Posts Tagged ‘yield curve’

Notes From Underground: Oh, When Will They Ever Learn?

November 28, 2016

This is a tough POST to write  for I will criticize a newspaper I have read every day for at least 30 years. (In fact, I still have it delivered on my doorstep and read most of it online in the evening before the hard copy arrives.) The London Financial Times had a front page story, “Troubled Italian Banks Face Fresh Risk of Failing If Renzi Loses Vote.” This is a deplorable headline for it harkens back to the days of the mainstream media warning of dire consequences if Brexit passed and the Trump was elected president. THIS IS SCARE MONGERING. It raises the question: When will the Davos crowd EVER LEARN?

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Notes From Underground: Lions and Tigers and Bears, Oh My!

September 11, 2016

The Wizard of Oz provides so many appropriate metaphors for dealing with global central bank policy. The failure of the wisdom of those who meet behind the “curtain” enthrall  the members of the elite media who genuflect on the altar of access. Provide the necessary backdrop of equations and the media believes everything. It reinforces the sentiment of the Greenspan era: “If you think you understood what I said, I must have misspoken.” The idea of an “all-knowing Fed” is beginning to lose its luster as markets begin to understand that FED policy is not rocket science. There is no predictable outcome for the global experiment of negative interest rates or zero interest rates. Even the growth of supersized central bank sheets is causing doubts among the blind followers of free money forever.

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Notes From Underground: *Uncle Charlie Makes the Fed Like Michael Jordan … Can’t Hit the Curve

May 18, 2016

*NOTE: Uncle Charlie is baseball slang for curve ball

Today, the markets validated the recent moves in the YIELD CURVES as the April FOMC minutes reflected a desire by MOST participants to raise in interest rates at the JUNE meeting (kudos to Mr. Art Cashin for presciently discussing the importance of “MOST” prior to the FOMC release, or if you prefer LEAKS). It appears that the “data dependent” FED is certainly prepared to raise the FED FUNDS rate (in addition to the lower-bound reverse repo rate, and upper-bound interest on excess reserves rate) as long as the data is robust enough to signal full employment and is having the desired effect on wage and overall price inflation. The minutes certainly reflect the hawkishness of Rosengren, Mester and Lacker but it begs the question: DOES MONEY TALK AND BULLSHIT WALK? For as hawkish as the April minutes have been defined by the previous five days of price action, HOW COULD THE VOTE HAVE BEEN 9-1 in favor of keeping rates unchanged?

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Notes From Underground: For What It’s Worth (My View on Tomorrow)

September 16, 2015

There’s Something happening here
What It is ain’t exactly clear
there’s a man with a gun over there

Telling me I got to beware
There’s battle lines being drawn
Nobody’s right if everybody’s wrong
Young people speaking their minds
Getting so much resistance from behind
What a field-day for the heat
A thousand people in the street
Singing songs and carrying signs
Mostly say, hooray for our side
Paranoia strikes deep
Into your life it will creep It starts when you’re always afraid
You step out of line, the man come and take you away
It’s time we stop ,hey what’s that sound
Everybody look what’s going down

Stephen Stills wrote these words almost 50 years ago and it certainly applies to all the noise and opinion filling the media about a possible 25 basis point increase in the FED FUNDS RATE. The financial press has made tomorrow’s FOMC statement and Yellen press conference into a mania almost as great as the FACEBOOK IPO. Everybody who is anybody has an opinion about what the FED OUGHT TO DO.
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Notes From Underground: Is Charlie Evans a Lonesome Dove?

January 8, 2015

Tomorrow is the release of the U.S. and Canadian Employment reports, which are usually days of increased market volatility. Usually, Notes From Underground provide some insight into possible market movement based on attaining a sense of investor consensus and putting that into perspective based on relevant indicators and pre-release price action across a wide variety of variables.

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Notes From Underground: On Yellen’s Testimony

July 17, 2014

First, as I have been critical of Chair Yellen’s communication efforts prior to this weeks Congressional testimony, I will give the Chairwoman an A+ for her effort this week. She was very forthcoming in her Senate appearance on Tuesday, and, more importantly, she fended off the idiots in the House of Representatives with clarity and the patience of a saint. The problem with the House is too many ex-prosecuting attorney’s who all try to get Yellen in a gotcha moment, but the Fed Chief was not falling for the trap of providing sound bites for the elections back in the home district. The Senate questions were of a substantial nature while the House was fluff of either adulation or criticism.

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Notes From Underground: Mr. Natural Says, “It Don’t Mean Sheeit”

April 9, 2014

The idea of Mr. Natural, the guru creation of R. Crumb, comes to mind as the analysts ponder today’s release of the March 18-19 FOMC Minutes. The market seemed shocked to learn that the FED had been misunderstood on its intentions to tighten soon after the conclusion of the its tapering program. When are the markets going to stop listening to the self-proclaimed seers of the Fed’s deepest secrets? The FOMC minutes let the financial world know that the summary economic projections (SEP) have as much credibility in interest forecasting as does the man behind in curtain in the Wizard of Oz. I will offer that the market must lean toward Janet Yellen being a labor economist with a strong moral bent of providing the foundation for any person desiring a job have a job. Again, that is a noble stance but not for the Fed chair. The violent move in the YIELD CURVE after the release of the minutes reflected the markets’ misinterpretation of Yellen’s press conference. If the 2/10 curve gets back above 240 basis positively sloped, it will result in a further selloff of the notes and bonds. The FED will err on staying at the ZIRP band until it is certain that the employment situation has dramatically improved. Quoting from the minutes: “Several participants cited low nominal wage growth as pointing to the existence of continued labor market slack.”

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Notes From Underground: Looking at Yield Curve Volatility (CNBC)

January 8, 2014

Yra CNBC 12-24-2013

 

Click on the image to watch Rick and I discuss why the 5-year is a “worthless instrument”

Notes From Underground: “And all My Words Come Back To Me In Shades of Mediocrity” (Paul Simon)

December 3, 2013

This reference is to Janet Yellen’s testimony in her Senate confirmation hearing as the chairman-to-be cited the benefits of the Fed’s policy of über low rates for the average household. While many Senators challenged the negative effects of the Fed’s policy for savers–financial repression in the words of Carmen Reinhart–Yellen noted that people were not just savers but also consumers. Thus, Fed policy may harm the return on savings, but households may receive the benefit of lower home and auto loans and the Fed’s QE policy may have had the ripple effects of getting their college graduate a job. So financial repression was a very difficult outcome to measure against the broad economic outcomes.

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Notes From Underground: Bored to Tears by the Global Macro News

December 1, 2013

It’s all good, so say the pundits. The tapering discussions have now moved to the issue of FORWARD GUIDANCE as Chairman Bernanke has maintained that at the zero bound interest rate FG may have more influence on rates than quantitative easing. For the Nth time, the FED is at a fork in the road and doesn’t know which path to take. A continuously steepening YIELD CURVE is an indication that the market is signaling its discomfort with the Fed. The rise in the longer end of the curve is causing the Fed a great deal of concern because their model seems to say that continued pressure on the short end will act to keep long rates low (unless, of course, the market is questioning the Fed’s credibility and rolling out of BONDS and into the equities). A key question for the FED: Are equity markets a better long-term investment (hedge) against the success of Fed policies?

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