Eurodollars & Global Deflation Risk

Published on
19 September, 2018
Topic
Monetary policy, Macro, Financial System
Duration
29 minutes
Asset class
Bonds/Rates/Credit

Eurodollars & Global Deflation Risk

Featuring Jeff Snider

Is the global economy poised to enter another deflationary cycle? Jeff Snider, head of global research and chief investment strategist at Alhambra Partners, believes that we have never enjoyed a true recovery from the global financial crisis – but instead, have merely bounced between cycles of deflation and reflation. In this piece, Snider unpacks the importance of Eurodollars as a key to understanding where the global economy is headed next. Filmed on September 11, 2018 in Tonawanda, New York.

Published on
19 September, 2018
Topic
Monetary policy, Macro, Financial System
Duration
29 minutes
Asset class
Bonds/Rates/Credit
Rating
31
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Comments

  • RK

    Roger K.

    5 11 2018 21:39

    0       0

    The only play in trading, is it the speculation of the the eurodollar system?

  • HM

    Holland M.

    4 11 2018 21:37

    0       0

    Brilliant.

  • MS

    Mark S.

    1 11 2018 01:26

    0       0

    Jeff Snider for Fed Chair.

  • YO

    Yousef O.

    26 9 2018 04:55

    2       0

    This is a great video - any suggestions on how to learn more about the repo market or the Fed transactions Jeff mentions?

  • T~

    Tshort63 ~.

    26 9 2018 03:09

    1       0

    Jeff always sets up a fine time of viewing or reading. I usually have to trace back a paragraph or two to follow his deep understanding and logic. A @twitter must follow for sure.

  • DS

    David S.

    25 9 2018 22:21

    2       0

    IMHO, interest rates in the US and Europe have been and are artificially low because massive additional money flooding the system held by investors who are looking for safe havens. How else can you explain negative interest rates and very high P/Es even with profits boosted by the US corporate tax cuts. Mr. Snider is correct to say that something, sometime, somewhere must give. The problem is that the systems are so complicated and intertwined that how they will unwind is unknowable, therefore not predictable. Mr. Snider has given us some critical stresses and places to look for as this starts to fall apart. Hopefully we can make some money during each . This is the new world we live in, and it will not get easier. DLS

  • F

    Floyd .

    24 9 2018 22:08

    0       0

    Going to start paying closer attention to Repo/fed funds rate. Wished Jeff would have referenced current economic statistics.Given the cycles he is talking about would seem to involve economy falling off a cliff. Dovetails with others that believe central banks won't have the bullets to fight the next economic slow down or financial accident

  • AD

    Anthony D.

    24 9 2018 12:58

    1       0

    Chains of credit driven Liabilities?

    Jeff I am trying to understand this definition of Eurodollars. If I may, A large chain fast food restaurant in China wants to get in on a new rabbit food craze. They find a German company that can can provide fresh frozen hasenpfeffer to their liking. They approach DB or UBS for 50M USD letter of credit and get it. Now DB doesn't have these dollars in the vault or on a server. The rabbit stew is a smash success and in six months they used 25M of that credit to pay the German supplier. There is a new liability on DB' s balance sheet. Doesn't the Chinese company have to buy dollars from someone to pay the European bank to pay the German firm. Aren't these dollars limited in that they are out of the US banking system and the fed can't just create them? Sorry if this is naive, its just out of my area of formal training. Love your work.

  • MJ

    Matt J.

    23 9 2018 11:07

    0       0

    Great piece.

    Could one of the unexplained points - the shape of EuroDollar curve 2020/21 be linked to the Libor reforms that are due to come into force around then?

    It strikes me (a financial markets worker but not money market expert) that these reforms will result in lower liquidity as capital requirements rise. Europe has mooted using an unsecured Euribor that I believe works with the French set up (Livret-A?) while the rest of the world seems to prefer moving to an Overnight Interest rate Swap (OIS) and this lack of coordination would impact cross currency basis swaps and everything that hangs of them.

    Does anyone have any views and/or suggested reading on the Libor reforms and their impact?

  • EB

    Eirik B.

    22 9 2018 19:08

    6       0

    Jeff Snider shares how he perceive and interpret market information from a point of view I don’t find many other places given his unique knowledge and insight with the eurodollar system. I find that invaluable because it challenge my thinking process. I feel privileged to hear him speak, and every time I do, I learn something new. Thank you!

  • MG

    Matteo G.

    21 9 2018 06:44

    5       0

    I love his deep knowledge of the eurodollar market but I am not able to transform it in actionable investment strategies nor he is doing that, which would make his contribution much more valuable

  • DR

    David R.

    20 9 2018 20:32

    7       5

    Sorry, but I just don't see this theory ever working, at least not for any reasonable time horizon (like how the QE-Inflation risk theory never worked for a decade). Instead, the dollar just keeps on crashing. Since Dec 2016 the dollar has remained technically bearish overall. Consistently making lower lows, and lower recovery highs. USD is being absolutely *crushed* yet again today. USD has lately suffered 2-3 failures of key support, with follow-through drops. Another key breakdown from a wedge today (bearish). DXY failed to break above 97 in its lone, rather small & brief bear-market rally that ENDED Aug 15 (bearish), and also that run ended well shy of the 618 fib required to possibly raise the dollar from a BEAR to a possible Neutral (the dollar really needed to reach *above* 99-100 to have any chance of becoming bullish). DXY suffered major H&S breakdown below the neckline recently earlier this month, subsequently followed by a steep plunge lately as would be expected, reinforcing dollar bearishness. Historically massive long-USD speculation that's caught on the wrong side (being long) and bleeding red, who *must* yet sell and thereby accelerate USD selling pressure. Breakdown below various moving averages, TL's, etc etc... There's just nothing but bearish behavior for USD, as has been the case for 5+ weeks and will generally continue to be so for many weeks and/or possibly months to come. My funds flow analysis shows money fleeing US for Europe or elsewhere as this dollar crash gathers pace. Last but not least, it's significant to note that USD appears likely to end the quarter next week with a bearish key reversal which would bode ill for the dollar long-term. Barring a miraculous bounce of more than 400 pips from current levels very quickly (which ain't gonna happen), the dollar is a bad news BEAR. Thank you.

  • KC

    Kenneth C.

    20 9 2018 17:40

    3       0

    I read him every day. Thanks Jeff.

  • ag

    anthony g.

    20 9 2018 13:12

    2       0

    Fascinating.
    Many thanks.

  • CF

    Cause F.

    20 9 2018 05:51

    0       0

    Questions
    1. Does the Federal Reserve actions - interest rates and QE / QT have no impact on the Eurodollar market? That seems counter -intuitive? Has there been a study on whether there is a correlation?
    2. What drives the supply of these collateral securities in the Eurodollar markets? Is there a way for regulators / CBs to make this easier? (Though I understand that currently they do not seem concerned).
    3. Has Jeff carried out a joint study with say, ECRI or any other institution or of macro variable to see if vulnerabilities of Eurodollar events increase with those other indicators?

  • DS

    David S.

    20 9 2018 05:50

    2       0

    Most interesting. Net, net I know I am not smart enough to place bets, but great background to use when the time comes. DLS

  • JC

    James C.

    20 9 2018 00:39

    7       1

    I'm convinced Jeff is correct, although i can only understand about half of what he's talking about.

  • KS

    Kathleen S.

    19 9 2018 23:26

    8       0

    I love this guy --- so smart. I have watched all his videos.

  • JH

    John H.

    19 9 2018 19:38

    10       10

    Google search "Zoltan Poszar Global Money Notes". Read them all. Jeff does nothing but confuse me .. that's me. Maybe I'm dense. Sure, dollars are getting more expensive because the Fed is hiking, but shortage? The direction of LIBOR-OIS and the cost of swapping euros or yen for dollars tells me dollar conditions offshore are getting easier, easier, easier. There have been hiccups as plumbing has had to adjust to changing regulations, etc.., but basically dollars are available.

  • MT

    Morgan T.

    19 9 2018 18:24

    21       0

    I feel like this interview could have been 28 hours long, Jeff always delivering!
    If you don't know what eurodollars is, Jeff has multi hour content called eurodollar university on marcovoices.

  • RA

    Robert A.

    19 9 2018 17:31

    6       0

    I’ve enjoyed every one of Jeff’s RV presentations with this perhaps being the most important one yet. Seems like Jeff and Raoul are channeling each other in this regard, eg. Raoul’s close eye on a potential TLT trade (especially with so many heavily positioned the other way). Vintage RV stuff here—different relevant point of view that we never get from ANY other venue!

  • RD

    Ravi D.

    19 9 2018 16:41

    2       2

    Nick G is right here.

  • NG

    Nick G.

    19 9 2018 13:27

    12       8

    Not really...
    LIBOR: London Inter Bank Offered Rate. The key part is "Inter Bank". "Inter bank" means between two banks. There is NO collateral whatsoever employed in the lending or borrowing of deposits between banks. You use "lines of credit", normally called "Limits" which are determined by credit committees at each bank and are pretty fixed or revised in times of great stress. But there is NO COLLATERAL WHATSOEVER.

    Collateral is used in repos. Repos, by definition, are not between two banks but there has to be at least one non-bank actor. Limits between a bank and a non-bank (a bank customer) are THOUSANDS of times smaller than between banks.
    Now, if you are lending, as a bank, in the interbank market, at 2% in 3 months, it does not really matter if repos are at 1000% bid, because you have no limit (or have filled it up) towards that bidder. There is no arbitrage possibility for the majority of banks. That is why these spikes occur and why it takes time for them to be arbitraged out. This has been going on since God was a boy, I have seen it and traded trough it dozens of times. It normally produces nothing but very short term stress in Eurodollars, just as it did this time.
    The Fed could (and regularly does) neutralize these effects, without any change to the underlying monetary policy they are running.
    As the Fed pointed out in its minutes, there was a huge spike in demand for "safe" assets as a result of the market derating Italian bonds and their implied safety and individual dealer's acceptance of them in repo operations. Who, in their right mind is going to accept BTPs as collateral (without a huge haircut) when the Finance Minister of Italy is talking about leaving the Euro and repaying the BTPs in Liras? This caused a huge spike in demand for USTs and Bunds, as a replacement for BTPs. That's it. Nothing more to see here. Purely technical.

  • TJ

    Terry J.

    19 9 2018 11:51

    15       0

    Brilliant analysis from the undisputed eurodollar system king! Just this one interview with Jeff makes my RVTV subscription value for money. If only policy making global central bankers had the humility to listen and learn from Jeff about the all-important eurodollar system, the global economy would be in much better shape. I love Jeff's wit when he suggests that the central banks might be right in their interpretation of what occurred in May, before quickly adding "It would be the first time!" So true! Thank you RVTV for this priceless video.

  • CD

    Chris D.

    19 9 2018 11:34

    6       16

    Soo... what do we do then? Long USD? Short EUR? Long gold? Long TLT? Long silver? Short S&P 500? Nothing actionable here, just confusion...

  • DC

    Dale C.

    19 9 2018 11:08

    7       0

    Take this and add in the ECRI position that the Global Economy is actually declining and you can see the dark clouds of recession coming our way

  • PD

    Peter D.

    19 9 2018 11:06

    51       0

    The implications of Jeff Snider's thesis - that the eurodollar market is so large and opaque that the Federal Reserve no longer has effective vision and control of the money supply - are profound. For one, America - without knowing it - just might be in a depression with no clear path out. But RV needs to help Jeff put this stuff into English. That requires an interviewer who can ask Jeff questions in a way that the viewers would ask them. It's time for Grant Williams to get on a plane.

  • RA

    Richard A.

    19 9 2018 11:01

    23       1

    Jeff is awesome. He barely scratched the surface here on how the Eurodollar system functions. You can listen to 6 hours of his Eurodollar University for free on macrovoices.com, timeless section, and 5 hours of a dollar discussion with Jeff, Mark Yusko, Luke Gromen and Erik Townsend as well. Love my Real Vision and my Macrovoices!

  • KW

    Kieran W.

    19 9 2018 10:23

    7       0

    Legend!

  • JH

    Joe H.

    19 9 2018 09:36

    1       0

    Excellent. Check out his Macrovoices series for much more detail.

  • MT

    Mike T.

    19 9 2018 09:31

    29       0

    at long last, someone of real substance willing and able to explain, within the limitation of available time, how he arrived at his conclusions. I await with interest to see the response from other RV subscribers to his non-mainstream, but extremely well articulated thesis.