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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

Rate Cuts, Repo, and (No) Money Printing

5 hours ago

I don’t think that was quite the message the FOMC wanted to send. It’s pretty clear what the Committee wanted to say, or wanted everyone to hear. The members are done with rate cuts because everything looks great. Sure, it all looked great to them last year but, as has become the conventional interpretation of late, hey, at least it didn’t get worse. That’s where we are in this “cycle”, cheered up presumably by the lack of fulfilled downside.
However, despite the apparent emphasis on three-and-done and the relatively stable or positive economic scenario under which that would be appropriate, it is elsewhere in the committee’s recently released minutes that is getting most attention. For the October 29-30 meeting, the published work is more convincing when it discusses the “downside risk”

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More (Badly Needed) Curve Comparisons

8 hours ago

Even though it was a stunning turn of events, the move was widely celebrated. The Federal Reserve’s Open Market Committee, the FOMC, hadn’t been scheduled to meet until the end of that month. And yet, Alan Greenspan didn’t want to wait. The “maestro”, still at the height of his reputation, was being pressured to live up to it.
The Fed had begun to cut rates.
In Austin, Texas, where President-elect Bush and many prominent business leaders were gathered, the news was greeted cheerfully, completely free from alarm. Jack Welch, the “legendary” CEO of General Electric at the time, said how the room had “rejoiced” at Greenspan’s “decisive action.” They all raised their glasses in festive salute.
It had been a tough year, 2000. The stock market which ended the 1900’s on a seemingly unstoppable

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I Can’t Get No Re-cession

1 day ago

The Germans managed to do it, to avoid meeting the dreaded technical definition of recession. While not a meaningful one, conventional wisdom assigns the classification to any economy which features two straight quarters of declining output typically measured by real GDP. Germany’s was slightly negative in Q2 with most expectations for a repeat in Q3.
Instead, deStatis reported last week a rate which just barely managed to inch back above zero. At +0.1%, unless revised lower in the coming months it will not meet the informal standard.
Because Germany keeps straddling the line between recession fears and avoiding recession conventions, the confusion will only linger for at least another three months. As such:
In some sense, this is the ‘worst’ of both worlds for markets. Today’s data

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TIC for September: Not Repo But ‘Further Flaws’

1 day ago

The Treasury Department’s TIC for September 2019 finally arrived yesterday. Two months in arrears, it’s often torturous having to wait for the detailed cross border bank figures to show up for particularly noteworthy months. You might remember September for something going on in repo, and TIC is right where we’ve been tracking (trying to) global repo and collateral flows since the middle of last year.
The TIC data confirms all our suspicions.
To begin with the red side, there had been a growing if convoluted route for unspecified collateral via Foreign Official Institutions (FOI; basically overseas central banks) into the cross border repo channel. It clearly involves the foreign repo pool and you can read about it in detail here. What’s pertinent for the September figures is this:
If,

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The Financial Midpoint Comes Into Focus

2 days ago

Another dovish example to be put on the growing pile of good things? The People’s Bank of China (PBOC) earlier today trimmed one of its many policy rates. The 7-day reverse repo rate will be reduced from 2.55% to 2.50%, a 5 bps cut practically pointless in functional terms widely interpreted instead for its purported “meaning.” Like the Fed, the Chinese central bank, we are being told, is finally coming around to more and more “stimulus.”
Even if it is, is that really a good thing? In truth, the Communist central bankers have been executing all sorts of cuts and trims for just about a year and a half. Two weeks ago, PBOC officials reduced the rate they charge large financial institutions for borrowing RMB liquidity at their MLF window.
Curious developments for so much “stimulus”,

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Another Perfect Example of the Euro$ Squeeze

2 days ago

Earlier this month, the Statistics Bureau of Japan had reported an enormous surge in household outlays. For the month of September 2019, the Japanese had splurged on everything from big ticket items to regular discretionary products. Total spending in the month was up 9.5% year-over-year in real terms, an enormous increase which had been the fastest pace ever recorded in data that dates back more than half a century.
The reason for the increase was simple: the looming VAT tax hike. In September, the Japanese people rushed to buy whatever they could before the price increases took effect on October 1.
For many, it seemed a relatively good sign of economic strength reinforcing recent economic data. After a very rough start to 2018, two negative quarters of GDP out of the first three, Japan’s

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Powell’s Strong Economy Canceled By Powell’s Data

5 days ago

US Industrial Productions continues to more and more resemble the worst of the Euro$ #3, that “manufacturing recession” of four years ago. Back at the end of 2014 and lasting well into 2016, IP was led lower by the oil crash among other problems. They called it a supply glut but we all know that wasn’t ever the case. What changed was demand, and the lack of sufficient demand caused production to eventually plummet.
In other words, one of the only parts of the US economy that had been actually booming up until late 2014 was suddenly transformed into one of its weakest. For IP, the cutbacks amplified the “manufacturing recession” increasingly evident in one of the oldest economic accounts in the United States catalog. When IP goes negative, nothing good can be happening.
This time around,

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Retail Sales Make It Two Toward The Second Act

5 days ago

One monthly result does not make a trend. Two? Still not a trend, but edging closer to one and more solid analysis. If making a claim based off the potential for one high frequency result is going out on a limb, then a second result confirming the first while not yet solid ground is at least a bit thicker of a limb.
Last month, we talked about patterns and how there were distinct ones when it came to certain aspects of these eurodollar problems. One example is the bond market and how it gives into very distinct phases, these midpoints. Another is consumer spending, specifically retail sales which was our major topic in the middle of October.
The Census Bureau had reported at that time a stumble in spending during the month of September 2019. It was characterized as “unexpected” largely

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China’s Xi Free To Continue The Downward Course

6 days ago

Perhaps ominously, there were overcast and hazy conditions in Beijing back on October 1 when China put on its largest display of military force in the nation’s history. To celebrate the Communist’s regime 70 years of that history, the country’s Chairman Xi Jinping dressed up like he was its original founder Chairman Mao. Joined by his immediate two predecessors, Jiang Zemin and Hu Jintao, Xi like Mao was everywhere during the festivities.
There have been expressed speculative concerns by close observers that China’s leadership was becoming fractured. Mainly on economic grounds, dissatisfaction over the direction of the economy for a while did seem quite serious.
Many said it had been for that reason why the 4th Plenary Session had been unusually delayed. Typically during the Communist

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How Do You Spell R-E-P-O With C-L-O?

7 days ago

There’s trouble brewing in a particular sector of the corporate bond market. It’s not really new trouble, merely the continuation of doubts and angst that have existed for more than a year already. What’s different now is that it is finally causing more open disruptions, and thus sparking our interest as to what it might mean well beyond this specific market or corporate finance.
Including and especially what it could do to repo.
What I’m writing about is CLO’s, or collateralized loan obligations. It’s a fancy term for securitized corporate loans. A bunch of these are pooled together in the same way mortgage loans used to be more than a decade ago. Particular tranches are assigned cash flow and loss priorities, rendering the lower parts of the structure as solid near risk-free securities.

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QE’s and Rate Cuts: Two Very Different Sets of Sentiment Drawn From Them

7 days ago

The stock market’s dichotomy grows ever wider. On the one side, record high prices which are being set by the expectations of a trade deal plus renewed worldwide “stimulus.” Sure, officials everywhere were late to see the downturn coming, but they’ve since woken up and went to work.
On the other side, though, there’s not nearly the same level confidence. Earnings are derived from several factors but chiefly the economic climate in which companies operate. Collectively, they’ve been down for years now (up slightly on a per share basis only because of so many buybacks) and despite price optimism about ending trade wars and the promise of more central bank rate cuts and QE’s there doesn’t seem to be the same outlook across the business world.
Germany’s IFO Institute for Economic Research not

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For Labor And Recession, The Bad One

12 days ago

There’s a couple of different ways that Unit Labor Costs can rise. Or even surge. The first is the good way, the one we all want to see because it is consistent with the idea of an economy that is actually booming. If workers have become truly scarce as macro forces sustain actual growth such that all labor market slack is absorbed, then businesses have to compete for them bidding up the price of marginal labor.
This is, of course, the exact scenario we’ve been constantly hearing about ever since the middle of 2017. Even for several years before then, all the way back to 2015, the unemployment rate had recovered to low enough levels Economists thought was around the right area for this mythical full employment threshold.
But because there was very little about 2015 and 2016 to suggest

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The Real Boom Potential

12 days ago

For the last five years Larry Summers has called it secular stagnation. It’s the right general idea as far as the result, if totally wrong as to its cause. Alvin Hansen, who first coined the term and thought up the thesis in the thirties, was thoroughly disproved by the fifties. Some, perhaps many Economists today believe it was WWII which actually did the disproving.
For many of them, it is the typical broken windows stuff. The war devastated Europe and much of the Far East, therefore it required a whole bunch of purportedly economy-enhancing rebuilding spread out over many years. Making the best of a terrible situation via John Maynard Keynes.
Others say it wasn’t so much the rebuilding itself as it was the technological innovations that the war brought up. There is no doubt that our

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The Sudden Need For A Trade Deal

13 days ago

Talk of trade deals is everywhere. Markets can’t get enough of it, even the here-to-fore pessimistic bond complex. Rates have backed up as a few whispers of BOND ROUT!!! reappear from their one-year slumber. If Trump broke the global economy, then his trade deal fixes it.
There’s another way of looking at it, though. Why did the President go spoiling for trouble with China in 2018? I don’t mean to ask what his rationale was, more along the lines of, why 2018? Why didn’t he start right out of the gate in 2017?
The answer is pretty simple.
By the middle of 2018, ignoring the eurodollar signals of course, the administration’s Economists thought they had seen enough (I know, because I met with one just a few days after May 29). The economy was booming and therefore it had achieved a solid

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A Perfect Example of the Euro$ Squeeze

13 days ago

Germany’s vast industrial sector continued in the tank in September. According to new estimates from deStatis, that country’s government agency responsible for maintaining economic data, Industrial Production dropped by another 4% year-over-year during the month of September 2019. It was the fifth consecutive monthly decline at around that alarming rate.
Four percent doesn’t sound like much, but in the context of German IP it is well within recession territory. During the 2012 recession which ravaged all of Europe, the biggest decline in IP during it was all of 2.9% (Nov ’12). Ten years earlier, during Germany’s (and the world’s) version of the dot-com recession, the worst month was -4.9%.
And there was only a single four-month period at the end of 2001 and the beginning of 2002 when IP

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Stuck In Between: No Recession Today, But No Turnaround, Either

19 days ago

There wasn’t much by way of the ISM’s Manufacturing PMI to allay fears of recession. Much like the payroll numbers, an uncolored analysis of them, there was far more bad than good. For the month of October 2019, the index rose slightly from September’s decade low. At 48.3, it was up just half a point last month from the month prior.
Most of that was related to a curious surge in New Export Orders. Having dropped to just 41.0 in September, this component rebounded more than nine points to 50.4 in October. It appears to be related to more one-off factors (either way) than any kind of surging macro contributions from a global economy emerging from its downturn.
To begin with, overall New Orders (including exports) gained only 1.7 and remained firmly below 50 last month (49.1). At the same

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Red Flags All Over It-Wasn’t-Worse Payroll Friday

19 days ago

Better-than-expected is the new strong. Even I’m amazed at the satisfaction being taken with October’s payroll numbers. While you never focus too much on one monthly estimate, this time it might be time to do so. But not for those other reasons.
Sure, GM caused some disruption and the Census is winding down, both putting everyone on edge. The whisper numbers were low double digits, maybe even a negative headline estiamte. Markets had been riding pure pessimism beforehand, with inverted curves and increasing worries about recession maybe just on the horizon.
It created the perfect storm for everyone to talk themselves into +128k being somehow really good. It wasn’t as bad as people were thinking and even saying, therefore the labor market must be strong! Add to October’s number upward

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More Synchronized, More Downturn, Still Global

20 days ago

China was the world economy’s best hope in 2017. Like it was the only realistic chance to push out of the post-2008 doldrums, a malaise that has grown increasingly spasmatic and dangerous the longer it goes on. Communist authorities, some of them, anyway, reacted to Euro$ #3’s fallout early on in 2016 by dusting off their Keynes. A stimulus panic that turned out to be more panic than stimulus.

It never got very far, peaking in the first quarter of 2017. Therefore, while the Western world filled with “news” of globally synchronized growth the inevitable globally synchronized downturn was already set in motion. Did Euro$ #3 ever actually end? Isn’t Euro$ #4 merely a continuation? In some ways: no and yes.
That’s more academic trivia while the consequences are very real. The faction in

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The Inventory Context For Rate Cuts and Their Real Nature/Purpose

21 days ago

What typically distinguishes recessions from downturns is the inventory cycle. Even in 2008, that was the basis for the Great “Recession.” It was distinguished most prominently by the financial conditions and global-reaching panic, true, but the effects of the monetary crash registered heaviest in the various parts of that inventory process.
An economy for whatever reasons slows down. That leads to inventory piling up across the various levels of the supply chain. Most businesses will remain patient and work through a material glut as best they can – so long as they continue to be relatively positive and optimistic that their customers aren’t more durably impaired.
If they begin to believe their customers aren’t coming back, not only do they cut back on new orders for goods, therefore

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The Inventory Context For Rate Cuts And Their Real Nature/Purpose

21 days ago

What typically distinguishes recessions from downturns is the inventory cycle. Even in 2008, that was the basis for the Great “Recession.” It was distinguished most prominently by the financial conditions and global-reaching panic, true, but the effects of the monetary crash registered heaviest in the various parts of that inventory process.
An economy for whatever reasons slows down. That leads to inventory piling up across the various levels of the supply chain. Most businesses will remain patient and work through a material glut as best they can – so long as they continue to be relatively positive and optimistic that their customers aren’t more durably impaired.
If they begin to believe their customers aren’t coming back, not only do they cut back on new orders for goods, therefore

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Three (Rate Cuts) And GDP, Where (How) Does It End?

21 days ago

The Federal Reserve has indicated that it will now pause – for a second time, supposedly. Remember the first: after raising its benchmark rates apparatus in December while still talking about an inflationary growth acceleration requiring even more hikes throughout 2019, in a matter of weeks that was transformed into a temporary suspension of them. Expecting the easy disappearance of “transitory” factors, that Fed pause was to be followed by the second half rebound and eventual if careful resumption of the prior plan.
But instead of renewing the “tightening” trend for monetary policy, poor Jay Powell has to try to explain now three rate cuts where that was supposed to have been. Even the most optimistic among you will have to ask what has happened to the unmistakable second half rebound

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The Big Risks Left (and Right) In Europe

22 days ago

Another local election in Germany, another stunning defeat for the ruling center. How many more of these does anyone need before they realize the electorate is going to keep migrating toward the poles? And it all stems from the one reason; there is no and has been no economic growth. But because the so-called establishment has insisted the economy is booming, or it was, people are doing what people always do.
They look for someone, anyone who can give them a plausible explanation for a world that doesn’t fit the conventional narrative.
The hustings in the German state of Thüringen have concluded with a plummet in support for Angela Merkel’s CDU party. The winner, or leading the vote share, was the far-left Die Linke gathering about the same proportion as in the prior election. But while

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There’s No S-L-R in R-E-P-O

22 days ago

JP Morgan’s CEO Jamie Dimon has been running around Washington claiming that mid-September’s repo rumble was the result of the post-crisis regulatory environment. He now says that his bank had the spare cash and was willing to cash in on double digit repo rates but it was government rules which prevented that from happening. It’s unclear (but we can, and I will, guess) why he didn’t make the same claim and warn everyone on Friday, September 13, before the seasonal low point in liquidity that everyone knew was there.
It wasn’t until quite a while afterward during that period when a stunned financial world was still trying (and failing) to make sense of what had happened.
You probably won’t be surprised to learn that this isn’t the first time Wall Street has complained about these very same

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More Points For, And Pointing To, The Midpoint

23 days ago

It’s not surprising that the Census Bureau would report another weird sideways trend in wholesale sales. After all, the agency has already produced that kind of pattern in the related data for durable goods. For reasons that aren’t going to be explained, economic activity across the supply chain from producers to consumers has been curtailed. That hasn’t mean outright shrinking in seasonally adjusted forms, but it also doesn’t mean growth, either.
I’m guessing there will be less sideways once the next benchmark revision is released next year. Until then, we have the data we have. And according to that data, wholesalers are running out of patience.

Today the Census Bureau reported its advanced figures for the inventory side of wholesale trade. More complete estimates along with preliminary

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The Midpoint

23 days ago

The idea of a midpoint can be misleading in that we might immediately think of one in terms of time. The middle being exactly in the middle, halfway from the beginning while also halfway to the end. A midpoint need not be so pedant. In looser usage, it can instead denote merely the separation in between two otherwise irregularly spaced trends.
Trade wars and QE’s, not-QE’s and confidence. For the longest time during 2019, the global bond market had prevented the itchy desires of many in position of authority to declare a complete end to the “softness.” Nothing ever goes in a straight line, but for a near solid nine months interest rates almost did. Lower rather than higher, the direction of rates forced the world’s clique of economic officials to shelve their sunshine.
It was never going

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Somehow Still Decent European Descent

26 days ago

How times have changed. In the middle of 2018, we were told the risks to the global economy were all tilted to the upside. If central bankers weren’t careful, they chanced an uncontrollable inflationary breakout, the kind that would make the last few years of the 2010’s look too much like the 1970’s. Always eager to bottle up the inflation genie, Germany out of everyone actually welcomed negative factors as they built up during the year.
From last August:
In spite of extraordinarily supportive monetary policy, the euro area economy is showing a considerable, and broad-based, loss of growth momentum since the beginning of this year…
Some German government officials see nothing wrong with that. They are alarmed, instead, by a strong monetary stimulus provided by the European Central Bank and

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The Fed and PBOC: Joined At The Zoo

26 days ago

The Federal Reserve wasn’t the only major central bank conducting open market operations (OMO’s) this week. On the other side of the Pacific, the People’s Bank of China (PBOC) had been, too. Big ones. And in both places, nobody really seems to know what to make of them even though they are actually connected to the same offshore dollar problem.
Increasingly illiquid markets and more active central banks. The latter doesn’t fix the former, it’s an advertisement.

How's it going in repo?
ICYMI, the Fed announced today a big increase in O/N caps to $125bln, and term operations upcoming will be up to $45bln.
You know, nothing to see here. Perfectly normal. Totally under control.https://t.co/71qaVnUuwc pic.twitter.com/Y6GBCqnQYD
— Jeffrey P. Snider (@JeffSnider_AIP) October 23, 2019

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Downward Home Prices In The Downturn, Too

27 days ago

The Census Bureau reported today New Home Sales remained at a better than 700k SAAR in September following the big jump over the previous few months. Though the number was slightly lower last month than the month before, it wasn’t meaningfully less. As discussed yesterday, while that might seem the Fed’s rate cut psychology combined with the bond market’s pessimism (reducing the mortgage rate) is having a positive effect, I don’t see it that way.
From yesterday:
More than interest rates, perhaps the biggest factor has been prices – especially the price at which developers are able to sell off their inventory. Like any other kind of business, home builders have to manager theirs, too, and only have a few tools at their disposal in which to do it.
In a pinch, if demand tails off, you slow

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More Down In The Downturn

27 days ago

Flash PMI’s from IHS Markit for the US economy were split in October. According to the various sentiment indicators, there’s a little bit of a rebound on the manufacturing side as contrary to the ISM’s estimates for the same sector. Markit reports a sharp uptick in current manufacturing business volumes during this month.
The manufacturing index came in at 51.5, up from a revised reading of 51.1 in September based almost entirely on the production subset. But at the same time, a decided drop in order backlogs remains the same cause for concern.
In other words, activity ramped up for whatever reason in October, but there isn’t any new business behind it to likely keep it going. It’s not, therefore, a rebound so much as noise and regular high frequency volatility.

The news in the more

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The Spread of Collateral, Credit, and Spreads

28 days ago

When we talk about money dealers (not just primary dealers) and liquidity, we aren’t just zeroing in on the repo market. Money market conditions such as what we can observe in the part of the global repo market that ends up hitting the tape can be helpful in assessing overall liquidity. It isn’t, however, the complete picture.
If money dealers are shy in repo, where else might they be reluctant to willingly add their resources (balance sheet capacities)? Whether we fully appreciate it or not, we count on them to step in during good times and bad in many other places. Other key parts of the fixed income system – Eurobonds included.
Liquid asset markets, as separate from liquid money markets, are those where any significant increase in selling or buying pressures don’t push prices too far in

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