Stock Investors Should Brace for the Fed’s October Tightening Gambit

September’s Federal Reserve meeting left interest rates unchanged but sounded a hawkish tone. The Fed seems intent on hiking interest rates again come December.
Following Fed chair Janet Yellen’s remarks this Tuesday, interest rate futures markets bumped up the odds of a year-end rate hike to 81%.
The more immediate – and perhaps more important – policy move pending from the central bank is its plan to gradually reverse its Quantitative Easing bond buying program starting in October.
Yellen calls it ‘balance sheet normalization.’ She is right in acknowledging that there’s nothing normal about the $4.5 trillion balance sheet the nation’s currency custodian has built up following the financial crisis of 2008.
Whether the Fed’s bond portfolio ever will get ‘normalized’ to pre-crisis levels will depend on how markets react to the Fed’s attempt at Quantitative Tightening beginning next month.
The Fed technically won’t sell bond holdings into the market. Instead it will let bonds mature without rolling them over. The effect on the market will be as if a regular, reliable, very big customer stopped buying.
Initially, the Fed will allow $10 billion in Treasuries and mortgage-backed securities to mature off its balance sheet per month. Over the next year, the pace of ‘normalization’ will accelerate. It is slated to eventually reach $50 billion per month.

This post was published at GoldSeek on 29 September 2017.

Chris Whalen On The CDO-Redux & Inevitable “Catastrophic Systemic Risk Event”

‘The great wheel of circulation is altogether different from the goods which are circulated by means of it. The revenue of the society consists altogether in those goods, and not in the wheel which circulates them’
Adam Smith, 1811
This week in The Institutional Risk Analyst, we return to one of our favorite topics – namely credit spreads – as we consider the most recent statement from the Federal Open Market Committee. Fed Chair Janet Yellen made a presentation last week to the National Association of Business Economists illustrating that while she is puzzled by low inflation, Yellen is entirely clueless as to the workings of the financial markets.
For some time now, we have been concerned that the FOMC’s overt manipulation of credit spreads has embedded future credit losses on the balance sheets of US banks. But now we are starting to see even greater signs of stress as the large Wall Street banks again return to derivatives in order to manufacture the appearance of profitability.

This post was published at Zero Hedge on Oct 1, 2017.

Google Supporting Tyranny?

Google has blocked an app that shows where to vote for "political reasons" (via @mandineSanchez) pic.twitter.com/RuRdRYcNRk
— Tim Pool (@Timcast) October 1, 2017

Anyone who supports the Spanish Madrid government is no different than those who supported the Kings of England and France during the American and French Revolutions. Google picks the wrong side. Does this mean they will side with government every time? Dangerous precedent.

This post was published at Armstrong Economics on Oct 1, 2017.

‘Systemic’ Age Discrimination in Tech, even as Tech Workers Get ‘Better with Age’

But ‘ageism’ exists ‘across all industries,’ not just Tech.
Many people have seen this with their own eyes as it happened to others, or have experienced it themselves even as companies have vigorously denied it. So finally, here are some numbers that expose blatant age discrimination in the Tech industry, both in hiring and promotions, and it’s even worse than the age discrimination in Non-Tech industries.
The study boils down to this: if you’re a Baby Boomer, forget it. And if you’re Gen X, it’s tough.
These numbers are not based on VC-funded startups where the two founders may be 27 and 28 and the oldest people of the bunch. No one even bothers to mention age discrimination in these outfits. It’s just a fact of life. No, these numbers are based on an analysis of over 330,000 US-based employees – 63,000 in Tech and 267,000 in other industries – from 43 large companies. This is Corporate America.

This post was published at Wolf Street by Wolf Richter ‘ Oct 1, 2017.

Mnuchin Insists “The Rich Won’t Benefit” From Trump’s Tax-Reform Plan

Two days after the nonpartisan Tax Policy Center announced that the White House’s tax reform plan would raise taxes on about 12% of taxpayers, Treasury Secretary Steven Mnuchin took to the Sunday talk shows to defend the Trump tax plan, which was unveiled Wednesday in a nine-page document.
And in characteristic Trump Administration fashion, In an appearance on ‘This Week’ with George Stephanopoulos, Mnuchin repeatedly countered questions about the plan’s impact on Trump’s tax rate, or if it would raise taxes on middle-class Americans to fund large cuts for the rich, by noting that the details of the legislation had not yet been worked out, before prommising that all of Stephanopoulos’s complaints would be rectified when the bill is written in committee.
During the interview, Stephanopoulos pressed Mnuchin about research showing that 80% of the financial benefits from the plan would accrue to the top 1%, and other details of the TPC’s analysis – including claims that Trump and his family would benefit financially from the repeal of the estate tax, the repeal of the AMT, and cuts to the pass-through rate, among other provisions.
Earlier in the week, NEC Chief Gary Cohn raised hackles among Trump critics by saying he couldn’t guarantee that the bill wouldn’t raise taxes on some members of the middle class.

This post was published at Zero Hedge on Oct 1, 2017.

Visualizing America’s Disappearing Workforce

In his September 2017 paper entitled ‘Where Have All the Workers Gone? An Inquiry into the Decline of the U. S. Labor Force Participation Rate’, Alan B. Krueger of Princeton University explores the dramatic fall in labor force participation in the U. S. from 1997 to 2017.
As Statista’s Martin Armstrong shows in the infographic below, over the last twenty years, the rate has fallen the most for the under 20’s, with the share of 16 to 17 year olds in work dropping by 18.4 and 16.2 percentage points for men and women, respectively.

This post was published at Zero Hedge on Oct 1, 2017.

The Globalists Are Systematically Destroying America’s Middle Class

When people are dependent on the government they are much easier to control. We are often told that we are not ‘compassionate’ when we object to the endless expansion of government social programs, but that is not how the debate should be framed. In America today, well over 100 million people receive money from the federal government each month, and the number of Americans that are truly financially independent is continually shrinking. In fact, only 25 percent of all Americans have more than $10,000 in savings right now according to one survey. If we eventually get to the point where virtually all of us are dependent on the government for our continued existence, that would give the globalists a very powerful tool of control. In the end, they want as many of us dependent on the government as possible, because those that are dependent on the government are a lot less likely to fight against their agenda.
Back in 1992, the bottom 90 percent of American income earners brought in more than 60 percent of the country’s income. But last year that figure slipped to just 49.7 percent. The wealth of our society is increasingly being concentrated at the very top, and the middle class is steadily being eroded. Surveys have found that somewhere around two-thirds of the country is living paycheck to paycheck at least part of the time, and so living on the edge has become a way of life for most Americans.
Earlier today, I came across a Business Insider article that was bemoaning the fact that the U. S. economy seems to be rather directionless at this point…

This post was published at The Economic Collapse Blog on October 1st, 2017.

“Tax Reform Is A Pipe-Dream” – Stockman Warns Market Is Heading For Massive Crash

Having raged against President Trump’s ‘1500-word-airball’ of a tax reform plan, the Reagan administration’s director of the Office of Management and Budget, David Stockman told CNBC this week that Wall Street is “delusional” for believing it will even be passed.
“This is a fiscal disaster that when they [Wall Street] begin to look at it, they’ll see it’s not even remotely paid for. This bill will go down for the count,” said Stockman.
He said White House economic advisor Gary Cohn and Treasury Secretary Steve Mnuchin “totally failed to provide any detail, any leadership, any plan. Both of them ought to be fired because they let down the president in a major, major way.”
Stockman pulled no punches about President Donald Trump…

This post was published at Zero Hedge on Oct 1, 2017.

I’m Shocked and Appalled there’s ‘Systemic’ Age Discrimination Going on in Tech, even as Tech Workers Get ‘Better with Age’

But ‘ageism’ exists ‘across all industries,’ not just Tech.
Many people have seen this with their own eyes as it happened to others, or have experienced it themselves even as companies have vigorously denied it. So finally, here are some numbers that expose blatant age discrimination in the Tech industry, both in hiring and promotions, and it’s even worse than the age discrimination in Non-Tech industries.
The study boils down to this: if you’re a Baby Boomer, forget it. And if you’re Gen X, it’s tough.
These numbers are not based on VC-funded startups where the two founders may be 27 and 28 and the oldest people of the bunch. No one even bothers to mention age discrimination in these outfits. It’s just a fact of life. No, these numbers are based on an analysis of over 330,000 US-based employees – 63,000 in Tech and 267,000 in other industries – from 43 large companies. This is Corporate America.
Here is what the study by Visier, which provides workforce analytics for HR professionals, found: ‘Systemic ageism is occurring in Tech hiring practices.’
Here are some nuggets:
Millennials (aged 20 to 33) make up 43% of the workforce in Tech, compared to 26% in Non-Tech.

This post was published at Wolf Street on Oct 1, 2017.

“Dancing On The Rim Of A Volcano”: Speculators Have Never Been More Short Volatility

With VIX ending Friday at its lowest weekly close ever, lowest monthly close ever, and lowest quarterly close ever – after the quietest September stock market in history – SocGen warned last Friday that the current situation is a “dangerous volatility regime” citing the strong mean-reverting tendency of uncertainty as a big reason for investors to brace themselves for trouble ahead.
Of course, judging by the new record short in VIX futures – extending last week’s surge – the speculative public is as levered-long and complacent as it has ever been…
What could go wrong? SocGen’s Arthur van Slooten explained late last week: “compare that with dancing on the rim of a volcano. If there is a sudden eruption (of volatility) you get badly burned”
Indeed, if CNN’s Fear and Greed Index is anything to go by, investors are close to the ‘most extreme’ levels of greed in history…

This post was published at Zero Hedge on Oct 1, 2017.

Non-Transitory Meandering

Monetary officials continue to maintain that inflation will eventually meet their 2% target on a sustained basis. They have no other choice, really, because in a monetary regime of rational expectations for it not to happen would require a radical overhaul of several core theories. Outside of just the two months earlier this year, the PCE Deflator has missed in 62 of the past 64 months. The FOMC is simply running out of time and excuses.
That is very likely why earlier this week Federal Reserve Chairman Janet Yellen admitted that economists like her and her fellow policymakers might not really understand inflation. The larger, more important implication is that if they don’t comprehend inflation they can’t really comprehend money, either. It has taken seventeen years, but we are finally getting closer to reconciling with what Alan Greenspan was talking about in June 2000:
CHAIRMAN GREENSPAN. The problem is that we cannot extract from our statistical database what is true money conceptually, either in the transactions mode or the store-of-value mode. One of the reasons, obviously, is that the proliferation of products has been so extraordinary that the true underlying mix of money in our money and near money data is continuously changing. As a consequence, while of necessity it must be the case at the end of the day that inflation has to be a monetary phenomenon, a decision to base policy on measures of money presupposes that we can locate money. And that has become an increasingly dubious proposition. [emphasis added]

This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ September 29, 2017.

A $1.5 Trillion “Quantamental” Market Opportunity

While the debate rages if retail investors have eased on their boycott of the stock market, making it increasingly difficult for institutional investors to dump their holdings of risk assets to Joe and Jane Sixpack even as active investors continue to suffer unprecedented redemptions amid a historic shift from active to low-cost, factor-driven passive management, in today’s Sunday Start note from Morgan Stanley Andrew Sheets, the cross-asset strategist points out that the next $1.5 trillion market opportunity may be a fusion of retail and institutional preferences, namely a low-cost quant approach to investing, coupled with a legacy, fundamental strategy.
As Sheets writes, “$1.5 trillion of AuM currently managed under quantitative guidelines could continue its double-digit growth over the next five years. Part of this growth is a ‘pull’ from investors broadening their search for risk premium and uncorrelated returns at lower fees than traditional alternatives. Part of this is a ‘push’, as asset managers see systematic strategies that lend themselves well to automation and scale, offering value over pure ‘beta’ in a traditional active management framework. Relatively small further reallocation by asset owners towards these strategies could still drive significant growth.”
And while that may come as soothing words to asset managers scrambling to shift from fundamental to a fusion, or “quantamental” investing approach, Morgan Stanley then sets a cautious tone asking whether “this growth is occurring at the wrong time” pointing out that “there are serious concerns over whether the flow we’ve already seen into these strategies explains a recent deterioration in performance, and is leading to a dangerous ‘crowding’ of too much money chasing the same factors.”
This goes to the whole “ETFs are socialist products which are destroying both portfolio selection and capitalism, and making markets illiquid, fragmented and at risk of seizure” argument that has been discussed here over the past few years.

This post was published at Zero Hedge on Oct 1, 2017.

Is Bitcoin Killing Gold?

On January 1st of this year, the price of one Bitcoin was $997.
By August, Bitcoin had more than quadrupled in value to reach over $4,000.
Another popular cryptocurrency, Ethereum, has made Bitcoin’s big gain appear relatively small. Ethereum’s year-to-date performance has reached over 37-fold at times. Many other cryptos have gained at least 100% this year… and made people huge sums of money.
With cryptocurrencies generating huge gains and attracting a large, rabid following, it’s time to ask…
Are cryptocurrencies killing gold?
We’ve been asked this question many times from both subscribers and gold industry insiders.
Regular Katusa Research readers are familiar with the allure of owning gold and its long history as money. People have used gold for thousands of years because it is portable, durable, anonymous, divisible, convenient, and consistent around the world. And most importantly to many people, gold cannot be debased by governments like paper money can be.
To fans of cryptocurrencies, those are familiar words. They own cryptos for many of the same reasons. They love the idea of owning money that isn’t controlled by a government.
But is there enough of these people now – and will there be enough of these people in the future – to deal a serious blow to gold demand?

This post was published at GoldSeek on 29 September 2017.

Investment Strategy Conference Regional Fed Manufacturing Overview: September Update

Five out of the twelve Federal Reserve Regional Districts currently publish monthly data on regional manufacturing: Dallas, Kansas City, New York, Richmond, and Philadelphia.
Regional manufacturing surveys are a measure of local economic health and are used as a representative for the larger national manufacturing health. They have been used as a signal for business uncertainty and economic activity as a whole. Manufacturing makes up 12% of the country’s GDP.
The other 6 Federal Reserve Districts do not publish manufacturing data. For these, the Federal Reserve’s Beige Book offers a short summary of each districts’ manufacturing health. The Chicago Fed published their Midwest Manufacturing Index from July 1996 through December of 2013. According to their website,
“The Chicago Fed Midwest Manufacturing Index (CFMMI) is undergoing a process of data and methodology revision. In December 2013, the monthly release of the CFMMI was suspended pending the release of updated benchmark data from the US Census Bureau and a period of model verification. Significant revisions in the history of the CFMMI are anticipated.”

This post was published at FinancialSense on 09/29/2017.

Effective Market Management: Art and Science

The notion that there is art involved in interpreting the economy and financial markets is probably heresy to many market participants and probably 99.9% of economists (that .1% guy being the one who’s excluded from the meetings and egghead social gatherings), whether they be right or left leaning (I always find it entertaining to hear right wing and left wing economists duke it out, as I did on NPR yesterday, coming to diametrically opposed conclusions amid the tax reform debate).
You see, economists are trained by their science to follow the data. Now, the politics get involved when they cherry pick which data to highlight and extrapolate; but the data are the data. As an example, we all know that inflation is very tame now because TIPS yields are low, the 10 year Treasury yield is still low by historical standards and despite robust employment, cost-push inflation is simply not manifesting.
So what does the conservative economist do? He extrapolates this Goldilocks scenario well into the future, just as the liberal economist did before him when it seemed convenient. It’s called playing for a punt or expecting the can to continue getting kicked down the road because after all, the data point that way. There are few signs of stress on the near horizon.

This post was published at GoldSeek on 29 September 2017.

WAKE UP AMERICA – THE DOLLAR IS GOING TO ZERO

For news to be read and understood by a great number of people, it must be simple, sensational and forgettable. Most individuals are not interested in ‘heavy’ news or complicated issues. Just compare television and newspapers today to say 50 years ago. At that time, newspapers had very few pictures but instead covered serious matters with in depth analysis. Same with television. In the 1960s there was serious news and many programmes which raised important issues in society or politics, which many people listened to and grasped.
Today everything must be dumbed down to the lowest common denominator of readers or viewers. For a paper to sell or a television station to receive advertising revenue, any news must be superficial and short. Most content must have an entertainment or gossip value. Same with television. All serious matters are either left out or covered very briefly. We are now in the age of instant gratification. Viewers’ interest can only be kept by short superficial language, lots of big images and constant change of focus. On television, no camera position must remain on one subject for more than a few seconds because people’s attention span only lasts for a brief moment.
THE AGE OF MISINFORMATION AND IGNORANCE
This has led to most people either becoming ignorant or misinformed. The political correctness contributes to the misinformation since, to a great extent, minorities determine what is politically correct. The French lawyer and politician, instrumental in the French Revolution was well aware of this:

This post was published at GoldSwitzerland on September 29, 2017.

How To Survive And Thrive In A “Zlatan Ibrahimovic” Market

REPORTER: ‘Who will win the World Cup playoff?’
ZLATAN: ‘Only God knows who will go through.’
REPORTER: ‘It’s hard to ask him.’
ZLATAN: ‘You’re talking to him.’
REPORTER: ‘What did you get your wife for her birthday?’
ZLATAN: ‘Nothing. She already has Zlatan.’
ZLATAN: ‘I can’t help but laugh at how perfect I am.’
In case you don’t pay attention to soccer, here are three things to know about Zlatan Ibrahimovic:
He’s an excellent player. His ego, as you can see, is large. He doesn’t appear to have much in common with Yale University’s Robert Shiller. I’ll start with the third point and the insightful Shiller, in particular. (I’ll get back to ‘Ibra’ in just a moment.) Shiller wrote an article last week warning of the potential hazards of equity investment. As he often does, he shared a chart showing his cyclically-adjusted price-to-earnings (CAPE) ratio. He reminded us that the CAPE ratio is ‘somewhat effective at predicting real returns over a ten-year period.’ But this particular article had little to do with ten-year forecasts. Here’s the conclusion (with my emphasis):

This post was published at Zero Hedge on Oct 1, 2017.

Vector Space (Part 2): The New Face of the Space Race

We’re back with Part Two where Jim Cantrell, CEO of Vector Space Systems, reveals the face of the new Space Race, how Vector plans to ‘make rockets like sausages,’ who the most famous human being in the Universe will be and what role cryptocurrencies will play in this revolution.
Let’s begin.
Jim Cantrell:
The first people to arrive on Mars are going to come by private taxi. They’re not going to be here by black government limos. It’s not going to be a government guy.
It’s going to be Elon Musk, or it’s going to be one of his astronauts.
The government’s not going to do it. The government may say they’re going along, but they’re just there for the ride.
They’re following in this case.
What’s happening is entrepreneurs now have made enough money that we can actually rival what the governments used to claim as their own domain.
The governments have become so incompetent in how they execute this basic function of space travel, it’s left the door wide open for the entrepreneurs. And we rushed in. We didn’t realize we were rushing in in the beginning, but we did.

This post was published at Laissez Faire on Sep 29, 2017.

Why Rajoy Is Panicking – Last Minute Poll Shows Huge 80% Surge For Catalan Independence

We noted yesterday that “if Catalonia secedes from Spain…in terms of the debt sustainability parameters laid down by the Treaty of Maastricht, it’d be the Eurozone debt crisis 2.0…” and it is clear by the thuggish brutality of Spain’s police that Rajoy will do anything to ensure this vote does not go ahead as the latest poll data shows a massive surge in favor of independence, as government fascism has clearly triggered unintended consequences that look set to spirtal out of control.
***
As MishTalk.com’s Mike Shedlock notes, numerous sites keep posting stats that claim a majority in Catalonia want a vote but do not support independence. I have stated those polls are old and likely wrong thanks to the pitiful tactics of prime minister Mariano Rajoy. A new last-minute poll suggests I have this correct.

This post was published at Zero Hedge on Oct 1, 2017.