Sunday , November 18 2018
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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

TIC: You Really Can’t Say Enough About Not Enough Collateral

2 days ago

It makes sense that those surviving in the securities lending business would look overseas for inventory. If you are a broker dealing in rehypothecation, you go where the portfolios are stocked with pristine assets. Who holds the most UST’s on the planet? It used to be insurance companies (and their subs) who were more than willing to lend them out for a spread.
Long before the crisis, foreign institutions had begun stockpiling UST’s and other “reserve” assets like them. For awhile during the housing bubble, US agency debt and even some carefully sold versions of MBS were accepted as the best regardless of where they ended up as “owned.” Overseas entities, mostly sovereign wealth funds rather than strictly private banks, gave securities lending brokers another silo of collateral from which

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Official Hedging Begins (Again)

2 days ago

The term “overseas turmoil” didn’t ever make into the official language, it was only through careful innuendo that things like FOMC meeting minutes would ever refer to the idea. It was a different story in the media, where the phrase gained its own currency. Ironically, it was the US currency behind it, which nobody could explain at the time. The most dramatic announcement to that effect came in August 2015 under Chinese authority.
Before that summer, everyone was sure the first rate hike was going to be September 2015 at the absolute latest. There had been rumors (Yellen’s six-month debacle) it would come perhaps as early as June, being six months following the expected full taper of QE’s 3 and 4.
Then CNY.
Two days after Wall Street was liquidated in a global selloff, the TV cameras were

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In A Booming Economy, You Make And Sell Cars

2 days ago

In September 2015, the US EPA issued a notice of violation to Volkswagen. The European carmaker had, apparently, engineered its turbocharged direct injection diesel engines to turn on the vehicle’s emissions control only during testing. Discrepancies had been discovered by California regulators the year before, many involving European makes and models. The Volkswagen emissions scandal touched off a global regulatory fury.
The end result so far has been the Worldwide Harmonised Light Vehicle Test Procedure (WLTP). The name is misleading in the one sense because it hasn’t been adopted worldwide, just Europe. It is a new way to test vehicle emissions, though, longer and more intensive examinations of cars and trucks outside of laboratories on actual roads.
These new much stricter standards

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Retail Sales Marked By Revisions

3 days ago

Retail sales rebounded 0.8% in October 2018 from September 2018, but it’s the downward revisions to the prior months that are cause for attention. The estimates for particularly September were moved sharply lower. Total retail sales two months ago had been figured last month at $485.8 billion (unadjusted) originally, but are now believed to have been just $483.0 billion. The difference takes the growth rate underneath 3% for the first time since February 2017.
On a seasonally-adjusted basis, these revisions now suggest retail sales declined slightly in each of the prior two months before October. September storms are being blamed for weakness, but only Florence made US landfall during that month. In October, retail sales advanced despite disruption caused by Michael.
Gasoline sales in

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In A Booming Economy, You Borrow And Build

3 days ago

We often forget, the middle 2000’s was not uniquely a housing bubble. It commanded our attention because that’s what ended up affecting so many Americans personally; whether foreclosures or just the negative “wealth effect” of declining real estate values. This was also pretty easy to understand, an asset bubble though complicated in its full manifestations intuitive as a result.
There were others, though, a proliferation of financial imbalances due to the global nature of monetary explosion. The EM corporate space was another, as was US commercial lending.
Commercial and Industrial Loans (C&I) would be late to the party, not beginning to rebound until after the “giant sucking sound” had taken a chunk out of domestic demand for credit. From May 2004 to October 2008, the Federal Reserve

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The Obvious Politics of Downturn(s)

4 days ago

There was more than enough evidence that QE didn’t work fifteen years ago. The Japanese had accumulated these monetary experiments at the dawn of the 21st century. And there was even a time when US and Western central bankers were skeptical. What happened was 2008; a dislocation so big and widespread they had no choice but to embrace the failure for lack of any other options.
Once they did, what was most charitably ambiguous suddenly became genius. When the Japanese did these things, they were suspect; when Western central bankers did, they were awesome. Same planet, different worlds.
Only, the Japanese central bankers kept doing them, too. It’s much harder to hide in Japan than it has been in the United States or Europe. The decimated economic landscape there leaves little open to

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China Softly Weakens Some More

4 days ago

There was nothing really shocking about China’s monthly economic statistics for October 2018. The Big 3, Industrial Production, Retail Sales, and Fixed Asset Investment, all continue along in the same way. The Chinese economy is not crashing, it may be slowing, but most of all there isn’t any more upside. It’s the last one that is important.
As such, Communist officials are driving toward another mandate, somewhat in a panic, where the goal is not really growth. In a sense, they seem intent on managing the decline as best as they might, realizing it’s not going to get better anytime soon (“L”) but not wanting the downward slope to accelerate too far toward an impossible-to-control scenario (the so-called hard landing).
I’m not sure it’s possible, though at this point what other choice may

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Live By The Oil Price…

4 days ago

It was like a scene out of the seventies. Americans lined in their cars all over the Southeast hoping that their local filling station would have gasoline. There were documented reports of shortages as far away as the Dakotas. This wasn’t typical behavior, fortunately, so it couldn’t have been too much like the oil embargo era. Instead, in early September 2005, the blame fell on Mother Nature rather than OPEC.
Hurricane Katrina was a total disaster. What happened in and around New Orleans was a national tragedy. And the storm kept going. In its path people were rushed into emergency situations, which, if you’ve ever been in an area when a hurricane hits, means filling up every spare can and car with motor fuel.
The disruption in energy was of such a scale that for only the second time the

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China’s Pooh Lesson

5 days ago

It’s one of those “nothing to see here” moments for Economists trying not to appreciate what’s really going on in China therefore the global economy.
The slump in China’s automotive sector dragged on through October, with year-over-year sales down for the fourth straight month.
Auto sales last month were off 12% from a year earlier to 2.38 million, the government-backed China Association of Automobile Manufacturers said Friday. With that, 2018 turned negative: Sales for the first 10 months were down 0.1% from 2017.
Chinese auto sales haven’t declined on a full-year basis since its mild embrace of market forces (in the form of Special Economic Zones). Around the same time as the introduction of those, the Chinese monetary system had to accept the eurodollar at its monetary base.
One year

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Disproportionate Representation

5 days ago

As we watch Jay Powell’s case dissipate on NYMEX WTI right before our very eyes, we can count on his ideology to try to make it for him in the absence of actual data. Economists will not budge no matter how much stacks against them; nor how many times we have to repeat this very exercise. This will be the fourth, in all likelihood.
Powell is sticking with his views, as is Mario Draghi in Europe, and Economists are falling right in line. Oil may be below $55 today, but inflation is still just over the horizon they will keep assuring us all the way to the bitter end. 
In one camp, you have the likes of Societe Generale SA. The bank sees price pressures building into 2019, fueling demand for inflation protection, in part as investors anticipate more U.S. tariffs on Chinese goods. Morgan

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Approaching the Point of No Return?

5 days ago

At the end of June, the crude curve really got out of hand. WTI futures had returned to backwardation many months before, and then the eurodollar/collateral explosion May 29 sapped some crude strength. Over the following month, curve backwardation would become extreme as the benchmark price seemed ready to skyrocket.
After getting up near $80 a barrel, the price reversed. During the several weeks of weakness, the futures curve remained in steep backwardation – the expectation that the recovery (narrative) would continue whatever any short-term profit taking.

But as prices did rebound through September, there was already trouble underlying. The curve was changing shape, flattening out even beyond normalizing that pretty ridiculous backwardation spike late June/early July.

WTI would nearly

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The Long Shadows

6 days ago

The news was one of those instances when you could see they were trying a little too hard. It didn’t make any sense, not anyway in the context to which it was delivered. On September 21, unnamed German officials were supposedly championing a megamerger in the banking sector. The country’s two largest financial institutions might be brought together to save Germany.
Huh?
Just talking about Commerzbank and its bigger compatriot Deutsche Bank is fraught with nervous energy. It was a bit too cute, however, in that officials are trying to argue that it makes sense to do this now so that the combined whole would supposedly keep the German economy liquid during the next downturn (far off into the future, of course). A matter of prudent planning, you see.
Sure, a bank whose stock was down more

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Converging Labor Trends

9 days ago

It was a forgettable moment. The Federal Reserve’s Chairman at the time, Janet Yellen, was asked about a key economic statistic and she just couldn’t come up with it. In September 2016, Yellen was on Capitol Hill to testify as she usually did about how things were surely getting better. Rep. Frank Guinta wanted to know what that might mean in terms of the labor force participation rate. He wanted to know what it was in the preceding month, but Yellen had to shuffle hastily through a number of papers in order to find it.
It’s easy to draw a blank when answering questions outside prepared remarks. The incident itself tells us nothing about Yellen, except that she was and is like every other public figure. Still, to have spaced on that particular number almost invites reading too much into

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Why Chinese Authorities Are Freaking Out

9 days ago

It’s always a fine line for authorities. There are times when avoiding intervention is more effective than intervention. That’s particularly true when the efficacy of whatever proposed policy is in doubt. If you don’t know for sure that it will work, maybe don’t do it. There are often grave risks associated with plunging forward recklessly.
In other words, officials can and do just make things worse. By pushing the envelope rather than calm markets or the economy they can further enflame them. Crises are never so binary – until they are over. Heading into one, there is so much ambiguity that can either work for you or against you.
Government desperation is one of those where it makes things worse. People may doubt there is a downside or how deep it might be, but if authorities are

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So Close, Yet So Far

10 days ago

The effective federal funds (EFF) rate actually dipped 1 bp last Friday. Having spent the prior eight trading days equal to IOER at 2.20%, it might’ve been heartening for US central bankers under siege. After all, they adjusted that particular policy tool back in June and then in July said this whole EFF thing was due to “special factors” that had long since dissipated. People were starting to question whether they know what they are doing.

But EFF didn’t embark on a downward trajectory this week. Rather, starting Monday it was right back at 2.20%. A one-day, small reprieve was all. This stubbornness, and the ineffectiveness of IOER, is being noticed. From Bloomberg:
“The Fed is in denial,” said Priya Misra, the head of global interest-rate strategy at TD Securities. “If the Fed continues

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China’s (not) SAFE

11 days ago

In another sign of repeating 2015, the Chinese are beginning to mobilize their “reserves” again. Three years ago, in a futile attempt to staunch CNY’s stubborn “devaluation” various government authorities blew through just about $1 trillion. It didn’t work. You would think that everyone could learn from this episode.
I think the Chinese did, which is why in 2017 they engineered the bypass through Hong Kong in order to hide the continued peril; capital outflows in the mistaken parlance of the mainstream. All that changed, unsurprisingly, in January.
At first, unlike 2015, it was a trickle. Only small balances were deployed scattershot suggesting that officials weren’t going to repeat their mistake. Western Economists may still view foreign reserves as insurance against this kind of thing,

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Elections And Morbid Contango

11 days ago

As always, it’s about the whole thing. A true economic boom spreads out real gains to the vast majority of the population. There will always be some proportion of people who are left out. But in the good ones, the true upswings, that share is minimal.
This is the big problem right now, especially as GDP has been positive in a lot of places for a long time. It is what confuses people into thinking there has to be a boom. The sad fact is that economic output all over the world, the US included, hasn’t been near enough to minimize the proportion being excluded from these small economic gains. There are still too many people on the wrong side of the economic divide.
In America, though they go along with the media as to how the economy is described they sure aren’t acting consistent with the

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Harmful Modern Myths And Legends

11 days ago

Loreley Rock near Sankt Goarshausen sits at a narrow curve on the Rhine River in Germany. The shape of the bluff produces a faint echo in the wind, supposedly the last whispers of a beautiful maiden who threw herself from it in despair once spurned by her paramour. She was transformed into a siren, legend says, a tantalizing wail which cries out and lures fishermen and tradesmen on the great river to their death.
While it makes a great story for local conversation, this part of the Rhine is now treacherous for far different reasons. Drought in middle Europe has caused water levels to drop, in places like near Loreley Rock making the river unnavigable. Nearly all freight coming from the lowlands passes through here on its way to Germany’s industrial heartland.
In more ancient times, it

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Still Don’t Get It

12 days ago

Capital ratios are meant to help define a “good bank” for the public. The thought being a bank widely recognized and accepted as a good one will be far less susceptible to a run. But it’s the run regardless of capital ratios that destroys good banks as well as bad. The issue is, by and large, liquidity.
Officials have erred in one part because of how they view the banking system. To them, it’s still 1930 and depositors are the biggest bank concern. Bank regulation remains devoted to convincing the public the system is sound.
Both Lehman Brothers and Bear Stearns were “well capitalized” by all regulatory definitions. Neither is with us any longer because depositors just don’t matter as much. Capital ratios were at best unhelpful, at worst in 2008 a wedge of mistrust. If Bear was really

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BoJ On 2.3%: ‘the decline in the unemployment rate is insufficient’

12 days ago

The 21st century central banker is a unicorn chaser. This has happened by default, a product of too little success despite ever-increasing interventions. In fact, the bigger these policy intrusions become the more likely it is the central bankers will attempt to turn something small into something big. It doesn’t matter that economies are noisy by nature.
The best example is found in Japan. Always Japan. The country’s central bank, BoJ, has been at it for almost thirty years. Five and a half years ago, officials would leave all that past behind with a “novel” approach in the form of QQE. It was an almost immediate failure, boosted in October 2014 just a year and a half into a program that was forecast to exceed its goals within two years.
Central bankers have tried to argue time; they now

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Frozen In Time, The Wrong S-Curve

13 days ago

As usual, Paul Krugman starts out with a serious attempt at answers before detouring into his current profession. Dr. Krugman used to be an Economist, and a pretty good one too (for whatever that’s worth). Nowadays, he employs his New York Times column as a mouthpiece for really blatant politicking. It isn’t even so much an arm of the Democratic party as it is raw anti-Republican.
That’s too bad because by betraying these instincts he ends up doing so much disservice.
He wrote a column back in September titled Botching the Great Recession. The first part is actually serious analysis; the latter not so much. There was a panic and a big economic contraction, and this one was different from those before. He doesn’t do it, but Krugman comes close to putting quotes around “recession.”
Why was

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Big China Change(s): We Are All Losers In The End

13 days ago

Since December 2015, China’s powerful politburo has met nine times to discuss the economy. The Political Bureau of the Chinese Communist Party Central Committee is a group of 25 top officials who control pretty much everything. The politburo’s smaller Standing Committee is the very top echelon of the Communist Party. Members of the politburo are given top jobs in the official government to carry out political policies.
In the prior eight gatherings devoted to China’s growing economic uncertainty, statements released after each signaled the party’s commitment to what Xi Jinping would later clarify as “high-quality” growth. At the 19th Party convention last fall, Xi would first etch his name in the Communist constitution before speaking forthrightly about “rejuvenation”; a term that

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If You Think Trump and Powell Aren’t Getting Along…

16 days ago

If you think President Trump is upset with Federal Reserve Chairman Jay Powell, you should see what’s going on in India. Central bankers had been every government’s close friend for years; a decade even. The relationships were beyond chummy, particularly as many governments celebrated their central bank heroes for heroically heroic actions saving the world from something like a repeat of 1929.
While conventional perceptions were shaped by things like QE and low rates, reality, of course, has been much different. Former Treasury Secretary Henry Paulson recently said people like Ben Bernanke saved us all from that other disastrous fate. Except the US economy is about to complete an entire decade where it has underperformed the Great Depression.

It’s the one headline you won’t see anywhere,

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The Nothing of US Trade

16 days ago

US imports rose sharply (seasonally-adjusted) in September 2018 over August. Both with and without petroleum, the year-over-year gains (unadjusted) were about 9%. September, however, will be the last month of favorable comparisons. Over the next few months last year’s artificial hurricane related surge will move into the base for comparisons.
Exports were up far more modestly, still down from the trade war peak in May.

US demand in 2018 has been unusually tepid. Imports including petroleum have increased just 4.3% (seasonally-adjusted) since last December. That’s an annual rate of just less than 6%, a lackluster result for a year that is supposed to be booming. Excluding oil prices and petroleum, imports are up only 2.7% on the year. That 3.6% annual rate is closer to recession level

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Living With Nothing; Or, ‘If You Don’t Like This One Nothing Is Going To Make You Happy’

16 days ago

On December 5, 2014, the Bureau of Labor Statistics (BLS) reported that in the month of November 2014 nonfarm private payrolls had surged by +321k. Typically bureaucratic, the introduction to the report was unusually blunt. “Job gains were widespread.” The text didn’t come right out and say it so the media did it all for them.
TD Ameritrade’s Chief Strategist JJ Kinahan was pumped, declaring the November numbers, “outside any estimate I had seen even on the high side. Overall this is a home run in terms of jobs created.” There could be no doubt that this was the best jobs market in decades. As such, my absolute favorite quote from that entire period was uttered by PNC Economist Stuart Hoffman.
If you don’t like this one [Nov 2014] nothing is going to make you happy.
The good news wouldn’t

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The Absurd Science

17 days ago

Language is often said to be a living thing. Common everyday usage can and does introduce new words and changes the meaning of existing ones. But this is a gradual evolution, and rarely does the process leap ahead into more drastic alterations.
Central bankers, however, are challenging such preconceptions. They write words that often have specific meanings in everyday custom but use them very differently than they had been before. Transitory is just one example, first introduced four years ago to try to dismiss why certain things weren’t those things; and then after about four years why those things still are those things. If transitory used to mean temporary, the way it is used today is nothing like that in this setting.
The Bank of Japan not be outdone issued its usual policy statement

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Let’s Just Pretend This Isn’t Happening, Again

17 days ago

Why aren’t more people talking about this? It’s a huge development and nary a peep anywhere. The mainstream media is filled with baited expectations for 3% wage growth on Payroll Friday. All eyes are on the labor market, which is a lagging indication, instead of on the oil market, which is forward looking.
As of this writing, the futures curve for WTI has expanded this current selloff. The level of alarming contango has continued to widen, in both amplitude as well as frequency, in just the past few days.

The question at the front was rhetorical. The reason everyone wishes to focus on the labor report is obvious. The wage data in particular outwardly though misleadingly conforms to the idea of an economic boom, at least in the US. The crude market isn’t just saying “wait a minute”, it

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Another ‘Highest In Ten Years’

18 days ago

Upon the precipice of the Great “Recession”, US workers were cushioned to some extent by what economists call sticky wages. Before the Great Depression, as well as during it, companies would attempt to deal with looming economic contraction by cutting pay rates before workers. Nowadays, the intent is reversed; businesses will try to keep core workers by keeping pay rates as steady as possible while instead shedding extraneous employees at potentially a furious pace (see: 2008-09).
The Bureau of Labor Statistics’ (BLS) Employment Cost Index (ECI) captures sticky wages pretty well. In the fourth quarter of 2007, just as the contraction was beginning, that measure of labor costs rose 3.3% year-over-year. That was down only a bit on average, where costs were growing at about 3.6% since the

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China Now Japan; China and Japan

18 days ago

Trade war stuff didn’t really hit the tape until several months into 2018. There were some noises about it back in January, but there was also a prominent liquidation in global markets in the same month. If the world’s economy hit a wall in that particular month, which is the more likely candidate for blame?
We see it register in so many places. Canada, Europe, Brazil, etc. It does seem as if someone flipped a switch right at the beginning of this year. But that isn’t really true. Even in those places just mentioned you could see that there was already something off before 2018. This matched the global eurodollar system which unlike protectionism had broken into clear turmoil as far back as September 2017.
In April of this year, Japan’s Ministry of Economy, Trade, and Industry reported

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Continuously Misidentifying Constant ‘Overseas Turmoil’ Leads To Constant Everywhere Turmoil

18 days ago

Overseas turmoil continues in October. The Chinese government released its Purchasing Managers Indices (PMI) for both manufacturing and services. Each one came in at a multi-month low. The National Bureau of Statistics calculated that the manufacturing version was just 50.2 this month, the lowest level since July 2016. The Non-manufacturing PMI fell sharply to 53.9 from 54.9 in September. October’s index was below 54 for the first time since July 2017.
The direction of China’s economy is no longer in doubt. These sentiment estimates, regardless of their proximity to the 50 line, are consistent with recent economic accounts showing a downturn already underway. Given yesterday’s GDP estimates for Europe, this isn’t an economic development exclusive to China.

The question is why. The most

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