Economic Growth Requires More Than Low Interest Rates

Many commentators and economic experts are of the view that the Federal Reserve is running out of tools to keep the economy going given the very low level of interest rates. It is also argued that despite a steep downtrend in the policy rate since 1980, the underlying growth of the US economy has been following a down trend.
This must be contrasted with the previous period when the underlying trend in the federal funds rate was heading up while the underlying growth of economic activity followed a rising trend.

This post was published at Ludwig von Mises Institute on Sept 26, 2016.

The Unintended Consequences of These New SEC Rules Could Kill the Rally – or Worse

Starting Oct. 14, 2016, institutional prime money market funds won’t be able to price themselves at a constant $1.00 a share.
New SEC rules will require these giant funds to value shares based on actual market prices for underlying assets in their portfolios.
That means their per-share prices will fluctuate on a daily basis.
While that’s not exactly good news, it gets worse.
The rules allow funds to charge up to a 2% redemption fee when investors want out.
But the killer is, funds can put up ‘gates’ that prevent investors from selling shares.
Besides problems investors will have with the new rules, unintended consequences affecting companies and municipalities that rely on selling their commercial paper and other short-term debt instruments to these big funds could end up killing the market.
Here’s what you need to know and what to do…

This post was published at Wall Street Examiner by Shah Gilani ‘ September 26, 2016.

The Dying Middle Class

Largest Theft in History
As expected, Ms. Yellen smiled last week, announcing no change to the Fed’s extraordinary policies. For the last eight years, she has been aiding and abetting the largest theft in history.
Thanks to ZIRP (zero-interest-rate policy) and QE (quantitative easing), every year, about $300 billion is transferred from largely middle-class savers to largely better-off speculators, financial asset owners, and the biggest borrowers during that period – corporations and the government.
The financial press, nevertheless, finds something vaguely heroic about enabling the grandest larceny ever. Bloomberg:
‘Federal Reserve Chair Janet Yellen braved mounting opposition inside and outside the U. S. central bank and delayed an interest-rate increase again to give the economy more room to run.’
The U. S. economy is barely limping along. As we noted last week, when you adjust nominal GDP growth by a more accurate measure of inflation – David Stockman’s ‘Flyover CPI’ – you see that the economy is actually in recession. Room to run? It is backing up!
Bloomberg continues its brain-dead coverage:

This post was published at Acting-Man on September 27, 2016.

Famous Last Words – Deutsche Bank: ‘We Don’t Need A Bailout’

‘[The] share price is low but that is not what is worrying us and that is not what we are looking at. What is really important to us is our credit story which is very strong, it is fundamentally strong.’ – Jorg Eigendorf, head of communications at DB on CNBC (sourced from Zerohedge)
‘The credit story is strong?’ To begin with, I’m not sure what the head of communications is doing on bubblevision talking about ‘credit.’ If he understood the meaning of the words he was regurgitating from script, he would not have made that statement if he were under oath.
From a German politician (as reported in Zerohedge): ‘you can’t compare Deutsche Bank with Lehman. The bank is in a position to get out of this situation on its own.’ As the adage goes: A rumor is confirmed as fact once that rumor is denied three times by politicians…
DB stock is down over 7% today. It’s likely the primary reason that the SPX is down 13 points as I write this (that plus the dismal new home sales report). DB stock has hit another all-time low. DB has lost 51% of its market value this year. The BKX bank stock index is down only 4% this year. The relative performance isn’t just a red flag, it’s a ‘code red’ five-alarm danger signal.

This post was published at Investment Research Dynamics on September 26, 2016.


Gold $1339.70 up $2.50
Silver 19.52 down 21 cents
In the access market 5:15 pm
Gold: 1338.50
Silver: 19.46
The Shanghai fix is at 10:15 pm est and 2:15 am est
The fix for London is at 5:30 am est (first fix) and 10 am est (second fix)
Thus Shanghai’s second fix corresponds to 195 minutes before London’s first fix.
And now the fix recordings:
Shanghai morning fix Sept 26 (10:15 pm est last night): $ 1338.38
Shanghai afternoon fix: 2: 15 am est (second fix/early morning):$ 1337.45
London Fix: Sept 26: 5:30 am est: $1336.30 (NY: same time: $1335.70: 5:30AM)
London Second fix Sept 16: 10 am est: $1340.50 (NY same time: $1341.40 , 10 AM)
It seems that Shanghai pricing is higher than the other two , (NY and London). The spread has been occurring on a regular basis and thus I expect to see arbitrage happening as investors buy the lower priced NY gold and sell to China at the higher price. This should drain the comex.
Also why would mining companies hand in their gold to the comex and receive constantly lower prices. They would be open to lawsuits if they knowingly continue to supply the comex despite the fact that they could be receiving higher prices in Shanghai.

This post was published at Harvey Organ Blog on September 26, 2016.

Germany “Other” Bank: Commerzbank To Fire 9,000, 18% Of Its Entire Workforce

While the market’s attention has been transfixed by the latest crash in the stock of Europe’s biggest bank, now that concerns about Deutsche Bank’s $2 trillion balance sheet have violently resurfaced, it is worth recalling that Germany’s “other” mega bank, DB’s smaller rival, Commerzbank, whose balance sheet is hardly looking much healthier, is planning to cut around 9,000 jobs over the coming years as Germany’s second biggest lender pushes ahead with a restructuring plan, Handelsblatt reported earlier today, citing unnamed sources in the finance industry.
The round of layoffs would eliminate a massive 18% of the bank’s entire workforce.

This post was published at Zero Hedge on Sep 26, 2016.

This Market Is Counting on Two Things That It Absolutely Shouldn’t

Anybody who thought the Fed would raise interest rates in September (for only the second time in 10 years) less than two months before a tight presidential election between two unelectables probably thinks the Clinton Foundation is a charity or that Donald Trump pays taxes.
The Fed’s intellectual deficit is only exceeded by its lack of political and moral courage. Even JPMorgan Chase’s Chief Economist David Kelly, an establishment figure, told CNBC that the Fed is ‘doing long-term harm to the economy by not hiking interest rates… the economy has hit every target they have set. And we’ve got an inappropriate level of interest rates which is distorting asset markets, blowing bubbles, and will eventually end up in inflation. They’re imposing long-term harm for no short-term good here.’
Naturally, the Fed doesn’t see it that way. Janet Yellen, in one of the lamest excuses for inaction in Fed history, said, ‘We judged that the case for an increase had strengthened but decided for the time being to wait for continued progress toward our objectives.’
If that isn’t pathetic, I don’t know what is. But it wasn’t as ridiculous as what came next…

This post was published at Wall Street Examiner by Michael E. Lewitt ‘ September 26, 2016.

Brit Bankers Busted For $300 Million Fraud Tied To Hookers & Blow

Investment bankers and hedgies have long had a flare for the excesses in life. There is, of course, the epic taleof the former Jefferies equity salesman who spent $75k on a Miami bachelor party for one of his clients that included a private jet, limos, dwarf-tossing and exotic dancers. Or there is the more recent tale of the 31-year-old portfolio manager for Moore Capital, Brett Barna, who threw a wild ‘Wolf of Wall Street’-style Hamptons party, complete with Champagne, scores of bikini-clad women and costumed gun-toting midgets, and in the process trashed a $20 million mansion.

This post was published at Zero Hedge on Sep 26, 2016.

Reports Of The TED Spread’s Death Are Greatly Exaggerated

On Friday, the Wall Street Journal officially ran an obituary for the TED spread proclaiming: ‘The Ted Spread Is Dead, Baby. The Ted Spread Is Dead.’ The article explains:
This spread charts the difference between the London interbank offered rate and the yield on three-month U. S. Treasury bills. Libor is a dollar-denominated global gauge of private-sector credit strength, particularly that of banks, and three-month bills measure an ultrasafe bet – the U. S. government’s creditworthiness. Ted stands for Treasury-Eurodollar rate, the Eurodollar being the greenback denominated lending reflected in the Libor rate.
For the past year and a half the spread has been creeping higher, rising from 0.2 of a percentage point at the turn of 2015, to 0.653 of a percentage point on Wednesday. That is the highest it has been since May 2009, in the aftermath of the global financial crisis, surpassing other moments of extreme stress, like the euro sovereign-debt crisis around 2011.
But there is a problem with that. Looming U. S. regulation of money-market funds has driven Libor higher, meaning that it isn’t quite the indicator that it once was.

This post was published at Wall Street Examiner by Jesse Felder ‘ September 26, 2016.

The Student-Loan Scam Killed ITT Tech

ITT Technical Institute announced that it was shutting the doors of its campuses earlier this month, after the Department of Educationbarred the company from accepting federal student aid funds. Thousands of employees have lost their jobs and tens of thousands of students are left saddled with monstrous debt, no degree, and credits that are scarcely accepted elsewhere. This is clearly nothing short of a disaster for those involved, but could this be a glimpse into a grim future for the education sector?
The Government’s Execution Order
The Department of Education’s decision comes after a long investigation into ITT, the quality of the education they provided, and more substantially, the default rate of their students. Colleges must maintain a default rate under a specified percentage. If a college’s default rate is above 30 percent for 3 consecutive semesters or ever reaches above 40 percent, the Department of Education can ban the college from enrolling students who rely on federal funds, as they have in this case. This ban is unquestionably a death sentence for colleges, as the vast majority of students are clearly incapable of paying for their education out of pocket at today’s prices, and almost all student loans are originated by the federal government.

This post was published at Ludwig von Mises Institute on Sept 25, 2016.

Perry Capital Shutting Down His Iconic Flagship Fund

The writing was on the wall three weeks ago when we reported that iconic hedge fund Perry Capital had lost some 60% of his AUM as LPs were rushing to withdraw their money.
As we reported on September 10, citing Bloomberg, Perry Capital’s assets slumped to $4 billion as of the end of August compared with $10 billion in September last year. The reason for the tremendous outflows is that Perry has posted losses of 18.4% from the beginning of 2014 through July of this year. The fund declined 2.6% in the first seven months of this year after losing 12.6% in 2015.
Curiously, as on numerous previous occasions, while Perry’s losses aren’t even that substantial, in a time when the S&P500 just can’t go negative courtesy of central banks, LPs patience has become non-existent (however, a shocking outlier in this regard is Bill Ackman’s Pershing Square, where the LPs have continued to amaze the investing community by not redeeming what’s left of their assets despite one terrible investment decision after another).

This post was published at Zero Hedge on Sep 26, 2016.

“It All Has A Very 2008 Feel To It” – For Deutsche Bank, The News Just Keeps Getting Worse

It has already been an abysmal day for Germany’s biggest lender: overnight Deutsche Bank plunged to fresh all time lows on speculation whether the German government would or wouldn’t provide state aid to the bank (if needed), forcing the bank to state it does not need the funds at the same time as the government urged markets that “you can’t compare” Deutsche Bank and that “other” bank, Lehman Brothers, although looking at the chart, one may beg to differ.

This post was published at Zero Hedge on Sep 26, 2016.