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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

COT Blue: Distinct Lack of Green But A Lot That’s Gold

1 day ago

Gold, in my worldview, can be a “heads I win, tails you lose” proposition. If it goes up, that’s fear. Nothing good. If it goes down, that’s collateral. In many ways, worse. Either way, it is only bad, right?
Not always. There are times when rising gold signals inflation, more properly reflation perceptions. Determining which is which is the real challenge. Corroboration and consistency are paramount.
Gold had been rising in impressively steady fashion since the second week in October. During that time, pretty much everything had been in disarray. The more reasonable assumption was fear gold rather than reflation. No green shoots here.
Then, abruptly in February, gold stops. The week following that local peak near $1350, FRBNY reported a noticeable increase in repo fails (shown below). By

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China Doves

2 days ago

A little less than three weeks ago, the overnight unsecured money market rate for Chinese renminbi (RMB), SHIBOR, had fallen sharply to 1.417%. This was among the lowest in history, though it has been happening more frequently since last summer. That sounds like a good thing, only the low rates don’t ever last.
Instead, over the next eight market sessions O/N SHIBOR skyrocketed to just about 3%. Fixed at 2.998% last week on the 17th, it was the highest in four years going all the way back to the eventful month of April 2015.

This kind of volatility especially at the shortest maturity suggests limited and temporary capacity for spare liquidity. It is the result of a titanic struggle to maintain control. The PBOC has had better success at term, but perceptions about the shortest maturity

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Eurodollar University – The Overview

2 days ago

If you haven’t had a chance yet, head over to MacroVoices for my latest presentation with Erik Townsend. A rerun of our Harvard appearance, it’s an overview of the major points from how we got here to really understanding and appreciated where is here.

Here is the MacroVoices page.
And the same on Youtube.

Some depth and details behind the overview:
Part 1
Part 2
Part 3
Epilogue 1
Epilogue 2

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The Eurodollar, Unfortunately, Is What Is Rebalancing China’s Services Economy

2 days ago

If the “equation” CNY DOWN = BAD is valid, and it is, then what drives CNY downward in the first place? In conventional Economics, authorities command the currency to affect the level of exports. In reality, that’s not at all how it works.
The eurodollar system of shadow money is almost purely calculated risk versus return. Before August 2007, everywhere there was believed (far) more return than risk. It’s the nature of bubbles. In the immediate aftermath of 2008, or Euro$ #1, perceptions were changed first by Bear Stearns before Lehman reinforced the shifting paradigm. Dealers for the first time began to appreciate monetary risks, leaving expected returns in the developed world nowhere near enough (what was called the “new normal”).
Opportunity in emerging markets especially China,

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Federal Funds Rate Is Communicating (Again)

3 days ago

It is the shadows what really matter. A big enough problem in them would affect pretty much everything, including far off, out-of-the-way places like federal funds. Thus, if we observe weird things going on there we can infer more serious issues back where it does mean something.
In 2013 and 2014, the Federal Reserve was hugely optimistic. FOMC officials didn’t always come off that way in public. They are required by their positions to be outwardly reserved, so as Ben Bernanke and Janet Yellen began tapering QE’s 3 and 4 they more quietly started to think ahead. To them, the US economy looked poised for full recovery. It had taken a long time, a lot longer than any of them thought, but in 2014 especially here was their chance.
As such, authorities had to contemplate what the world would

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PMI Eruption

6 days ago

As noted yesterday, what’s typically behind these hopes about “green shoots” is a central bank, more often than not more than one central bank. In 2019, the Fed’s pause isn’t the only supposed dovish turn. The ECB is back at it, having canceled its rate liftoff. And the PBOC is doing things that nobody ever cares that much to truly understand.

Maybe it takes time for all that to work its way into the economic mix. Economists feel monetary policies come with a lag, which is why central bankers (who are all Economists) always have to look ahead. If only they were better at doing so.
Then again, perhaps monetary policy isn’t very accommodative no matter what the setting, or change in setting. Dovishness makes a nice news story, plays really well on CNBC, but that doesn’t necessarily mean it

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Easter Doesn’t Change Curve Crazy Retail Sales

6 days ago

Nothing will ever compare to China’s New Year Golden Week holiday for challenging economic statistics. Since the celebrations are not affixed to a specific point on the calendar, floating around back and forth some years between January and February, it makes making comparisons of those months particularly tricky.
For the China’s Big 3 statistics, industrial production, retail sales, and fixed asset investment, Chinese authorities don’t bother trying. They wisely just combine the two months together.
Over here, in US and elsewhere we can experience similar holiday-induced problems around Easter though nowhere to that extent. This year is one year when that will be the case. The holiday itself fell on April 1 last year, which for consumer spending supposedly meant an uptick in activity

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Only Partial Springtime Sentiment Shift, ECB Edition

7 days ago

At last week’s ECB’s press conference, the central bank’s President Mario Draghi was both downbeat and upbeat. As to the former, he acknowledged that Europe’s economy wasn’t working out the way they’d all hoped (and repeatedly promised). Despite the disappointment, Draghi wasn’t completely deterred.
This growth scare wasn’t really European, he said. China, trade, and a bunch of other things from outside Europe (offshore?) were to blame. And contained in that view was the good news as Mario Draghi sees it. He responded to one reporter’s question about a possible 2019 recession by reiterating the transitory nature of these unexpected issues.
At the same time, they [the ECB’s Governing Council] acknowledged also the underlying strength of the economy, the fact that some of these temporary

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Springtime Sentiment Shift, Germany Edition

7 days ago

Germany’s ZEW survey became the latest to pick up a pick up in sentiment. This particular appraisal had been one of the first early on last year to suggest a beginning slide toward downturn. In its latest reading for forward expectations, the index registered +3.1 this week. It was both the highest and first positive reading since last March.
Green shoots!
This contrasts with the other part of the ZEW, surveyed responses gauging sentiment about the current situation. This other one fell to just +5.5, the lowest since November 2014 and around the same low level as the last time Germany experienced outright contraction. It continues a summer-time slump that indicates the German economy may be on the doorstep of one already. If Germany, then the rest of the global economy.

So, which one is

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China’s Blowout IP, Frugal Stimulus, and Sinking Capex

8 days ago

It had been 55 months, nearly five years since China’s vast and troubled industrial sector had seen growth better than 8%. Not since the first sparks of the rising dollar, Euro$ #3’s worst, had Industrial Production been better than that mark. What used to be a floor had seemingly become an unbreakable ceiling over this past half a decade.
According to Chinese estimates, IP in March 2019 was 8.5% more than it was in March 2018. That was far more than was expected, and much improved from February’s record low. It was so far above what anyone was thinking, and sharply contrasts with recent data on Chinese imports (four straight monthly negatives), the blowout (or what counts for one nowadays) isn’t being uniformly treated as the usual seasonal green shoot.
Along with Q1 2019 GDP which

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The Rest of February TIC

8 days ago

The rest of the TIC data was relatively straightforward, at least in viewing it as a proxy for monetary conditions offshore (spilling over, as EFF, onshore). Through February 2019, the usual: shortage of balance sheet capacity, banks cutting back cross-border US$ liabilities (except for resales), foreigners selling US$ assets as a consequence. The official sector selling the most and most continuously.

It is worth noting that the past six months have, according to the TIC figures, been among the worst in the series. The most selling, suggesting at the very least a pretty severe degree of global monetary tightening even two months into 2019.
On a cumulative basis, 6-month totals, overall selling is nearly as much as the worst of 2015-16. In terms of bank liabilities, you have to go back

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Green Shoot or Domestic Stall?

8 days ago

According to revised figures, things were really looking up for US industry. For the month of April 2018, the Federal Reserve’s Diffusion Index (3-month) for Industrial Production hit 68.2. Like a lot of other sentiment indicators, this was the highest in so long it had to be something. For this particular index, it hadn’t seen better than 68 since way back in March 2010, back when the economy looked briefly like it might actually recover.
And like March 2010, the altitude has proved entirely too short-lived. Starting in May 2018, sentiment began to creep a little lower. These indices tend to be very noisy month-to-month, but the overall directly has become pretty obvious as further months unfolded. The latest monthly reading, for February 2019 (the diffusion estimates are one month

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Eurodollar University: Epilogue 2, TIC & The Evidence For The Collateral Bid For Bonds

9 days ago

They said May 29 was Italians. I say it was collateral. Offshore repo collateral, to be specific. Because we keep seeing May 29 show up everywhere, what happened that day matters. Getting the story straight allows us to properly analyze the craziness in between then and now. From that, we hope to get a better sense of what comes next.
Two things stand out immediately with regard to May 29. The first is the facts of that day; bond markets around the world were suddenly and sharply bid. You can call it flight to safety or liquidity preferences. Whichever you choose, the yields for the safest, most liquid instruments plummeted. Not only that, they did so at a time when by booming economy standards they should’ve been trading harshly the opposite way.
The second is how May 29 was officially

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Eurodollar University; Epilogue, It’s Supposed To Be Really Easy To Print Money

9 days ago

In September 2012, the Federal Reserve’s third QE wasn’t the only major “rescue” of note. The Europeans had benefited from Mario Draghi’s “promise” earlier that summer but that was a little too vague. So, the various governments cobbled together sufficient backing to launch the European Stability Mechanism (ESM).
This replaced two other prior “rescues”, neither of which are worth mentioning. The ESM was going to be something like Europe’s lender-of-last-resort; borrowing funds in private markets at reasonable costs and then using those funds to bailout whichever southern EU state was most in trouble at any moment. Only, with the ESM the word “bailout” was never to be used.
European politicians were concerned about the growing stigma of official action. Earlier in the same month, the ECB

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Coloring One Green Shoot

10 days ago

China’s Passenger Car Association reported last week that retail sales of various vehicles totaled 1.78 million units in March 2019. The total was 12% less than the number of automobiles sold in March 2018. This matches the government’s data, both sets very clear as to when Chinese economic struggles accelerated: May 2018.
For decades, there was just one way for China’s car market: up. Once the trend abruptly reversed 10 months ago, the free fall in the world’s largest market has shown no signs of easing.

This is not the message being received especially here in the West, especially over the last week or so. It is the season for green shoots, which means that for the most part serious problems will be overlooked in the determined hunt for positive numbers. Any positive number.
Even in one

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Eurodollar University: Part 3, The Real Science of Money

12 days ago

The repo rate above the federal funds rate is an assault on everything we’ve been taught. There is supposed to be a risk-driven hierarchy that governs financial markets, every single one of them. The global economy depends on it. If you are judged to be a higher risk, that’s who pays the higher interest rate. But repo is lower risk.
How can any participating financial institution sit there and let a secured interbank rate cost so much more than an unsecured? What does that mean?
That’s the big problem here. Trying to filter these real-world results through the prism of what you’ve been taught in Economics class, the shorthand that persists associated with being an investor (don’t fight the Fed!), or what passes for conventional economic wisdom renders these signals useless. It seems

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Eurodollar University: Part 2, Swaps First

12 days ago

We’ve seen this all before. Three times. When things started to look better in the Spring of 2015, for example, “better” was more so a term of art. Another way of saying green shoots is “not as bad” or “no longer accelerating to the downside.” These have very different connotations and therefore to make an optimistic case there needs to be optimistic language.
It is harder to hate on the colorful imagery of spring.
What really happened was cycles within cycles. The “rising dollar” period then, like the Panic of 2008, was actually two parts. These eurodollar events or squeezes are big process changes. They don’t happen all at once; like trying to turn the biggest ships, it takes a lot of time and once they get going in a certain direction you can’t just turn back the other way.
Swap spreads

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Eurodollar University: Part 1, Not Green Shoots, Shadow Prices

12 days ago

It is, if you haven’t noticed, that time of year again. ‘Tis the season for green shoots. In the Northern Hemisphere, winter gives way to spring. The flowers start to bloom and humans living here are naturally optimistic for the change of seasons. There is a reason how for ages this time of year has been associated with rebirth.
In raw economic terms, green shoots have become synonymous with the expression “growth scare.” Autumn uncertainty turns into winters of discontent. Unsure what to make of them, people typically go with what they know (or think they know). Economic growth is a given, therefore any negative association must be temporary; dare I say transitory?
This is how it went in 2014-15. Fall ‘14 was ominous not just in the sudden appearance of minus signs but more so because of

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Labor Slowdown Already; Another Account Falls In Line of May 29

13 days ago

May 29. May 29. May 29. It keeps showing up everywhere. Not only does it appear as an inflection on so many important market charts, we keep finding it in economic accounts, too. There is so much to corroborate what can only have been a real and striking event.
This contrasts, of course, with the mainstream narrative. Last year the US economy in particular was incredibly strong. Or, that’s how it was described even after that date. At one point, referring specifically to May 29, the FOMC purposefully tried to suggest the bond market was mispricing the real economy. From their view, there was no reason for another intense burst of “strong worldwide demand for safe assets.”
One of the primary reasons to dismiss that demand was (a few) labor market statistics. The unemployment rate, yes, but

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The Long Running Circus of Uncertainty Circles Back

14 days ago

Most of the best circuses used to have three main rings. Nowadays, we can only get the occasional show for two on the same day. It is a rare treat when central bankers from two major jurisdictions compete for the world’s misapprehending attention. Today is one of those days: Mario Draghi and the ECB as the warmup act for the Federal Reserve’s release of its last minutes.
Draghi is in rare territory, coming very close to pulling a Trichet. Jean-Clause was, after all, Mario’s predecessor unceremoniously asked to “retire” in late 2011. Why late 2011? Every reason.
Specifically, though, Trichet saw a huge, powerful recovery that year. Predicated upon his own brand of monetary genius, the European economy was going to really boom (where have we heard this before?). By 2012, he thought, it would

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Inflation Is (Still) Not About Consumer Prices

15 days ago

To most people, this inflation business seems pretty silly. There are those who argue that any inflation index whether the CPI, PCE Deflator or some other approach yet to be devised can accurately capture the concept. And they are absolutely right to question the enterprise.
Most people feel inflation in the things they do most; food, health insurance, the cost of raising children, etc. Experience doesn’t always match the government’s posted numbers. This isn’t some conspiracy, it’s the difficult maybe impossible nature of the assignment.
Monetary inflation is defined as the broad and sustained increase in consumer prices. The key word is “broad”, as in not just in certain pieces but across the entire consumer bucket. This is what led to the CPI in the first place, the attempted recreation

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Why 2011

15 days ago

The eurodollar era saw not one but two credit bubbles. The first has been studied to death, though almost always getting it wrong. The Great Financial Crisis has been laid at the doorstep of subprime, a bunch of greedy Wall Street bankers insufficiently regulated to have not known any better.
That was just a symptom of the first. The housing bubble itself was more than housing. What was going on in the shadows wasn’t bounded by national borders or geography. Some called it “hot money”, to others it looked like capital flows. To Ben Bernanke, he didn’t know what it was, either, enough of it to say that there was something taking place out there beyond the US boundary.

Bernanke in 2005 called it a global savings glut. If only he had known better; it was his job to know better.
On August 9,

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IMF Cancels Globally Synchronized Growth, Confirms The Worst Case

16 days ago

The IMF becomes the latest mainstream organization to abandon the recovery. It wasn’t really much of one to begin with, mostly just the hope that an uptick in growth would lead to the long sought, and necessary, completion. Globally synchronized growth in 2017 was supposed to mean a plausible pathway toward it.
The IMF’s World Economic Outlook (WEO) said in October 2017:
The earlier projected increase in growth is strengthening. Notable pickups in investment, trade, and industrial production, coupled with stronger business and consumer confidence, are supporting the recovery.
Within months, maybe weeks of publishing that report we had already witnessed the first major signs of reversal. The eurodollar system exhibited all the wrong sorts of tendencies, from repo markets to cross currency

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US Factory Orders Lower, Inventories Higher

16 days ago

It’s the forward-looking indicators right now that look the worst. This is why we think Euro$ #4 is still closer to its beginning than its end. Even though it may be entering its fifth quarter of existence here in Q2 2019, these things are long processes that take a lot of time to fully play out.
Euro$ #3, for example, you can date its opening to at least the start of 2014 (CNY) if not the middle of 2013. It didn’t fully complete the (mini) cycle until early 2016, the middle of that year at the latest. In total, somewhere between two and a half and three years beginning to end. And throughout every bit of that time, the US economy in particular was declared to be “strong.”
In manufacturing during Euro$ #4, which is where Euro$ #3 really showed up in the domestic economy, producers are

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The Forced Exile Of Bond Vigilantes

16 days ago

Japan is the very model of fiscal irresponsibility. If ever there was a bond vigilante, surely they would have a Japanese address.
At the end of what was the Bank of Japan’s 133rd fiscal year, on March 31, 2018, Japan’s central bank reported total assets of ¥528,285,679,854,140. Of which, ¥448,326,107,324,120 was Japanese government bonds (JGB). Officials became increasingly confident these were sufficient balances whereby the bank’s top managers could openly plan an end to the programs raising them.
By my unofficial count, there have been ten distinct varieties of LSAP’s dating back to the first one in March 2001. Alternately, given how many times each has been adjusted, you can make the case how the Japanese have endured 23 QE’s over the years. It has been the last three, those that fall

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‘Bond Trading’ Exodus, The Global Economy’s Q4 Landmine

19 days ago

It isn’t just US or European banks which are shrinking. The nature of this post-August 9, 2007, world is just that – global. Sure, there are regulations which have made investment banking more expensive. But there isn’t a rule or law that Wall Street (really Lombard Street) wouldn’t “discover” a way to circumvent it if they all thought it was worth the trouble.
Bond trading, a euphemism for all this FICC money dealing stuff, didn’t need an LCR to look at the world differently. It only needed Bear Stearns.
There is only risk where there used to be only return. In an environment where everyone largely agrees (outside of a few outliers) with this returnless risk scenario there really is no other course. Being on the wrong end of such asymmetry leaves only the one long run option. You can

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Euro$ #4 Calls Off The Bond Rout, Even Though It Means Fiscal Situations Likely To Grow Worse Still

19 days ago

Critics of government debt, a group which really should include every taxpayer, like to point out how governments prefer to pay back that debt with hugely inflated currency. You don’t pay it off so much as inflate it away. Change the convertibility number for your local currency and, voila, a much more manageable credit profile emerges.
Only, there are often grave economic consequences for turning in this direction. Many see this as inevitable, underlying a large part of the dollar-is-dead thesis. Interest rates have nowhere to go but up, and the dollar has nowhere to go but down. The more time passes, the greater the imbalances in those directions.
Historically, though, that’s not really what happens all that often. In the old, old days, debt was given a jubilee; that is, governments just

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Payrolls: Fragile Friday

20 days ago

Milton Friedman was right about a lot of things. He was wrong about quite a bit, too. The stuff where he erred is what central banks now do in his name. The activist central bank is an outgrowth of monetarism, the academic approach to rethinking the Great Depression after Friedman and Anna Schwartz published A Monetary History.
Toward the end of his life, he was more than a little annoyed. In one of the last interviews he gave just before he passed away in 2006, he quite vividly explained what would become one of the world’s primary deficiencies. No accountability.
The difficulty of having people understand monetary theory is very simple—the central banks are good at press relations. The central banks hire people and the central banks employ a large fraction of all economists so there is a

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External Demand, Global Means Global

20 days ago

The Reserve Bank of India (RBI) cut its benchmark money rate for the second straight meeting. Reducing its repo rate by 25 bps, down to 6%, the central bank once gripped by political turmoil has certainly shifted gears. Former Governor Urjit Patel was essentially removed (he resigned) in December after feuding with the federal government over his perceived hawkish stance.
Shaktikanta Das, a career bureaucrat with lengthy connections to Prime Minister Modi’s government, was appointed as the new leader for RBI to replace Mr. Patel. Das has brought with him a new policy framework for the central bank, which was really the point.
The RBI’s statement makes plain what’s to blame:
[The] domestic economy is facing headwinds, especially on the global front. The need is to strengthen domestic growth

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Phugoid Dollar Funding

21 days ago

On August 12, 1985, Japan Airways flight 123 left Tokyo’s Haneda Airport on its way to a scheduled arrival in Osaka. Twelve minutes into the flight, the aircraft, a Boeing 747, suffered catastrophic failure when an aft pressure bulkhead burst. The airplane had been improperly repaired from a tailstrike (the tail of the aircraft actually hitting the runway pavement) seven years earlier, and therefore wasn’t sufficiently robust to maintain itself from the wear and tear of years compressing and decompressing the cabin.
Upon rupture, the 747’s passenger compartment rapidly decompressed which flung debris toward the rear of the aircraft. It severed all four aft hydraulic lines and even kicked loose the vertical stabilizer.
With the loss of these control surfaces, there was no way for the pilots

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