Posts Tagged ‘yield curves’

Notes From Underground: Feeding the Ducks (Part Two)

January 10, 2018

Tonight, I’d like to expound on the recent musings from Chris Whalen, titled, “Bank Earnings &Volatility.” Whalen stresses that the FED will not be selling assets but merely ending “its reinvestment of cash when securities are REDEEMED,” (emphasis mine). In what I consider a key point raised, Whalen said, “Yet as we and a growing number of investors seems to appreciate, the FED cannot force up long-term rates so long as it is sitting on $4 trillion worth of securities THAT IT DOES NOT HEDGE. More given that the Treasury intends to concentrate future debt issuance on short-term maturities, downward pressure on long-term bonds yields is likely to intensify.” Whalen also said, “What the FOMC has done to the markets via QE is essentially reduce potential volatility by holding securities and not hedging these securities.” The key point is enhanced by the fact that both the ECB and BOJ do not hedge their security exposure either so volatility has been diminished by the reduced hedging.

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Notes From Underground: Things On Our Radar Screen in 2018

January 2, 2018

The last trading day of the year, me and Rick took a BRIEF look into concerns about 2018. Three minutes is not enough time but it does afford the opportunity to put some ideas out that are not people’s screens. As the month progresses we will discuss several items in greater detail. I want to tell readers to review the very vibrant discussion that is taking place on the last blog post. Thank you to all the participants for providing insights into the global macro world. The discussion is first class, representing dialectic efforts, not validation. (A tip of the cap to  Dave, Stefan Jovanovich, Chicken, Big Man  and Professor Waspi for enhancing the quality of analysis.) Dave Richards and Asherz have been regular contributors and have certainly been on top of the precious metals markets and the weakness of the dollar. Tonight I will briefly discuss some issues outside the generally accepted narrative.

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Notes From Underground: A Podcast With Top Step Trader

November 21, 2017

During this thin holiday market as markets, it’s important to remind ourselves of the tools that are necessary to have in order to profit in the global financial markets. I had the pleasure to sit down with Eddie to reprise many stories that bring laughter but also knowledge of the markets. Please enjoy the podcast.

As far as Tuesday goes, the equity rally powers on and the yield curves continue to flatten, causing angst among many asset managers. But as the U.S. curves flatten the European curves are actually steepening, which is in contravention to conventional wisdom. The ECB is still building its balance sheet while the FED has actually begun shrinking its $4.5 trillion accumulated asset base. The U.S. curve OUGHT to be steepening while the European should be flattening. My opinion is that the emphasis is on buying the short end of Europe but forcing global investors to seek duration risk in the U.S. with its higher sovereign yields. Just last week, the European junk bond market was actually yielding less than U.S. 10-year Treasuries. I can’t stress it enough: The international market for pricing risk has been terribly distorted by the central banks. This is the environment we exist in for the business we have chosen. I will be on with Rick Santelli on Wednesday at 9:40am CST. Enjoy your Thanksgiving for anyone reading this BLOG has much to be thankful for. All the best, Yra

Notes From Underground: Brainard’s Speech Was So Significant She Delivered It Again

July 13, 2017

Yes, Fed Governor Lael Brainard actually delivered Tuesday’s speech, “Cross-Border Spillovers of Balance Sheet Normalization,” AGAIN. This time it was to the National Bureau of Economic Research Summer Institute in New York City. Of course I jest as to why she redelivered it. Brainard was overshadowed by Chair Yellen’s testimony to the Senate Banking Committee, even though the Fed Chair deviated very little from Wednesday’s House testimony. The interesting thing was that Yellen backtracked on her hubristic statement she made last week about not experiencing another systemic financial crisis in her lifetime. A brazen statement like that is Greenspanish but certainly out of character for the demure Janet Yellen.

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Notes From Underground: G-20 and Unemployment

July 6, 2017

The data “dependent” FED will have a look at the unemployment report Friday and hope to see VERY ROBUST gains in NONFARM PAYROLLS, but most importantly, to see a 0.4% rise in WAGES in order to deflect from  the recent criticism directed at them. The consensus is for an increase of 175,000 jobs and for an average hourly earnings to rise 0.3%. If the data is tepid, the long-end of the curve will attempt to rally, a reversal of the SIGNIFICANT steepening of yield curves seen during the most recent selloff in developed bond markets.

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Notes From Underground: Let’s Look at Global Yield Curves

February 7, 2017

One of the most important indicators for financial markets is yield curves. They are predictive as they have historically shown coming economic turmoil, or, more importantly, the end of a business cycle. The severity of any recession depends on the amount of debt that has preceded the onset of an economic slowdown. I will remind readers that before the 2007-08 financial crisis, the U.S. 2/10 curve actually INVERTED to NEGATIVE SIX BASIS POINTS. Some financial pundits like to cynically advise consumers that the STOCK markets have predicted 10 of the last 5 recessions, but that is not so with yield curves. The difficulty with the signalling mechanism of yield curves is predicting the time for even during the GREAT RECESSION equity markets continued to rally even as the curve flattened.

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Notes From Underground: Oh, Janet, There Is A Santa Claus Rally Brought About By the QE Rain

December 13, 2016

Yes, the day of decision is upon us and everybody is SURE of a 25 basis hike from the FOMC. IF I WAS IN CHARGE–NO, NOT JOSE CANSECO, WHICH WOULD BE MONETARY POLICY ON STEROIDS–I WOULD RAISE RATES 50 BASIS POINTS AND ISSUE A WARNING OF MORE AGGRESSIVE INCREASES TO COME. Alas, I am but ashes and dust. The FED has prepared the market for a certain 25 but here are the things to watch:

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Notes From Underground: Mario Draghi and the Wisdom of Samuel Beckett

December 8, 2016

“When you’re in the shit up to your neck, there’s nothing left to do but sing.” This is what Samuel Beckett wrote and it was the way President Mario Draghi performed today. Never in the history of central banking has a policy maker spewed so much crap about monetary policy and the annals of central bank shenanigans is voluminous. The EURO CURRENCY rallied 1 percent on the headline of the ECB‘s desire to cut monthly purchases to 60 billion euros a month but announced that the duration of QE would be extended through December 2017. So tapering on a monthly basis, but not on a longevity measurement.

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Notes From Underground: Global Politics Will Keep Volatility Elevated

October 10, 2016

Increased volatility is not debatable. It will be the outcome of the uneasiness of global politics. It seems that the present state of affairs reflects the vast chasm between those who have benefited from GLOBALIZATION and those who have seen their lives and incomes being disrupted by a world experiencing dynamic change. Brexit was a vote of the nationalists versus the Davos crowd, or those seeking the comfort of the world they know versus those who have profited mightily from the first mover advantage of being prepared for the post Berlin-wall global economy. The central banks’ efforts to prevent a massive liquidation of global assets and harm that would have befallen the global economy as left many participants in a state of financial repression.

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Notes From Underground: Unemployment Data In the Time of Janet’s Fed

March 31, 2016

It is the end of the first quarter and it was an amazing time to be a volatility fabricator in the land of algo-driven headline readers. This quarter has seen a great deal of ebbing and flowing for the global equity markets as China, the Fed, the ECB and BOJ have created fear and greed in copious amounts. But as the SPOOS have ended 0.8% higher (after being up 11% in February), the world is well for U.S. domestic investors. The remainder of the developed world equity markets have not fared as well even as its central banks have been very involved in creating new rounds of liquidity and driving their lending rates into negative territory. The DAX and Japanese equity markets seem to be trapped by anemic growth, as well as appreciating currencies. The recent noise from the FED seems to have caused a REVERSAL IN LONG DOLLAR POSITIONS as the short dollar trade was every major investment bank’s favorite trade for 2016. So  it goes.

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