Central Bank Shell Game: What Sweden’s Negative Interest Rates Do to Consumers

Sweden’s welfare state supposedly allows for success while providing a safety net for those unable to keep up with the market. In principle, it is an ideal, utopian-like state. However, Sweden’s touted economic success has come at the expense of its currency, the Krone (SEK), and long-term sustainability. Riksbank, the Swedish Central Bank, like its European contemporaries, has undertaken experimental policy, driving real and nominal interest rates below zero.
Not All Growth is Equal
Since 2014, Swedish deposit rates have been negative. Not only has overall negative real interest rate policy affected housing, but it also drove Swedish consumers deeper into debt. Embarking on the dual mandate policy may have staved off recession, but it created greater problems for the future.

This post was published at Wolf Street by Nick Kamran ‘ Mar 19, 2017.

Deutsche Bank: “The Probability Of A Negative Shock Is High”

For the second week in a row, Deutsche Bank’s strategist Parag Thatte has a somewhat conflicted message for the bank’s clients: on one hand, he writes that positive economic surprises continue “but are getting less so”, and although the divergence between har data surprises and sentiment is diminishing the bank is somewhat confident that a “pullback in the very near term is unlikely” (here DB disagrees with Goldman Sachs). However, Thatte is increasingly hedging, and notes that because a “rally without a 3-5% sell-off that is typical every 2-3 months is now running over 4 months and is in the top 10% of such rallies by duration”, he cautions that “the probability of seeing a negative shock is high” especially since Q1 buyback blackout period has begun.
Here are the key observations from the Deutsche Bank strategist:

This post was published at Zero Hedge on Mar 19, 2017.

Welcome to the Third World, Part 21: State Schools Scale Waaayyy Back

Readers of a certain age will remember when state universities were a bit spartan but extremely cheap. Middle class families could send their kids to Ohio State or UCLA without taking out a second mortgage, and the kids could focus on classes and fun instead of juggling multiple part-time jobs to cover room and board.
Those days are long gone, due in part to a building boom fueled by easy access to student loans that allowed kids to demand ever-more plush amenities. But mostly it’s because so many states are slouching towards bankruptcy, starving their schools in the process. Let’s use Illinois, the poster child for fiscal dysfunction, to illustrate the point:

This post was published at DollarCollapse on MARCH 19, 2017.

Angst in America, Part 1: Aimless Men

‘America was not built on fear. America was built on courage, on imagination and an unbeatable determination to do the job at hand.’
– Harry S. Truman
‘Unemployment is a weapon of mass destruction.’
– Dennis Kucinich
‘Ever since 2000, basic indicators have offered oddly inconsistent readings on America’s economic performance and prospects. It is curious and highly uncharacteristic to find such measures so very far out of alignment with one another. We are witnessing an ominous and growing divergence between three trends that should ordinarily move in tandem: wealth, output, and employment. Depending upon which of these three indicators you choose, America looks to be heading up, down, or more or less nowhere.’
– Nicholas Eberstadt, ‘Our Miserable 21st Century’
Angst is ‘a feeling of anxiety, apprehension, or insecurity.’ Many of us feel it acutely right now – and that’s new. Angst isn’t a temporary, individual thing anymore. Now we all feel it together – or at least most of us do – and it’s not at all temporary. Millions can remember feeling no other way.
There’s a general sense in much of the developed world that we’re headed for more difficult times. Deficits increase, unemployment rises, and the benefits of the future – or at least the future that is already here (to paraphrase William Gibson) – have been unevenly distributed throughout society. It is not just in voting patterns that you can recognize the sense of malaise. You can see it in the economic numbers and in a lot of the psychological/sociological research.
Angst manifests differently in different countries. Consider Japan:

This post was published at Mauldin Economics on MARCH 19, 2017.

The Broken Bond Market – All Noise, No Signal

The Fed tightens on Wednesday and bonds rally. What the hay?
GaveKal, Jeff Gundlach, and Jim Bianco nailed it in that every spec and their mother are/were short 10-year Treasuries.
But this is only a small part of the story: The global bond markets are broken.
There are no signals, there is no noise. Trying to infer any sense of economic or financial information from bond yields is futile.
QE Distortion
The intervention into the bond markets by central banks through quantitative easing (QE) in the big four sovereign bond markets – U. S., Japan, Eurozone, and UK – has created a structural shortage of risk-free instruments and distorted the most important price in the world – the yield on 10-year hard currency sovereign bonds.

This post was published at Zero Hedge on Mar 19, 2017.

Gold and Debt: Intertwined

It seems, to almost nobody’s surprise, the Federal Reserve hiked interest rates 25 basis points (bp) for the second time in three months. They also hinted at more to come later in 2017. The Fed had ‘confidence in the path the economy is on.’ Yet the market viewed it all as benign as stocks, bonds, and gold all rallied (yields that move inversely to bond prices fell). The US Dollar also fell. The Fed noted that inflation was close to its 2% target. They did signal that any future rate increases would be ‘gradual.’
The Fed hike is most likely destined to clash with President Trump at some point in the future. Trump has described the US economy as a ‘mess’ in sharp contrast to the Fed’s ‘confidence in the path of the economy.’ Trump’s proposed tax cuts, stimulus programs, deregulation, and potential trade wars are viewed by some as potentially inflationary. One is preaching ‘restraint’ while the other is touting ‘stimulus.’ The Fed appears to want to ‘nip’ any inflationary pressures early.
In Europe, the Dutch elections returned center right and center left parties to power with the far-right party of Geert Wilders well behind, thus appearing to end the populist uprising. For the moment, the EU remains viable and would not be threatened with another ‘Brexit.’
All this took place on the ‘Ides of March.’ Overlooked in all the excitement was the debt ceiling that had been suspended back in 2012 to March 15, 2017. The debt ceiling could become a problem ‘down the road.’

This post was published at GoldSeek on 19 March 2017.

Donald Trump Owns the Fed, the Dollar & Gold

Donald Trump has the opportunity to appoint a higher percentage of the Board of Governors of the Federal Reserve system at one time than any President since Woodrow Wilson.
President Wilson signed the Federal Reserve Act during the creation of the Fed in 1913 when they had a vacant board. At that time the law said the Secretary of the Treasury and the Comptroller of the Currency were automatically on the Fed’s board of governors. But besides that, President Wilson selected all five of the other participating members.
Now, Trump has the opportunity to fill more of seats on the Fed’s board of Governors than any president since then.
To review, the Federal Reserve’s Board of Governors is made up of seven appointees. That means that they can make a majority decision with four votes. If you’re reading about the Fed, you might also see reference to ‘regional reserve bank presidents.’ These are roles within the Federal Reserve System, but the real power is found on seven member Board of Governors. (Here’s a little bit more on the Federal Reserve, if you’re interested.)
Right now, there are two vacancies on the board.

This post was published at Wall Street Examiner on March 17, 2017.

FX Week Ahead

This week has not been one to savor for USD bulls, with the FOMC rate hike accompanied by a statement which failed to generate the fresh wave of hawkish sentiment markets had positioned for. We saw some hesitancy ahead of the Fed announcement Wednesday evening, with Fed chair Yellen’s familiar cautiousness reining in UST yields to a modest degree. The subsequent pull back has also been relatively modest with the 2yr shedding 5bps on the week as a whole; both 5yr and 10yr off the highs by some 10bps.
Fresh US data will therefore be required to drive fresh direction, and with the Fed reiterating their longer term rate at 3.0%, sluggish progress in the belly of the Treasury (yield) curve is perhaps unsurprising. No major releases out of the US until the end of the week when the Friday schedule offers up March services and manufacturing PMIs. Among the USD pairings, USD/JPY remains the most vulnerable given the heavy Fed based positioning, even though the BoJ have no plans to alter their accommodative policy stance. Over the near term however, end March is Japanese year end, and this could see JPY repatriation flow tipping the balance to see the 112.50-111.50 area tested at the very least.

This post was published at Zero Hedge on Mar 19, 2017.

Sugar Is at the Heart of America’s Health Problems

Americans are increasingly afflicted with chronic obesity and diabetes. While the medical community struggles with how to tackle these problems, it’s becoming clear that the culprit may be an ingredient common to the majority of processed foods.
This time on Financial Sense Newshour, we spoke with Gary Taubes, author of several books, including his latest release, The Case Against Sugar, where he argues that America’s addiction to sweet, processed foods is by far one of the main contributing causes for widespread health problems in the US.
Conventional Thinking Is Incorrect
The conventional thinking on obesity is that we become overweight because we consume more calories than we expend, Taubes stated.
The explanation implies that as populations become more affluent and more appetizing foods are available, and we have less reason to do manual labor or exercise, we therefore develop an issue with caloric imbalance.
‘This is a very nave way to think about a very complex physiological defect akin to a growth defect,’ Taubes said.

This post was published at FinancialSense on 03/17/2017.

Morgan Stanley: “Only One Thing Will Allow Central Banks To Keep The Party Going”

Last week, we presented readers with the latest note from SocGen strategist. Albert Edwards, who explained why after so many years of false rate hike starts, the market not only responded to last week’s hike in a dovish manner – interpreting last Wednesday’s 0.25% hike as a 0.25% rate cut- but as Goldman Sachs showed previously, the dovish reaction was one of the strongest ones since the financial crisis, in other words: “the market no longer believes the Fed.” This is what Edwards said, citing his FX colleague Kit Juckes:
[T]he Fed’s reluctance to send an aggressive tightening signal, instead preferring to again shuffle upwards its dots just slightly, has disappointed markets. But to be fair, the problem isn’t really with the famous dots. It’s with the market, which just doesn’t believe the Fed will tighten as fast as they say they plan to (see left-hand chart below). If the market took the FOMC at their word and discounted a 3% Fed Funds rate at the end of 2019 and beyond, then we’d probably have a 3% nominal 10-year Treasury yield by now.”

This post was published at Zero Hedge on Mar 19, 2017.

Technical Scoop – Weekend Update March 19

The long anticpated March FOMC came and went, and, as was widely expected, the Fed raised the key Fed rate another 25 basis points (bp) to 0.75% – 1.00%. Canada’s bank rate remains at 0.50%. It is the first time in years that Canada’s bank rate is below the Fed rate. The rate hike was widely telegraphed in advance, but if there was a change it was the Fed’s hawkish tone before the rate hike contrasted with a more subdued mood following the rate hike. Some termed the rate hike as the ‘dovish hike.’ The markets had widely expected that the Fed would hike four times in 2017 but the latest indication from the Fed is that it might only be three.
Not quite as hawkish as the market had led itself to believe. The result was bond prices softened after the rate hike and gold soared. So did the stock market believing that all is well with the economy and that the Fed is not quite as hawkish as it was before. Still, the rate hike coupled with soothing tones from the Fed allowed economists to up their forecasts going forward.
As we noted in our article ‘Gold and Debt: Intertwined,’ the odds of a clash between the Trump administration and the Fed looms as a real possibility. The Fed remains cautiously optimistic on the US economy with Fed Chair Janet Yellen characterizing the economy as ‘progressing nicely,’ whereas Trump has called the US economy a ‘mess.’ With the potential for huge stimulus programs, tax cuts, and increased military and homeland security spending the Fed fears an upsurge in inflation. The administration’s desire to slash departments such as Justice and the EPA and a host of programs along with Obamacare is already running into considerable roadblocks in both Congress and the Senate. Many have said the proposed changes are ‘dead on arrival.’ If the spending is increased without offsetting cuts, and even if they did happen, the proposals would still be potentially inflationary and add considerably to the US deficit.

This post was published at GoldSeek on 19 March 2017.

Bill Ackman’s Three Worst Investments of All Time [LIST]

Money manager Bill Ackman’s hedge fund Pershing Square once boasted extraordinary returns. For instance, in 2014, the fund beat out the S&P 500 by a whopping 27%, with 40% gains.
However, Pershing Square’s returns are not what they use to be…
Last year, the fund posted a negative return of 13.5%; in 2015, it returned negative 20.5%, significantly underperforming markets two years in a row. In fact, since the end of 2012, Pershing has returned 5.7% to investors, while the S&P 500 has skyrocketed 67.4%.
Majorly contributing to Pershing’s recent sagging returns is that three of Ackman’s worst trades ever all happened over the past two years…
Bill Ackman’s Biggest Blunder No. 3: Target Corp. (NYSE: TGT)
In 2007, Ackman set up Pershing Square IV, a single-stock fund that invested $2 billion in Target Corp. (NYSE: TGT) call options and other derivatives that year. The fund ended up losing 90% of that money after TGT shares plummeted 50% in 2009. At the time, Target’s ‘expect more, pay less’ slogan became half irrelevant as consumers began to shy away from the retailer in favor of Wal-Mart, which was cheaper and offered a wider food selection.
In May 2009, Ackman said that Target’s board was too ‘cozy’ and ‘insular,’ and it lacked members with requisite retailing, credit card, and real estate backgrounds. In a letter to shareholders, Ackman said Target ‘has substantially underperformed its potential’ due to the board.

This post was published at Wall Street Examiner on March 17, 2017.

Abe School Scandal Set For Major Escalation After Donation Receipt Emerges

The crisis that has rocked the previously unshakeable administration of Japanese Prime Minister Shinzo Abe is not the result of bungled economic policies, party in-fighting or any of the other calamities that have brought down Japanese leaders in the past, which includes Abe’s first administration as prime minister. Abe is struggling to shake off a scandal involving a kindergarten.
As the SCMP recently reported, just a few weeks ago, Abe was riding high in the polls and making plans to run for an unprecedented third term as head of the dominant Liberal Democratic Party. So when questions first began to be asked about Moritomo Gakuen, a kindergarten operator in Osaka with what was initially described as a conservative curriculum, the prime minister felt confident to declare that he shared many of the philosophies of the school’s president, Yasunori Kagoike.
It would emerge in swift succession last month that the premier’s wife, Akie Abe, had been named honorary principal of a new school being planned by Kagoike; that the school was being built on land purchased from the government by Moritomo Gakuen for a fraction of its estimated value; that Abe’s wife Akie allegedly donated 1 million yen ($8,800) to the foundation in September 2015 on behalf of her husband (they both deny it), and that the operator’s philosophies imposed upon his young pupils were not just conservative, but tended towards far-right pre-war nationalism.

This post was published at Zero Hedge on Mar 19, 2017.

Warning Signs

Bull Market Still Intact… For Now
This past Wednesday, on the Real Investment Hour, I spoke with Greg Morris about the technical backdrop of the market. During that interview, he discussed that from a technical perspective the bullish trend of the market is still in place, and despite fundamental underpinnings being stretched, investors should remain allocated to the market.
This is shown in the chart below.

This post was published at Zero Hedge on Mar 19, 2017.

Trends

A solid week for stocks and markets and metals, mainly after the Fed increased interest rates 0.25%.
All good and trending higher nearly anywhere you look so ride the wave until it ends.
It doesn’t really matter what someone says, it matters how the market, stocks or commodity in question is acting so I don’t bother to give a big spiel when it’s not needed.
The trend is up.
Gold gained 2.40% as it made the turn above the moving averages around the $1,220 area.
I tried a leveraged ETF but was stopped out Tuesday, only to see it take off on the Fed news Wednesday.

This post was published at GoldSeek on 19 March 2017.

Bank Loan Creation Crashes At Fastest Pace Since The Financial Crisis

Last weekend, after looking at the latest H.8 statement by the Fed, we noted something concerning: total loans and leases by U. S. commercial banks were rising at an annual pace of about 4.6%, based on weekly Fed data. That is down from a 6.4% pace for all of last year and peak rates of around 8% in mid-2016. This is the slowest pace of debt creation since the spring of 2014. This deceleration has prompted numerous questions about the sustainability of the recovery, and led the WSJ to noted that the slowdown, “is at odds with the idea of a stronger economy and rising sentiment.”
But the slowdown was especially acute in the all important for growth Commercial and Industrial loan category, which after growing at a pace of 10% in the first half of 2016, had unexpectedly slowed to just 4.0%, nearly 50% lower than the 7% growth notched at the start of the year. This was the lowest pace of loan growth since July of 2011.
Fast forward one week, when after the latest update to the Fed’s latest weekly commercial bank loan data, we find that the trends have deteriorated substantially.
As shown in the chart below, after growing 4.6% one week ago, total loans and leases grew only 4.2% in the week ended March 8: the lowest growth rate since May 2014. However, it was once again the Commercial and Industrial loans creation – or lack thereof – which was more problematic, because after growing 4.0% on a year over year basis as of March 1, and 5.7% one month ago as of February 8, the growth rate has since tumbled to just 2.9%, a 1.1% decline in the growth rate over the past week.

This post was published at Zero Hedge on Mar 19, 2017.

Intel Chair: “No Collusion Between Trump and Russia… Leak Is The Only Crime”

Just as was predicted, based on the expectations management being undertaken by high-ranking Democrats, House Intelligence Committee Chairman Devin Nunes confirmed on Sunday that he’s seen no evidence of collusion between President Trump’s campaign and Russia.
***
As The Hill reports, Nunes was asked during an interview on “Fox News Sunday” if he has seen any evidence of any collusion between “Trump world” and Russia to swing the 2016 presidential election.
“I’ll give you a very simple answer: ‘no,’ ” Nunes said. “Up to speed on everything I have up to this morning. No evidence of collusion.”

This post was published at Zero Hedge on Mar 19, 2017.

David Stockman Offers “More Proof Of Janet Yellen’s Idiocy”

During the last 129 months, the Fed has held 86 meetings. On 83 of those occasions it either cut rates or left them unchanged.
So you can perhaps understand why Wednesday’s completely expected (for the last three weeks!) 25 bips left the day traders nonplussed. The Dow rallied over 100 points that day.
Traders understandably believe that this monetary farce can continue indefinitely, and that our Keynesian school marm’s post-meeting presser was evidence that the Fed is still their friend.
No it isn’t!

This post was published at Zero Hedge on Mar 19, 2017.

Market Report: Turning the corner

The long-awaited event of the week was the Fed raising the Fed funds rate by %. Everyone knew it was coming, and what it would be. The market effect was a strong dollar ahead of the event, and weak precious metals. There was profit-taking in the dollar afterwards, so precious metals bounced. Entirely predictable.
Gold rose $23 on the week to $1227 by early European trade this morning (Friday), and silver by 27 cents to $17.30. Silver was relatively weak yesterday in US trade, compared with gold, tracking the profit-taking in copper, while gold continued to firm up against a weakening dollar.

This post was published at GoldMoney on MARCH 17, 2017.