatility train since “YOU DON’T NEED NO BAGGAGE, JUST GET ON BOARD.”
Also in the spirit of the holidays:
If the U.S. Treasury had done only TARP … it would’ve been enough
If the Fed had only provided QE1 … it would’ve been enough
If the Fed had only done QE2 … it would’ve been enough
If the Fed had only done Operation Twist … it would’ve been enough
If the Fed had only done QE Infinity … it would’ve been enough
If Mario Draghi had pledged no taboos … it would’ve been enough
If Mario Draghi had pledged to do whatever it takes … it would’ve been enough
If the BOJ had only doubled the money supply … it would’ve been enough
If the BOJ had only bought massive amounts of JGBs … it would’ve been enough
If the Japanese were only buying foreign bonds … it would’ve been enough
If all the world’s central banks had lowered interest rates to zero … it would’ve been enough
AND NOW FOR THE BITTER HERBS!
Wishing all of our readers a happy and healthy Passover and Easter.