Posts Tagged ‘RBNZ’

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: Bringing Europe to the Fore, Yet Again

August 20, 2019

Whenever I have an appearance on CNBC with Rick Santelli, Europe proves itself as critical to U.S. monetary policy. The past five years have led to dialogue that questions the efficacy of ECB policy and the slight of hand moves by President Mario Draghi. As BUND yields drag all sovereign debt yields even lower, the central bank is struggling to find policies that will keep LOWER FOR LONGER going. It seems that the last play in the book is to provoke Jerome Powell to abandon any NORMALIZATION of interest rate policy regardless of the economic data reported by the U.S.

(Click on the image to watch me and Rick discuss Europe and monetary policy.)

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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: If You Don’t 2+2=5, Then Read No Further

August 6, 2019

The tagline of this blog has always been “where 2+2=5 is also a wonderful thing.” If you believe that the world is balanced and rational in all things financial then this BLOG is not for you. Unlike Fyodor Dostoyevsky’s character, I am not a sick man, nor a spiteful man. I use my deep knowledge of political and economic history to analyze financial markets from myriad angles. This allows for a belief that context is supreme. In this context I posit that President Trump’s decision Monday to name China a “currency manipulator” is a way out for the U.S. from the dissension that has arisen within Trump’s team of advisers as reported over the weekend. If Bob Lighthizer was opposed then indeed President Trump is in a more difficult position than previously thought.

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Notes From Underground: Back to What’s Driving Markets

May 8, 2019

We have all been bogged down with tweets coming from the White House about China. Because high-speed traders force us to parse the messages and assess the immediate impact on the markets, we’re hostage to President Trump’s tariff policy. The bottom line is that Robert Lighthizer is left to inform the world when China will acquiesce to the U.S.’s demand for reliable and hardened enforcement mechanisms to solidify any genuine agreement. From my perspective, the critical point on global markets is that once China/U.S. trade agreement is done the president will set his sights on targeting the ENORMOUS TRADE IMBALANCE that favors Germany.

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Notes From Underground: Trump Will Channel His Inner Nixon

November 7, 2018

In 1971, after President Nixon relieved the U.S. of the burden of the gold exchange-standard he paraphrased Milton Friedman by proudly proclaiming, “We are all Keynesians NOW.” In preparing for the 1972 election, Nixon realized that Keynes provided the ability for a sitting president to throw fiscal responsibility to the side and open up the spigots of fiscal stimulus in order to PUMP PRIME the economy. Keynes is focused on demand management.

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Notes From Underground: Another FRA Podcast

September 30, 2018

I am posting the latest PODCAST from the Financial Repression Authority (FRA), in which Peter Boockvar and I talk markets with Richard Bonugli. This PODCAST sets out the market issues that financial markets will confront in the fourth quarter.

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Notes From Underground: The Ball of Confusion Keeps On Rolling

March 22, 2018

Tonight I am posting a PODCAST I recorded Wednesday with Richard Bonugli just after new Fed Chairman Jerome Powell’s press conference. Richard and I covered a great deal of ground in discussing the most pertinent issues confronting the world of global macro. Pour yourself a libation and enjoy the interview. I look forward to hearing thoughts from the readers of Notes From Underground.

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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: A Quick Take On Today’s Key Points

March 23, 2017

The vote on the Trump health care plan is important only from the perspective of what the Freedom Caucus was promised in return for acquiescing to the desires of the White House. President Trump is desirous of a win, any win and the Freedom Caucus seems to know they have great leverage in the current political scrum. Whatever the House passes the Senate will have home field advantage and last bat so the initial Trump victory will Pyrrhic at best. What was compromised to assuage the conservative wing of the Republican party? How far will Trump have bent to bring this deal to fruition? The strident nature of the Freedom Caucus has been elevated and what value was extracted?

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