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Jeffrey P. Snider

Jeffrey P. Snider

As Head of Global Investment Research for Alhambra Investment Partners, Jeff spearheads the investment research efforts while providing close contact to Alhambra’s client base. His company is a global investment adviser, hence potential Swiss clients should not hesitate to contact AIP

Articles by Jeffrey P. Snider

Revisiting Hong Kong (For Reasons We Wish We Wouldn’t Have To)

2 days ago

This is perhaps the perfect day to review what’s going on in Hong Kong (thanks J. Fraser). I’ll be in Vancouver over the weekend to talk about curves, so why not preface it with a little HKD update. With everyone focused elsewhere, the story of 2017, in my view, wasn’t so big in 2018. For reasons that will further disturb Economics convention the city is making a comeback in 2019 (really last December).
This is what happened today:
A string of Hong Kong-listed stocks plunged without warning in afternoon trading, the latest shock losses to sideswipe investors in the world’s fourth-largest equity market.
Jiayuan International Group Ltd., Sunshine 100 China Holdings Ltd. and Rentian Technology Holdings Ltd. fell over 75 percent in a matter of minutes and at least 10 companies were 20 percent

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Hall of Mirrors, Where’d The Labor Shortage Go?

3 days ago

Today was supposed to see the release of the Census Bureau’s retail trade report, a key data set pertaining to the (alarming) state of American consumers, therefore workers by extension (income). With the federal government in partial shutdown, those numbers will be delayed until further notice. In their place we will have to manage with something like the Federal Reserves’ Beige Book.
It may not be close to the same caliber as retail sales but it can be interesting in an important sort of way nonetheless. It really doesn’t give us much by way of information about the economy, the Beige Book instead tells us what our central bankers think of it. I wrote about it almost two years ago:
Fed officials today still refer to the Beige Book quite often in their discussions, though from a truly

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That’s A Big Minus

4 days ago

Goods require money to finance both their production as well as their movements. They need oil and energy for the same reasons. If oil and money markets were drastically awful for a few months before December, and then purely chaotic during December, Mario Draghi of all people should’ve been paying attention. China put up some bad trade numbers for last month, but Europe’s goods downturn came first.
According to Eurostat, Industrial Production across the Continent declined by an alarming 3.2% year-over-year in November 2018. The minus sign was expected, especially when considering what DeStatis reported for IP in Germany last week. And though the Germans may be leading the decline, this latest update shows just how widespread the downturn has already become.

You just don’t see 3% drops

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This Isn’t The First ‘Fed Pause’

5 days ago

And we come full circle back again. It’s not what they say, it’s what they do. Kansas City Fed CEO Esther George was at least consistent, unlike all the other voting FOMC members. Throughout 2015 and 2016, the rest of them would say the economy was strong but then vote the other way, no “rate hike.” December 2015 was the lone exception (and perfectly fitting).
President George, on the other hand, was almost irredeemably optimistic about the economy and voted that way, too. While the majority held steady, Esther was the one who would dissent against the then Fed Pause. The few times she didn’t was in early 2016 when the US economy approached recession conditions.

You knew it was serious when the hawkest of hawks stopped walking how she talked. In March 2015, George had said:
The U.S.

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Spreading Sour Not Soar

6 days ago

We are starting to get a better sense of what happened to turn everything so drastically in December. Not that we hadn’t suspected while it was all taking place, but more and more in January the economic data for the last couple months of 2018 backs up the market action. These were no speculators looking to break Jay Powell, probing for weakness in Mario Draghi’s resolve.
There are real economic processes underneath. The more fundamental the market, the closer it is actual economic transactions. These are influenced by the movement of real things, this real economy, not just the transposition of numbers on some detached Wall Street computer screens. Living in the financial services realm can make it seem like none of this is real.
This is where the eurodollar attains its primacy. So many

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The Bookkeeper’s Pen, But Which Bookkeeper?

8 days ago

In the chaotic days of the early “recovery”, those opposed to the Federal Reserve’s response largely fell into the wrong camp. The central bank had done too much, they claimed. Never mind how the first global panic in four generations had developed and then crushed the global economy, such deflation was over to be taken apart by rapid inflation if not hyperinflation.
The Fed was printing money, everyone believed, a big no-no as demonstrated throughout history. Weimar Germany comes to DC.
Not so, the central bank pushed back. You can be afraid of money printing all you like, but what we are doing isn’t money printing. The creation of bank reserves is nothing more than an accounting remainder.
Here’s one (of many) FRBNY response to the inflationistas from December 2009:
However, a careful

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Insight Japan

9 days ago

As I wrote yesterday, “In the West, consumer prices overall are pushed around by oil. In the East, by food.” In neither case is inflation buoyed by “money printing.” Central banks both West and East are doing things, of course, but none of them amount to increasing the effective supply of money. Failure of inflation, more so economy, the predictable cost.
In yesterday’s article the topic in the East was China. Today, the US CPI confirmed the oily nature of US or European inflation. And in Japan, the Japanese CPI reinforces the role of Eastern food prices.

These had spiked up earlier in 2018 which resulted in simultaneous hardship (even more) for the Japanese people and premature celebrations by Economists who don’t factor household conditions into their models. In the orthodox, central

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Shutting Down Inflation

9 days ago

The US federal government is shut down and certain economic data accounts are being left to go without scheduled updates, things like US trade provided by the Census Bureau. The Bureau of Labor Statistics’ more watched series aren’t among the forgotten, however. The monthly payroll report would be compiled and released even during a nuclear attack. Yes, it really is WWIII but did you see the blowout jobs figures!
I have no doubt that Jay Powell wishes the BLS’ CPI was being treated like Census’ Ex/Im rather than given preference in the same ways as its own employment numbers. We don’t know how much the US imported or exported in November, but we do what the consumer price index did in December. It wasn’t good for him.
The headline monthly inflation number wasn’t any surprise. It was muted,

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Rate of Change

10 days ago

We’ve got to change our ornithological nomenclature. Hawks become doves because they are chickens underneath. Doves became hawks for reasons they don’t really understand. A fingers-crossed policy isn’t a robust one, so there really was no reason to expect the economy to be that way.
In January 2019, especially the past few days, there are so many examples of flighty birds. Here’s an especially obvious, egregious one from Atlanta Fed President Raphael Bostic. He was so damn positive at the end of October just three months ago he admitted it was giving him problems wordsmithing. Two and a half months, really.
The economy is in a good place. So good, in fact, that as I was sitting down to write this speech, I struggled to come up with sufficient variations on the word “strong.” Strong has

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The Headless Chicken Hawks

10 days ago

I really like Joe Calhoun’s theoretical framework in explaining what we try to do here. Like a game of Poker, we are playing against everyone else at the table unlike Black Jack where you are largely playing yourself. It helps explain why I can say the FOMC is irrelevant while at the same time I spend so much time (all the time) dissecting almost everything it does.
People believe, and really want to believe, the central bank is a model of technocratic success; so much so some argue it should be replicated in other areas of government and life. Perish the thought.
Since people pay attention to the institution and what it does or doesn’t do, we are forced to play against it until the ugly truth finally emerges. This includes writing a second piece back-to-back on the same FOMC meeting

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Epic Flip Flop; From Surefire Inflation to ‘Muted’ in Three Weeks

11 days ago

And like that, it’s all different. For more than a year, two years, really, we’ve heard constantly about wage pressures. The US economy buoyed by several domestic factors as well as globally synchronized growth was in danger of getting too far out of hand. The unemployment rate said it was time – three years ago in 2015.
The lower the unemployment rate fell, the more likely the dangers of labor pressures. Orthodox thinking is consistent in its Phillips Curve rituals. This was the basis for “rate hikes” plus balance sheet normalization (what some call QT, or quantitative tightening).
The last hike was barely three weeks ago. In announcing it, the Federal Reserve’s Chairman Jay Powell played resoundingly confident. Not just in the view of economic risks, inflation, but also why. The economy

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You Know It’s Coming

11 days ago

After a horrible December and a rough start to the year, as if manna from Heaven the clouds parted and everything seemed good again. Not 2019 this was early February 2015. If there was a birth date for Janet Yellen’s “transitory” canard it surely came within this window. It didn’t matter that currencies had crashed and oil, too, or that central banks had been drawn into the fray in very unexpected ways.
Actually it did, at least with that last one. The world’s default setting remains central bankers. No matter how thoroughly they discredit themselves, in times of trouble people really, really want to believe there exists this technocratic savoir.
They can get it wrong time after time after time, but when things appear most dire it is almost like a defense mechanism this running back to

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…And Get Bigger

12 days ago

Just as there is gradation for positive numbers, there is color to negative ones, too. On the plus side, consistently small increments marked by the infrequent jump is never to be associated with a healthy economy let alone one that is booming. A truly booming economy is one in which the small positive numbers are rare. The recovery phase preceding the boom takes that to an extreme.
If conditions swing the other way, the same holds true. This is about probability, derived from consistent patterns taken from understanding how economies work. Momentum is often a key piece, therefore sentiment. It’s just not sentiment as is commonly derived in the form of surveys.
Economists and central bankers talk endlessly about the virtuous circle for a reason. People get to feeling good and so they start

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The Minus Signs Return

13 days ago

Ambiguity favors the path of least resistance. If there isn’t any direct refutation of the thing everyone believes in, everyone will continue to believe in that thing and only that thing. Human nature.
In economy terms, people respond near exclusively to negative numbers. This is less evolution and more a process of modern times. There is a very strong attachment to figures of authority, particularly those who deal in complex topics. This isn’t necessarily a harmful development, so long as those in position of authority know what they are talking about.
If the “establishment” says the economy is booming, then no level of positive numbers will dispel that notion. It won’t matter, and it hasn’t, that the level of “growth” over the past so many years always deserves the quotation marks. So

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If You’ve Lost The ISM…

16 days ago

These transition periods are often just this sort of whirlwind. One day the economy looks awful, the next impervious to any downside. Today, it has been the latter with the BLS providing the warm comfort of headline payrolls. For now, it won’t matter how hollow.
Yesterday, completely different story. Apple got it started downhill and the ISM pushed it off the cliff. The tech giant’s CEO admitted the global economy is in a world of trouble, EM’s and China first. Tim Cook said his company did not “foresee” how bad it was getting and how quickly, if only because his company was taking its cues from Jay Powell rather than the shadows.
Despite Apple’s clear prestige and place in the hierarchy of bellwethers, the ISM may have been the more damaging announcement. For several years it has been the

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Inflation Breakdown Europe

16 days ago

We’ve seen all this before, almost exactly the same. Back in the middle of 2011, European officials remained fully confident even though things were already working backward. The ECB had in May 2010 “bailed out” markets as well as PIIGS, or so the media claimed. All that was left was time.
On their side was Brent oil. Jean-Claude Trichet, Europe’s top central banker at the time, was more worried about the inflationary consequences of crude than he was the grand deflationary aspects of European banking. Despite his embarrassing “rate hike” in the middle of 2008, Trichet let the ECB do it again in April 2011.
By June of that year, he wanted everyone to know, he made it his business for everyone to know, that the risks to Europe’s economy were all on the upside. Booming even.
In those

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Trend-Cycle or Payrolls?

16 days ago

On Friday, February, 2, 2001, the BLS reported stellar headline numbers for its Employment Situation release. Preliminary estimates for the Establishment Survey suggested US payrolls had gained +268k in the month of January. To put it in perspective, that would equate to +324k in today’s population, or a bit better than the latest figure.
The economic climate of the time was one of great uncertainty. Over the previous months, it appeared as if the US economy had begun exhibiting symptoms consistent with a downturn, maybe recession. The BLS had reported a blowout number for September 2000, and then several months in the 100s.
January 2001’s +268k coming out in early February was somewhat reassuring that weakness might just be noise. But in the age of the maestro, what would that mean? Good

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The Politics of Spreading Inversion(s)

16 days ago

Clothed in immense self-denial, hung up on absurd self-confidence, Federal Reserve officials gathered on August 7, 2007, to discuss how things really weren’t as bad as everyone seemed to think. There were several key conversations taking place at the FOMC meeting held then all leading nowhere. Policymakers would literally laugh off obvious distress in crucial markets.
Here’s one example:
MR. POOLE. I have two questions. First, does the New York Fed have what I might call material nonpublic information about firms that would suggest that there is more difficulty than we see in the newspapers? That is one question…
MR. DUDLEY. As far as the issue of material nonpublic information that shows worse problems than are in the newspapers, I’m not sure exactly how to characterize that because I

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Arrived At Next; Moving Past Warnings Into Predictions

17 days ago

The Chinese warned the world all the way back on October 8. The PBOC cut the RRR for a third time this year. Require reserves really had little to do with what was, and is, going wrong.
Because the dollars just aren’t flowing to China. They didn’t last year, either, at least not directly (HK) even though CNY rose as if everything was normalizing to globally synchronized growth. Take away the Hong Kong option, what’s left for the Chinese? Or for globally synchronized growth?
Like 2015, these RRR cuts are showing us the eurodollar condition. China’s money problems aren’t really Chinese. They are money problems.
We’ve moved past warnings about future risks, though. May 29’s collateral call was a warning. The WTI curve flipping into contango was a warning. No more. This is a prediction about

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Nothing To See Here, It’s Just Everything

17 days ago

The politics of oil are complicated, to say the least. There’s any number of important players, from OPEC to North American shale to sanctions. Relating to that last one, the US government has sought to impose serious restrictions upon the Iranian regime. Choking off a major piece of that country’s revenue, and source for dollars, has been a stated US goal.
In May, the Trump administration formally withdrew from the Joint Comprehensive Plan of Action, known otherwise as President Obama’s “Iran deal.” It was widely expected that pulling out would lead to harsh sanctions against any country continuing to trade using Iranian crude oil.
At the beginning of November, the US government formally re-instated those sanctions. In a surprising compromise, it did issue a number of waivers to countries

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Insane Repo Reminds Us

18 days ago

It was only near the quarter end, that’s what made it so unnerving. We may have become used to these calendar bottlenecks over the years, but they still remind us what they are. Late October 2012 was a little different, though. On October 29, the GC repo rate for UST collateral (DTCC) surged to 52.6 bps. The money market floor, so to speak, was zero at the time and IOER (the joke) 25 bps.
We also have to keep in mind the circumstances of that particular period. The end of 2012 was nothing like it was supposed to have been. Unless you understood what had really happened in 2011, few did, this was going to be the year of full and complete recovery.
Instead, economic data all over the world pronounced alarming weakness; a global slowdown of an “undetermined” nature. What transpired in

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More Unmixed Signals

20 days ago

China’s National Bureau of Statistics (NBS) reports that the country’s official manufacturing PMI in December 2018 dropped below 50 for the first time since the summer of 2016. Many if not most associate a number in the 40’s with contraction. While that may or not be the case, what’s more important is the quite well-established direction.
Coming in at 49.4 in December, it’s down in a straight line from 51.3 in August.

Activity inChina’s [sic] manufacturing sector contracted for the first time in more than two years in the month of December amid a domestic economic slowdown and Beijing’s ongoing trade dispute with the U.S.
Domestic economic slowdown you say? What could that possibly mean? Just this:

China remains at a monetary standstill, and now the economy, too. But mixed signals or

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Mispriced Delusion

20 days ago

Recency bias is one thing. Back in late 2006/early 2007 when the eurodollar futures curve inverted, for example, it was a textbook case of mass delusion. All the schoolbooks and Economics classes had said that it couldn’t happen; not that it wasn’t likely, it wasn’t even a possibility. A full-scale financial meltdown was at the time literally inconceivable in orthodox thinking. A global panic, some sort of unserious joke.
Because of that hardened attitude, what followed was an almost perverse emotional response from those who believed in this. Central banks couldn’t possibly let things go so astray. Yet, the more everything was ripped apart the more fervently they held to the same belief. Bernanke said subprime was contained and only a very few responded with “how would he know?”
If there

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Yields Falling, Who Could Be Buying Without QE’s?

22 days ago

In the US Treasury market, the situation has been a little different. The BOND ROUT!!! theory posits that without the Fed to buy up additional supply, yields as a technical factor have to rise putting more upward pressure on rates than already exists from a booming economy. Add to that foreign selling in 2018, it left many expecting an epic selloff. Any day now.
The common battle cry was “who is left to buy up all these UST’s?” The answer, as always, is the banks themselves.
The ECB’s end to QE hasn’t sparked the same worries. A lot of it has to do with similar misperceptions about how bonds work, only in Europe particularly Germany the magnitude is checked. Europe’s central bank went further and ate up a huge chunk of government bond supply during its LSAP run.
That left a smaller float

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Chart of the Week: The Dreaded Full Frown

23 days ago

I’m going to break my personal convention and use the bulk of the colors in the eurodollar futures spectrum, not just the single EDM’s (June) contained within each. The current front month is January 2019, and its quoted price as I write this is 97.2475. The EDH (March) 2019 contract trades at 97.29 currently and it will drop off the board on March 18.
Three-month LIBOR was fixed yesterday at a fraction higher than 2.80%, meaning that if it stays around or above that level someone is losing money on it. The futures price isn’t directly translatable but back-of-the-envelope it works out to an expectation for 3-month LIBOR on that date in March to be less than what it is fixed now.
In other words, the market is seriously betting LIBOR is coming down not two years from now but in the short

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Uh Oh; In A Month Of Big Warnings, The Biggest Yet

23 days ago

All better now. It’s a Christmas miracle, the plunge erased by market closure as if FDR had just been re-elected and taken the oath. The Dow is on everyone’s mind, so trading on December 26 has understandably stuck.
Stocks posted their best day in nearly a decade on Wednesday, with the Dow Jones Industrial Average notching its largest one-day point gain in history. Rallies in retail and energy shares led the gains, as Wall Street recovered the steep losses suffered in the previous session.
The sigh of relief is palpable all across the world. The BIS called the steep, worrisome liquidations up to now Yet More Bumps On The Path To Normal, and the rallies especially in stocks and oil have served to confirm the thesis. Just some minor, dare I say transitory discomfort on the road to paradise.

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Unmixed Signals

23 days ago

In mid-December, the Bank for International Settlements (BIS) published its regularly quarterly update. It was just in time for the current bout of “overseas turmoil” which included a lot that wasn’t overseas. The BIS noticed, I’m sure reluctantly.
Financial markets swung widely, eventually netting a sharp correction, during the period under review, which started in mid-September. Asset prices fell across the board and US government yields widened in October before retracing that increase and dropping further as the selloff of risk assets spread. Volatility and term premia jumped. A further round of turbulence, this time accompanied by lower yields, hit markets in December.
The anticipated BOND ROUT!!!! of normalcy further postponed. The wild swings in markets would only get wilder

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Wasting the Middle: Obsessing Over Exits

25 days ago

What was the difference between Bear Stearns and Lehman Brothers? Well, for one thing Lehman’s failure wasn’t a singular event. In the heady days of September 2008, authorities working for any number of initialism agencies were busy trying to put out fires seemingly everywhere. Lehman had to compete with an AIG as well as a Wachovia, already preceded by a Fannie and a Freddie.
If Lehman was the personification of everything going wrong, Bear was its precursor where only the one thing seemingly did. In fact, throughout the middle of 2008 policymakers took great solace in what they thought they had achieved; sure, it was bad but only Bear went down, and even then it wasn’t a complete wipeout.
The summer of 2008 for offshore markets took on a very different reality, however. The panic was

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Now This Is Decoupling

29 days ago

They didn’t make a big deal out of it, tucked away in an attached note to the last FOMC statement was a second “technical adjustment.” The Fed says it wants to raise rates but not like this. IOER was moved another 5 bps lower within the approved policy range (now 2.25% to 2.50%, federal funds). The reason they gave:
Setting the interest rate paid on required and excess reserve balances 10 basis points below the top of the target range for the federal funds rate is intended to foster trading in the federal funds market at rates well within the FOMC’s target range.
The attachment and attention to federal funds is itself a backwards project. Things don’t start there, they might end up there when the global reserve currency system spins enough out of control. But that doesn’t matter to these

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Setting Up For More ‘Residual Seasonality’ Not Inflation

December 21, 2018

Without crude oil on an upswing, inflation can only be on the downswing. That may seem like a tautology of sorts, but it’s not. In fact, those advocating for the optimistic economic case have been predicting consumer prices being directed by something other than oil. I know it’s a broken record, but here it is again: labor shortage, competition for workers, wages explode, and companies across-the-board raise their prices to offset the increased costs.
The key to that last part, if it was to ever arise, is that companies are able to raise their prices because the economy is actually booming. The theory about wage-driven inflation is really where inflation is confirmation of the economic processes everyone wants to see.
Instead, consumer prices are being set by WTI alone. There is nothing

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