Tuesday , March 19 2019
Home / Jeffrey P. Snider
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

Negative TIC Is A Rare Level of Negative

1 day ago

Even on a six-month cumulative basis, it is rare to find a negative number. These are reserved for the big ones, the market-shaking events that either perform an inflection or confirm one as it reaches pretty hard depths. The world being the way that it is, you just don’t see the whole forced into outright selling (on net) US$ assets.
According to the Treasury Department’s TIC data, over the last six months up to and including January 2019, US banks reported that foreigners shed a net $36 billion. December 2018 was the worst month on record for this. The last time it had been this severe (6-month basis) was February 2016 (-$50.5 billion). Before that, August 2013 and January 2009. You’d have to go all the way back to May 1990 for another negative number (and it was a small one). There

Read More »

Suddenly Stuck on Sideways: Banks, Not Babies Nor Bubbles

1 day ago

What is Japanification? There are all sorts of ways to explain what the term can mean. The simplest is a single word, which for me is “sideways.”
We live in a non-linear world meaning one where compounding is the biggest factor. Albert Einstein probably never said compound interest is the most powerful force in the universe, but the reason the saying has stuck and has been almost universally attributed to him is the magnitude of the truth behind it. Rate of change is everything.
If things are going as they should (progress, that is), on a graph it is the beautiful geometric growth curve. Even a constant rate of change leaves only this impression. Inflation, believe it or not, relates to that rate of change rather than absolute terms. Millionaires become billionaires become trillionaires

Read More »

Chart(s) of the Week: Reviewing Curve Warnings

4 days ago

Quick review: stocks hit a bit of a rough patch right during the height of inflation hysteria. At the end of January 2018, just as the US unemployment rate had finally achieved the very center of attention, global markets were rocked by instability. Unexpectedly, of course.
Over the next several weeks, share prices sagged and people blamed it on a number of things: Korean War, the unemployment rate itself (the economy was going to be too good, the Fed would have to hike rates faster and farther), Italian populists, FOMC officials thinking it was T-bills or something.
Then, global stock markets shook off everything and marched ever higher. Meanwhile, the dollar turned, EM’s spun out of control, and bond markets began to do odd things. Curves, already flat, became downright distorted. All

Read More »

The World Economy’s Industrial Downswing

4 days ago

As economic data for 2019 comes in, the numbers continue to suggest more slowing especially in the goods economy. Perhaps what happened during that October-December window was a soft patch. Even if that was the case, we should still expect second and third order effects to follow along from it.
Starting with Europe first, Germany’s deStatis had earlier reported factory orders and production levels in January 2019 while higher than December still keeping within the same trend. These were lower compared to the prior January, meaning a contraction in annual terms that has at least spilled over into this year.
Eurostat’s estimates of Industrial Production for all of Europe, including those collected from Germany and repurposed, unsurprisingly follow the same way.

Year-over-year, production

Read More »

No Sign of Stimulus, Or Global Growth, China’s Economy Sunk By (euro)Dollar

5 days ago

Najib Tun Razak was elected as Malaysia’s Prime Minister in early 2009. Taking office that April amid global turmoil and chaos, Najib’s first official visit was to Beijing in early June. His father, also Malaysia’s Prime Minister, had been the first among Asian nations to open formal diplomatic relations with China thirty-five years before. Celebrating the milestone might’ve been the proposed purpose behind the state call, but that’s not what anyone was talking about.
The invitation was extended at the behest of the Chinese Premier, Wen Jiabao. At the top of their agenda, besides the official festivities, was a bilateral trade agreement. China and Malaysia were going to conduct trade bypassing the US dollar. The Wall Street Journal reported:
China has been promoting the idea of replacing

Read More »

The Fed Proposes A Repo Facility, QE5

6 days ago

QT. Bank reserves. Balance sheet normalization. They really are going through all the motions in 2019. It’s as if officials can sense something just isn’t quite right. This would amount to a serious setback, of course, having assured the public repeatedly how the financial system has been remade into “resilient.” Janet Yellen, call your current office, Jay Powell’s Federal Reserve isn’t quite so sure any more about that whole bank crisis thing you said.
It’s hard to gauge whether it is mainstream thought that is evolving, or merely the form of its continued stupidity. Nothing ever stands still in this world, but that doesn’t always represent progress.
The Federal Reserve’s Vice Chairman for Supervision is Randall Quarles. He also chairs the Financial Stability Board. Both are

Read More »

Greenspan’s Massacre Masterpiece

6 days ago

What most Economists “learned” from the Great Inflation was how important psychological factors had become. You would think that such a huge monetary disconnect would teach especially monetary officials the importance of monetary competence. However, as Upton Sinclair once wrote, paraphrasing, it’s difficult to get a central banker to understand money when his paycheck can be saved by blaming you (inflation expectations) for his mistakes.
The economic boom of the eighties, alighted by further and even more massive monetary evolution, offered Economists the chance to re-align monetary policy with their new approach. They couldn’t any longer define money so monetary policy as it stood was useless (targeting bank reserves or a broad money supply definition, those that had already been

Read More »

Decaying Offshore Money Is A Lot More Than An Offshore Decay

7 days ago

During the first quarter of 2008, as Bear Stearns teetered on the edge of illiquidity, foreign holders of US$ financial assets contributed $9.3 trillion to US credit markets. According to the Fed’s Z1, the Financial Accounts of the United States, it tells us that’s the amount they held in possession from outside the American geographical boundary. Considering at the same time US depository institutions reported a total of $13.4 trillion in all assets, overseas agents represented a huge chunk (an astounding 40% of this combined total) of bank-driven domestic credit.
It wasn’t always this way. There had always been a somewhat robust financial participation originating elsewhere (from the US perspective) throughout the country’s history. In terms of these modern statistics, it was steady at

Read More »

Curve Crazy Again; Or, The ‘Dovish’ Turn Falls Apart, the Culprit Revealed

7 days ago

Everyone went dovish after what happened in December. Convention assumes that central bankers take their cues from the NYSE. I don’t think that’s what shook everyone up, though. Curves, ladies and gentlemen. The bond market revolted and the stock market showed serious signs of catching its contagion.
Since the mainstream had been expecting a booming economy, because that is what every Economist has been saying, this was all very shocking. As was, quite naturally, the blind groping for answers. How could this have happened?
Since convention also assumes central banks are at the center of everything, they must’ve taken away too much punch from the bowl. It was the Fed’s fault for both raising rates too high while simultaneously normalizing its balance sheet. Nobody really knows what that

Read More »

What Is Missed Inflation

7 days ago

As an alternate member of the FOMC, Lorretta Mester has been sounding off on inflation. When the payroll report for the month of August 2018 was released early in September, Mester as President of the Cleveland Fed was widely quoted for her “hawkish” stance. Referencing the highest wage growth in a decade, speaking in Boston she said, “Today’s [jobs] report is a strong one, this gradual path we’re on, I’ve been a supporter of that and I continue to be a supporter of that.”
According to the BLS, wage growth in December would eclipse August, thus becoming the newest highest in a decade. By the time that report was released, though, no one would be left at the Fed to support “this gradual path we’re on” – not even Chairman Powell. Everything had changed.
Or maybe nothing had?
There is so much

Read More »

Downturn Rising, German Industry

8 days ago

You know things have really changed when Economists start revising their statements more than the data. What’s going on in the global economy has quickly reached a critical stage. This represents a big shift in expectations, a really big one, especially in the mainstream where the words “strong” and “boom” couldn’t have been used any more than they were. If you read nothing other than Bloomberg, it’s as if some alien force has descended upon the world and completely spun it around the other way.
With that in mind, now they say 2017 wasn’t really all that:
The cyclical upswing that took hold of the global economy in mid-2017 was never going to last. Even so, the extent of the slowdown since late last year has surprised many economists, including us.
“Us” being a couple of Bloomberg

Read More »

Downturn Rising, No ‘Glitch’ In Retail Sales

8 days ago

You just don’t see $4 billion monthly retail sales revisions, in either direction. Advance estimates are changed all the time, each monthly figure will be recalculated twice after its initial release. Typically, though, the subsequent revisions are minor rarely amounting to a billion. Four times that?
Last month, the Census Bureau reported that retail sales during the Christmas holiday were a disaster. It was Christmas 2007 bad. For people thinking the US economy was booming, this was a shock. So much so, some like the President’s chief economic advisor Larry Kudlow stated it had to have been a “glitch” in the data.
The BEA proved that wasn’t the case when it released its data on Personal Spending. Now the Census Bureau reports retail sales for January 2019, at the same time revising them

Read More »

Fed: We Are, Don’t Get Spooked, Very Happy With Things But We Are Going to Review Our Policies And Tools In the Very Small, Microscopic Chance We’ve Missed Something

11 days ago

Last August, the Senate confirmed Richard Clarida for both a position on the Federal Reserve Board of Governors as well as to be installed as its Vice Chairman. Clarida had been chairman of the Economics department at Columbia as well as working for PIMCO where he had served the investment company as its Global Strategic Advisor since 2006. You can already see where this is going.
His last blog post for PIMCO was published in January last year, several months before his nomination to the central bank. Included in it was all the usual stuff.
Going into Federal Reserve Chair Janet Yellen’s 32nd and final meeting, neither we nor the markets expected the Fed to make much news. Of note, however, in its statement after the meeting on 31 January, the Fed acknowledged recent firmer economic data

Read More »

The Big Minus Wasn’t Actually China’s Big Contraction In Exports

11 days ago

More important than the US GDP number, more substantial than the February jobs report, what will linger for longer in the public consciousness is China’s trade data. It seems as if the big drop in exports has garnered the most immediate attention, I suspect that won’t be the case moving forward. There are more important trends being captured where the data wasn’t so splashy.
The month of February is always a tricky one, what with Golden Weeks moving around every calendar. As such, the latest numbers are skewed at least on the one side.
Compared to February 2018, China’s exports in February 2019 came in 20% lower. That’s a big negative number, obviously, the worst since February 2016 and among the worst in the series. However, exports in the preceding were monumentally out of whack, adding

Read More »

Payrolls: Neither Good Nor Bad, Just More Uncertain

11 days ago

The BLS giveth, and the BLS taketh away. That’s not really what has happened, of course, but for many it can seem that way. February’s payroll report obviously stands in striking contrast to January’s. The latter was a blowout, over +311k (revised), hyped near and far as proof of decoupling, the US economy the only clean shirt. In comes the latest number, equally a blowout if in the opposite direction, +20k, poof goes the narrative.
Sure, there was snow and lingering shutdowns and all sorts of factors – just like there are in each and every month. The real truth of the matter is the payroll reports are noisy. Just look at the confidence intervals (at only 90%) for the monthly change. What the BLS actually says with its headline, +20k in February 2019, is that if they resample the data from

Read More »

Not Buying The New Stimulus

12 days ago

What just happened in Europe? The short answer is T-LTRO. The ECB is getting back to being “accommodative” again. This isn’t what was supposed to be happening at this point in time. Quite the contrary, Europe’s central bank had been expecting to end all its programs and begin normalizing interest rates.
The reaction to this new round was immediately negative:
The euro and euro zone government bond yields fell sharply on Thursday after the European Central Bank changed its rate guidance while banking stocks tumbled as a fresh round of cheap loans was less generous than previous packages.
I don’t think that was actually the case; the reason for today’s pessimism, I don’t think, wasn’t how the T-LTRO was “less generous than previous packages” or anything at all to do with “rate guidance.”

Read More »

Labor Shortage America has been Canceled

13 days ago

The holiday season was shaping up to be a good one, perhaps a very good one. All the signs seemed to be pointing in that direction, especially if you were a worker. All throughout last year, beginning partway through 2017, there wasn’t a day that went by without some mainstream story “reporting” on America’s labor shortage.
It was so ubiquitous, this economic boom idea, the media created several spinoffs. The successful reception of the domestic production led to a Tales from a European Labor Shortage, followed then by China, A Labor Shortage Chronicle, and even Labor Shortage: Japan. Globally synchronized growth was a pliable script.
As to the original, the Wall Street Journal “reported” last September:
The holiday shopping season is still two months away. But faced with low unemployment

Read More »

Broken Record

13 days ago

The OECD has become the latest mainstream Economist outfit to relent on growth. Two years ago, they had grown cautiously optimistic as reflation appeared in the back half of 2016. By the middle of 2017, positively giddy barely able to contain their increasingly rabid excitement:
The global economy is now growing at its fastest pace since 2010, with the upturn becoming increasingly synchronised across countries. This long awaited lift to global growth, supported by policy stimulus, is being accompanied by solid employment gains, a moderate upturn in investment and a pick-up in trade growth.
The text leaves no doubt as to what OECD’s Economists were thinking. Echoing more positive official sentiment around the world, 2017 was in their view a signal for the end of the Great “Recession.”

Read More »

The Deeper Red of The (False) Dawn

13 days ago

The concept of an economic “false dawn” was almost entirely unfamiliar to the postwar US experience. We came close in 2002 and the first half of 2003, but eventually the housing bubble era took over. The dot-com recession was mild, sure enough, somehow, though, recovery seemed so elusive for a longer period than the contraction itself.
There is supposed to be symmetry in these business cycle swings. In fact, there had been in each and every recession between the Great Depression and the dawn of the 21st century. It was so dependable that Milton Friedman in the nineties finally published his “plucking model” version of the economy after having sat on it for twenty years waiting for more business cycle evidence to confirm it.
It would stand to reason, then, given the scale of the economic

Read More »

The Real Reason Why Stop/Go Is Back To Stop Again

14 days ago

These things have typically started in global trade. This makes sense given what we are dealing with are intermittent problems in global money. Quite simply, you can’t trade if you can’t get any. Therefore, the more acute the dollar shortage the more disruptive to the global merchandise economy.
The one exception to this pattern was the first. Euro$ #1 registered beginning by damaging broad demand within the developed world. This, too, was unsurprising since the first outbreak of it registered as a reverse for the credit-driven asset bubbles. Difficulties for trade materialized later, the middle of 2008, which for a time fueled the narrative of decoupling (weakness in US and Europe wouldn’t spillover into Asia and EM’s). Eventually shadow money would disappear for Asia, too, and then

Read More »

China Has No Choice

14 days ago

China’s central bank was given more independence to conduct monetary policies in late 2003. It had been operating under Order No. 46 of the President of the People’s Republic of China issued in March 1995, which led the 3rd Session of the Eighth National People’s Congress (China’s de facto legislature) to create and adopt the Law of the People’s Republic of China on the People’s Bank of China. This was amended in December 2003 by the 6th Meeting of the Standing Committee of the Tenth National People’s Congress.
Already by then, the PBOC had begun using more of its monetary toolkit. It had experimented in 2002 with Open Market Operations, or OMO’s. The central bank would issue “bills” to Chinese banks, selling them in order to “soak up” excess liquidity under its definitions.
These were

Read More »

No Building Left To Build A Boom

15 days ago

For the last several years, the US recovery following its experience with the global 2015-16 downturn has been lacking in several key dimensions. Reflation #3 in the real economy has reflected the lack of momentum and altitude in the snapback across the eurodollar system. As such, of all the reflation episodes this last one was upside down; it was by far the weakest and yet it was constantly claimed to be the strongest.
Had the rhetoric been at all grounded, the chief proponent advancing the cause would have been the business sector. Recovery, actual recovery, is opportunity for productive growth. Industrial as well as service sectors firms would’ve spent the past almost three years literally building for a meaningful upswing.
They didn’t. Instead, a curious flatline in capex followed

Read More »

The Real Price of Inflation Targeting

15 days ago

While still a professor of Economics at Princeton, future Federal Reserve Chairman Ben Bernanke was also a Research Associate for the NBER. In 1999, in his capacities with the latter organization, Bernanke advocated for widespread adoption of inflation targeting. At that time, only a few central banks had experimented with it and there wasn’t much evidence for its effectiveness.
Publishing a paper on that topic, he would return to this theme (transparency increases effectiveness) that would have, if 2008 hadn’t intruded, probably defined his official tenure. Inflation targeting worked and worked well, he claimed, when it was incorporated into communications.
Central bank habit was at that time changing. An older generation, those like Alan Greenspan, preferred the monetary policy doctrine

Read More »

What Does It Mean If The Fed Might (Have To) Be Ready To Move Past IOER?

18 days ago

More than any conundrum in the bond market, the Federal Reserve has one on its hand much closer to home. Its home, anyway. The effective federal funds rate (EFF) has been stapled to IOER for each of the last fifty trading days. No variation whatsoever.
EFF had converged with IOER back in October. A lot of ugly things began to happen in October, this being only one. Still, it suggested the connection to them, not quite the one policymakers think.
Federal funds is a nothing market. If there is unruliness in it, that can only mean much greater difficulties out in the global “dollar” markets. In other words, how bad must it have been in money supply terms that it broke out in this distant, irrelevant corner, too? The answer to that question, obviously, is what happened in November and

Read More »

Expecting What’s Unexpected In Canada

18 days ago

There is much more chicken to each hawk than any of the birds would care to admit. What I mean by that is fairly straightforward, or it should be. Alan Greenspan was resolute. Right or wrong (the latter, trust the curves), after taking federal funds down to 1% officials pushed the rate right back up to 5.25% without pause. At every meeting interval during the middle 2000’s, the FOMC added another 25 bps.
There was no equivocation or lamenting R*’s and complicated repo mechanics. They may not have known what they were doing, but they at least believed in their own madness.
Janet Yellen began the same trajectory in the second year of her tenure. After taking almost all of 2016 off, the first Fed pause, she resumed with a conspicuously cautious attitude. She’s already gone now, a year

Read More »

BEA Backs Up Census; Residual Seasonality Struck A Month Too Soon

18 days ago

Over the last decade, the US economy has been experiencing “residual seasonality.” It has begun each year unusually weak. For Economists expecting it take off in each and every one, this is more than a thorny contradiction. When it happened again in 2015, at the worst possible moment for the mainstream view, they had finally had enough.
The Bureau of Economic Analysis was called out for what was surely a quirk in their statistical processes. The BEA in response promised an exhaustive review, a comprehensive search to find this “residual seasonality” and then get rid of it from their data.
True to form, they didn’t find any evidence of statistical malfeasance but “fixed” their seasonal adjustments anyway. The squeaky wheel does get the revision.
What really had happened was very simple.

Read More »

Meanwhile, Over In Asia

19 days ago

While Western markets breathed a sigh of relief that US GDP didn’t confirm the global slowdown, not yet, what was taking place over in Asia went in the other direction. There has been a sense, a wish perhaps, that if the global economy truly did hit a rough spot it would be limited to just the last three months of 2018. Hopefully Mario Draghi is on to something.
Therefore, Q4 US GDP wasn’t as bad as feared, cushioning the uncertainty about those specific three months in question. If it wasn’t uniformly awful, then, maybe, 2019 will start out going back the other way, the good way.
Except, first Japan reported a plunge in Industrial Production. This was for the month of January 2019, hardly an auspicious result suggesting limited downside and quick turnaround. Seasonally-adjusted, the level

Read More »

The Best Year In Over A Decade Confirms The Economy Still Near The Worst

19 days ago

A month behind schedule, Q4 GDP sure did disappoint. I don’t mean that it was disastrously weak, rather it came in right down the middle benefiting neither camp. The BEA’s not preliminary but not quite second revised GDP estimate for Q4 2018 was 2.55617% (seasonally adjusted compounded annual rate) above Q3. Not strong enough to dispel every growing worry, at the same time not weak enough to fully confirm them.
The BEA in making everyone wait an additional month settles nothing.
What is now established, though, is a mathematical fact. The last eleven years have been worse than the Great Depression. According to the updated estimates, using 2012 dollars as a reference, the current economy has underperformed the worst economy.

Most people believe this is an absurd interpretation, and it is

Read More »

No Surprise, Hysteria Wasn’t a Sound Basis For Interpretation

20 days ago

What gets them into trouble is how they just can’t help themselves. Go back one year, to early 2018. Last February it was all-but-assured (in mainstream coverage) that the US economy was going to take off. The bond market, meaning UST’s, was about to be massacred because the overheating boom would force a double shot down its throat.
Not only would safety instruments like UST’s have to contend with the unemployment rate, and therefore wage-driven inflation just ahead, the Federal Reserve would have to get more aggressive to head off the worst parts of what Economists call an overshoot.
On March 1, 2018, Chairman Powell still new to his job appeared before the US Senate Banking Committee. It was his first Humphrey-Hawkins required testimony, a commitment many were using to judge the

Read More »

Jay Powell Is In The Way (Literally, for the UST Curve)

20 days ago

Early in May 2013, the word “taper” exploded into the mainstream. It was everywhere, scarcely an article written or news story pieced together which hadn’t included the term (even though Ben Bernanke never actually said it). The so-called tantrum spread like wildfire simply because of what it represented, the very thing everyone had been waiting for. Confirmation at last the long economic nightmare, about half a decade to that point, was over.
For much of the rest of 2013, there were various calls for an end to the “30-year bond bull.” Setting aside the inappropriate use of the characterization, these were obliged by a growing selloff in that market. The usual suspects were given blanket coverage in the usual places:
Bill Gross said the three-decade bull run in bonds ended last week when

Read More »