The ECB Comes Clean On Rising Rates and the Coming Systemic Reset

Remember how the Fed, ECB and others all claimed ZIRP and QE were about generating economic growth, making mortgages more affordable, and helping consumers?
Well, that was a gigantic lie. The truth is that every major policy employed by Central Banks since 2008 have been about one thing…
Maintaining the bond bubble.
Governments around the world have used the bubble in bonds to finance their bloated budgets. If interest rates were anywhere NEAR normal levels, most countries would lurch towards default in a matter of weeks.
If you think this is conspiracy theory, consider that the European Central Bank openly admitted this in its semi-annual Financial Stability Review this week:
Even so, [the ECB] said that ‘higher interest rates may trigger concerns about sovereigns’ debt-servicing capacity,’ and noted that ‘distrust in mainstream political parties continues to rise, leading to fragmentation of the political landscape away from the established consensus.’

This post was published at GoldSeek on 30 November 2017.

What Wall Of Worry? US Equity Investors Are The Most Levered-Long Since Brexit

What wall of worry?
The S&P 500 Index is heading for its longest streak of monthly gains since 2007, and, as Bloomberg reports, investors are betting there’s more to come.
A sudden jump in trading of bullish options on SPY (the ETF tracking the S&P 500), means there has not been more ‘investors’ holding S&P 500 Calls relative to Puts since Summer 2016…

This post was published at Zero Hedge on Nov 30, 2017.

US Household Debt Is Rising 60% Faster Than Wages, And One Rating Agency Is Worried

In a report released today by DBRS titled “Consumer debt and debt burden”, the rating agency which is best known for keep Italian debt eligible for ECB monetization at the peak of the European banking crisis, looks at the latest Quarterly Report on Household Debt and Credit issued by the NY Fed (discussed here previously) which showed that consumer debt for the third quarter of 2017 was approximately $12.96 trillion, representing an increase of $116 billion over the second quarter of 2017. The debt level for the first three quarters of 2017 has continued to increase above the previous record debt level which was established in the third quarter of 2008 as shown in Exhibit 1 below.

DBRS also highlights that not only did total debt levels increase, but their composition changed as highlighted in Exhibit 2 below.

This post was published at Zero Hedge on Nov 30, 2017.

Inflation Surges as Economy Bogs Down in Mexico

Bank of Mexico caught in a vise.
In the last week, the governor of the Bank of Mexico (or Banxico), Augustin Carstens, stepped down in order to take over the reins as general manager of the Bank for International Settlements in Basil, Switzerland, while Finance Minister Jos Antonio Meade, handed in his resignation to run as the presidential candidate for the governing PRI party in next year’s general elections.
Despite the fact that the country’s two most senior public financial officials have left their posts within days of one another, and though the Mexican stock index is down about 9% from July, the markets still seem pretty sanguine.
But that doesn’t mean that problems are not stacking up.
Earlier this year Carstens felt compelled to postpone by five months his departure from Banxico, which was initially scheduled for May, in the hope that his continued presence would help steady investor nerves as well as tame inflation, which began soaring after the government’s one-off hike in gas prices at the beginning of this year.

This post was published at Wolf Street on Nov 30, 2017.

We Give Up! Government Spending And Deficits Soar Pretty Much Everywhere

A recurring pattern of the past few decades involves governments promising to limit their borrowing, only to discover that hardly anyone cares. So target dates slip, bonds are issued, and the debts keep rising.
This time around the timing is especially notable, since eight years of global growth ought to be producing tax revenues sufficient to at least moderate the tide of red ink. But apparently not.
In Japan, for instance, government debt is now 250% of GDP, a figure which economists from, say, the 1990s, would have thought impossible.
Over the past decade the country’s leaders have proposed a series of plans for balancing the budget, and actually did manage to shrink debt/GDP slightly in 2016. But now they seem to have given up, and are looking for excuses to keep spending:
Japan plans extra budget of $24-26 billion for fiscal 2017
(Hellenic Shipping News) – Japan’s government is set to compile an extra budget worth around 2.7-2.9 trillion yen ($24-26 billion) for the fiscal year to March 2018, with additional bond issuance of around 1 trillion yen to help fund the spending, government sources told Reuters.
Following October’s big election win, Prime Minister Shinzo Abe’s cabinet has made plans to beef up childcare support, boost productivity at small and medium-sized companies, and strengthen competitiveness of the farm, fishery and forestry industries.

This post was published at DollarCollapse on NOVEMBER 30, 2017.

“A Potential Nightmare Scenario For The GOP”: Tax Vote Delayed To Friday; May Include $350BN In New Tax Hikes

Update: The Senate tax plan roll vall vote which was widely expected to take place on Thursday evening, has been pushed back to 11am on Friday following the collapse of the “Trigger” compromise (discussed below) to win a majority for a Senate tax overhaul left Republicans scrambling to salvage the legislation, Bloomberg reports. While debate over the bill may continue into the evening, McConnell said. It’s unclear when the unlimited amendment vote series known as ‘vote-a-rama’ would begin.
“For the information of all senators, the Senate will continue to debate the bill tonight. The next roll call votes will be at 11 a.m tomorrow morning,” Mitch McConnell announced Thursday night. The decision to skip a late-night session came as deficit hawks, led by Bob Corker pushed for a guarantee that the Senate tax legislation won’t increase the deficit. In its current format an analysis released late on Thursday found tax reform would cost $1 trillion.
As Bloomberg explains:
“the day’s events left GOP leaders contemplating a variety of potentially unpalatable measures — including making some tax cuts on the individual and corporate side end within six or seven years. The current version of the Senate bill would sunset individual breaks in 2026.”

This post was published at Zero Hedge on Nov 30, 2017.

Core Inflation (PCE) Rises To 1.44% YoY Ahead of Fed’s December Meeting (Prob of Rate Hike Is 98.3%)

The Fed’s Open Market Committee meeting is just around the corner (December 13) and the last core inflation report has been released. Core Personal Consumption Expenditures (Core PCE YoY) rose from 1.36% to 1.44%, well below The Fed’s 2% target rate.
Personal spending cooled in October from 1% to 0.3% while personal income remained the same.
The implied probability (WIRP) of a December 13th rate hike is 98.3%, however.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ November 30, 2017.

BMO Sees Risk Of Curve Inverting “As Early As March 2018”

Over the weekend, we published an analysis from Citigroup looking at how long after the yield curve inverts do investors “have to worry.” The results were interesting: as Citi wrote, while sometimes inversion provides a timely signal for the economic cycle a la 2000, “where Professor Curve predicted almost the ding-dong high in the SPX”, other times, like the 2006 inversion, dished up 7 months of pain for equity bears, with 18% further upside for the SPX. The same occurred for the 1989 episode where equities continued to rally 22% into the 1990 recession.

Whatever the timeframe between inversion and subsequent events, however, the curve first has to invert. So when will that happen. One bank provided a surprising answer earlier this week, when Morgan Stanley forecast a “completely flat” yield curve around the time of the FOMC’s September meeting.
Now, in its 2018 rates outlook, BMO’s Ian Lyngen and Aaron Kohli have unveiled a far more aggressive forecast, warning that there is a “risk of an inverted 2s/10s curve as early as the March meeting – if not, then by June.”
Here are the details, as excerpted from the report:

This post was published at Zero Hedge on Nov 30, 2017.

Breslow: “The Answer To This Question Will Drive Just About Everything”

Having passed the first hurdle this morning (PCE did not drop further), The Fed’s December hike is now locked and loaded, but, as former fund manager Richard Breslow notes, at the end of the day, the real elephant in the room is if, when and how fast the big central banks shift toward policy normalization. Everything else is derivative. Get this one right and quibbling over some sector rotation or the relative prospects of the Australian versus New Zealand dollars pale in comparison.
The answer to this question will drive just about every other market.
Via Bloomberg,
It’s an interesting issue to contemplate as we wind down a year when sovereign yields, with the exception of China, have been moribund, at best.
All eyes have correctly been on the yield curves but it could very well be that the focus needs to change.

This post was published at Zero Hedge on Nov 30, 2017.

Fed’s Most-Watched Inflation Indicator Ticks Up In October – Still Well Below Mandate

The Fed’s most-watched inflation indicator – Core PCE – has been on a downward trend since short-term peaking in January (and yet the need to keep hiking rates has remained). However, October’s 1.4% rise (as expected) offers some hope to Janet, Jay, and their friends that an inflection point has been reached in the transitory disinflationary spiral.

This post was published at Zero Hedge on Nov 30, 2017.

Trump Sparks Outrage In UK With “Truculent Tweet” To Theresa May After Retweeting Far-Right Videos

.@Theresa_May, don’t focus on me, focus on the destructive Radical Islamic Terrorism that is taking place within the United Kingdom. We are doing just fine!
— Donald J. Trump (@realDonaldTrump) November 30, 2017

President Trump sparked outrage among Britain’s political establishment on Thursday with a sharp rebuke on Twitter of Prime Minister Theresa May on Twitter after she criticized him for retweeting British far-right anti-Islam videos. Following Trump’s condemnation by British politicians who lashed out at the US president for sharing videos originally posted by a leader of a British far-right fringe group, in an unprecedented attack on Theresa May, Trump replied with what Reuters dubbed an “unrepentant message”:
‘Theresa @theresamay, don’t focus on me, focus on the destructive Radical Islamic Terrorism that is taking place within the United Kingdom. We are doing just fine,’ he tweeted.

This post was published at Zero Hedge on Nov 30, 2017.

US GDP QoQ Grows At 3.3% Pace, Fastest Since 2014 (Equipment Purchases Lead The Way) – Yield Curve 10Y-2Y Steepens

According to the BEA, US Gross Domestic Product (GDP) grew at a 3.3% QoQ (Annualized) pace, the highest since 2014.
But what drove the rise in Q3 GDP growth of 3.3%? It wasn’t personal consumption expenditures (PCE) that actually fell from 3.3% in Q2 to 2.3% in Q3. The big contributer was gross private domestic investment that rose from 3.9% in Q2 to 7.3% in Q3.

This post was published at Wall Street Examiner on November 29, 2017.

WTI Slumps Despite OPEC ‘Deal’ As Russia Questions Remain

Both WTI and RBOB prices are tumbling this morning after OPEC member agree to limit oil output through the end of 2018. While this is bullishly longer-than-expected (6-9mo was expected), OPEC members now rely on Russia to agree to these terms, and it appears the market is questioning that. Furthermore, despite US shale output at record highs, Saudi officials are shrugging off any impact.
As The Wall Street Journal reports, OPEC members agreed in principle Thursday to keep limiting their output through the end of 2018, according to people familiar with the matter, providing assurance for an oil industry still struggling through a fragile recovery.
The accord signals that the world’s biggest oil-producing countries believe that a global oversupply of oil is still weighing down oil prices, even a year after they struck their first agreement to cut crude production. Oil in storage – a proxy for the global glut – remains well above historical averages, national oil ministers said.
Any agreement OPEC strikes will be contingent on support from a group of producers outside the cartel led by Russia, which pumps more crude than any country in the world. The Russia-led delegations are meeting with OPEC to hash out a final agreement.

This post was published at Zero Hedge on Nov 30, 2017.

Which Snowflake Will Trigger the Financial Avalanche?

Loose monetary policy has dumped billions of dollars of easy money into the world’s financial systems over the last eight years, pumping up a whole slew of bubbles. We are still on the upside of the business cycle, with stock markets hitting record levels it seems like on a daily basis. But if history serves as any kind of indicator, a crisis is on the horizon.
What will precipitate it? That’s the proverbial $64,000 question.
Jim Rickards has compared financial crises to an avalanche. Snow piles up becoming increasingly unstable. Eventually, it reaches the point when all it takes is one more snowflake to set off an avalanche.
In a recent column, Rickards highlights three potential ‘snowflakes’ that could set off the next deluge.
Credit Crisis in China
Earlier this month, Mint Capital strategist Bill Blain predicted that ‘the great crash of 2018 is going to start in the deeper, darker depths of the credit market.’ Hearing this, most Americans will immediately think of debt piling up in the US. But Rickards says China is actually in an even bigger credit bubble. He uses an anecdotal story to illustrate this point.

This post was published at Schiffgold on NOVEMBER 30, 2017.

“It Could Reshape The Global Trading System For Decades” – US Rejects China’s Bid For “Market Economy” Status

The US has filed a legal submission to the WTO as a third party, intervening in a case that China has brought against the European Union. The US rejects China’s argument that under the 2001 agreement, which confirmed China’s WTO status, it would should automatically be considered a ‘market economy’ fifteen years after joining. The dispute could affect both America’s and China’s future within the international body and, as the New York Times contends, ‘shape the global trading system for decades to come.’ It goes without saying that this will only ratchet up the current tensions between the US and China over trade, which has been a cornerstone of Trump’s rhetoric since he launched his election campaign.
Briefly, the US submission sets out the legal arguments explaining why China should not be designated as a market economy, which would give it preferential treatment under existing WTO rules. China is currently designated a ‘nonmarket economy’ which allows the US, EU and other countries to decide whether China is dumping products at unfair prices under a WTO framework. If they decide that China is dumping, countries can add an extra duty to protect domestic manufacturers.
According to the Financial Times, “the Trump administration has opposed China’s bid for recognition as a ‘market economy’ in the World Trade Organization, citing decades of legal precedent and what it sees as signs the country is moving in the opposite direction under Xi Jinping. The US opposition to China’s efforts to be recognised as a market economy in the WTO came in a legal submission due to be released on Thursday in a case brought by Beijing against the EU. Market economy status would make it more difficult for the US to prove anti-dumping cases against Chinese companies at the WTO.”

This post was published at Zero Hedge on Nov 30, 2017.

29/11/17: China vs U.S. – the WTO Fight

“The Trump administration has lambasted China’s bid for recognition as a market economy in the World Trade Organization, citing decades of legal precedent and what it sees as signs that China is moving in the opposite direction under Xi Jinping. The US move to oppose China’s longstanding efforts to be recognised as a market economy in the WTO came in a legal submission filed last week and due to be released publicly on Thursday in a case brought by Beijing against the EU.”
Here are background slides to the dispute from my recent lecture @MIIS :
First, what’s behind the WTO dispute: the fight between the U. S. and the EU against China and other emerging economies in core Bretton Woods institutions – the IMF and the World Bank

This post was published at True Economics on Thursday, November 30, 2017.

Nobel Laureate Stiglitz Says Bitcoin Should Be ‘Outlawed’

Bitcoin has soared this year by more than ten-fold, defying all of the Wall Street veterans who have compared it to the Tulip Bubble and/or a Ponzi scheme. That doesn’t mean that Bitcoin is a legitimate investment; it just means that bubbles have no set expiration date.
The Nobel laureate economist, Joseph Stiglitz of Columbia University, appeared on Bloomberg television yesterday and had this to say about Bitcoin:
‘One of the main functions of government is to create currency. And Bitcoin is successful only because of its potential for circumvention, lack of oversight. So it seems to me it ought to be outlawed. It doesn’t serve any socially useful function.’
Consider the remarks Stiglitz made yesterday to our more detailed assessment along the same lines back in 2014. We wrote:
‘The business writers at Reuters are also dead wrong on Bitcoin being like other currencies whose ‘value depends on people’s confidence in it.’ Let’s take the U. S. dollar. Backing the use of the U. S. dollar as a world currency is the following: a Congress made up of 435 Representatives in the House and 100 Senators in the Senate; 535 people elected from all over the United States who have the power to tax the income of every American receiving wage, dividend, interest or even Social Security income at whatever rate they see fit in order to pay the Nation’s bills and debt obligations to other countries.

This post was published at Wall Street On Parade on November 30, 2017.