Tag Archives: newsletter

The die is cast.  The Federal Reserve is on an extended pause after the rate hike last December. The market remains convinced that the risk of a June hike are negligible (~ less than 12% chance).   The ECB has yet to implement the TLTRO and corporate bond purchase initiatives that were announced in March.  The impact of its programs have to be monitored before being evaluated.   It is unreasonable to expect any new initiative in the coming months.   The Bank of Japan did not take...

The Inflation Illusion We hear more and more talk about the possibility of imposing negative interest rates in the US. In a recent article former Fed chairman Ben Bernanke asks what tools the Fed has left to support the economy and inter alia discusses the use of negative rates. We first have to define what we mean by negative interest rates. For nominal rates it’s simple. When the interest rate charged goes negative we have negative nominal rates. To get the real rate of interest we have...

Speculators in the futures market made mostly small position adjustments in the sessions leading up to the FOMC and BOJ meetings.   During the Commitment of Traders reporting week ending April 26, the largest adjustment of speculative position in the currency futures was the 12.5 k build of gross long Australian dollar contracts. The accumulation lifted the gross position to 110.0k contracts, which surpasses the speculative gross long euro position (99.1k contracts) and the speculative...

April was a cruel month for the US dollar.  It fell against all the major currencies; even those whose central banks have negative yields.  The greenback also fell against nearly all the emerging market currencies, but the Philippine peso and the Polish zloty.   Through the first four months of the year, the dollar is lower against all the major currencies save sterling, which is off about 0.6%.  Following the reluctance of the BOJ to ease policy further last week, the yen has moved back...

As expected, Iranian Prime Minister Abadi was always going to come off worse in his last ditch attempt to try and regain some kind of political initiative by appointing a new look ‘technocratic’ government in Baghdad. But the ailing Prime Minister has managed to back himself into a particularly tight corner after being outplayed by Muqtada al Sadr, Iyad Allawi and even Nouri Al Maliki. Rather than sticking to his ‘technocratic guns’ Abadi blinked first on cabinet changes, by allowing more...

Better get out of the way… stampeding bisons Stampeding Animals The mass impulse of a cattle stampede can be triggered by something as innocuous as a blowing tumbleweed.  A sudden startle, or a perceived threat, is all it takes to it set off.  Once the herd collectively begins charging in one direction it will eliminate everything in its path. The only chance a rancher has is to fire off a pistol with the hope that the shot turns the herd onto itself.  If the rancher is successful, it...

  What Determines a Currency’s Value? At the end of March the price of the euro in terms of US dollars closed at 1.1378. This was an increase of 4.7 percent from February when it increased by 0.3 percent. The yearly growth rate of the price of the euro in US dollar terms jumped to 6 percent in March from minus 2.9 percent in February. EUR-USD, 2007 – today,monthly  – click to enlarge. According to most experts currency rates of exchange appear to be moving in response to so many...

The White Queen in Alice in Wonderland (Through the Looking Glass) confesses that when she was younger, she could believe six impossible things before breakfast.  She encourages Alice to do the same.    It appears many in the market are taking the Queen's advice too seriously.   Here is a quick thumbnail sketch of seven of our non-consensus views:   1.  There is not a currency war.  There is a type of arms control agreement in place.   There have been plenty of opportunities for the ECB,...

In an interesting interview with Finanz und Wirtschaft, Bianco Research president Jim Bianco discusses a variety of topics such as negative interest rates turning the entire credit process upside down, bank balance sheets being even more complex and concentrated than before the financial crisis, energy loans being an accident waiting to happen, the markets having veto power over the Fed, and gold having more room to run. * * * Mr. Bianco, negative interest are causing a lot of stir at the...

There are two main forces in the foreign exchange market that are rippling through the capital markets.  The first is the continued weaker dollar tone.  The combination of what appears to be a stagnating US economy (0.5% annualized pace in Q1) and a market that does not believe the Federal Reserve will hike rates in June, and is in fact, judging from the Fed Fund futures strip, skeptical of a single hike this year.   The effect of this US dollar weakness help the commodities and emerging...