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Jeffrey P. Snider

Jeffrey P. Snider

Jeffrey P. Snider is the head of Global Investment Research of Alhambra Investment Partners (AIP). Jeffrey was 12 years at Atlantic Capital Management where he anticipated the financial crisis with critical research. His company is a global investment adviser, hence potential Swiss clients should not hesitate to contact AIP

Articles by Jeffrey P. Snider

Where The Global Squeeze Is Unmasked

2 days ago

Trade between Asia and Europe has dimmed considerably. We know that from the fact Germany and China are the two countries out of the majors struggling the most right now. As a consequence of the slowing, shipping companies have had to make adjustments to their fleet schedules over and above normal seasonal variances.
It was reported last week that Maersk and MPC would “temporarily suspend” their sailings on one of the biggest routes between Europe and Asia.
Weakening demand and plummeting freight rates have so far obliged Asia-North Europe carriers to blank two-thirds more sailings than during the same period of last year, and now the 2M alliance is to suspend the loop for the second consecutive year.
This followed a material downgrade in Mexico, of all places,

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Stuck at A: Repo Chaos Isn’t Something New, It’s The Same Baseline

2 days ago

Finally, finally the global bond market stopped going in a straight line. I write often how nothing ever does, but for almost three-quarters of a year the guts of the financial system seemed highly motivated to prove me wrong. Yields plummeted and eurodollar futures prices soared. It is only over the past few weeks that rates have backed up in what has been the first real selloff since last year.
Is this a meaningful change?
 
It may seem that way in certain places. The ECB has launched a more creative QE, the Fed cut rates once and hints at more, and more than anything as far as liquidity risks are generally mentioned the US central bank also brought QT to an abrupt and unscheduled end.
Perhaps these alone or in concert have saved the world from the brink which

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Your Unofficial Europe QE Preview

5 days ago

The thing about R* is mostly that it doesn’t really make much sense when you stop and think about it; which you aren’t meant to do. It is a reaction to unanticipated reality, a world that has turned out very differently than it “should” have. Central bankers are our best and brightest, allegedly, they certainly feel that way about themselves, yet the evidence is clearly lacking.
When Ben Bernanke wrote for the Washington Post in November 2010 announcing somehow the need for a second QE despite the powerful and overwhelming success of the first, he didn’t say the goal was to maybe, arguably lower bond yield term premiums.
It was a recovery or nothing.
In other words, before we ever begin policymakers who are attempting to use R* as an excuse already admit there

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The Obligatory Europe QE Review

6 days ago

If Mario Draghi wanted to wow them, this wasn’t it. Maybe he couldn’t, handcuffed already by what seems to have been significant dissent in the ranks. And not just the Germans this time. Widespread dissatisfaction with what is now an idea whose time may have finally arrived.
There really isn’t anything to this QE business.
But we already knew that. American officials knew it in June 2003 when the FOMC got together to savage the Bank of Japan for their lack of results. It was decided then that what the Japanese got wrong was the execution part of QE; the idea was sound, especially when anyone might be confronted by the zero lower bound, so they decided instead that what must have gone wrong was a whole host of Japan-specific missteps.
There was just brief

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Dollar (In) Demand

7 days ago

The last time was bad, no getting around it. From the end of 2014 until the first months of 2016, the Chinese economy was in a perilous state. Dramatic weakness had emerged which had seemed impossible to reconcile with conventions about the country. Committed to growth over everything, and I mean everything, China was the one country the world thought it could count on for being immune to the widespread economic sickness.
That’s why in early 2016 authorities panicked into another huge, and wasteful, spending spree. In much of the West, it was seen as the government coming to its senses. For reasons that remained unclear (particularly that whole bit about CNY falling), the country experienced a momentary lapse of reason but regained its senses in time to re-open

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A Bigger Boat

8 days ago

For every action there is a reaction. Not only is that Sir Isaac Newton’s third law, it’s also a statement about human nature. Unlike physics where causes and effects are near simultaneous, there is a time component to how we interact. In official capacities, even more so.
Bureaucratic inertia means a lot more than just resistance to change, it also means, at times and in certain capacities, all sorts of biases. When the bureaucracy predicts one set of circumstance, it is as likely if not more likely to hold to them at the expense of incoming contradictory information.
Central bankers claim to be data dependent.
It is true but only in the narrowest sense; only when the data is overwhelming does it seem to matter. Thus, when a central bank changes course you really

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Is The Negativity Overdone?

9 days ago

Give stimulus a chance, that’s the theme being set up for this week. After relentless buying across global bond markets distorting curves, upsetting politicians and the public alike, central bankers have responded en masse. There were more rate cuts around the world in August than there had been at any point since 2009.
And there’s more to come. As Bloomberg reported late last week:
Over the next 12 months, interest-rate swap markets have priced in around 58 more rate cuts, assuming central banks maintain their current trajectories in easing.
Those cuts could total another 16% in global reductions.
This week, the ECB is almost certain to join the ranks. Not just some interest rate adjustments, either, with short-term rates there already negative, very likely a

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Just Who Was The Intended Audience For The Rate Cut?

12 days ago

Federal Reserve policymakers appear to have grown more confident in their more optimistic assessment of the domestic situation. Since cutting the benchmark federal funds range by 25 bps on July 31, in speeches and in other ways Chairman Jay Powell and his group have taken on a more “hawkish” tilt. This isn’t all the way back to last year’s rate hikes, still a pronounced difference from a few months ago.
The common forecast relies entirely on the subjective interpretation of the labor market.

Federal Reserve Beige Book, December 2010 – September 2019 – Click to enlarge
According to the Fed’s models, employment growth remains strong which will support consumer spending and therefore the economy through these “transitory” “cross currents.” In order to ensure

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United States: The ISM Conundrum

14 days ago

Bond yields have tumbled this morning, bringing the 10-year US Treasury rate within sight of its record low level. The catalyst appears to have been the ISM’s Manufacturing PMI. Falling below 50, this widely followed economic indicator continues its rapid unwinding.
Back in November 2018, at just about 59 the overall index had still been close to its multi-decade high. Over the next nine months through the latest update for August 2019, it has shed almost 10 points. Dropping into the 40s, still on the downswing through as late as August, it is a powerful rebuke to some of the more optimistic narratives that have been haphazardly put together as this year has developed the wrong way.

U.S. ISM Manufacturing PMI, Markit Manufacturing PMI and GDP, July 2012 – August

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Copper Confirmed

15 days ago

Copper prices behave more deliberately than perhaps prices in other commodity markets. Like gold, it is still set by a mix of economic (meaning physical) and financial (meaning collateral and financing). Unlike gold, there doesn’t seem to be any rush to get to wherever the commodity market is going. Over the last several years, it has been more long periods of sideways.
That’s what makes any potential breakout noteworthy. Dr. Copper’s place in the hierarchy is already assured because of its lengthy history of closely mirroring impending economic conditions. When the dollar started “rising” last April and May, it was copper a few months later which ended up confirming the negative signal; or, more precisely, the growing perceptions that a renewed, sharp dollar

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Big Difference Which Kind of Hedge It Truly Is

16 days ago

It isn’t inflation which is driving gold higher, at least not the current levels of inflation. According to the latest update from the Bureau of Economic Analysis, the Federal Reserve’s preferred inflation calculation, the PCE Deflator, continues to significantly undershoot. Monetary policy explicitly calls for that rate to be consistent around 2%, an outcome policymakers keep saying they expect but one that never happens.
For the month of July 2019, the index increased 1.38% year-over-year. That’s only slightly above June’s 1.33% advance. After having achieved the inflation target for all of eight months in 2018, despite an unemployment rate at a half-century low they’ve missed the mark now in each of the nine months following.

PCE Deflator, January 20 15 –

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GDP Profits Hold The Answers To All Questions

18 days ago

Revisions to second quarter GDP were exceedingly small. The BEA reduced the estimate by a little less than $800 million out of nearly $20 trillion (seasonally-adjusted annual rate). The growth rate therefore declined from 2.03502% (continuously compounded annual rate) to 2.01824%.
The release also gave us the first look at second quarter corporate profits. Like the headline GDP revisions, there wasn’t really much to them. At least not when viewed in isolation. Across the series, profits were up in Q2 after being down in Q1. The amount differed depending upon the definition, but overall it wouldn’t be classified as a rebound.
In other words, corporate profits were largely unchanged for the first half of 2019.

GDP Corporate Profits from Current Production, Jan

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Japan: Fall Like Germany, Or Give Hope To The Rest of the World?

21 days ago

After trading overnight in Asia, Japan’s government bond market is within a hair’s breadth of setting new record lows. The 10-year JGB is within a basis point and a fraction of one while the 5-year JGB has only 2 bps to reach. It otherwise seems at odds with the mainstream narrative at least where Japan’s economy is concerned.

Japan JGB, Jan 2014 – Jul 2019 – Click to enlarge
Record lows in Germany, those seem to make sense. By every account, the German economy is in trouble. So obvious, even the notoriously frugal government is floating debt-stimulus trial balloons. And why not? Its factory and industrial sector are contracting at rates closer to the Great “Recession.” You know its bad when the 2012 recession becomes more of a best-case scenario.

Japan

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Definitely A Downturn, But What’s Its Rate of Change?

22 days ago

The Chicago Fed’s National Activity Index (NAI) fell to -0.36 in July. That’s down from a +0.10 in June. By itself, the change from positive to negative tells us very little, as does the absolute level below zero. What’s interesting to note about this one measure is the average but more so its rate of change.
The index itself is a product of econometric research. Economists had been searching for an alternative to the unemployment rate in order to increase the predictive power of their inflation signals. They came up with the original index consisting of 61 variables. The latest incarnation includes 85.
Rather than do much for inflation forecasting, the NAI captures a broad sense of the economy’s ups and downs.
That’s hardly surprising given the wide scope of the

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Germany’s Superstimulus; Or, The Familiar (Dollar) Disorder of Bumbling Failure

26 days ago

The Economics textbook says that when faced with a downturn, the central bank turns to easing and the central government starts borrowing and spending. This combined “stimulus” approach will fill in the troughs without shaving off the peaks; at least according to neo-Keynesian doctrine. The point is to raise what these Economists call aggregate demand.
If everyday folks don’t want to spend – because a lot of them can’t – then the government will spend on their behalf. And the central bank will make it easier on everyone, including the government, to borrow while doing it.
Faced with the early parts of what would only later be called the Great “Recession”, that’s just what had happened. Rates were cut worldwide and governments sprang into action.
Among them, people

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That Can’t Be Good: China Unveils Another ‘Market Reform’

August 20, 2019

The Chinese have been reforming their monetary and credit system for decades. Liberalization has been an overriding goal, seen as necessary to accompany the processes which would keep the country’s economic “miracle” on track. Or get it back on track, as the case may be.
Authorities had traditionally controlled interest rates through various limits and levers. It wasn’t until October 2004, for example, that the upper limit on lending rates was rescinded. In August 2006, the mortgage rate floor was set for the first time at 85% of the government’s benchmark. In July 2013, the lower limit for the lending rate was removed entirely.
While liberalization in finance had been slow, the dribs and drabs of glacial, grudging change, the pace suddenly quickened in early

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Some Brief European Leftovers

August 18, 2019

Some further odds and ends of European data. Beginning with Continent-wide Industrial Production. Germany is leading the system lower, but it’s not all just Germany.
And though manufacturing and trade are thought of as secondary issues in today’s services economies, the GDP estimates appear to confirm trade in goods as still an important condition and setting for all the rest.
The weakness is persisting and intensifying – particularly after May 2019.

Europe Industrial Production, 2013-2019(see more posts on Eurozone Industrial Production, ) – Click to enlarge
Before that, IP was first rocked in July 2018 (in the aftermath of May 29) and then again during the landmine. It contracted for the first time in November and has been negative in seven out of the last

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Retail Sales’ Amazon Pick Up

August 17, 2019

The rules of interpretation that apply to the payroll reports also apply to other data series like retail sales. The monthly changes tend to be noisy. Even during the best of times there might be a month way off trend. On the other end, during the worst of times there will be the stray good month. What matters is the balance continuing in each direction – more of the good vs. more of the bad.
Or when what seems to be a good month is less good than it used to be.
Retail sales had managed nearly 6% year-over-year (unadjusted) growth back in the month of April 2019. It came during the mini-outbreak of green shoot hysteria; the idea that either the economic soft patch would be transitory or the Fed pause would keep it that way.
Ironically, it was CNBC (of all places)

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US Industrial Downturn: What If Oil and Inventory Join It?

August 15, 2019

Revised estimates from the Federal Reserve are beginning to suggest another area for concern in the US economy. There hadn’t really been all that much supply side capex activity taking place to begin with. Despite the idea of an economic boom in 2017, businesses across the whole economy just hadn’t been building like there was one nor in anticipation of one.
The only place where there was a truly robust trend was the oil patch. Since the last crash a few years ago, Euro$ #3, the oil sector rebounded and quickly. Leading the way was WTI up from its chaotic low point in February 2016. It’s arguable where the breakeven or profit point is for shale plays, regardless producers will dig new wells at lower price points if they expect the crude price to keep going up.
If

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The Path Clear For More Rate Cuts, If You Like That Sort of Thing

August 15, 2019

If you like rate cuts and think they are powerful tools to help manage a soft patch, then there was good news in two international oil reports over the last week. The US Energy Information Administration (EIA) cut its forecast for global demand growth for the seventh straight month. On Friday, the International Energy Agency (IEA) downgraded its estimates for the third time in four months.
That wasn’t all, as the EIA’s report focused in on some more sobering aspects of the US economy.
Furthermore, weekly data on gasoline demand in the U.S.—the largest gasoline consumer in the world—have disappointed market expectations. Shaky fuel demand, during the summer months when driving generally picks up, is particularly worrying to energy investors.
As we noted a little

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Why You Should Care Germany More and More Looks Like 2009

August 14, 2019

What if Germany’s economy falls into recession? Unlike, say, Argentina, you can’t so easily dismiss German struggles as an exclusive product of German factors. One of the most orderly and efficient systems in Europe and all the world, when Germany begins to struggle it raises immediate questions about everywhere else.
This was the scenario increasingly considered over the second half of 2018 and the first few months of 2019; whether or not recession. Over the past few months, however, the question has changed again.
Central bankers and Economists were hoping it would all get resolved favorably, and the public would go back to asking about rate hikes and normalization. A growth scare and nothing more, the inflationary boom temporarily delayed.
Now, contrary to

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The Myth of CNY DOWN = STIMULUS Won’t Die

August 11, 2019

On the one hand, it’s a small silver lining in how many even in the mainstream are beginning to realize that there really is something wrong. Then again, they are using “trade wars” to make sense of how that could be. For the one, at least they’ve stopped saying China’s economy is strong and always looks resilient no matter what data comes out.
Even after all that supposed “stimulus” starting in the middle of last year it’s time to acknowledge how ineffective it has been. But in doing so, the immediate instinct is to suggest it be increased with new “stimulus.” If the RRR’s and (small) fiscal spending bump didn’t do it, if the tax cuts weren’t enough, then the Chinese must now be depending upon the currency to

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China’s Big Gamble(s): Betting on QE Again?

July 30, 2019

As an economic system, even the most committed socialists had come to realize it was a failure. What ultimately brought down the Soviet Union wasn’t missiles, tanks, and advanced air craft, it was a simple thing like bread. You can argue that Western military spending forced the Communist East to keep up, and therefore to expend way too much on guns at the expense of butter.
Even if that was the case, the Soviet system had no surplus of bread from which to begin. It stood in sharp contrast to the American system which produced an overabundance of butter – and guns.
While one after another the Socialist states fell to populist unrest, standing almost alone the Chinese would first repress (Tiananmen Square) and then

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Real Estate Perfectly Sums Up The Rate Cuts

July 28, 2019

It’s only a confusing when you just accept the booming economy of the unemployment rate. From this perspective, 2018 was, and more so 2019 is, a downright conundrum. By all mainstream accounts, this just shouldn’t be happening.

Home sales are running at a pace similar to 2015 levels – even with exceptionally low mortgage rates, a record number of jobs and a record high net worth in the country.
Not only that, 2015 levels were substantially less than 2005 levels despite more than 30 million new Americans coming of age and being added to the prospective labor pool in between. The problem is work, not people. The unemployment rate says full employment; the housing market begs to differ for both the long run and now

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US Economic Crosscurrents Reach the 50 Mark

July 27, 2019

In the official narrative, the economy is robust and resilient. The fundamentals, particularly the labor market, are solid. It’s just that there has arisen an undercurrent or crosscurrent of some other stuff. Central bankers initially pointed the finger at trade wars and the negative “sentiment” it creates across the world but they’ve changed their view somewhat.
A few billion in tariffs, even if we include what is to this point only proposed, that’s just not enough to create these more serious distractions. That’s why Economists and central bankers keep referring to sentiment rather than speaking specifically about the restrictions themselves. Searching for a channel which would explain how something so small could

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Germany Struggles On

July 25, 2019

The popular image of the German industrial machine politics is one which has Germany’s massive factories efficiently churning out goods for trade with the South of Europe (Club Med). Because of the common currency, numerous disparities starting with productivity differences had left the South highly indebted to the North just as the Global Financial Crisis would strike.
The aftermath of that crisis, particularly the second eruption in 2011, posed an economic challenge. Lack of recovery throughout Europe would mean Germany would have to seek its fortunes elsewhere around the world to find new customers in lieu of its old ones being somewhat questionable as to payment.
According to the CIA’s World Factbook, in 2018

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What Does It Mean That Real Estate, Not Equities, Is Driving Monetary Policy?

July 25, 2019

In the world of assets classes, I don’t believe it is equities which hold the Federal Reserve’s attention. After the 2006-11 debacle, the big bust, you can at least understand why policymakers might be more attuned to real estate no matter how the NYSE trades. It may be a decade ago, but that’s the one thing out of the Global Financial Crisis which was seared into the consciousness of everyone who lived through it.
From the general public to politicians, don’t screw up housing.
It’s also the one asset class which seems to point the arrow right back at the FOMC. Rate hikes and housing busts have historically been clustered together. Right or wrong, most people see it as causation, and even though it isn’t the

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Globally Synchronized, After All

July 20, 2019

For there to be a second half rebound, there has to be some established baseline growth. Whatever might have happened, if it was due to “transitory” factors temporarily interrupting the economic track then once those dissipate the economy easily gets back on track because the track itself was never bothered.
More and more, though, it appears at least elsewhere that the track was bothered. Whether China, Singapore, or Germany, a nastier number four is taking shape particularly since last year’s landmine (October to December). What happened in the global economy doesn’t appear to have been anything other than a categorical change.
Globally synchronized growth is transitioning, slowly, into global synchronized

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As Chinese Factory Deflation Sets In, A ‘Dovish’ Powell Leans on ‘Uncertainty’

July 14, 2019

It’s a clever bit of misdirection. In one of the last interviews he gave before passing away, Milton Friedman talked about the true strength of central banks. It wasn’t money and monetary policy, instead he admitted that what they’re really good at is PR. Maybe that’s why you really can’t tell the difference Greenspan to Bernanke to Yellen to Powell no matter what happens.
Testifying before Congress today, in prepared remarks the Federal Reserve Chairman threw cold water on what was supposed to be the second half rebound. It still might happen, according to the FOMC’s models, but it is more and more “uncertain.”
“…it appears that uncertainties around trade tensions and concerns about the strength of the global

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How To Properly Address The Unusual Window Dressing

July 5, 2019

Unable to tackle effective monetary requirements, bank regulators around the world turned to “macroprudential” approaches in the wake of the Global Financial Crisis. It was mostly public relations, a way to assure the public that 2008 would never be repeated. A whole set of new rules was instituted which everyone was told would reign in the worst abuses.
Among the more prominent of these was Basel 3’s leverage ratio. Of the banks that failed or nearly failed more than ten years ago, they did so with what seemed to authorities hidden leverage. Their capital ratios, for the most part, were fine. Yet, the amount of leverage each institution had employed was beyond imprudent.
The reason for what may seem to be a

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