Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit”

The ECB has been concerned about falling consumer prices. I propose that’s 100% stupid, yet that’s the concern.
When the euro declined vs. the US dollar, the ECB was happy that inflation would inch back up. The fear now is that falling oil prices will take away the alleged gain of a falling euro.
With that backdrop, credit the Financial Times for the absurd headline of the week: Eurozone Fails to Benefit from Weak Currency as Oil Price Slides.
Pity the policy makers given the job of rescuing the eurozone from deflation.
The unorthodox steps the European Central Bank has taken since June – including a programme of private-sector asset purchases – have caused a steep fall in the euro. The single currency is down 8.4 per cent against the dollar and 4.75 per cent on a trade-weighted basis from its peaks this year.
The weaker exchange rate will ease pressure on the ECB in its fight to raise inflation back to its target of just below 2 per cent. Mario Draghi, the central bank’s president, has said the currency’s earlier strength explains 0.4 percentage points of the fall in inflation since 2012. In that year, prices were growing 2.7 per cent a year.
But just as this depreciation is starting to fuel inflation, the ECB must contend with a fall in oil prices that all but wipes out the effect of a sliding currency. A weaker euro should swiftly raise the cost of imported energy. Instead, Brent crude has fallen 9 per cent in euro terms this month alone. This is the main reason why eurozone inflation fell again in September to 0.3 per cent, a five-year low – a figure confirmed by data on Thursday.

This post was published at Global Economic Analysis on October 19, 2014.

Dow Theory Update

From my seat and in light of the price action this past week, I truly find the lack of understanding surrounding Dow Theory amusing. I also find the content from most any article on this subject to be inaccurate and/or typically misleading. Such erroneous articles result from the misunderstandings and/or the lack of quality study of Dow Theory, which in turn makes such articles dangerous to those who read them, as well as being a discredit to Dow Theory. In my experience, virtually 99.9% of all articles written on the subject of Dow Theory are wrong. I think this is because of the scarcity of the original writings by our Dow Theory Founding Fathers and again, the lack of quality research. More often than not, someone will make an erroneous Dow Theory call, then blame Dow Theory for being wrong or no longer applicable when it doesn’t work out. In reality, it always turns out to be the misapplication of Dow Theory. Dow Theory was just as applicable at the 2000 and the 2007 tops as it was at the 1966 bull market top or at the 1929 top when William Peter Hamilton wrote his article, A Turn in the Tide, in which he called the top. Also, the Dow Theory Primary Bullish Trend Change following the 2002 low and the 2009 low proved just as applicable as the one following the 1932 and the 1974 lows. To think that Dow Theory is somehow no longer relevant simply has no merit. Rather, what happens is we see erroneous applications of Dow Theory, which are then blamed on the theory rather than the error of the practitioner.

This post was published at Gold-Eagle on October 19, 2014.

Do We Need a Lender of Last Resort?

Scotland’s vote for independence resulted in a negative. There won’t be, for now, further discussions about what Scotland should do with its monetary institutions. Still, there is one more issue that I would like to discuss, because it transcends the particular case of Scotland, had independence been the result of the vote.
There is a widespread belief that a sound banking system requires a central bank to act as a lender of last resort. In a nutshell, the argument goes as follows: there are inherent potential instabilities in the banking system, to avoid a serious crisis and to interrupt means of payment, a central bank that is ‘external’ to market forces should behave as a lender of last resort.
There are two problems with this line of reasoning. First, it takes as given that the banking system is inherently unstable. This is not as obvious as it is sometimes believed. Second, it is assumed that to have a lender of ‘last resort,’ means having a central bank.
Let us say that Scotland voted for independence and unilaterally decided to keep using the British pound (note that a unilateral decision gives the country more flexibility than a bilateral agreement to change the currency if the British pound proved to be a bad choice). In the case of such a unilateral choice, in principle, Scottish banks won’t be able to turn to the Bank of England as a lender of last resort. But this doesn’t mean that the banks fall short on lenders to go to. In fact, they have the financial markets of the whole world to find lenders willing to extend them credit.

This post was published at Ludwig von Mises Institute on Monday, October 20, 2014.

19/10/2014: Dublin: Just 24th in the Global Centres for Talent Rankings

You know the mythology: despite 55% upper marginal tax rate in exchange for nearly zilch in public services, despite the need to pay consultants’ fees and private insurance just to get basic medical care, and despite the fact that childcare runs a cost of the second mortgage, Dublin (nay, rest of Ireland too) is a great location for human capital-rich expats, especially if they command high salaries…
And now, we have:

This post was published at True Economics on October 19, 2014.

Technical charts show US stocks still have further to fall

There’s a whole slew of technical charts showing that the correction in US stocks is far from over and that markets will tumble by at least another five per cent before reaching a bottom. It’s too early to buy the rally so why not bet on the fall?
The anatomy of a sell-off and the best way to play the SPY, with CNBC’s Melissa Lee and the Options Action traders…

This post was published at Arabian Money on 19 October 2014.

Arthur Burn’s Advice During Recession ’75 – Cut Deficit & Taxes

Arthur Burn’s testified before Congress on the economic crisis – the first to unfold in the new Floating Exchange Rate system that began in 1971. Keynesian Economics as practiced by government was dead anf taxes had risen to outrageous;y the 90% level until the first tax cut by Kennedy. Burns delivered his recommendation during the recession of 1975 that still remains sound advice today, which is too late now. The second tax cut by Reagan finally restored the American economy and long-term growth.
The unions at that time in 1975 as always wanted to increase government spending and hand it to them as they demand today. Burns warned that would lead to ruinous inflation and it certainly did. Inflation soared into 1980 with gold and then Volcker responded raising interest rate to excessive levels. Today, we have increased spending, but we have excessively high taxes and worst yet, they are hunting capital and shutting down the world economy faster than it took to create it after World War II. The insane passage of FATCA is just wiping out international capital at such an alarming rate.

This post was published at Armstrong Economics on October 19, 2014.

The Chart That Explains Why Fed’s Bullard Wants To Restart The QE Flow

Remember when the Fed (and their Liesman-esque lackies) tried to convince the world that it was all about the ‘stock’ – and not the ‘flow’ – of Federal Reserve Assets that kept the world afloat on easy monetary policy (despite even Bullard admitting that was not the case after Goldman exposed the ugly truth). Having first explained to the world that it’s all about the flow over 2 years ago, it appears that, as every equity asset manager knows deep down (but is loathed to admit for fear of losing AUM), of course “tapering is tightening” – as the following chart shows, equity markets are waking up abruptly to that reality. So no wonder Bullard is now calling for moar QE – he knows it’s all there is to fill the gap between economic reality and market fiction.
Tapering is Tightening…. as the flow of Fed free money slows… so equity performance suffers.

This post was published at Zero Hedge on 10/19/2014.

Gold & Silver Report

In my last analysis from 7th of September I thought that Gold would hold up well above the US1,240.20 level. Obviously I was wrong as Gold had a terrible month and plunged all the way down to US$1,183.30. If you followed my recommended stop-loss swing traders should be at the sidelines at the moment.

This post was published at Gold-Eagle on October 19, 2014.

Three Of The Four JPMorgan “Market Bottom” Indicators Are All Flashing “Oversold” Green

In the past week we discussed how to determine market bottom (or top) conditions either in extensive verbiage, or various pretty charts of the most prominent inflection points in US market history. Whether or not those are relevant to the current centrally-planned regime, where all of a sudden everyone is shocked, SHOCKED, to learn that there is no bond market liquidity (something we kept warning about again andagain and again), remains to be seen. Still, some such as JPM, are already rushing to the defense of their clients (i.e., the people to whom JPM’s prop desk may have some selling left to do) by providing a handy backtest of which key technical indicators proved useful in the past when determining market bottoms (if not tops – that one JPM will probably never, ever disclose), and what these are saying at this moment.
So for all those who need convincing that the “bottom is now in”, and are desperate to BTFD because other, greater fools will also BTFD and so on, here it is, straight from Jamie Dimon’s (well, technically Nikolaos Panigirtzoglou’s) mouth:

This post was published at Zero Hedge on 10/19/2014.

The Commodities Trading Cheat-Sheet

With commodity prices tumbling to 2009 lows, comprehending between the differing risks to Soybeans and Silver or Copper and Cocoa is crucial. Deutsche Bank has created just that ‘cheat-sheet’ – just how vulnerable is Gold to Ebola? or Silver to China growth?
Bloomberg’s Commodity index is at 2009 lows…

This post was published at Zero Hedge on 10/19/2014.

The Death Rattle of Europe’s Statist Dream

Europe’s all-too-predictable relapse into recession is gathering force, threatening not only the pipe dream of economic and political unity, but eroding grandiose illusions that have helped prop up the world’s financial house of cards. The unwillingness of France in particular to play by the EU’s – i.e., Germany’s – rules appears to have doomed the EU dream. The idea of a borderless Europe bound by a common currency and a shared desire to forever banish war from the Continent was a lofty one, but it was mired from the start in deeply rooted political animosities, grass-roots skepticism and bureaucratic overreach. Now these problems, along with a great many others, have turned the EU project into a Tower of Babel. A million pages of meticulously codified EU rules might as well have been written in cuneiform, so inscrutable and arcane have they become.
And useless as well. France’s prolonged economic death rattle has been made possible by running annual deficits larger by half than the 3% ‘allowed’ by Brussels. And now, channeling de Gaulle for what could turn out to be France’s last hurrah, the French have flouted Merckel’s authority, and common sense itself, by proposing to remedy the problem by hiring more government workers and expanding tax breaks. Portugal, Greece, Spain and the other deadbeat rabble have been cheering them on, and why not? They think they have nothing to lose – that Germany is the only country with any skin in the game. Their folly is about to be laid bare, however, unless Germany gives in and allows Europe’s Central Bank to monetize the collective debts of Europe Fed-style.

This post was published at Rick Ackerman BY RICK ACKERMAN ON OCTOBER 20, 2014.

Equity Futures Open Higher, Retrace 50% Of Losses On USDJPY Kneejerk

More incoherent chatter from Japan about raising Japan’s GPIF allocation to “more than 20%, or around 25%” on the basis of Prime Minister Shinzo Abe’s ‘expert views’ have sent USDJPY higher out of the gate and thus S&P 500 futures are tracking – just as they did Friday afternoon – higher. Treasury futures prices are 6 ticks lower ( 2.5bps yield) – retraced all the bond-short capitulation gains from Wednesday. S&P futures are 9pts higher – retracing 50% of last week’s losses.

This post was published at Zero Hedge on 10/19/2014.

Blowing Away The Government’s Orwellian Fog

Last week I had a conversation with Rory of The Daily Coin. We chatted about Ebola, the housing market and the precious metals market. I’m not sure we can believe ANYTHINGcoming from the Government anymore. A perfect example is the fact that Obama Administration is promoting this idea that the spending deficit in the Government’s fiscal year 2014 ‘plunged’ to $483 billion. If that’s true, then how come the Government still had to borrow $1 trillion in FY 2014? See what I mean?

This post was published at Investment Research Dynamics on October 19, 2014.

The ECB Changes Its Mind Which Bonds It Will Monetize, Then It Changes It Again

To get a sense of just how chaotic, unprepared, confused and in a word, clueless the ECB is about just its “private QE”, aka purchases of ABS, which should begin in the “next few days” (but certainly don’t hold your breath) – let alone the monetization of public sovereign debt – here is Exhibit A. Because if you were confused about what is about to happen, don’t worry: it appears the ECB hardly has any idea either, because it was just on October 7 when 40 ABS bonds were dropped from the ECB’s “eligible for purchasing” list. And then, just a week later, the ECB changed its mind about changing it mind, and reinstated 19 of the ineligible bonds right back!
Citi’s Himanshu Shrimali explains the stunning flip flop that only the ECB could have pulled off without losing all its credibility (perhaps because it no longer really has any):
As straight forward as the details of the ECB’s ABS purchase programme (ABSPP) released on 2 Oct 2014 seemed, many market participants were taken by surprise on 7 October when about 40 bonds became ineligible under the central bank’s collateral framework and 19 of them were again reinstated on 15 October. We understand that the bonds were initially removed from the list of eligible securities because of inadequate servicer continuity provisions – a requirement which came into force on 1 October 2013 but had a 1-year transitional period until 1 October 2014. We believe the reinstatements occurred because the ECB had earlier misinterpreted the adequacy of servicer continuity provisions in these bonds. Some of these expelled bonds, which include Spanish and Portuguese RMBS, have lost 2 – 3 points in cash prices, according to our trading desk. A similar tiering is evident in the broader ABS market with ineligible bonds demanding 40 – 50bp spread pickup over eligible bonds.
Don’t worry though, and just repeat: “the bonds fell and rose not because of ECB frontrunning, or lack thereof, but because of fundamentals.” Keep repeating until it becomes the truth.

This post was published at Zero Hedge on 10/19/2014.

Burn The Bonds; Pay The Pensions

There has been a major (economic) policy-decision reached and implemented, across the corrupt Western bloc. But it has never been the subject of political debate, let alone any sort of formal vote. Indeed, this policy decision has never even been explicitly/publicly acknowledged by any of these Deadbeat Governments.
What policy decision is this? Year after year, these governments assured us that their corrupt/incompetenteconomic policies had not rendered our economies insolvent. Now, much more quietly; these same governments are acknowledging that they can’t meet all of their financial obligations – and thus have begun defaulting.
The (unstated) policy decision comes with respect to which obligations they have chosen to willfully engage in default, and which obligations they have chosen to continue to fund. The decision is very simple: they have chosen to continue to pay the interest on their/our massive debts (not one penny of ‘principal’ is ever repaid), while they begin to systematically default on paying their pension obligations to the people.
What must be understood is that this traitorous act is just as indefensible in economic terms as it is in moral terms. As a matter of elementary economics; there is no ‘economic benefit’ of any kind derived from continuing to make (only) interest payments on our gargantuan (and unsustainable) debts. Every penny paid is wasted money.
Once any debtor goes so deeply in debt that they can never do any more than pay interest on their debts; they are technically insolvent. It is at this point (in the real economy) that any legitimate business (or government) begins a ‘structured bankruptcy’ proceeding, because the sooner such insolvency is acknowledged (and restructured) the less the economic harm.

This post was published at BullionBullsCanada on Sunday, 19 October 2014.

Replacing the Dollar

The conspiracy crowd keep swearing the dollar has to collapse and remain clueless that the world is in serious trouble. The impact of debt is far worse outside the USA than inside yet their myopic vision blinds them to the truth. Taxes are so high in Europe and this renders it is impossible to grow the economy out of recession. Debt use to be debt and the theory was it would be less inflationary to borrow than to print. However, after 1971, debt became merely currency that paid interest as it began in the 1860s. The dollar is now the reserve currency and not even the USA can prevent that – there is no alternative !!!!!!!!

This post was published at Armstrong Economics on October 19, 2014.

All the world’s gold to be confiscated and buried in Switzerland by 2020 argues Jim Rickards

In what pretends to be a history looking back from the future ‘Currency Wars’ author and fund manager Jim Rickards argues that by 2020 all the gold of the G-20 nations will be confiscated and buried in a former nuclear bunker under a mountain in Switzerland to take it out of the global financial system.
This is the conclusion to the astonishing tour de force article that kicks off his new monthly newsletter ‘Rickards’ Strategic Intelligence’ for Agora Financial, publisher of highly successful financial newsletters like Chris Mayers’ ‘Capital & Crisis’. Has the normally sober and thoughful Mr. Rickards lost his marbles?
Ad absurdum
I must confess to having my doubts on reading his first issue with one absurd conclusion leading to another and then to a totally unrealistic world gold confiscation scenario. How would that happen? The G-20 meetings struggle to agree on a final communique. How could they agree something like that?
Mr. Rickards does not stop there. In his world not only does money die and cease to exist but there is a sort of death of capitalism that Marx prescribed and Stalin tried to implement without notable success. There are no markets, bonds nor money by 2024 and equality rules.

This post was published at Arabian Money on 19 October 2014.

Weakening Stock Market Internals

Two weeks ago (October 3rd) I noted the bearish NYSE 52Wk High & Low data that began just days before the Dow Jones reached it latest all-time high on September 19th. I included the table below (with data updated to October 3rd), along with the following comments:
‘Looking at the action in the 52Wk Highs and Lows in the table below, I’m not predicting the Dow Jones all-time highs of September 17-19 will prove to be a historic high, such as the ones seen in January 2000 and October 2007. However, when the ultimate top of this bull cycledoes come and pass by, it will look like this.’
At the close of this past week, downward pressure on share prices has eased off a bit but over the past month the NYSE’s 52Wk Lows continue to overwhelm its 52Wk Highs. It’s obvious the problem the market is having here; the ‘policy makers’ have grossly over-inflated the stock market valuations which now want to deflate. It’s that simple, except the ‘policy makers’ likethe inflated market valuations and will oppose deflation with as much ‘liquidity’ as they dare to ‘inject.’ Anyway I’m sure that’s their plan and their main concern.
If they are successful we’ll again see NYSE 52Wk Highs outnumber 52Wk Lows and morenew all-time highs on the Dow Jones. If they’re not successful, we’ll continue seeing NYSE 52Wk Lows overwhelm 52Wk Highs in ever greater numbers for the rest of 2014, continuing into 2015 as the Dow Jones resumes the bear market interrupted by the ‘policy makers’ in March 2009. That said, as bad as it may get we’ll still see some days like today (Friday Oct 17th) when 52Wk Highs outnumber Lows, but one good day does not a bull market make. Personally I think the ‘policy makers’ are approaching their Waterloo here, because there are limits to what currency debauchery can achieve in the financial markets.

This post was published at Gold-Eagle on October 19, 2014.