• Category Archives Banking
  • Anti-Gold Propaganda Flares Up

    Predictably, after the gold price has been pushed down in the paper market by the western Central Banks – primarily the Federal Reserve – negative propaganda to outright fake news proliferates.
    The latest smear-job comes from London-based Capital Economics by way of Kitco.com. Some ‘analyst’ – Simona Gambarini – with the job title, ‘commodity economist,’ reports that ‘gold’s luck has run out’ with the 25 basis point nudge in rates by the Fed. She further explains that her predicted two more rate hikes will cause even more money to leave the gold market.
    Hmmm…if Ms. Gambarini were a true economist, she would have conducted enough thorough research of interest rates to know that every cycle in which the Fed raises the Funds rate is accompanied by a rise in the price of gold. This is because the market perceives the Fed to be ‘behind the curve’ on rising inflation, something to which several Fed heads have alluded. In fact, the latest Fed rate hike, on balance, has lowered longer term interest rates, as I detailed here: Has The Fed Really Raised Rates?

    This post was published at Investment Research Dynamics on June 21, 2017.


  • Your Future Wealth Depends on what You Decide to Keep and Invest in Now

    Millienials look for instant gratification Spend half of their income on leisure Instant gratification doesn’t work if need to save for the future Savings rates falling, few have retirement funds Important to understand marginal difference between spending and pleasure Future wealth depends on what you decide to keep and invest in now This week the festival of all festivals begins, Glastonbury 2017. Ed Sheeran, Foo Fighters and Barry Gibb will each be singing to the 250,000 revellers who are currently on their way to Somerset. To those unfamiliar with Glastonbury it is a glorious few days in the countryside with camping and music. Every year there is far too much mud, lots of tears, alcohol, dodgy substances, hippies and great bands. Not to mention the fancy dress outfits and the toilets with questionable sanitary conditions. It is brilliant fun which everyone should try at least once.

    This post was published at Gold Core on June 21, 2017.


  • Now China’s Curve

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    Suddenly central banks are mesmerized by yield curves. One of the jokes around this place is that economists just don’t get the bond market. If it was only a joke. Alan Greenspan’s ‘conundrum’ more than a decade ago wasn’t the end of the matter but merely the beginning. After spending almost the entire time in between then and now on monetary ‘stimulus’ of the traditional variety, only now are authorities paying close attention. Last September the Bank of Japan initiated QQE with YCC (yield curve control). The ECB in December altered its QE parameters to allow for what looks suspiciously like a yield curve steepening bias. And the Fed in its last policy statement declared its upcoming intent to think about balance sheet runoff that, as my colleague Joe Calhoun likes to point out, is almost surely going to be favored in the same way.
    Central bankers spent years saying low interest rates were stimulus. They have yet to explicitly correct their interpretation, preferring the more subtle approach of instead altering their operations as noted above. As I wrote back in December.

    This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ June 20, 2017.


  • Doldrums and Summer lows? Pining sez No!

    With analysts at most public PM websites now turning decidedly bearish, with the summer doldrums staring us in the face, with the new rate hike raising interest rates (on paper making gold less desirable as it provides no yield), and with the gold seasonals suggesting that ‘sell in May and go away’ was the play, there is a definite bearish tilt to the sector right now. That’s why (among other things) we have a great risk-reward setup staring us in the face.
    Pining thinks it’s a great place to go long (with stops)! Let me give you a few reasons why, then I’ll outline the trade:
    Sentiment:
    A quick review of 7 popular and publicly available precious metals analytics/trading sites, and a glance through the comments on those sites, made clear to me that there is (at least roughly) a general consensus in the metals complex right now: after failing to break through 1300, and first pushing through then falling back below the long-term downtrend line in gold, the summer doldrums are upon us and consensus sentiment has turned bearish. The two most likely scenarios I saw discussed were either (1) we languish and churn lower for the next few months following typical gold seasonals pattern into a July or August low, or we cascade from here into an earlier low, perhaps late June or early July.
    I like this widespread bearishness very much. This is precisely the type of setup the metals love; wrong-foot the investing public, going against well-known patterns (because it’s never that easy in the metals) and making sure the majority of retail is not on the train and has to chase price. That’s also why the so-so COT doesn’t bother me much, that pattern has been a bit TOO clear recently and has been becoming a little too easy to trade, so I think it’s due for a wrong-foot. In fact it is this ‘juking the crowd’ and subsequent chasing of price on the way up that provides the fuel for the best runs in the metals. This is an excellent setup from a sentiment standpoint. Just ask yourself, when was the last time the majority of retail sentiment was dead-on correct and on the right side of the trade in the metals? Thought so.

    This post was published at TF Metals Report on June 19, 2017.


  • SocGen: The Fed Is Raising Rates Too Slowly To Contain Asset Bubbles

    Yesterday, when looking at the divergence between the slowing US economy and the Fed’s insistence on hiking rates, Bank of America’s David Woo asked if there is a different motive behind the Fed’s tightening intentions, namely is the Fed trying to pop the market asset bubble:
    “Can it be the case that its hawkishness was prompted by something other than its reading of the economy? For example, is it possible that the Fed has become concerned about the recent surge in the equity market, especially tech stocks that has been feeding off low interest rates and low volatility? According to our equity strategists, the P/E of the tech sector (19x) is currently at its highest levels post-crisis while the EV/Sales ratio is at the highest sinec the Tech Bubble”
    Today, in a note which may have been inspired by BofA’s rhetorical question, SocGen’s FX strategist Kit Juckes picks up on what Woo said and notes that “Whether the Fed is raising rates too fast given their inflation mandate or not, they are raising them too slowly to contain asset price inflation.” Which, incidentally is confirmed by the latest Goldman data on financial conditions, which since the Fed’s 2nd rate hike of 2017 have continued to loosen and were “easier” by anotehr 5.4 bps

    This post was published at Zero Hedge on Jun 20, 2017.


  • Trader: “We Need Another 20 Basis Points For The Entire Narrative To Change”

    As noted yesterday, Bloomberg trading commentator Richard Breslow refuses to jump on the bandwagon that the Fed is hiking right into the next policy mistake. In fact, he is pretty much convinced that Yellen did the right thing… she just needs some help from future inflationary print (which will be difficult, more on that shortly), from the dollar (which needs to rise), and from the yield curve. Discussing the rapidly flattening yield curve, Breslow writes that “the 2s10s spread can bear-flatten through last year’s low to accomplish the break, but I don’t think you get the dollar motoring unless the yield curve holds these levels and bear- steepens. Traders will set the bar kind of low and start getting excited if 10-year yields can breach 2.23%. But at the end of the day we need another 20 basis points for the entire narrative to change.”
    To be sure, hawkish commentary from FOMC members on Monday (with the semi-exception of Charles Evans) and earlier this morning from Rosengren, is doing everything whatever it can to achieve this. Here are the highlights from the Boston Fed president.
    ROSENGREN SAYS LOW INTEREST RATES DO POSE FINANCIAL STABILITY ISSUES ROSENGREN: LOW RATES MAKE FIGHTING FUTURE RECESSIONS TOUGHER ROSENGREN SAYS REACH-FOR-YIELD BEHAVIOR IN LOW INTEREST RATE ENVIRONMENT CAN MAKE FINANCIAL INTERMEDIARIES, ECONOMY MORE RISKY

    This post was published at Zero Hedge on Jun 20, 2017.


  • Amid Dreary Landscape, Event Funds Stage A Comeback

    The US hedge fund industry is in rough shape as the Federal Reserve’s lift-all-boats monetary policy has made it increasingly difficult to beat the market. US hedge funds endured nearly $100 billion in redemptions last year, as only 30% of US equity funds beat their benchmarks. But as confidence in traditional stock pickers dwindles, so-called ‘event-driven’ funds are attracting renewed interest in investors, particularly in Europe, where near-zero rates and relatively attractive valuations are expected to stoke a boom in M&A activity, Bloomberg reports.

    After these funds experienced some high-profile stumbles in recent years – one such fund managed by John Paulson’s Paulson & Co. posted a 49% loss and endured billions of dollars in redemptions – some Europe-based funds are seeing billions in inflows. Kite Lake Capital Management, Everett Capital Advisors and Melqart Asset Management have garnered billions in fresh investor capital over the past two years.
    ‘Kite Lake Capital Management almost doubled client assets this year, while Everett Capital Advisors nearly tripled its funds since launching in January 2016. The money overseen by Melqart Asset Management has grown 12-fold since the firm started less than two years ago. The three event-driven funds have $1.5 billion in combined assets and invest across Europe, where an increasingly buoyant economy and record-low interest rates are boosting dealmaking. Their resurgence is part of a comeback effort by a hedge-fund industry that’s only now starting to recover from a wave of investor redemptions and years of disappointing returns.

    This post was published at Zero Hedge on Jun 20, 2017.


  • Good Luck Getting Out Of That Subprime Auto Loan When Used Car Prices Crash

    We’ve written frequently in recent months about the coming subprime auto crisis which will very likely be prompted by a wave of off-lease vehicles that will flood the market with used inventory over the coming years. In fact, Morgan Stanley recently predicted that the surge in used inventory could result in as much as a 50% crash in used car prices over the next couple of years which would, in turn, put further pressure on the new car market which has already resorted to record incentive spending to maintain volumes.
    Here are just a couple of our most recent notes on the topic:
    Signs Of An Auto Bubble: Soaring Delinquencies In These 266 Subprime ABS Deals Can’t Be Good New Warning Signs Emerge For Subprime Auto Securitizations Auto Lending Update – Someone Please Explain How This Is Not A Bubble Of course, while pretty much anyone has been able to purchase that brand new BMW of their dreams over the past 5 years…courtesy of a surge in subprime lending volumes….

    This post was published at Zero Hedge on Jun 20, 2017.


  • The $31 Billion Hole in GE’s Balance Sheet That Keeps Growing

    It’s a problem that Jeffrey Immelt largely ignored as he tried to appease General Electric Co.’s most vocal shareholders.
    But it might end up being one of the costliest for John Flannery, GE’s newly anointed CEO, to fix.
    At $31 billion, GE’s pension shortfall is the biggest among S&P 500 companies and 50 percent greater than any other corporation in the U.S. It’s a deficit that has swelled in recent years as Immelt spent more than $45 billion on share buybacks to win over Wall Street and pacify activists like Nelson Peltz.
    Part of it has to do with the paltry returns that have plagued pensions across corporate America as ultralow interest rates prevailed in the aftermath of the financial crisis. But perhaps more importantly, GE’s dilemma underscores deeper concerns about modern capitalism’s all-consuming focus on immediate results, which some suggest is short-sighted and could ultimately leave everyone — including shareholders themselves — worse off.

    This post was published at bloomberg


  • Inflation Trade: AMZN + WFM

    ‘Markets go up on an escalator, they come down on an elevator. This is the most hideously overvalued market in history.’
    David Stockman
    Last week’s action by the Fed was an effort to restore normalcy, but in the context of extraordinary action by the central bank. When you tell markets that the risk free rate is zero, it has profound implications for the cost of debt and equity, and resulting in different asset allocation decisions. Ending this regime also has profound implications for investors and markets.
    In the wake of the financial crisis, some investors found comfort in the fact that when risk free interest rates are at or near zero, the discounted future value of equity securities was theoretically infinite. Markets seem to have validated this view. But to us the real question is this: If a company or country has excessive and growing amounts of debt outstanding against existing assets, what is the value of the equity? The short answer is non-zero and declining. But hold that thought.
    Reading through Grant’s Interest Rate Observer over the weekend, we were struck by the item on China Evergrande Group (OTC:ERGNF), a real estate development company and industrial conglomerate that has reported negative free cash flow since 2006, but has made it up in volume so to speak. The stock is up over 200% this year, Grant’s reports. The real estate conglomerate has its hands into all manner of businesses and seems to typify the China construction craze.

    This post was published at Wall Street Examiner on June 19, 2017.


  • Take advantage of this free insurance policy for your savings

    The “fixes” to the stagnation of postwar Capitalism in the 1970s were financialization, globalism, and the sustained expansion of debt–all have run out of steam.
    Many of us have written about cycles in the past decade: Kondratieff economic cycles, business/credit cycles, the Strauss – Howe generational theory (an existential national crisis arises every four generations, as described in their book The Fourth Turning), and long-wave cycles of growth and decline, as described in seminal books such as The Great Wave: Price Revolutions and the Rhythm of History and War and Peace and War: The Rise and Fall of Empires.
    There is another Rhythm of American History that few recognize: the economic, social and political crises sparked by exploitive Elites. There are two dynamics that drive these crises:< 1. The exploitation of commoners by financial/political Elites reaches extremes that create systemic instability as commoners no longer have the means to improve their conditions. 2. The economic mode of production that generated Elite wealth no longer functions, but the Elites cling to the failing system and enforce it with increasingly violent suppression of dissent.
    Here are the previous Crises of Exploitive Elites:
    1. Slavery, 1850 to 1865. Though the toxins generated by slavery are still with us, the existential political, social and economic crisis arose in the years between 1850 and the end of the Civil War in 1865

    This post was published at Charles Hugh Smith on SUNDAY, JUNE 18, 2017.


  • China’s “Ghost Collateral” Arrives In Canada, “Heralding A Crisis”

    Two weeks ago, a key China-linked concern that made headlines back in 2013 and 2014 reemerged after an extensive analysis by Reuters reporter Engen Tham found that China’s “ghost collateral” problem, or collateral that was either rehypothecated between two or more loans, or simply did not exist, had not only not gone away but was still as prevalent as ever if not worse.
    The report, a continuation of extensive reporting conducted on this site, said that 60% of all loans issued in China’s system are backed by property, and that China’s property values are ‘wildly misleading, which is part of the reason that China’s credit rating was recently downgraded.” Reuters reported that Chinese lenders are prone to fraud with loan officers turning a blind eye to the quality of collateral and knowingly accepting dubious and even fraudulent documents.
    Now, in a follow up by the Vancouver Sun’s Sam Cooper, the real estate reporter explains that China’s “ghost collateral” problem has jumped across the Pacific and is threatening the Canadian banking system.
    As Cooper notes, “as a result of the flood of money pouring from Mainland China into Vancouver real estate in recent years, some financial experts say they believe Canadian banks are directly exposed to shadow lending in China and the risks of so-called ‘ghost collateral’, collateral that may not exist or is used continuously to secure loans for multiple borrowers.”
    And the stunner: “Postmedia confirmed that Canadian banks are allowed by the federal regulator, the Office of the Superintendent of Financial Institutions, to accept collateral from China to secure real estate mortgages in B. C.”

    This post was published at Zero Hedge on Jun 18, 2017.


  • Global Equity Markets Firmer As Oil Stabilizes, Greece Gets Bailout Money

    (Kitco News) – World stock markets were mostly higher overnight. Crude oil prices are firmer today, which helped out the equities. Also, Greece’s creditors approved another release of bailout money for the indebted country, which assuaged European investors. U. S. stock indexes are pointed toward slightly higher openings when the New York day session begins.
    Gold prices are modestly up in pre-U. S. market trading, on a technical and short-covering bounce from solid selling pressure seen earlier this week.
    In overnight news, Russia’s central bank cut its key interest rate by 25 basis points. The Russian ruble rallied on the news.
    The Bank of Japan held its regular monetary policy meeting Friday and made no major changes in its policy.
    The Euro zone’s consumer price index for May was reported down 0.1% from April and up 1.4% from a year ago. The numbers were right in line with market expectations but down from the European Central Bank’s target rate of around 2.0% annual inflation.

    This post was published at Wall Street Examiner on June 16, 2017.


  • Cab Drivers Union Says Chicago Taxi Industry Near Collapse

    In addition to repaying loans on their medallions, taxi operators also have to pay thousands of dollars each year in city expenses, like the ground transportation tax and medallion license renewal fee – expenses that rideshare drivers are not subject to. (Cab Drivers United/ Twitter)
    Ghana-born John Aikins has been a cab driver in Chicago for two decades. About 15 years ago, he decided to go into business for himself by taking out a loan with his wife to purchase a medallion – a city-issued license to operate a taxi – for $70,000. Paying it off within a few years thanks to a steady stream of passengers, they took out loan for a second medallion five years ago, using the first as collateral. Watching his medallions appreciate in value over the years, Aikins planned to eventually sell or lease them to other drivers, a common practice in the industry. ‘I hoped it would be my retirement investment, and I had planned to retire this year,’ Aikins told In These Times.
    But with the introduction of Uber and other rideshare companies to the city – which can operate without the expensive, city-issued medallions – Aikins has seen his clientele plummet over the past three years, making it increasingly hard to keep up with his medallion loan payments.

    This post was published at Zero Hedge on Jun 18, 2017.


  • Return of the Gold Bear?

    It was exactly one month ago we discussed our posture as a ‘bearish Gold bull.’
    The gold mining sector hit a historic low nearly 18 months ago but this new cycle has struggled to gain traction as metals prices have stagnated while the stock market and the US Dollar have trended higher. Unfortunately recent technical and fundamental developments argue that precious metals could come under serious pressure in the weeks and months ahead.
    First let me start with Gold’s fundamentals, which turned bearish a few months ago and could remain so through the fall. As we have argued, Gold is inversely correlated to real interest rates. Gold rises when real rates fall and Gold falls when real rates rise.
    Real interest rates bottomed in February and have trended higher ever since. As we know, the rate of inflation has peaked and is declining. Meanwhile, the fed funds rate has increased while bond yields have remained stable. The real fed funds rate and the real 5-year yield have increased by 1% in recent months. If inflation falls by another 0.5% and the fed funds rate is increased by another quarter point, then the real fed funds rate would be positive by the end of the year. That would mark a 2% increase inside of 10 months.

    This post was published at GoldSeek on 18 June 2017.


  • Here Comes Quantitative Tightening

    All of a sudden the Fed got a little tougher. Perhaps the success of the hit movie Wonder Woman has inspired Fed Chairwoman Janet Yellen to discard her prior timidity to show us how much monetary muscle she can flex when the time comes for action. Although the Fed’s decision this week to raise interest rates by 25 basis points was widely expected, the surprise came in how the medicine was administered. Most observers had expected a ‘dovish’ hike in which a slight tightening would be accompanied by an abundance of caution, exhaustive analysis of downside risks, and assurances that the Fed would think twice before proceeding any farther. But that’s not what happened. Instead Yellen adopted what should be viewed as the most hawkish policy stance of her chairmanship. The dovish expectations resulted from increasing acknowledgement that the economy remains stubbornly weak. Just like most of the years in this decade, 2017 kicked off with giddy hopes of three percent growth. But as has been the case consistently, those hopes were quickly dashed. First quarter GDP came in at just 1.2%. What’s worse, second quarter estimates have been continuously reduced, offering no indication that a snap back is imminent. The very day of the Fed meeting, fresh retail sales and business inventory data surprised on the weak side, becoming just the latest in a series of bad data points (including figures on auto sales and manufacturing). By definition these reports should further depress GDP growth (much as widening trade deficits already have).

    This post was published at Euro Pac on Friday, June 16, 2017.


  • Carmageddon Crashes into ‘the Recovery’ Right on Schedule – EXACTLY as Predicted Here

    By: David Haggith
    Carmageddon, as Wolf Richter has called it, is hitting the US economy exactly as I said a year and a half ago would start to happen at the very end of 2016 or the start of 2017. Measured year-on-year, auto sales have declined every month of 2017, and are now starting to cause the financial wreckage that I said we would experience in what will become a demolition derby for US auto manufacturers.
    ‘A stretched auto consumer, falling used [vehicle] prices, and technological obsolescence of current cars are ingredients for an unprecedented buyer’s strike,’ wrote Morgan Stanley’s auto analyst Adam Jonas in a note to clients. (Wolf Street)
    Stanley now foresees a ‘multiyear cyclical decline,’ along with a declining ‘willingness of financial institutions to lend as aggressively as in the past.’
    After an eight-year boom, the industry appears ‘to be hitting a point of diminishing returns where the tactics required to attract the incremental consumer may be putting even more pressure on the second-hand market, leading to adverse conditions for selling new vehicles….’ not even record incentives, reaching $14,000 for some truck models, have much impact. Those are the ‘diminishing returns’ – when you throw gobs of money at a problem and it doesn’t have much impact. Lenders, particularly the captives, stepped forward, making loans with very long terms, low and often subsidized interest rates (‘0% financing’), sky-high loan-to-value ratios, and leases that gambled on very high residual values that have now gone up in smoke as used vehicle prices are heading south.

    This post was published at GoldSeek on Sunday, 18 June 2017.


  • PetroDollar System In Trouble As Saudi Arabia Continues To Liquidate Foreign Exchange Reserves

    The U. S. PetroDollar system is in serious trouble as the Middle East’s largest oil producer continues to suffer as extremely low oil price devastates its financial bottom line. Saudi Arabia, the key player in the PetroDollar system, continues to liquidate its foreign exchange reserves as the current price of oil is not covering the cost to produce oil as well as finance its national budget.
    The PetroDollar system was started in the early 1970’s, after Nixon dropped the Gold-Dollar peg, by exchanging Saudi Oil for U. S. Dollars. The agreement was for the Saudi’s only to take U. S. Dollars for their oil and reinvest the surpluses in U. S. Treasuries. Thus, this allowed the U. S. Empire to continue for another 46 years, as it ran up its ENERGY CREDIT CARD.
    And run up its Energy Credit Card it did. According to the most recent statistics, the total cumulative U. S. Trade Deficit since 1971, is approximately $10.5 trillion. Now, considering the amount of U. S. net oil imports since 1971, I calculated that a little less than half of that $10.5 trillion cumulative trade deficit was for oil. So, that is one heck of a large ENERGY CREDIT CARD BALANCE.

    This post was published at SRSrocco Report on JUNE 16, 2017.


  • Fractional-Reserve Banking and Money Creation

    According to traditional economics textbooks, the current monetary system amplifies initial monetary injections of money. The popular story goes as follows: if the central bank injects $1 billion into the economy, and banks have to hold 10% in reserve against their deposits, this will allow the first bank to lend 90% of this $1 billion. The $900 million in turn will end up with the second bank, which will lend 90% of the $900 million. The $810 million will end up with a third bank, which in turn will lend out 90% of $810 million, and so on.
    Consequently the initial injection of $1 billion will become $10 billion, i.e., money supply will expand by a multiple of 10. Note that in this example the central bank has actively initiated monetary pumping of $1 billion, which in turn banks have expanded to $10 billion.
    But in a world where central banks don’t target money supply but rather set targets for the overnight interest rate (e.g. the federal funds rate in the United States and the call rate in Japan) does this continue to make sense? Additionally, in some economies like Australia banks are not even compelled to hold reserves against their deposits. Surely then the entire multiplier model in the economics textbooks must be suspect.

    This post was published at Ludwig von Mises Institute on June 17, 2017.