Over the last 30 years I have not had much regard for Alan Greenspan. He has been wrong on many of the issues on which he has opined, not least his speech on home bias and his pleadings for U.S. homeowners to refinance their mortgages and use home equity as a piggy bank. But like Holden, I digress. In his CNBC interview Wednesday he was adamant that fiscal stimulus was ill-advised, but tax reform was necessary. He said Congress should use the reform to close tax loopholes and run budget surpluses while we are at some modicum of full employment. I agree with this and as Greenspan maintained, the beginning of this tax reform OUGHT to be the reconsideration of Bowles/Simpson. Greenspan also stressed “… the folks in Washington do not understand that reducing the size of the system portfolio is a necessary condition for normalizing the price of credit.” I also agree with this viewpoint. And, in regards to BITCOIN, Sir Alan explained you can’t create VALUE out of nothing.
Upon hearing this I e-mailed CNBC anchor Carl Quintanilla to ask Greenspan about the role of the Swiss National Bank in the same regard. Carl didn’t get the question to the former Maestro, but it makes me think that the Swiss franc is and has always been the paradigm of a cryptocurrency. If the definition of CRYPTO is secret or hidden then the Swiss have been running a cryptocurrency for the last 80 years. And if you rely on Greenspan’s concern about creating value out of nothing, then the Swiss National Bank and its printing press fits the description. A printing press is old technology while BITCOIN is the future technology as it is dependent on BLOCKCHAIN. The stock price of the Swiss National Bank is almost parabolic as BITCOIN, such is the financial world we are all experiencing. In another 30 years I will find something else to agree with Greenspan about.
***Unemployment Friday: The market is looking for a 198,000 gain in jobs, a 4.1% rate of unemployment, a 0.2% gain in average hourly earnings, and an average work week of 34.4 hours worked. This report will be far enough removed from the hurricane-impacted data previously seen so I believe this number could surprise to the UPSIDE, especially after seeing the very robust data out of Canada last Friday. The market will find little to change the FOMC‘s direction at its meeting next week so another FED FUNDS increase is baked into the market. If the data is extremely ROBUST then the yield curves should flatten further as the market will move to accept Goldman and other analysts’ calls for FOUR RATE rises in 2018. The U.S. two-year note is trading at 180 basis points, which is about TEN basis points above the public inflation level, thus a positive real yield. When the Fed raises the funds rate next Wednesday it will bring the overnight rate to basically a ZERO REAL YIELD. I believe this development is having an impact on GOLD as the oldest store of value is losing some of its luster.
Some are arguing that BITCOIN is proving a viable alternative the GOLD and I will not argue with that for I have no substantial data to argue either way. But my opinion on GOLD versus other foreign currencies is sustained for the yields on the EURO, SWISS, YEN are all severely NEGATIVE on a REAL RETURN BASIS. The GOLD/CURRENCY crosses though are under stress as the GOLD closed today under its 200-day moving average, while also closing below the 200-day moving average in the GOLD/YEN.
Tomorrow’s UNEMPLOYMENT REPORT should be important for these GOLD crosses so be patient and let the algos run wild and see if low risk opportunities arise. The currencies have held up in the face of the rising U.S. two-year yields but with BOJ and ECB still in QE expansion mode something has to give and I have no firm view. The ability of the EURO and other currencies to sustain their year gain in the face of a BEAR FLATTENING in the U.S. yield curve is impressive. But the current rangebound trading pattern allows me to treat all my actions a trade and not an investment.
***I will be taking a break unless something of major importance arises. But I caution all global-macro traders to watch the news regarding the Saudis and Russians. The event of the Saudi King making a first ever visit to Moscow on October 4 holds significant meaning for the global political and financial system. The Middle East is a cauldron on the boil, which unfortunately gets little attention unless tires are burning and rioters are in the streets. The strain between Turkey, Saudi Arabia and Iran is very real and there are many potential flashpoints to ignite a conflict. If it is not on SNAPCHAT, FACEBOOK or TWITTER it must not be real. Remember well, THE REVOLUTION WILL NOT BE TELEVISED.