Day: September 10, 2017

The Recent Metals Action Is ‘Causing’ Me To Change My Life

Jon

I have made a ground-breaking discovery this past week. It is so earth shattering, that it will literally change the course of my life, and may cause you to change yours as well. Let me explain. Maybe you believe that the stock market volatility was the reason the metals rose? Well, the S&P500 is within 2% of its all-time highs, yet the metals have continued to rally alongside the market.
And, maybe you believe that North Korea is the reason that the metals have rallied? Well, I have dealt with that issue last week, so I do not have to re-address it here again. But, suffice it to say that anyone who has really followed geo-political events will know that gold has moved in completely opposite directions during such tensions through history, and they will never provide directional guidance for the metals.
And, maybe you believe that a rise in inflationary expectations is the reason that the metals have rallied? Well, the fact that interest rates have been dropping of late would clearly not support your thesis.
None of these are the reason the metals have rallied despite so many analysts claiming them as the cause for the metals rally.

This post was published at GoldSeek on 10 September 2017.

Goldman Slashes Q3 GDP By 30% Due To Hurricane Disaster

Jon

Yesterday, when commenting on the impact of Hurricanes Harvey and Irma, we noted that even before the two devastating storms were set to punish Texas, Florida and the broader economy, erasing at least 0.4% GDP from Q3 GDP according to BofA and costing hundreds of billions in damages (contrary to the best broken window fallacy, the lost invested capital more than offsets the “flow” benefits from new spending, which is why the US does not bomb itself every time there is a recession to “stimulate growth“), things were turning south for the US economy, which in turn prompted Deutsche Bank to point out that (adjusted) recession risk, at roughly 20%, is now the highest in the past decade, and that it was quite prudent for the Fed, which expects to hike rates at least once more in 2017, to pause its current tightening, especially since a period of both economic and market weakness is imminent.

This post was published at Zero Hedge on Sep 10, 2017.

Kyle Bass: “China’s Credit System Is Reaching A Boiling Point”

Jon

Fresh on the heels of the biggest-ever two-week drop in onshore dollar-yuan, noted China bear Kyle Bass gave an interview where he addressed one of the most exasperating aspects of the short-selling business, and an issue that he is no doubt grappling with at this very moment: What to do when confidence in your investing thesis is undermined by uncooperative markets.
It’s been about three years since Bass first announced a massive bet against the Chinese yuan, a position that he has been forced to justify to his increasingly nervous investors, as the Chinese currency’s more than 6% surge since May – and its nearly 8% climb against the dollar so far this year – has more than reversed the currency’s largest one-year decline since 1994.
To be sure, he’s still willing to explain how ballooning assets in shady Chinese wealth management products, which have swollen to more than $40 trillion in aggregate, are destined to collapse in a cascade of bad debt, taking the country’s banking system down in the process.

This post was published at Zero Hedge on Sep 10, 2017.

Bi-Weekly Economic Review: Waiting For Irma

Jon

This update will be a bit shorter than usual. I’m in Miami awaiting Hurricane Irma. As of now, it looks like the eye of the storm will make landfall near Key West and continue west of us with the Naples/Ft. Myers area at risk. Or at least that’s the way it looks right now. I’ve done a lot of these storms though – I lost a house in Andrew in ’92 – and you never know what these things will do. We are secure in a house that survived Andrew with barely a scratch so we’re pretty confident. In some ways it is like monitoring the economy. I don’t believe you need to predict anything – just recognize what is actually happening in the present and react accordingly.
The economic reports of the last two weeks were not as bad as the market moves they precipitated. That could be due to other factors such as Hurricane Harvey and its impact on the energy industry or the now fairly normal political chaos that is the Trump administration. Whatever the cause, the market based indicators we watch all deteriorated to some degree or another.
10 Year Treasury yields continued to fall:

This post was published at Wall Street Examiner on September 9, 2017.

FX Week Ahead: It Could Be Time To Lay Off The USD A Little

Jon

It could be time to lay off the USD a
little, but inflation midweek could delay any major correction.
After a week of arguing if the EUR is overvalued and whether the ECB will pinpoint this, we get back to the crux of the matter, which is USD weakness. Across the spectrum, we have seen US Treasury yield pressed back to levels seen in the aftermath of president Trump’s, victory, but we have had two 25bp hikes in the US since then and as such, reflation has been completely priced out and more. Indeed the 2yr is now on par with current Fed funds, so on this basis, another Fed move by year end is also priced out, but futures markets are keeping a 25% probability on the table. We still think at this stage, it is too low.
As in the title, inflation numbers on Thursday will determine whether the odds can improve, and with plenty more data to consider until the December meeting, we see risk to the USD on the upside this week unless there is an outright collapse in CPI – which seems unlikely given extended weakness in the greenback in recent months. Markets will be looking for the headline rate to see a modest pick up from Oil price, but the core rate may dip slightly. In either case, comparative levels of inflation are not as bad as hyped over, given we are not too far off the 2.0% target unlike Europe and Japan say.
Little seen ahead of this other than the JOLTS job openings figure on Tuesday as well as the familiar precursor to inflation in producer prices on Wednesday. On Friday though, we also get retail sales as well as production stats and capacity utilisation. All the above are for Aug and will have some degree of flex (in response) due to seasonal factors – as we saw in the non farm payrolls report.

This post was published at Zero Hedge on Sep 10, 2017.

Mind The Chemtrails: US Air Force Dispatches Sprayer Aircraft In Response To Harvey

Jon

The Pentagon has just dispatched C-130H Sprayers from the Air Force Reserve’s 910th Airlift Wing residing in Youngstown, Ohio to Texas in response to Hurricane Harvey.
The aircraft are outfitted with spraying equipment tasked with ‘minimizing the impact of the brutal storm’s aftermath’.
According to the article, the specially outfitted C-130Hs can spray wide areas with various chemicals for ‘multiple applications, including dispersing oil spills, destroying invasive vegetation, and controlling insect populations’.
Per The Drive,
Because there is so much standing and heavily polluted water around Houston and other areas affected by the storm, insects populations are bound to explode, which poses a major health risk to the population of southeastern Texas and the first responders working to get the area back on its feet.

This post was published at Zero Hedge on Sep 9, 2017.

The Real Estate Market, Explained In One Graph

Jon

The U. S. housing market has now surpassed its pre-recession peak by 4.3%. This is great news for the economy, although there’s still an ongoing debate about the possibility of another housing crash.
Whatever you believe about real estate, there’s no doubt that prices depend on where you live. HowMuch.net created a new visualization to demonstrate what this looks like…
According to Zillow, the median price for a house is $200,400, up 7.4% over last year.
So, naturally, how big of a house can you afford with a mortgage of $200,400? Our visualization answers this question on a sliding color-coded scale. We broke each state into a grid with 25 boxes, representing 2,500 square feet – that’s a large home with at least 3 bedrooms and 3 bathrooms. Green boxes indicate affordability and orange and red boxes mean it’s expensive. We then graphed how much house you can purchase with exactly $200,400.

This post was published at Zero Hedge on 9, 2017.

Small-Investor Optimism about Stocks Hits Record of Jan 2000 Just Before Dot.com Crash

Jon

Contrarian warning, scary thought, or idle amusement at another crazy thing?
For years, individual investors in the US have been a dreary bunch, as stocks soared relentlessly since bottoming out in 2009. But 18 months ago, in February 2016, they finally caught the bug, and now optimism has surged at a record pace. Optimism about the stock market in particular has reached the record highs established during the Dot.com bubble, just before it all fell apart.
The quarterly Wells Fargo/Gallup survey of investors with at least $10,000 in the markets, undertaken in the period between July 28 and August 6 when the Dow Jones Industrial Average was approaching and then exceeded 22,000 (now at 21,798), investor optimism about the stock market did something very special – something it hadn’t done in 17 years:
68% of these investors said they’re optimistic about the stock market’s performance next year. This matches the prior records set in December 1999 and January 2000. Peak optimism occurred two and three months before one of the most epic crashes commenced in March 2000.

This post was published at Wolf Street on Sep 10, 2017.

Technical Scoop – Weekend Update Sep 10

Jon

Weekly Update
This is the way the world ends
Not with a bang but with a whimper.
– T. S. Eliot

We are not sure if there are words that can describe what is going on right now. Houston is a mess because of Hurricane Harvey. Now that the storm has subsided and the waters begin to recede, the recovery and clean-up are barely underway. Except we are reading that it can best be described as chaotic. But it is off the news as the focus shifts to Hurricane Irma.
It was no surprise to see initial claims for unemployment benefits leaped this past week from 241,000 to 298,000. This should rise even more going forward. In the Houston area, an unknown number of people – most likely in the thousands – have lost their homes, possessions, and jobs. Thousands of homes will most likely need to be demolished, as they have become unlivable due to mould. Many parts of Houston and environs will need to be rebuilt. The question is, do you build it as it was? Or do you rebuild to restore prairies and bayous that were paved over and contributed considerably to the massive flooding, thus resulting in the re-location of potentially thousands of people.
And we have not even begun to see what the impact of Hurricane Irma will be. Based on what we know to date numerous Caribbean islands have been devastated. Others such as Puerto Rico have seen at least a million people cut off from power and water, a situation that could last weeks and even longer. This has potentially left thousands even tens of thousands of people homeless and without jobs. The tourist industry, a mainstay of these islands, will most likely be ‘out of business’ for months if not years. Some smaller islands may become uninhabitable, requiring the re-location of thousands. Going forward, disease and other issues in the aftermath of the hurricane could claim more lives than the hurricane did.
Then there is Florida, a state of 20 million. While the epicenter of the storm appears to be shifting west putting cities like Tampa in its sights, the potential impact on Miami and Dade County with a population of upwards of three million could still be considerable. The high impact window carries up into Broward and Palm Beach counties, however, it appears the counties that could now be hit the hardest will be on the west side of Florida where the population is not as large. Taking into consideration all of southern Florida and up into South Carolina and Georgia the impact is expected to be high. In all 40 million could be in the path of Irma, 12% of the US population. Add in Houston and Texas impacted by Harvey and one could be talking about 50 million people or 15% of the US population exposed to severe flooding and hurricanes. And let’s not forget the tens of thousands impacted by wildfires on the west coast.

This post was published at GoldSeek on 10 September 2017.

Blowing Off The Roof

Jon

Of all the absurd Washington pantomimes none has been as reliably entertaining and maddening as the annual debates to raise the debt ceiling. Although the outcome was always a foregone conclusion (the ceiling would be raised), the excitement came when fiscal conservatives bemoaned the perils of runaway debt and ‘attempted’ to exact spending restrictions through threats ‘to shut down the government,’ (which often led to news coverage of tourists being turned away from national parks.) On the other side of the aisle Democrats would rail that the ceiling must be raised ‘because America always pays her bills.’ Lost was the irony that ‘paying’ bills with borrowed money was fiscally responsible, and that raising the ceiling actually enabled America to continue to avoid paying its bills. After these amateur theatrics, the ceiling would be lifted and Washington would go on as if nothing happened. But at least the performance threw occasional light on the nation’s debt problems.
But this week the news dropped that President Trump had made a ‘gentleman’s agreement’ with Senate Minority Leader Chuck Schumer to permanently scrap the ‘debt ceiling’ so that government borrowing can occur perpetually without the need to air the nation’s fiscal dirty laundry. Given how much the national debt has exploded in recent decades, and how reluctant Congress has been to address the problem, it should be no surprise that the proposal has finally been made. The only shock is that it happening when the Republicans control the White House and both houses of Congress.
The news came just a day after the President stunned the Republican party by abruptly siding with Congressional Democrats over the best way to deal with current debt ceiling negotiations. These developments should make it clear, as I described in the weeks after Trump moved into the White House, that budget deficits during the Trump administration will be far larger than just about anyone predicted. In fact, the self-proclaimed ‘King of Debt’ is reaching for his crown and the coronation profoundly affect the fate of the U. S. dollar and the American economy.

This post was published at Euro Pac on September 8, 2017.

GOLD HAS BROKEN OUT – DON’T BE LEFT BEHIND

Jon

The coming gold and silver moves in the next few months will really surprise most investors as market volatility increases substantially.
It seems right now that ‘All (is) quiet on the Western Front’ as Erich-Maria Remarque wrote about WWI. Ten years after the Great Financial Crisis started and nine years after the Lehman collapse, it seems that the world is in better shape than ever. Stocks are at historical highs, interest rates at historical lows, house prices are booming again and consumers are buying more than ever.
HAVE CENTRAL BANKS SAVED THE WORLD?
So why were we so worried in 2007? There is no problem big enough that our friendly Central Bankers can’t solve. All you need to do to fool the world is to: Print and expand credit by $100 trillion, fabricate derivatives for another few $100 trillion, make further commitments to the people in forms of pensions and medical, social care for amounts that can never be paid and lower interest rates to zero or negative.
And there we have it. This is the New Normal. The Central Banks have successfully applied all the Keynesian tools. How can everything work so well with just more debt and liabilities? Well, because things are different today. We have all the sophisticated tools, computers, complex models, making fake money QE, interest rate manipulation management and very devious intelligent central bankers.
Or is it different this time?

This post was published at GoldSwitzerland on September 7, 2017.

You Live and Breathe Economics

Jon

‘Economics puts parameters on people’s utopias.’
Yes. That’s exactly it. That’s why the politicians hate economics. That’s why the media are so… selective over which economists they call on to talk about policy.
That’s why the economics departments in colleges are put down by the sociologists, philosophers, literature professors and just about anyone else who has romantic longings for a coerced utopia.
‘The teachings of the principles of economics should inform as much on what not to do, perhaps even more than providing a guide to public action.’
That’s it again. Don’t control prices. Don’t socialize medicine. Don’t raise taxes. Don’t inflate the money supply. Don’t put up trade barriers. Don’t go to war. Economists just keep bursting people’s bubbles. And it’s because economists say these things that the ruling class wants them to shut up.
It’s been going on for hundreds of years. Every generation for the past 500 years has seen the battle wage between those who want to use the power of the state to fit some daydream on one hand and the economists who have seen the futility in this manipulation and warn against it on the other.

This post was published at Mises Canada on SEPTEMBER 8, 2017.

Further thoughts on Gibson’s paradox

Jon

‘The paradox is one of the most completely established empirical facts in the whole field of quantitative economics.’ – John Maynard Keynes
‘The Gibson paradox remains an empirical phenomenon without a theoretical explanation’ -Friedman and Schwartz
‘No problem in economics has been more hotly debated.’ – Irving Fisher
Introduction
Two years ago, I found a satisfactory solution to Gibson’s paradox.i The paradox is important, because it demonstrated that between 1750-1930, interest rates in Britain correlated with the general price level, and had no correlation with the rate of price inflation. And as Friedman and Schwartz wrote, a theoretical explanation eluded even eminent economists, so economists preferred to assume the quantity theory of money was the correct guide to the relationship between interest rates and prices. Therefore, the consequence of resolving the paradox is that the supposed linkage between interest rates, the quantity of money and the effect on prices is disproved.
Gibson’s paradox tells us that the basis of monetary policy is fundamentally flawed. The reason this error has been ignored is that no neo-classical economist has been able to establish why Gibson’s paradox is valid, as the introductory quotes tell us. Consequently, this little-know but very important subject is hardly ever discussed nowadays, and it’s a fair bet most of today’s central bankers are unaware of it.

This post was published at GoldMoney on September 07, 2017.

Outrage Grows After Stephen Colbert Gives Trump Nazi Salute

Jon

Comedian Stephen Colbert, host of the Late Show on CBS, twice flashed a Nazi salute on live television during a rant about US President Donald Trump earlier this week. During his first show after a two-week vacation, Colbert criticized Trump and his former chief strategist Steve Bannon, who resigned in mid-August.
At the end of the show’s opening monologue, Colbert joked about a remark Bannon made during an interview with Charlie Rose after he left the White House. When pressed to explain his reasoning for defending President Donald Trump’s initial response to the car attack in Charlottesville last month, Bannon said Trump was taking things ‘up to a higher level.’


This post was published at Zero Hedge on Sep 9, 2017.

On Repairing/Rebuilding 100,000+ Damaged Houses

Jon

>Almost lost in all the dollar estimates of property damage is the human loss, suffering and stress.
I am not an expert in repairing flood damage, or in dealing with insurance companies, FEMA or all the other pieces that will go into homeowners getting the funding needed to repair or rebuild their homes.
But I do know a bit about construction after 44 years in the field, and I have been soberly reflecting on the many hurdles that face everyone involved in restoring / repairing tens of thousands of homes, more or less all at the same time.
Preliminary estimates set the number of flood-damaged homes in Houston at around 100,000. More recent estimates put the number at around 40,000.
No one yet knows how many homes in Florida have been damaged by Hurricane Irma, but the number will undoubtedly be a big one.
Here are some semi-random thoughts on the challenges of repairing/rebuilding so many dwellings in as short a period of time as possible:
1. The average cost of homes in Houston is reportedly around $300,000. Many coastal areas in Florida are similarly valued. Just as a guess, many of the affected homeowners probably have mortgages in the $200,000 range.

This post was published at Charles Hugh Smith on SUNDAY, SEPTEMBER 10, 2017.

After The Storms Are Over: America Can’t Afford To Rebuild

Jon

Authored by Raul Ilargi Meijer via The Automatic Earth blog,
A number of people have argued over the past few days that Hurricane Harvey will NOT boost the US housing market. As if any such argument would or should be required. Hurricane Irma will not provide any such boost either. News about the ‘resurrection’ of New Orleans post-Katrina has pretty much dried up, but we know scores of people there never returned, in most cases because they couldn’t afford to.
And Katrina took place 12 years ago, well before the financial crisis. How do you think this will play out today? Houston is a rich city, but that doesn’t mean it’s full of rich people only. Most homeowners in the city and its surroundings have no flood insurance; they can’t afford it. But they still lost everything. So how will they rebuild?
Sure, the US has a National Flood Insurance Program, but who’s covered by it? Besides, the Program was already $24 billion in debt by 2014 largely due to hurricanes Katrina and Sandy. With total costs of Harvey estimated at $200 billion or more, and Irma threating to cause far more damage than that, where’s the money going to come from?
It took an actual fight just to push the first few billion dollars in emergency aid for Houston through Congress, with four Texan senators voting against of all people. Who then will vote for half a trillion or so in aid? And even if they do, where would it come from?

This post was published at Zero Hedge on Sep 9, 2017.

7 Reasons Why Goldman’s Clients Are Very Worried About An Imminent Crash

Jon

Over the years, the clients of Goldman Sachs have periodically found themselves on the verge of panic.
In March of 2015, we said that Goldman’s clients were most worried about the then-relentless crash in the EUR and how the resulting strong USD would hit US earnings (which, in retrospect, is ironic now that the tables have fully turned). Then In November 2015 we reported that “Goldman’s Clients Are Suddenly Very Worried About Collapsing Market Breadth” (and with good reason, the market was about to crash precisely for that reason). Several months later, Goldman’s clients were again confused – and worried – this time demanding that all their questions be answered before BTFD.
Then, in July 2016, Goldman’s clients again had a burning question: they were struggling to reconcile how extreme valuations of both equities and bonds can co-exist. As David Kostin explained one year ago, “client discussions reveal low portfolio risk coupled with concern that the rally lasts. Most investors have been skeptical of the valuation expansion and have not participated in the 8% rebound from the post-Brexit low on June 27. Upside call buying has been a popular strategy to insure against upside risk.” Additionally, Goldman clients were very worried that this remains a market without any earnings growth, and that much of the S&P upside has been due multiple expansion: “the S&P 500 forward P/E has already expanded by 70% during the past five years, exceeding all other expansion cycles except 1984-1987 (up 111%) and 1994-1999 (up 115%). Both prior extreme P/E multiple expansion cycles ended poorly for equity investors.”
While it is unclear if said clients got over their concerns and got on with the BTFD program, what we do know is that since last July, already extreme valuations have only gotten more extreme, and as a result, Goldman clients are once again very worried, this time about an “imminent equity downturn” (banker euphemism for crash).

This post was published at Zero Hedge on Sep 9, 2017.

XIV Is Bending But Not Yet Broken

Jon

Last week the XIV moved up into the 83.07-93.56 resistance zone before turning back lower hitting a low of 76.07 on Tuesday, September 5th. Since this low, we have seen the XIV move back higher in what is so far counting best as a corrective wave structure. This move higher has held the 76.4 retrace of the move down off of the September 1st high. We have, however, yet to see further follow through to the downside, thus not yet giving us confirmation that we have indeed begun the next swing lower on the XIV.
While I always keep an eye on the spot VIX charts, I typically defer to the chart that I am actually trading in regards to the price levels. I do have to note that price action on the spot VIX chart has been extremely interesting over the past several weeks.
After topping on August 11th at 17.35, the XIV had retraced down to a low on September 1st. This low hit both the 88.6% retrace of the initial move up off of the July lows as well as the 100 extension of the initial move down off of the August 11th highs. These are both common Fibonacci price levels to hit during corrective retracements.
When we see price levels converge and then turn within a few ticks of key Fibonacci levels, it gives us further confirmation that we are indeed dealing with a retracement from a previous initiation move, rather than just a local bottom. In this case, that initiation move began with the low July lows and ended with the August 11th high at 17.35.

This post was published at GoldSeek on Sunday, 10 September 2017.

Ted Butler: Eight Crooks Against the World

Jon

The gold price began to chop quietly higher starting around 9:30 a.m. China Standard Time on their Friday morning, as the dollar index headed south. That rally ran into ‘da boyz’ about 1:30 p.m. CST on ferocious volume. And although it rallied a bit between the morning gold fix and the noon silver fix in London, it was sold lower until a minute or so before the London close, which was 11 a.m. EDT. It then rallied a few dollars until noon in New York — and then traded pretty flat for the rest of the day.
The high and low ticks are barely worth looking up, but were reported as $1,362.40 and $1,347.10 in the December contract…and $1,358.50 and $1,343.20 in October.
Gold was closed in New York on Friday at $1,346.00 spot, down $2.60 from Thursday. Net volume was over the moon once again at around 353,000 contracts, as ‘da boyz’ were all over the precious metal market yesterday.

This post was published at GoldSeek on Sunday, 10 September 2017.