Posts Tagged ‘tapering’

Notes From Underground: A Take On Mario Draghi in Two Parts

September 10, 2017

Part I: Mario Draghi, the master of obfuscation was at his best Thursday as he dodged MULTIPLE questions about the recent STRENGTH in the euro. Journalists were very well prepared and even threw back Draghi’s previous responses about how a 10 percent currency appreciation would lower inflation measures by 0.5 percent. But Draghi met each question with a, “Yes, we discussed it as some members of the ECB Board were concerned about the EURO and its impact on exports and import prices.”

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Notes From Underground: It’s All About the Narrative

August 27, 2017

The Kansas City Fed Symposium was steeped in boredom as all the hype failed to live up to the expectations of the media. The excitement centered around Mario Draghi potentially dropping hints about the beginning of quantitative tightening (QT). Rick Santelli spoke with former FOMC Governor Mark Olson, who rightfully predicted Chair Yellen would not reveal any sense of Fed intentions but he was dead wrong about Draghi. Olson opined that Yellen put the spotlight on President Draghi, but the ECB President must have suffered stage fright as he very bland when speaking to concerns about the Trump administration’s move to economic nationalism. There was not a single word about ECB policy.

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Notes From Underground: The Significance of Mark Carney’s Mansion House Statement

June 16, 2014

The FED meeting begins tomorrow and concludes Wednesday with a full-blown Janet Yellen press conference. The FOMC is expected to continue the path of TAPERING by removing another $10 BILLION of asset purchases but still continuing to add to its massive balance sheet. There is talk among the “pundits” about Chair Yellen raising the expectations of a FED move to increase interest rates sooner than the market predicts. Concern has grown because several FOMC members have raised the issue of  higher REVERSE REPO and IOER (INTEREST ON EXCESS RESERVES) RATES in an effort to drain some of the vast amounts of liquidity sloshing around in the banking system.

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Notes From Underground: Taper Impact on Emerging Markets (Santelli Exchange)

January 30, 2014

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Click on the image to watch Rick Santelli and I discuss the selloff in emerging markets, as well as the U.S. government’s myRA plan.

Notes From Underground: Others Mine Bitcoin; We Mine FOMC Minutes

January 8, 2014

The eagerly awaited release of the FOMC minutes revealed little, but two potential nuggets were uncovered and we will watch to see if they turn into valuable assets. The first was the discussion of the FIXED-RATE, FULL-ALLOTMENT OVERNIGHT REVERSE REPURCHASE AGREEMENT (also known as the O/N RRP). This is a very sophisticated monetary tool that the Fed hopes to utilize to resolve the “FORWARD PROBLEM” of excess reserves in the banking system. The System Open Market Account (SOMA) has been testing the O/N RPP since September to ensure that SOMA can handle the use of the facility as an active tool of policy, possibly utilizing it as the workhorse of the issue of EXCESS RESERVES after the massive Fed QE programs. In quoting from the text: “The proposed increase in caps was intended to test the Desk’s ability to manage somewhat larger operational flows and to provide additional information about the potential usefulness of O/N RPP operations to affect market interest rates when doing so becomes appropriate.” This is an issue that will prove market moving on a regular basis as the operational flows grow in size. (I will cover this in-depth in another piece).

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Notes From Underground: It Ain’t Rocket Science, Which Is Too Bad for the Dismal Science

January 5, 2014

There is an American expression: It Ain’t Rocket Science,which is meant to be a pejorative phrase to denote that if you fail to comprehend a somewhat easy concept you must have diminished cerebral capacity. I do not mean to imply this but rather use it to address some FED SPEAK over the weekend in which the American Economic Association provided lively discussion about the “SUCCESS” of the Fed’s policies for the last five years. There was point and counterpoint from highly acclaimed economists and thus ECONOMICS PROVED AGAIN THAT IT IS NOT A HARD SCIENCE. When Aerospace engineers build a spacecraft and design its mission they are sure of the spacecrafts return barring some unpredictable mechanical failure. AEROSPACE ENGINEERING IS PROVEN TO BE AN EXACT SCIENCE.

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Notes From Underground: TOTO Is Out of Kansas and Back In Washington

December 16, 2013

Will TOTO bite the wizard behind the curtain? Toto, in this case, is not Dorothy’s dog but rather the market’s obsession with taper on/taper off, or TOTO. Today’s trading proved to be a “ball of confusion” as the market emerged from a relatively quiet weekend to open in a taper off mode as the bonds and equities were bid. The currency markets were relatively quiet as were the precious metals. Mid-morning, though, the long end of the Treasury curve began to sell off and the yield curve went from a flattening bias to steepening, which seemed to represent the market adopting a taper on bias. However, the currency and precious metals markets reacted contra to previous correlations and rallied as the yields on the long-end of the curve rose. (Again, very confusing in regards to recent patterns.) The BONDS closed toward the lows but the metals and equities held their rallies, which leads me to believe that the market has adapted to the idea of a Fed tapering being tied to a change in the language of forward guidance.

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Notes From Underground: ECB’s Mario Draghi Cuts Rates and Sends Global Markets A “Twitter”

November 10, 2013

Catching up: As the world knows, the ECB cut the overnight rate 25 basis points to 0.25%. The cut was more symbolic than substantial for the “recent” threat of a deflationary spiral will require more action than a mere drop in rates. The front month EURIBOR contract gained just two and a half points showing the cut in rates was certainly anticipated–DECEMBER EURIBOR rose to 0.99790 from 0.99765. The more important part was the symbolic nature of Draghi defying Bundesbank chieftain Jens Weidmann. Now that the German elections are over Mario Draghi wants to let the world know that he is in charge of the ECB board and will not be intimidated by the giant shadow cast by the Bundesbank, which is also headquartered in Frankfurt.

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Notes From Underground: Investing in the Time of Hilsenrath

October 30, 2013

In the biggest news story of the day, Jon Hilsenrath reported that New Zealand bank Governor Wheeler led his board to hold the line on interest rates. (NOTE: Hilsenrath didn’t report the New Zealand news as he was too busy trying to impact U.S. markets with a tweet here and a tweet there.) The RBNZ did note that the global economic recovery remains “patchy.” The KIWI bank seems content to allow rates to remain on hold for two major reasons: 1. The macroprudential regulations instituted to slow house price inflation need more time to work–New Zealand instituted regulations on loan-to-value mortgages; and 2. “The exchange rate remains high and is a headwind to the traded goods sector. Sustained strength in the exchange rate that leads to lower inflationary pressure would provide the bank with greater flexibility as to the timing and magnitude of future increases in the OCR. Fiscal consolidation is also expected to continue weighing on demand over the next few years.”

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Notes From Underground: Is Mario Draghi the Paradigm of Moral Hazard?

October 28, 2013

First, to Lou Reed: The market is the ultimate WALK ON THE WILD SIDE as first it dresses as a bull and changes into bear garb … the ultimate transvestite. Be at peace Lou and thanks for the years of rocking out.

As the news cycle has slowed because of the lack of immediate crisis in Washington, focus is starting to shift toward Europe and the ECB’s effort to craft a credible, EU-wide stress test. The market mocked the previous effort for being a very weak attempt at measuring real elements of credit stress within European banks. Now that the ECB has been tasked with being the conduit and trustee as a single EU bank supervisor President Draghi is going to have to be credible in the eyes of the ECB paymasters. In an interview with Bloomberg’s Francine Lacqua last week, Mario Draghi said: “The test is credible because the ultimate purpose of it is to restore or strengthen the private sector confidence in the soundness of the banks,in the quality of their balance sheets. Ultimately that’s the objective ,to have private-sector money to be put into the banking industry.”

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