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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

What About Copper?

21 hours ago

The FOMC hates the bond market. Hates everything about it, especially how it tells these Economists they don’t know what they are doing. Monetary policy being little more than a vanity project, that’s not going to work for the people practicing it.
OK, if you don’t like bonds then how about something else besides the stock market? Some independent corroboration of one side or the other.
One of the first prices to sniff out the end of Reflation #3 was copper. When the Communist authorities of China got together in the middle of October 2017 to discuss economic prospects, primarily, commodities particularly this one took note. The rest of the world was afire with inflation hysteria, yet curiously copper wouldn’t really budge in the wake of the 19th Communist Party Congress.
The same

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The Transitory Story, I Repeat, The Transitory Story

22 hours ago

Understand what the word “transitory” truly means in this context. It is no different than Ben Bernanke saying, essentially, subprime is contained. To the Fed Chairman in early 2007, this one little corner of the mortgage market in an otherwise booming economy was a transitory blip that booming economy would easily withstand.
Just eight days before Bernanke would testify confidently before Congress, the FOMC had met to discuss their lying eyes. The eurodollar futures market was, in the official view, so far off the rails as to be insane. As Open Market Desk chief Bill Dudley told the Committee:
MR. DUDLEY. A number of people that I’ve talked to in the markets have said that this is what they thought was going on, and they advised me not to take what was going on in the Eurodollar futures

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China’s Big Stimulus

1 day ago

Earlier this month, the People’s Bank of China (PBOC) reduced the percentage of liquid reserves some banks are required to hold. Effective May 15, the Chinese central bank estimated that the policy change would release about RMB 280 billion into the system. This RRR discount, however, was only applied to small and medium-sized banks.
The reserve rate for large banks has been the same since late January when the PBOC allowed for two reductions (on top of three others before them). Monetary officials have been very clear about their goals. This is targeted policy aimed to boost lending rather than bubbles. The assumption, one of them anyway, is that large banks tend to release liquidity everywhere – including the infamous wealth management products and shadow banking conduits.
When the

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Proposed Negative Rates Really Expose The Bond Market’s Appreciation For What Is Nothing More Than Magic Number Theory

2 days ago

By far, the biggest problem in Economics is that it has no sense of itself. There are no self-correction mechanisms embedded within the discipline to make it disciplined. Without having any objective goals from which to measure, the goal is itself.
Nobel Prize winning economist Ronald Coase talked about this deficiency in his Nobel Lecture:
This neglect of other aspects of the system has been made easier by another feature of modern economic theory – the growing abstraction of the analysis, which does not seem to call for a detailed knowledge of the actual economic system or, at any rate, has managed to proceed without it.
Economists think they’ve solved all the problems worth solving. Debates today revolve around fine-tuning; how we make our models a little bit better. No one ever stops

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Three-For-One In Poor Housing Data

2 days ago

We all know the shorthand. The Federal Reserve influences if not controls economic activity by raising and lowering the federal funds apparatus. Reducing the monetary policy targets is stimulus because everyone loves lower interest costs. Raising them therefore has the opposite effect.
More direct and visible consequences are supposed to be observed first in the interest rate sensitive sectors of the economy. Wherever borrowing is a substantial input, meaning borrowing costs, monetary policy is believed to work most in these places. Things like capex and housing.
For much of the past year or so, the US housing market has become a growing area of real concern. What was a housing slump is in danger of transforming into a very real economic drag. Real estate isn’t what it used to be as far as

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The Chicago Way Isn’t Even Partway And It’s Still Not Good For Powell, US Economy

3 days ago

In March 1999, Economists James Stock of Harvard and Mark Watson of Princeton published a paper in the Journal of Monetary Economics seeking answers for an inflation problem. For many years, it had been accepted that the unemployment rate was the only measure of economic activity necessary to infer inflation. The implications were enormous, especially in the age of interest rate targeting when central banks operated via expectations instead of money. This shift, among other things, meant total reliance on the ability to forecast with a high degree of precision.
In 1997 and 1998, however, inflation deviated sharply from the unemployment rate view. The Asian flu was, by convention of Economists, largely an Asian matter. Therefore, sharply decelerating inflation should not have happened given

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Japan’s Surprise Positive Is A Huge Minus

3 days ago

Preliminary estimates show that Japanese GDP surprised to the upside by a significant amount. According to Japan’s Cabinet Office, Real GDP expanded by 0.5% (seasonally-adjusted) in the first quarter of 2019 from the last quarter of 2018. That’s an annual rate of +2.1%. Most analysts had been expecting around a 0.2% contraction, which would’ve been the third quarterly minus out of the last five.

This is another one of those cases, however, where GDP accounting is beyond unhelpful. In the US, GDP in Q1 was boosted in large part by the bad version of inventory accumulation which counts as a positive regardless of intent. That was at least misleading.
In this specific instance, Japan’s number gives off the entirely wrong impression.
Despite this, probably because of this, one senior

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The Potential For Yield Plunge As Dovish Theater

6 days ago

Two on the same day, likely not coincidence. The next stage of “dovishness” may be upon us. It won’t be rate cuts; those won’t happen until all other excuses have been exhausted first. Jay Powell’s confused gang won’t give in until kicking and screaming there’s really nothing else left.
The Fed “pause” isn’t working. To up the ante a bit, in speeches yesterday Fed Governor Lael Brainard and Minneapolis branch President Neel Kashkari extolled the virtues of symmetry. Inflation has been undershooting for so long (not transitory, then?) the Fed should allow it to accelerate to the upside for nearly as long. Symmetry.
The idea is the central bank will “grant” the economy license to overheat for an extended period. As Kashkari said, “For our current framework to be effective and credible, we

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As Europe Keeps Falling, The Implications For Europe And Everyone Else

6 days ago

In late March, as global pessimism was renewed in the world’s bond markets, ECB President Mario Draghi appeared as he always does to urge optimism. Yes, Europe’s economy in particular didn’t finish 2018 as he had been expecting. But a soft patch, Draghi said, wouldn’t necessarily “foreshadow [a] serious slump.”
The question on the minds of bond investors is, how would he know?

That’s ultimately the problem with botching globally synchronized growth. And he has no one else to blame. In hyping the hell out of 2017, way, way overdone, he and others like him, such as Janet Yellen and Jay Powell, set themselves up for statements such as this one delivered in Washington last month:
Nevertheless, since the Annual Meetings in October 2018, incoming data have been weak, in particular in the

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We’re Gonna Need More Doves

7 days ago

Maybe central bankers are just tired of being alone. In December 2008, for example, the FOMC members were practically celebrating how the NBER finally called recession an entire year after its start. Misery does love company, especially when you botch things that badly.
On Tuesday, KC Fed President Esther George admitted she and her fellow policymakers were confused. But, but they weren’t the only ones, she claimed.
The current level of inflation may perplex central bankers and financial market participants, but in the context of a growing economy and job gains, it doesn’t demand a Fed policy response in my view.
She really is trying to say everyone’s a bit confused, not just the FOMC or ECB’s Governing Council. I guess that’s one way to try and stay hawkish. Not a very rational one,

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From TIC’s Big March Number Right To Powell’s Future Rate Cut(s)

7 days ago

Perhaps it shouldn’t come as a surprise. After all, during the first quarter of this year several key banks announced they had had enough. Goldman Sachs, Nomura, Credit Suisse, as well as others, they all broadcast cuts to key operations. The FICC stuff, or bond trading to put it euphemistically. The very place the world actually gets dollars.
Only, they aren’t dollars so much as shadow dollars or eurodollars. A credit-based global currency therefore requires a credit base, meaning bank balance sheet capacity. If banks aren’t interested in bond trading or money dealing whatever you want to call it, if they become scared or get burnt (again) betting on whichever empty suit occupies the Fed Chair on any given day, quite naturally they get out. Prudence demands nothing less.

Others like JP

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Global Doves Expire: A Hundred Years of US IP Give Bond Market Another Win

8 days ago

The Federal Reserve has been maintaining statistics on American industry for nearly as long as there has been a Federal Reserve. The first entry in the data series on Industrial Production is for the month of January ’19. Not 2019 but 1919. With over a hundred years of relatively consistent data, matching up very well with overall trends in the US economy over an unusually long period, it’s no wonder IP is at the top of the list of key indicators.
The NBER cites it as one narrow economy measure for helping its Business Cycle Dating Committee determine any cyclical change.
The Committee also may consider indicators that do not cover the entire economy, such as real sales and the Federal Reserve’s index of industrial production (IP). The Committee’s use of these indicators in conjunction

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Global Doves Expire: China’s Big 3 Stats Put To Rest RRR Myths

8 days ago

The Fed has its pause. The ECB is going to conduct another T-LTRO. But of all the central bank responses to the “unexpected” global weakness of late 2018, the Chinese’s was supposed to be the leader. The most forceful pushback against a worldwide downturn was reported to have been the PBOC’s “powerful” RRR cuts. China’s central bank conducted two of them in January alone.
China’s economic data in 2019, however, is putting to rest more than just the myth of RRR “stimulus.” There’s rebalancing. Green shoots. All of them up in flames now one-third of the way through this year.
Weakness not only persists, it grows worse as if dovish central banks don’t matter. They don’t.
Arguably the greenest shoot of the year belonged to Chinese Industrial Production. Last month, for March 2019, China’s

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Global Doves Expire: Fed Pause Fizzles (US Retail Sales)

8 days ago

Before the stock market’s slide beginning in early October, for most people they heard the economy was booming, the labor market was unbelievably good, an inflationary breakout just over the horizon. Jay Powell did as much as anyone to foster this belief, chief caretaker to the narrative. He and his fellow central bankers couldn’t use the word “strong” enough.
After the market slide through Christmas Eve, everything had changed. No inflation (“muted”) on top of far more uncertain economic circumstances. Suddenly, even in the mainstream financial press, people were asking more uncomfortable questions. What if?
Powell and the rest of his comrades around the world sprang into action – somewhat. After stubbornly clinging to “strong” through all of December, policymakers would start out 2019 in

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Effective Recession First In Japan?

9 days ago

For a lot of people, a recession is two consecutive quarters of negative GDP. This is called the technical definition in the mainstream and financial media. While this specific pattern can indicate a change in the business cycle, it’s really only one narrow case. Recessions are not just tied to GDP.
In the US, the Economists who make the determination (the NBER) will tell you recessions aren’t always so straightforward. Everyone knew about the second half of the Great “Recession” because there wasn’t a data series, indication, or market price that wasn’t plummeting.
The first half, though? It wasn’t until December 2008, more than two months after Lehman, that the NBER finally got around to “declaring” the United States in recession. In the annals of obviousness, even the empty suits at the

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There’s Two Sides To Being (dollar) Sheltered

9 days ago

I wrote yesterday, twice, that it’s the eurodollar’s world, we are all just trying to live in it. This is not a uniformly recognized fact of life, though. People in the US are sheltered. We tend to overlook the dollar because for us it’s just the dollar. The very idea of a global reserve currency is truly foreign here.

Because of that, I tend to interact much more with people overseas. Any harmful effects of the eurodollar system’s decay strikes them first and often hardest. As Euro$ #3 began to really turn serious in June 2015, I wrote:
The latest TIC data through April 2015 confirms that central banks have not just mobilized massive reserves, they have done so at an unprecedented rate consistently for the past six months tracing back to the aftermath of October 15. Starting December,

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Curves Rhyme, Too

10 days ago

People have started to look back fondly upon the Asian flu. It was as global disaster, a dollar shortage which spread all across mostly Asia but not exclusively. The reason why it is talked about positively nowadays is LTCM and rate cuts. Popular myth has it that Greenspan’s Fed properly handled any economic fallout due to the former by enacting the latter.
Beginning September 1998, faced with “overseas turmoil”, the FOMC began a series of only three rate cuts. According to convention, this saved the US economy from sharing the same fate as Japan, Thailand, or perhaps Russia. LTCM was thereby rendered little more than a footnote, a weird curiosity (even though it shared so many of the same characteristics as Bear Stearns and Lehman Brothers).
In mainstream Economics, this is called the

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CNY, Its Doom Sisters, And Chinese Threats

10 days ago

It’s a tell-tale sign of someone who doesn’t know what they are talking about. In the realm of global currency systems, anyone who brings up China’s massive stockpile of US Treasury assets inevitably they assign all the power to the Chinese. Xi could destroy Trump if he wanted, bringing down the US in a righteous fit of trade war anger.
Not only is this totally wrong, it is ignorant of history. Recent history. Toward the end of November 2013, out of nowhere a report appeared in Chinese State media which said officials were reconsidering their foreign reserve allocations.

The country then spent the next several years shedding more than $900 billion in official reserve assets, more than half that in the form of reported UST holdings. The carnage, if the conventional story was right, should

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The Mark of the Eurodollar: Five Years of China Car Sales

10 days ago

The biggest problem, among many, with 2017’s globally synchronized growth narrative was that it was always missing China. This was an enormous contradiction because the Chinese were supposed to be at the center of the rebirth. So much of what was being counted on from this “global growth” was figured to come out of the one country.
And it was all a fiction. Chinese authorities had responded to the eruption of Euro$ #3 in early 2014 with (eventually) various forms of “stimulus.” Economists primarily in the West extrapolated those measures into full-blown worldwide recovery. That’s all 2017 really was; ridiculous straight-line forecasts.
It seems no one bothered to consult with China’s Communist government. By October 2017, they had seen the progress from all their “stimulus.” It wasn’t

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Curves Have Pointed The Way, And It’s The Way They Still Point

13 days ago

In the middle of last November, when the Dallas branch of the Federal Reserve convened a conference on “global perspectives”, ironically, its officials were in a very good mood. The institution’s Chairman, Jay Powell, invited to speak at the gathering spelled out exactly why. Central bankers since Greenspan have made a habit of trying to say very little, but Powell wasn’t having it.
After an enormously rough decade, he wasn’t about to beg forgiveness for celebrating an end to it.
I’m very happy about the state of the economy now. Our policy is part of the reason why our economy is in such a good place right now.
On that basis, Powell reiterated his still hawkish stance. Markets, like it or not, would have to get used to “rate hikes” almost certain the following month as well as at any

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The Act of Inflation

13 days ago

Stodgy and mundane, the very model of prudence and wisdom. That is what central banks are supposed to be, even in this new age transparency paradigm. The central bank being put on display for the public has been opened up for those very reasons. So you can be assured they are the very model of prudence and wisdom.
Constant tinkering and ad hoc changes, however, can lead one to think otherwise. Creativity and invention are afterthoughts in the modern economy, necessary prerequisites for our modern life. But there are some places where innovation just doesn’t belong. Last year, I referenced the LABOR SHORTAGE!!! as one; just pay workers what they want and you can find all that you need. No innovation required.
The same goes for central banks. Perhaps too many people view them as some sort of

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JP Morgan’s Jamie Dimon Warns Again On UST’s Even Though JPM Appears To Have Been Huge Buyers of UST’s

14 days ago

JP Morgan’s CEO Jamie Dimon climbed back up on the bond bear. It was one year ago, May 7, 2018, when he went on BloombergTV and caused a substantial market stir when he said 4%. No one would want to buy UST’s what with inflation raging and the Federal Reserve forced into an overly aggressive stance by virtue of the huge American economic boom, Dimon reasoned. Add the structural “demand” problems on top of that, and it was a recipe for a bond massacre.
Coming from the leader of one of the biggest Wall Street banks, telling the world to prepare for the 10-year UST yields at 4% – just to start – it was a major piece of news. Inflation hysteria personified.
The 10s were at 2.95% last year when Dimon put out his warning. This was several weeks before the events of May 29, a global monetary

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Trade Wars Have Arrived, But It’s Trade Winter That Hurts

14 days ago

There is truth to the trade war. That’s a big problem because it’s not the only problem. It isn’t even the main one. Given that, it’s easy to look at tariffs and see all our current ills in them.
The Census Bureau reports today that the trade wars have definitely arrived. In March 2019, US imports from China plummeted by nearly 19% year-over-year. In the entire series which goes back to 1988, there are only three instances where it has been worse for Chinese manufacturers and one of those was a Golden Week month. The other two were in 2009.

This follows a 15% decline in February. The US borders are increasingly hostile to Chinese products. It has definitely contributed to the major declines all across China’s vast industrial sector, the slowdown and contraction in it beginning late last

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Chinese Treasuries and FOMC Policies, The Big Number That Just Turned Against Jay Powell

15 days ago

In a period when weird and unusual are commonplace, it was one of the more noteworthy and interesting outliers. Late in August 2010, a media report attributed to Hong Kong’s Ming Pao news agency suggested Zhou Xiaochuan was on the run. Supposedly, the Governor for the People’s Bank of China, the country’s central bank, was defecting to the United States ahead of Communist authorities detaining him.
The report said Governor Zhou hadn’t been seen in some time. It had become known to China’s governing council that the PBOC had somehow lost $430 billion on its US$ holdings. If true, arrest would have been imminent and the least of his problems.
Chinese authorities had to be careful, though, as it was also rumored how the US Federal Reserve’s Vice Chairman Donald Kohn had blackmailed them,

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China’s Export Story Is Everyone’s Economic Base Case

15 days ago

The first time the global economy was all set to boom, officials were at least more cautious. Chastened by years of setbacks and false dawns, in early 2014 they were encouraged nonetheless. The US was on the precipice of a boom (the first time), it was said, and though Europe was struggling it was positive with a more aggressive ECB emerging. Even Japan was looking forward to a substantial QQE-based pickup – after the VAT tax hike.
For much of the rest of Asia, things were looking up. Global growth wasn’t that time synchronized, but it was just enough. In April 2014, in its Regional Economic Outlook, the IMF wrote:
Asia is well positioned to meet the challenges ahead provided it stays the course on reforms. The region has strengthened its resilience to global risks and will continue as a

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What’s Germany’s GDP Without Factories

16 days ago

It was a startling statement for the time. Mario Draghi had only been on the job as President of the European Central Bank for a few months by then, taking over for the hapless Jean Claude-Trichet who was unceremoniously retired at the end of October 2011 amidst “unexpected” chaos and turmoil. It was Trichet who contributed much to the tumult, having idiotically raised rates (twice) during 2011 even as warning signs of crisis and economic weakness were everywhere.
Central bankers had built their platforms on dismissing problems. “Subprime is contained” the mantra for Euro$ #1 was later replaced by “Greece isn’t a big deal” in time for Euro$ #2. Neither had anything to do with the global monetary situation, precisely the point.
Still, Draghi as much in the dark about it as Trichet had to

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Materially Slowed SLOOS

17 days ago

More US bank respondents reported to the Federal Reserve that they are seeing weaker demand for Commercial & Industrial Loans than at any time since the end of the Great “Recession.” The Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) asks respondents to gauge certain factors with regard to various forms of lending.
In terms of new debt to commercial and industrial customers for commercial and industrial purposes, the survey conducted last month reports the net percentage of domestic financial firms indicating strong demand for these kinds of loans was -16.9%. Nearly seventeen percentage points more on the weak side than stronger. That’s more downside skew than in Q4 2011, the most since the first quarter of 2010.

It isn’t a huge change, the downward bias mostly

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The Real Trade War

17 days ago

The competition was fierce. Vying for the eventual affections of Indonesia’s traveling public, Japan and China were locked into an auction of one-upmanship. Businesses from both countries had submitted bids to build the first high speed rail line in the growing emerging market center. As a first step, there would be bullet train service between Jakarta and Bandung.
Ultra-fast trains are the primary selling point behind getting onboard China’s One Belt One Road (OBOR) initiative. In 2015, while the Chinese were wooing Jakarta’s politicians, Premier Li Keqiang was showing off the technology for European leaders. Taking them on a demonstration ride between Suzhou and Shanghai, Li predicted that what he saw as China’s railway edge would become OBOR’s “golden business card.”
Later that same

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ISM ‘Surprise’

20 days ago

GDP was better than 3% in the first quarter, the payroll report was greater than +250k, and the unemployment rate was the lowest in fifty years. The economy in the US must (still) be booming.
But:
The vast US services sector recorded a surprise slowdown in April, according to the Institute for Supply Management’s latest survey.
The group said Friday its non-manufacturing index slipped to 55.5 last month, down from 56.1 in March and confounding economists who expected the gauge would jump to 57. It also marked back-to-back months in which the index posted its weakest level of growth since August 2017. A reading above 50 indicates expansion.
The ISM’s Manufacturing PMI has been dropping since last summer. Just two days ago, the same outfit reported that this other index was the lowest in

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The T-bill Lie: Even More Completely Full of It

20 days ago

When all this federal funds business started, the effective federal funds (EFF) rate was pretty well established at 16 bps above the RRP “floor.” It had been that way, consistently, all throughout Reflation #3, all throughout 2017. So consistent, that dependable spread was a very solid indication of reflation.
As of yesterday, EFF was…16 bps above RRP. It’s not at all the same, though. In between December 2017 and now, the Federal Reserve has instituted three “technical adjustments” to IOER. In other words, IOER has been reduced by 15 bps just to get EFF back to where it was when all this mess began.
This is no small thing.

Nor is yesterday’s move. IOER was reduced 5 bps while EFF dropped only 4. That means EFF would still have been above where IOER was Wednesday, and it’s now 6 bps ahead

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