Things That Have Caught My Eye Lately – Sept, 2019

This post will be an all encompassing update of things that have caught my eye over the past month.  

The ECB, the IMF & Christine Lagarde

Christine Lagarde, the head of the IMF, was selected to be the next president of the European Central Bank (ECB) and secured the backing of the European Parliament earlier this morning.  I find it very interesting they have decided to select a lawyer from an institution that does restructurings and provides bailouts to failing nations to be the head of the ECB.  I suppose that’s the message from the European bank index which is trading at multi-decade lows… Might we see some major European bank restructurings soon?

It also partially explains why so many European government bonds are trading at negative yields.  After the 2012/13 Cypriot financial crisis where they decided to do bail-ins, they changed banking regs to allow for future bail-ins in Europe for depositors with money over 100 thousand euro in the bank.  So if you’re a company that has 1 million euro or even 100 million euro on the balance sheet (like most large caps do), do you risk losing it if (when) the banking system is restructured?  Or do you put it in German governments bunds at -0.50% but essentially guarantee the principal?  It’s a small tax to insure your money isn’t lost and is a big reason why the European banks are still struggling.

And as global bond yields are pushed lower and further into negative territory, crushing real yields, gold continues to rise in unison.  

Silver and Platinum have also joined the party over the past few weeks, which, in my view, confirms the breakout.  This is starting to look like the early stages of another multi-year run and my post from earlier this year has aged very well.  It’s also important to understand that once bonds have little return potential left in them, gold becomes the default flight to safety trade.

The Fed

Former New York Federal Reserve Branch governor Bill Dudley wrote an opinion piece on Bloomberg last week that was very political and basically suggested the Fed should go against Trump so as to not help him win the 2020 election.  At a time when people are already questioning the Fed’s independence, this was bold and probably a mistake.  If central banks become political utilities, we are fully into the end-game playbook.

US Stocks

2910 was the line in the sand for the S&P 500’s monthly trend in August.  I don’t think it was a coincidence that we spent the entire month oscillating back and forth around that price.  

Well, the tricky thing about uptrends is that you have to continually climb higher to maintain the trend or else it breaks.  So the line in the sand for September now climbs to 2960.  

The first half of September tends to be a seasonally strong period so I wouldn’t be surprised to see us trade higher back toward 3000 but things get tough in the back half of the month.  We’ll be entering the stock buyback blackout period for many companies as we head into earnings season in October and I’m expecting a lot of liquidity to get drained from the markets this fall as the Treasury replenishes their reserves on top of the already scheduled new issuance.  The Treasury is likely to issue between $700 and $800 billion this fall and this is going to suck a lot of liquidity out as primary dealers are forced to buy the bonds and that money has to come from somewhere.  We’re already seeing stresses in the money markets so if this issuance causes bank balance sheet constraints and a drop in the stock market, I honestly think you could see the Fed step in to buy treasuries again (QE) as early as the end of this year.  

Hedera Hashgraph

Last fall I wrote about Hedera Hashgraph, a new cryptocurrency based network that I believe is going to be the real deal.  You can read that post here.  They recently announced that they’re taking the network live on September 16th.  This is when decentralized applications (which the cool kids call dApps) will start running and anyone will be able to buy the cryptocurrency (called HBAR). 

Last week they also announced that the newest members to join their governing council are IBM, Tata Communications (India), Boeing and FIS Global.  These are in addition to Nomura (one of the largest Japanese banks) and Deutsche Telekom.  The governing council will ultimately have 39 members.  These are very serious global companies that Hedera is bringing on board and I continue to be impressed by everything they are doing.

I just thought I would bring this to everyone’s attention since it’s pretty exciting stuff.  It’s clearly the way the world is moving in terms of technology.  You can read more about it on their website here.  I personally participated in their early network testing and plan to be pretty involved with the main network and cryptocurrency once live.   

Thanks for following!

-Nick