Posts filed under “Think Tank”

A tug of war sometime in the future

In addition to the health of the US consumer’s balance sheet, a key factor in transitioning the US economy from the mean reversion improvement we are now seeing from the awful Q4 and Q1 performance to a healthy, sustainable long term growth rate will be its ability to deal with the consequence of higher interest rates, whether engineered by the Fed at some point and/or by the market in the longer end of the yield curve. With both fiscal and monetary policies having the intentions of inflation, interest rates and inflation expectations will follow like a shadow the direction of the economy. In just the past week, the FNMA 30 year mortgage coupon is up 46 bps, the 10 yr bond yield is up almost 40 bps as is the implied inflation rate in the TIPS to 1.97%. Also, the $ is finally responding positively to the rise in interest rates. With this said, interest rates are still historically low so this conversation I agree is premature.

Category: MacroNotes


July Payrolls fell by 247k, much better than expectations of a decline of 325k and a clear differential from ADP. Net revisions in the prior two months were higher by 43k. A major factor was a decline of 52k in manufacturing, 48k better than expected. The seasonal distortions from the auto companies may have had…Read More

Category: MacroNotes

Random Thoughts Ahead of Payrolls

Good Evening: Reversing its recent trend, U.S. stocks went up this morning before selling off and finishing lower. The S&P 500 broke its 21 session streak — barely — when it fell just more than 0.5% for the first time since July 7. Since the news flow was decidedly mixed, the catalyst was likely nothing…Read More

Category: Markets, Think Tank

NYSE Volume

For a 2nd day, volume in the financials are an extraordinary percentage of overall NYSE trading. Today, Citi and Bank America alone are 25% of total consolidated NYSE volume. Yesterday, Citi was part of a rebalancing and was the excuse for the large volume but amazingly, volume today is almost tracking yesterday’s pace.

Category: MacroNotes

Jobless Claims

Initial Jobless Claims totaled 550k, a large 30k less than expected and down from 588k last week. After the lumpiness in the July data due to the seasonal distortions of auto plant shutdowns that didn’t occur, today’s data is clean according to the Labor Dept. Continuing Claims though did rise by 69k and was 60k…Read More

Category: MacroNotes

BoE ramps up its printing press

While keeping rates unchanged as expected, the BOE surprised many by ramping up their QE policy when they announced they will grow the size of its Gilt purchases by 50b pounds to 175b. They said while both capital markets and economic conditions have shown signs of stabilization, conditions are still fragile. In an immediate response,…Read More

Category: MacroNotes

Trade of the Century?

Paul Brodsky & Lee Quaintance run QB Partners, a private macro-oriented investment fund based in New York.


We advanced our macroeconomic analysis last month to a level we feel confirms the future course of US monetary policy and the consequent likelihood of a highly inflationary outcome.

First, we tweaked the calculation of our Shadow Gold Price (SGP) from Federal Reserve Bank Liabilities divided by official gold holdings to Monetary Base (MB) divided by official gold holdings. (FRB Liabilities are bank assets while Monetary Base, plotted in the graph below, is a truer accounting of money – currency in circulation plus bank reserves held at the Fed.) The switch recognizes that borrowed reserves from the Fed included in FRB Liabilities are self-extinguishing, unlike additions to high-powered MB, which tend to remain permanent throughout all economic environments (and which may be further levered by the banking and shadow banking systems).


The change in our calculation produced a change in value of our Shadow Gold Price, yet we believe this new calculation is more robust and intellectually honest. As you can see from the graph below, the time series for the SGP mirrors the time series of the Monetary Base in the previous graph because the other variable in the equation (official gold holdings) has remained constant.


As the SGP implies, an ounce of gold would fetch almost $6,000 if we lived in a world characterized by disciplined money issuance. In effect, people and governments around the world would have been exchanging their Federal Reserve Notes for gold to the point that it would take 6000 bills to buy an ounce. The Shadow Gold Price solves for the price of an ounce of gold if the US dollar were still pegged to gold and its rise reflects the inflation of the Monetary Base. (Gold used to actually be the US Monetary Base prior to 1971, when the US and other governments abandoned the Bretton Woods Agreement that imposed monetary discipline on their money printing.)

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Category: Think Tank

What do PG and AXP Tell Us About the Economy?

Good Evening: And so it continues. The pattern of an early drop in stock prices, followed by a late day rally held true to form again today. This trend has become so entrenched in recent weeks that, according to CF Global’s Philip Grant (who writes a fine market recap of his own), “the S&P 500…Read More

Category: Markets, Think Tank

Trading Observations

A friend (A) at a major trading house is a young but astute market oberver. He notes some details of today’s action: 1. Volume is tracking for 11.7 billion shares, which if accomplished would be the largest volume day since June 26th. On that particular day, personal income and spending data for May revealed a…Read More

Category: Markets, Think Tank

rate hike odds/$, bonds, stocks

Coincident with the US$ weakness, rise in bond yields, increase in inflation expectations in the TIPS and relentless rally in stocks, the fed funds futures are moving closer to pricing in a 100% chance of a Fed rate hike of 25 bps by January. Looking at the Feb fed funds futures contract, odds right now…Read More

Category: MacroNotes