Conundrums: Putting Out A Fire With Gasoline?
Continuing from Expectations: Putting Out A Fire With Gasoline?
ED has been and is still rising (higher Eurodollar contract price translates to lower cost of loan funds). As as consequence, lower ED has LIBOR suddenly dropping...
King Dollars squeeze up while bond yields are declining is easy to explain without false spin. Due to the current liquidity squeeze UST paper is being snatched up, and you can only purchase it with one currency. Guess which one?
Now think anyone (leveraged or not) doing forward dollar swaps or synthetic ED who is short (borrowing) the dollar.
Interest rates are NEVER to be misconstrued as the PRICE of money. Interest rates are the price of LOAN FUNDS, and the price of MONEY is reflected in indices and FX pairs.
Argentina, Brazil, Venezuela all under water, IMF downgrading global growth forecasts, Japan announcing lowered GDP expectations, BOE announcing GDP expectations worse than 2008, EU IP tanking, Italy in official recession, Germany avoiding such by a hair, with factory orders off a cliff, and US retail sales tanking...
In regards to the latter... as Nattered Valentine's Day in Holiday Hangover?
When parties other than the Fed buy UST's, the dollars used for purchase are "parked" until that transaction unwinds or the notes are "cashed" in. Sarcastic pun intended due to the existence of repo (RR, triparty) and the possibility that depending on the entities involved, a single instrument can be rehypothecated several times over.
Regarding the narrowing of exits (collateral preferences and liquidity issues) in said market, Nattering at great length can be found by inquiring minds at: Global Asset Correlation; The Temple Grandin of Shadow Banking 1, 2 and 3 and The New Paradigm For ETF, Mutual Fund, Bond Fund And mREITs Part 1 and Part 2. Moving West...
UST's (T-bill's) being hoarded for liquidity are the prudential reserves for the ED system, and more? Chinese exporters get $, sell $ for RMB, $ down. To control FX rate, PBOC buys excess $ (up) to give RMB (down). Where do the surplus $'s go? UST's and $ up. Are those UST's also de facto reserves of our trading partners such as China?
At the end of the day never forget this catechism or "Trut-hism" (shout out thanking a mentor): Interest rates are NEVER to be misconstrued as the PRICE of money. Interest rates are the price of LOAN FUNDS, and the price of MONEY is reflected in indices and FX pairs. Thus, interest rates are the price of borrowing "loan funds" viz. the cost of credit.
With increasing degrees of: "shadowiness" and synthetic nature of "moneyness", those failures have been especially pronounced of late, with dire future economic consequence viz. stagnation, stagflation and the slow and steady arrest of velocity, capital and AD (aggregate demand). If the capital is not moving, it's not capitalism.
What else would one expect? If only some educational institutions, economists, central banks, reporters and pundits could understand the above and the dynamics of money equivalents or liquidity preferences in collateral viz. GC repo, ABCP, CP, CD, t-bills, notes, bonds, MBS, agency paper, derivatives, synthetics, IRS etc.
If the ubiquitous "they" did know, we wouldn't get "conundrums" about declining and negative bond yields from Central Bank talking heads; questions like "why did rates go up during QE and fall when there was no QE?"; generic spins about "fund inflows to MMF's driving LIBOR down"; stories about "trade hopes boosting investor sentiment for the dollar"...
And, in the face of several decades of stagnant real wages, declining purchasing power and double digit inflation: the sci-fi fantasies of "real gdp growth", "low single digit unemployment", "wage inflation pressure", "labor shortages", "tame inflation"; replete with urban myths of demographic causes for lingering economic malaise "secular stagnation", and finally, fairy tales of massive "currency printing".
Rigorous examination of the facts proves, fables of the tooth fairy, Easter bunny, Santa Claus and a flat earth are more credible than the steady diet of MSM parrot food above. Then again, those oft parroted canards of "Happy Daze" mis and dis-information are used to "manage" expectations. What else would one expect? and if one can decipher or see through the falsity in econometrics utilized, there are no conundrums.
In any event, some central banks, major swap players and banking institutions, are having to pay the piper because the ro-BUST economy we keep hearing about is showing its true colors, and to be anything but. What does that whooshing vacuum like sound mean? Even a black hole makes sound, albeit not the type one would suspect. Rough times ahead and time to buckle up said the blind man.
In the meantime, as long as the central banks can't predict flows much less find money, and the "playas" keep putting out fires with gasoline, our title comes to mind. Apropos we think...
More to come in And The Band Played On? Stay tuned, no flippin.
Recommended reading:
Timing Is Everything?
Know Your Limitations?
Parting The Red Sea?
A Little Shop Of Horrors?
Where's Your Messiah?
Rapture?
Ro-BUST?
Beware The Ides Of Winter?
Meddling With Powers?
The Perfect Storm?
Begin The Benign?
A Case of Tape-r Worm?
Beware The Ides of Winter Early?
A Disturbing Lack of Faith?
Canary In A Coal Mine?
FreeTrade Warning?
Global Economy Down?
Wear Sunscreen?
Trust Me On The Sunscreen?
Let Me Warn You?
Lunar New Year For Old Blind Men?
Shutdown Impacts Inflection?
LIBOR: Putting Out A Fire With Gasoline?
A Yen For Liquidity? Or No Yen For Carry?
Interest Rate Swaps: Putting Out A Fire With Gasoline?
Expectations: Putting Out A Fire With Gasoline?
ED has been and is still rising (higher Eurodollar contract price translates to lower cost of loan funds). As as consequence, lower ED has LIBOR suddenly dropping...
King Dollars squeeze up while bond yields are declining is easy to explain without false spin. Due to the current liquidity squeeze UST paper is being snatched up, and you can only purchase it with one currency. Guess which one?
Now think anyone (leveraged or not) doing forward dollar swaps or synthetic ED who is short (borrowing) the dollar.
Interest rates are NEVER to be misconstrued as the PRICE of money. Interest rates are the price of LOAN FUNDS, and the price of MONEY is reflected in indices and FX pairs.
Argentina, Brazil, Venezuela all under water, IMF downgrading global growth forecasts, Japan announcing lowered GDP expectations, BOE announcing GDP expectations worse than 2008, EU IP tanking, Italy in official recession, Germany avoiding such by a hair, with factory orders off a cliff, and US retail sales tanking...
In regards to the latter... as Nattered Valentine's Day in Holiday Hangover?
Retail sales plunged 1.2% with core spending (70% of economy) diving 1.8%, the largest decline in nine years.... As for this AM's reports, we are proffered the following MSM spins...
Pessimism over the government shutdown and the uncertainty over the economic outlook made consumers cautious. Perhaps consumers are paying off their holiday credit card extravagances?The "shocking" Christmas retail numbers were anything but in these parts. We telegraphed the potential fallout from the "retail apocalypse" in May 2018. Then estimated with our "back of the napkin" math regarding Black Thursday on December 5th in Rapture?
All we know is there was an overall decrease in BnM traffic circa 9M, which translated to a decline in sales of circa $8.3B to $14B during Nov 22 - 26th.Our faithful readers were tipped off to the retail "shocker" 72 days earlier than reported, and the underlying condition 10 months in anticipation. And now anything but a "conundrum"...
When parties other than the Fed buy UST's, the dollars used for purchase are "parked" until that transaction unwinds or the notes are "cashed" in. Sarcastic pun intended due to the existence of repo (RR, triparty) and the possibility that depending on the entities involved, a single instrument can be rehypothecated several times over.
Regarding the narrowing of exits (collateral preferences and liquidity issues) in said market, Nattering at great length can be found by inquiring minds at: Global Asset Correlation; The Temple Grandin of Shadow Banking 1, 2 and 3 and The New Paradigm For ETF, Mutual Fund, Bond Fund And mREITs Part 1 and Part 2. Moving West...
UST's (T-bill's) being hoarded for liquidity are the prudential reserves for the ED system, and more? Chinese exporters get $, sell $ for RMB, $ down. To control FX rate, PBOC buys excess $ (up) to give RMB (down). Where do the surplus $'s go? UST's and $ up. Are those UST's also de facto reserves of our trading partners such as China?
Due to a global shortage of short term HQLA, China and other EMs are utilizing swaps as a LARGE part of their FX reserves. Making trading days near or on those settlement or rollover dates, potentially more tradable for liquidity volatility and market dislocations. - China's Dollar Swap AddictionIndeed we think, as any forward IRS (interest rate swap) constituting FX reserves is. Gives new meaning to being "short" the dollar? To further appreciate the irony of the latter, try Mr. Big's Plan and The Bond Junkies on for size.
At the end of the day never forget this catechism or "Trut-hism" (shout out thanking a mentor): Interest rates are NEVER to be misconstrued as the PRICE of money. Interest rates are the price of LOAN FUNDS, and the price of MONEY is reflected in indices and FX pairs. Thus, interest rates are the price of borrowing "loan funds" viz. the cost of credit.
"In the current state of our knowledge, money demand has become too difficult to predict." - Alan Greenspan September 1997Difficult indeed viz. hitting a target while blindfolded. The belief that interest rates are a PRICE which regulates demand for MONEY has been dis-proven. If one does not know money, how can they predict anything about "it"? Answer?
"A decision to base policy on measures of money presupposes that we can locate money. And that has become an increasingly dubious proposition." - Alan Greenspan June 2000Dubious indeed and if one does not know a debit from a credit, how can they locate "money", much less fathom a manner in which to control anything of economic consequence? viz. attempts to control money stocks through the cost of credit have all failed to varying degrees.
With increasing degrees of: "shadowiness" and synthetic nature of "moneyness", those failures have been especially pronounced of late, with dire future economic consequence viz. stagnation, stagflation and the slow and steady arrest of velocity, capital and AD (aggregate demand). If the capital is not moving, it's not capitalism.
What else would one expect? If only some educational institutions, economists, central banks, reporters and pundits could understand the above and the dynamics of money equivalents or liquidity preferences in collateral viz. GC repo, ABCP, CP, CD, t-bills, notes, bonds, MBS, agency paper, derivatives, synthetics, IRS etc.
If the ubiquitous "they" did know, we wouldn't get "conundrums" about declining and negative bond yields from Central Bank talking heads; questions like "why did rates go up during QE and fall when there was no QE?"; generic spins about "fund inflows to MMF's driving LIBOR down"; stories about "trade hopes boosting investor sentiment for the dollar"...
And, in the face of several decades of stagnant real wages, declining purchasing power and double digit inflation: the sci-fi fantasies of "real gdp growth", "low single digit unemployment", "wage inflation pressure", "labor shortages", "tame inflation"; replete with urban myths of demographic causes for lingering economic malaise "secular stagnation", and finally, fairy tales of massive "currency printing".
Rigorous examination of the facts proves, fables of the tooth fairy, Easter bunny, Santa Claus and a flat earth are more credible than the steady diet of MSM parrot food above. Then again, those oft parroted canards of "Happy Daze" mis and dis-information are used to "manage" expectations. What else would one expect? and if one can decipher or see through the falsity in econometrics utilized, there are no conundrums.
In any event, some central banks, major swap players and banking institutions, are having to pay the piper because the ro-BUST economy we keep hearing about is showing its true colors, and to be anything but. What does that whooshing vacuum like sound mean? Even a black hole makes sound, albeit not the type one would suspect. Rough times ahead and time to buckle up said the blind man.
In the meantime, as long as the central banks can't predict flows much less find money, and the "playas" keep putting out fires with gasoline, our title comes to mind. Apropos we think...
More to come in And The Band Played On? Stay tuned, no flippin.
Recommended reading:
Timing Is Everything?
Know Your Limitations?
Parting The Red Sea?
A Little Shop Of Horrors?
Where's Your Messiah?
Rapture?
Ro-BUST?
Beware The Ides Of Winter?
Meddling With Powers?
The Perfect Storm?
Begin The Benign?
A Case of Tape-r Worm?
Beware The Ides of Winter Early?
A Disturbing Lack of Faith?
Canary In A Coal Mine?
FreeTrade Warning?
Global Economy Down?
Wear Sunscreen?
Trust Me On The Sunscreen?
Let Me Warn You?
Lunar New Year For Old Blind Men?
Shutdown Impacts Inflection?
LIBOR: Putting Out A Fire With Gasoline?
A Yen For Liquidity? Or No Yen For Carry?
Interest Rate Swaps: Putting Out A Fire With Gasoline?
Expectations: Putting Out A Fire With Gasoline?
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