“Should inflationary expectations suddenly rise, as they suddenly fell in the early 1980s, inflation might hit much higher levels. A vigorous central bank response might be impeded by a growing focus on resisting slower growth, as well as by lobbying from governments and others exposed to high debt levels.”
12/10/2020 - William White: Will the Next Decade See the Return of Inflation?
12/10/2020 - The Roundtable Insight – How the Austrian School of Economics can be used in Managing Organizations and Businesses
12/09/2020 - Reflections over the Past Year to Today – Yra Harris, David Rosenberg, Peter Boockvar, Chris Whalen
The post Covid era and associated responses by governments and central banks have presented challenges, stimulus and policy changes which have affected the financial markets:
12/08/2020 - Alejandro Tagliavini – Hasta dónde subirá Wall Street (Argentina sin piso)
“El Gobierno habló de salir adelante con “empresarios que inviertan y den trabajo”, pero sin ninguna solución en el horizonte. Las inversiones en argentina ya no rinden y se da en un contexto de incertidumbre por la pandemia. Los detalles del mercado financiero y sus movimientos.
12/07/2020 - Two Ways the Indebted Western World may Employ to Address Unsustainable Debt
- Inflation – over time this will reduce the burden of debt
- Perpetual Bonds – either issuing new bonds as perpetual bonds – the principal is never repaid, you only get the interest yield distribution .. or restructuring existing debt towards a change to perpetual bonds
In this article George Soros suggests using perpetual bonds in Europe:
12/07/2020 - Yra Harris: Return of the Bond Vigilantes?
“If the U.S. central bank remains RETICENT to move its QE further out in duration — targeting the LONG END of the curve — the BOND VIGILANTES will ride again by continuing to SELL THE LONGEST DURATION BECAUSE IT IS THERE THEY WON’T HAVE TO FIGHT THE FED. The LONG END WILL BE the area of least resistance. How high will the yield on the 30-YEAR BOND have to rise until the FED’S SOMA DESK BECOMES THE IMMOVABLE OBJECT? Mike Temple believes Yield Curve Control will be necessary in the first quarter of 2021. I see no reason to argue.”
12/06/2020 - Louis-Vincent Gave: “The Renminbi Will Gain Wider Use Globally”
“The Covid response in the U.S. has been a $12,800 increase in debt per capita; in the United Kingdom, it’s $7,000, and in Germany and France, $5,300. In China, it’s $1,200. The Western world responded with massive increases in budget deficits, which could constrain future policy options, while Asia, especially China, hasn’t.”
“I look at currencies like computer operating systems. Most Gavekal clients use Microsoft because everyone else uses it. The dollar is Microsoft. Go back to 2005-06, when Apple was trading at nine times earnings and viewed as making a niche product. In 2007, Apple said it would create a parallel system and went straight to the consumer, who took [Apple] not because it was cheaper but because it was easier. So the renminbi is Apple.”
12/04/2020 - Yra Harris: Closing In On Critical Levels
“In January 2015 the SWISS NATIONAL BANK pulled the PLUG on the EUR/CHF PEG, sending the Swiss franc soaring. This was predicted in several posts here at Notes From Underground weeks before the event resulting in major profits for those currency traders who followed our musings. The week of the SNB action resulted in a trading range of 1.0241 to 0.7360.
The following week saw the markets calm as the range was 0.8840-0.8502 with the weekly close at 0.8803. This week we have seen a dollar/Swiss low of 0.8891 so getting close to a major market action critical low. This has resulted in a huge move in the FRANC even as the SNB is printing large amounts of its currency in an effort to STEM its appreciation.
We refer to the SWISS as the greatest ALCHEMISTS of all time as it prints currency and uses it to buy baskets of global equities. Over the last five years, the SNB has become one of the major shareholders in stocks such as APPLE. The Swiss central bank is a hedge fund with its own printing press. Look for the SNB to get aggressive in an effort to halt the rise in the FRANC. Again, interesting times and the value of the Swiss franc is certainly a reflection of the madness.”
12/03/2020 - The Roundtable Insight – Charles Hugh Smith on Parallels of the Great Fire of Rome 64 AD to Today
12/03/2020 - Marillac Saint Vincent Family Services – see note from Yra Harris
Marillac Saint Vincent Family Services
c/o Peter Beale-DelVecchio
6340 N. Magnolia Ave #1 S
Chicago, IL 60660
12/01/2020 - The Roundtable Insight – Andrew Sheng and Yra Harris on the Global Economy, Financial Markets and Trade
11/30/2020 - Alejandro Tagliavini – ¿Por qué se desacelera el dólar blue?
“El dólar paralelo está directamente atado a la inflación, que se desacelera, en parte, porque la emisión monetaria cae a partir de que el gobierno viene cortando el gasto. Pero que ambos indicadores bajen no significa que la economía esté bien encaminada.”
11/25/2020 - Dr. Lacy Hunt on Potential Inflation Tail Risks
“We identify two tail risks for long term Treasury investors: (1) a huge new debt financed fiscal package and (2) a major change in the Fed’s modus operandi. The first risk would change the short-run trajectory of the economy. This better growth, although short lived, could place transitory upward pressure on interest rates in a fashion that has been experienced many times. Over the longer run, disinflation would prevail and the downward trend in Treasury yields would resume.
The second risk would bring a rising inflationary dynamic into the picture, potentially becoming much more consequential. As this dissatisfaction intensifies, either de jure or de facto, the Federal Reserve’s liabilities could be made legal tender, or a medium of exchange. Already, the Fed has taken actions that appear to exceed the limits of the Federal Reserve Act under the exigent circumstances clause, but so far, they are still lending and not directly funding the expenditures of the government in any meaningful way. But some advocate making the Fed’s liabilities spendable and a few central banks have already moved in this direction. If the Fed’s liabilities were made a medium of exchange, the inflation rate would rise and inflationary expectations would move ahead of actual inflation. In due course, Gresham’s law could be triggered as individuals move to hold commodities that can be consumed or traded for consumable items. This would result in a massive decline in productivity, thus real growth and the standard of living would fall as inflation escalates.
As long as the federal government’s policy prescription is ever higher levels of debt, the path toward disinflation will hold and long Treasury bonds will be the preferred area of the curve. The continuing shift in economic conditions over the past forty years has necessitated several dramatic changes in our yield curve positioning. That flexibility remains constant.”
Will the Federal Reserve go too far?
11/24/2020 - Alejandro Tagliavini – Tesla, Elon Musk y Bitcoin: magistral lección de economía
“Repaso de las últimas jornadas en Wall Street: Pfizer mostró mejores resultados que Moderna, subieron las acciones castigadas por los confinamientos y bajaron las de las plataformas digitales. En Argentina, el blue podría desacelerarse y las opciones locales “son algo pobres”.
11/23/2020 - Financial Times Article on Municipal and State Debt
“If financial markets were to experience new turmoil in the coming months, the Fed might struggle to limit the damage to investors in corporate debt, municipal and state debt, and asset-backed securities, whose markets were propped up by the lapsing facilities. And the fallout could be broader, given the nearly $40tn US equity market has been buoyed by the Fed’s intervention as well ..
11/23/2020 - Daniel Lacalle: Allow the Economy and Consumers to Implement Sustainability and ESG
“The idea of a more sustainable, cleaner, and social economic system is not new, and it does not need governments to impose it. It is happening as we speak thanks to competition and technology. Governments should not be allowed to reduce and limit citizens’ freedom, savings, and real wages even for a well-intentioned promise. The best way to ensure that governments or large corporations are not going to use this excuse to eliminate freedom and individual rights is by promoting free markets and more competition. Forward-thinking investments and welfare-enhancing ideas do not need to be nudged or imposed; consumers are already making companies all over the world implement increasingly higher sustainability and environmentally friendly policies. This market-oriented approach is more successful than letting the risk of interventionism and government-meddling take hold, because once it happens it is almost impossible to undo.
If we want a more sustainable world, we need to defend sound money policies and less government intervention. Free markets, not governments, will make this world better for all.
The same massive government intervention that took us here is not going to take us out of here.”
11/16/2020 - Alejandro Tagliavini – El blue y la economía podrían desacelerarse, la vacuna también
“Si el gobierno profundiza este camino “más ortodoxo” el precio del dólar podría moderar su escalada. La mejor alternativa es invertir en dólares MEP y el CCL barato, y comprar CEDEARs.”
11/15/2020 - Dr. Albert Friedberg on Risk Assets and Commodities
11/09/2020 - Alejandro Tagliavini – Esperando a Biden, Argentina sentada y el Bitcoin intratable
“El dólar blue “se agachó” y anotó su novena baja consecutiva hasta quedar en $157. Leves subas en Wall Street ante primeras señales del presidente electo. Las acciones de mega capitalización parecen haberse convertido en un refugio.”