• Category Archives Fiscal Policies
  • “Q1 Stock Market Outlook: We’re Gonna Need a Bigger Slide”

    Submitted by FFWiley
    If 2018 rings in a bear market, it could look something like the Kennedy Slide of 1962.
    That was my conclusion in ‘Riding the Slide,’ published in early September, where I showed that the Kennedy Slide was unique among bear markets of the last eighty years. It was the only bear that wasn’t obviously provoked by rising inflation, tightening monetary policy, deteriorating credit markets or, less commonly, world war or depression.
    Moreover, market conditions leading up to the Slide should be familiar – they’re not too far from market conditions since Donald Trump won the 2016 presidential election. In the first year after Kennedy’s election, as in the first year after Trump’s election, inflation seemed under control, interest rates were low, credit spreads were tight, and the economy was growing. And, in both cases, the stock market was booming.

    This post was published at Zero Hedge on Sat, 12/30/2017 –.


  • The Dreaded ‘Flattening Yield Curve’ Meets QE Unwind

    During prior incidents of an ‘inverted’ yield curve, the Fed had no tools to get the market to push up long-term yields. Today it has one: the QE Unwind.
    The price of three-month Treasury securities fell and the yield – which moves in the opposite direction – rose, ending the year at 1.39%, after having spiked to 1.47% on December 26, the highest since September 12, 2008. This is in the upper half of the Fed’s new target range for the federal funds rate (1.25% to 1.50%). Back in October 2015, the yield was still at 0%:

    This post was published at Wolf Street by Wolf Richter ‘ Dec 30, 2017.


  • The Myth of Insufficient Demand

    Following the ideas of Keynes and Friedman, most mainstream economists associate economic growth with increases in the demand for goods and services.
    Both Keynes and Friedman felt that The Great Depression of the 1930’s was due to an insufficiency of aggregate demand and thus the way to fix the problem is to boost aggregate demand.
    For Keynes, this was achieved by having the federal government borrow more money and spend it when the private sector would not. Friedman advocated that the Federal Reserve pump more money to revive demand.
    There is never such a thing as insufficient demand as such, however. An individual’s demand is constrained by his ability to produce goods. The more goods that an individual can produce the more goods he can demand, and thus acquire.
    Note that the production of one individual enables him to pay for the production of the other individual. (The more goods an individual produces the more of other goods he can secure for himself. An individual’s demand therefore is constrained by his production of goods).
    Note again demand cannot stand by itself and be independent – it is limited by production. Hence, what drives the economy is not demand as such but the production of goods and services.
    In this sense, producers and not consumers are the engine of economic growth. Obviously, if he wants to succeed then a producer must produce goods and services in line with what other producers require.
    According to James Mill,

    This post was published at Ludwig von Mises Institute on Dec 29, 2017.


  • 2017 Themes Revisited (In Goldman’s Annual Crossword)

    From the “Yellen Call” to “globalization” and from “disruption” to “dumping“, 2017 had it all and Goldman Sachs’ annual ‘themes’-driven crossword is just the ticket as the final few minutes of the trading year tick away…
    Via Goldman Sachs,

    This post was published at Zero Hedge on Fri, 12/29/2017 –.


  • Ron Paul Warns America’s “On The Verge Of Something Like 1989’s Soviet System Collapse”

    Ron Paul does not believe the U. S. will break into separate countries, like the Soviet Union did, but expects changes in the U. S. monetary policy, as well as the crumbling of the country’s “overseas empire.”
    The godfather of the Tea Party movement and perhaps the most prominent right-leaning libertarian in America, Ron Paul, believes the economic boom the United States experienced under President Trump could be a ‘bit of an illusion.’
    Mr. Paul sees inequality, inflation, and debt as real threats that could potentially cause a turmoil.
    ‘the country’s feeling a lot better, but it’s all on borrowed money’ and that ‘the whole system’s an illusion’ built on corporate, personal, and governmental debt.
    ‘It’s a bubble economy in many many different ways and it’s going to come unglued,’
    In a recent interview with the Washington Examiner, Paul said,
    ‘We’re on the verge of something like what happened in ’89 when the Soviet system just collapsed. I’m just hoping our system comes apart as gracefully as the Soviet system.

    This post was published at Zero Hedge on Fri, 12/29/2017 –.


  • From Crypto To Qatar – These Were The Best & Worst Assets In 2017

    2017 saw global central bank balance sheets explode almost 17% higher (in USD terms) – the biggest annual increase since 2011 – and while correlation is not causation, one can’t help but see a pattern in the chart below…
    Global stocks up, Global bonds up, Global commodities up, Financial Conditions easier (despite 3 Fed rate hikes), and Dollar down (most since 2003)…
    As we noted earlier, Craig James, chief economist at fund manager CommSec, told Reuters that of the 73 bourses it tracks globally, all but nine have recorded gains in local currency terms this year.
    ‘For the outlook, the key issue is whether the low growth rates of prices and wages will continue, thus prompting central banks to remain on the monetary policy sidelines,’ said James. ‘Globalization and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are.’
    Still, the good times may not last: an State Street index that gauges investor risk appetite by what they actually buy and sell, suffered its six straight monthly fall in December, Reuters reported.
    “While the broader economic outlook appears increasingly rosy, as captured by measures of consumer and business confidence, the more cautious nature of investors hints at a concern that markets may have already discounted much of the good news,’ said Michael Metcalfe, State Street’s head of global macro strategy.

    This post was published at Zero Hedge on Fri, 12/29/2017 –.


  • Housing Bubble 2.0: U.S. Homeowners Made $2 Trillion On Their Houses In 2017

    Americans who are lucky enough to own their own little slice of the ‘American Dream’ are about $2 trillion wealthier this year courtesy of Janet Yellen’s efforts to recreate all the same asset bubbles that Alan Greenspan first blew in the early 2000’s. After surging 6.5% in 2017, the highest pace in 4 years according to Zillow data, the total market value of homes in the United States reached a staggering all-time high of $31.8 trillion at the end of 2017…or roughly 1.5x the total GDP of the United States.
    If you add the value of all the homes in the United States together, you get a sum that’s a lot to get your mind around: $31.8 trillion.
    How big is that? It’s more than 1.5 times the Gross Domestic Product of the United States and approaching three times that of China.
    Altogether, homes in the Los Angeles metro area are worth $2.7 trillion, more than the United Kingdom’s GDP. That’s before this luxury home on steroids hits the market.

    This post was published at Zero Hedge on Fri, 12/29/2017 –.


  • US Dollar Has Worst Year since 2003, Defying the Fed

    Where will it go from here?
    Today is another down-day for the US dollar, the third in a row, capping a nasty year for the dollar, the worst since 2003. In 2017, the dollar dropped 7% against a broad basket of other currencies, as measured by the Trade Weighted Dollar Index (broad), which includes the Chinese yuan which is pegged to the US dollar. It was worse than the 5.7% drop in 2009, but not as bad the 8.5% plunge in 2003.
    Here are the past four years of the dollar as depicted by the Broad Trade Weighted Dollar Index, which tracks 26 foreign currencies. The index is updated weekly, with the last update on December 26, and has not yet captured the declines of past three days:

    This post was published at Wolf Street on Dec 29, 2017.


  • Stock Markets Hyper-Risky 2

    The US stock markets enjoyed an extraordinary surge in 2017, shattering all kinds of records. This was fueled by hopes for big tax cuts soon since Republicans regained control of the US government. But such relentless rallying has catapulted complacency, euphoria, and valuations to dangerous bull-slaying extremes. This has left today’s beloved and lofty stock markets hyper-risky, with serious selloffs looming large.
    History proves that stock markets are forever cyclical, no trend lasts forever. Great bulls and bears alike eventually run their courses and give up their ghosts. Sooner or later every secular trend yields to extreme sentiment peaking, then the markets inevitably reverse. Popular greed late in bulls, and fear late in bears, ultimately hits unsustainable climaxes. All near-term buyers or sellers are sucked in, killing the trend.
    This mighty stock bull born way back in March 2009 has proven exceptional in countless ways. As of mid-December, the flagship S&P 500 broad-market stock index (SPX) has powered 297.6% higher over 8.8 years! Investors take this for granted, but it’s far from normal. That makes this bull the third-largest and second-longest in US stock-market history. And the superior bull specimens vividly highlight market cyclicality.
    The SPX’s biggest and longest bull on record soared 417% higher between October 1990 and March 2000. After it peaked in epic bubble-grade euphoria, the SPX soon yielded to a brutal 49% bear market over the next 2.6 years. The SPX wouldn’t decisively power above those bull-topping levels until 12.9 years later in early 2013, thanks to the Fed’s unprecedented QE3 campaign! The greatest bull ended in tears.

    This post was published at ZEAL LLC on December 29, 2017.


  • Global Stocks Set To Close 2017 At All Time Highs, Best Year For The Euro Since 2003

    With just a few hours left until the close of the last US trading session of 2017, and most of Asia already in the books, S&P futures are trading just shy of a new all time high as the dollar continued its decline ahead of the New Year holidays.
    Indeed, markets were set to end 2017 in a party mood on Friday after a year in which a concerted pick-up in global growth boosted corporate profits and commodity prices, while benign inflation kept central banks from snatching away the monetary punch bowl. As a result, the MSCI world equity index rose another 0.15% as six straight weeks and now 13 straight months of gains left it at yet another all time high.
    In total, world stocks haven’t had a down month in 2017, with the index rising 22% in the year adding almost $9 trillion in market cap for the year.
    Putting the year in context, emerging markets led the charge with gains of 34%. Hong Kong surged 36%, South Korea was up 22% and India and Poland both rose 27% in local currency terms. Japan’s Nikkei and the S&P 500 are both ahead by almost 20%, while the Dow has risen by a quarter. In Europe, the German DAX gained nearly 14% though the UK FTSE lagged a little with a rise of 7 percent.
    Craig James, chief economist at fund manager CommSec, told Reuters that of the 73 bourses it tracks globally, all but nine have recorded gains in local currency terms this year.
    ‘For the outlook, the key issue is whether the low growth rates of prices and wages will continue, thus prompting central banks to remain on the monetary policy sidelines,’ said James. ‘Globalization and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are.’

    This post was published at Zero Hedge on Fri, 12/29/2017 –.


  • Trump Tax Cuts – The Spark That Burns Down The EU

    Authored by Tom Luongo,
    For most of this year I’ve been wondering what would the spark that would set off a banking panic in the European Union.
    I know, but what do I do for fun, right?
    I’ve chronicled the political breakdown of the EU, from Brexit to Catalonia to Germany’s bitch-slapping Angela Merkel at the ballot box. All of these things have been open rebukes of EU leadership and it’s insane neoliberal push towards the destruction of national sovereignty and identity.
    And what has propped up this slow train-wreck to this point has been the world’s financial markets inherent need to believe in the relative infallibility of its central bankers.
    Because without competent people operating the levers of monetary policy, this whole thing loses confidence faster than you can say, ‘Bank run.’
    The confluence of these things with the big changes happening politically here at home with President Trump are creating the environment for big trend changes to begin unfolding.
    And, as always, you have to look to the sovereign bond and credit markets to see what’s coming.

    This post was published at Zero Hedge on Thu, 12/28/2017 –.


  • Squeezing The Consumer From Both Sides

    The Federal Reserve raised the Federal Funds rate on December 13, 2017, marking the fifth increase over the last two years. Even with interest rates remaining at historically low levels, the Fed’s actions are resulting in greater interest expense for short-term and floating rate borrowers. The effect of this was evident in last week’s Producer Price Inflation (PPI) report from the Bureau of Labor Statistics (BLS). Within the report was the following commentary:
    ‘About half of the November rise in the index for final demand services can be traced to prices for loan services (partial), which increased 3.1 percent.’
    While there are many ways in which higher interest rates affect economic activity, the focus of this article is the effect on the consumer. With personal consumption representing about 70% of economic activity, higher interest rates can be a cost or a benefit depending on whether you are a borrower or a saver. For borrowers, as the interest expense of new and existing loans rises, some consumption is typically sacrificed as a higher percentage of budgets are allocated to meeting interest expense. On the flip side, for those with savings, higher interest rates generate more wealth and thus provide a marginal boost to consumption as they have more money to spend.

    This post was published at Zero Hedge on Dec 27, 2017.


  • The Great Recession 10 Years Later: Lessons We Still Have To Learn

    Ten years ago this month, a recession began in the U. S. that would metastasize into a full-fledged financial crisis. A decade is plenty of time to reflect on what we have learned, what we have fixed, and what remains to be done. High on the agenda should be the utter unpreparedness for what came along.
    The memoirs of key decision-makers convey sincere intentions and in some cases, very adroit maneuvering. But common to them all are apologies that today strike one as rather lame.
    ‘I was surprised by the sudden crisis,’ wrote George W. Bush, ‘My focus had been kitchen-table economic issues like jobs and inflation. I assumed any major credit troubles would have been flagged by the regulators or rating agencies. … We were blindsided by a financial crisis that had been more than a decade in the making.’
    Ben Bernanke, chairman of the Fed wrote, ‘Clearly, many of us at the Fed, including me, underestimated the extent of the housing bubble and the risks it posed.’ He cited psychological factors rather than low interest rates, a ‘tidal wave of foreign money,’ and complacency among decision-makers.

    This post was published at Zero Hedge on Dec 27, 2017.


  • The Rich Got Richer In 2017… One Trillion Dollars Richer

    2017 has been a banner year for the world’s richest individuals.
    Pumped by a tidal wave of central-bank driven liquidity and corporate buybacks, equity indexes around the world climbed to all-time highs this year – a phenomenon that has disproportionately benefited the world’s wealthiest, particularly the 500 individuals included in Bloomberg’s billionaires index.
    By the end of trading Tuesday, Dec. 26, the 500 billionaires controlled an aggregate $5.3 trillion, a $1.1 trillion increase from their holdings on Dec. 27 2016.
    Unsurprisingly, the biggest beneficiary of this Federal Reserve inspired rally was Amazon.com Inc. founder Jeff Bezos, who added a staggering $34.2 billion to his net worth in 2017 as Amazon shares soared above $1,000.

    This post was published at Zero Hedge on Dec 27, 2017.


  • The Fed Plays the Economy Like an Accordion

    We talk a lot about how central banks serve as the primary force driving the business cycle. When a recession hits, central banks like the Federal Reserve drive interest rates down and launch quantitative easing to stimulate the economy. Once the recovery takes hold, the Fed tightens its monetary policy, raising interest rates and ending QE. When the recovery appears to be in full swing, the central bank shrinks its balance sheet. This sparks the next recession and the cycle repeats itself.
    This is a layman’s explanation of the business cycle. But how do the maneuverings of central banks actually impact the economy? How does this work?
    The Yield Curve Accordion Theory is one way to visually grasp exactly what the Fed and other central banks are doing. Westminster College assistant professor of economics Hal W. Snarr explained this theory in a recent Mises Wire article.
    The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.

    This post was published at Schiffgold on DECEMBER 27, 2017.


  • Demand Tumbles For 5Y Treasuries As Tailing Auction Leads To Highest Yield Since 2011

    After yesterday’s ugly, tailing 2-Year auction, it is probably not a big surprise that today’s sale of $34 billion in 5Y Treasurys was just as ugly.
    The auction printed at a high yield of 2.245% – the highest since March 2011 – and well above last month’s 2.066% largely thank to the recent Fed rate hike. More troubling is that the auction tailed the When Issued 2.228% by a whopping 1.7bps, the biggest tail going back at least 2 years.

    This post was published at Zero Hedge on Dec 27, 2017.


  • The Dark Power Behind the Financial Asset Bubbles – Whose Fool Are You?

    “While everyone enjoys an economic party the long-term costs of a bubble to the economy and society are potentially great. They include a reduction in the long-term saving rate, a seemingly random distribution of wealth, and the diversion of financial human capital into the acquisition of wealth.
    As in the United States in the late 1920s and Japan in the late 1980s, the case for a central bank ultimately to burst that bubble becomes overwhelming. I think it is far better that we do so while the bubble still resembles surface froth and before the bubble carries the economy to stratospheric heights. Whenever we do it, it is going to be painful, however.’
    Larry Lindsey, Federal Reserve Governor, September 24, 1996 FOMC Minutes
    ‘I recognise that there is a stock market bubble problem at this point, and I agree with Governor Lindsey that this is a problem that we should keep an eye on…. We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.’
    Alan Greenspan, September 24, 1996 FOMC Minutes
    “Where a bubble becomes so large as to pose a threat the entire economic system, the central bank may appropriately decide to use monetary policy to counteract a bubble, notwithstanding the effects that monetary tightening might have elsewhere in the economy.
    But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financi

    This post was published at Jesses Crossroads Cafe on 27 DECEMBER 2017.


  • $1.5 Trillion GOP Tax Bill Signed By Trump – Housing Largely Uneffected Thanks To Lower Marginal Tax Rates (Ham and Mayonnaise!)

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    President Trump on Friday signed the Republican $1.5 trillion tax overhaul that is expected to trigger tax cuts for most Americans next year. The GOP/Trump bill undoes some of the damage caused by the tax increases put in place on January 1, 2015 by the Obamacare legislation such as increasing the top bracket from 35% to 39.6%.
    Although this is not related to housing per se, the corporate tax rate has been cut to 21%, putting the US in the middle of the G-7 nations instead of being the most heavily tax major nation on earth.

    This post was published at Wall Street Examiner on December 26, 2017.


  • It’s Official: Government Report Says Market Risks are ‘High and Rising’

    During Fed Chair Janet Yellen’s press conference on December 13, she had this to say about financial stability on Wall Street: ‘And I think when we look at other indicators of financial stability risks, there’s nothing flashing red there or possibly even orange. We have a much more resilient, stronger banking system, and we’re not seeing some worrisome buildup in leverage or credit growth at excessive levels.’
    Where does Fed Chair Janet Yellen get her information on financial stability risks to the U. S. financial system? A key source for that information is the Office of Financial Research (OFR), a Federal agency created under the Dodd-Frank financial reform legislation of 2010 to keep key government regulators like the Federal Reserve informed on mounting risks.
    On December 5, the OFR released its Annual Report for 2017. It was not nearly as sanguine as Yellen. In fact, it flatly contradicted some of her assertions. The report noted that numerous areas were, literally, flashing red and orange (OFR uses a color-coded warning system) – raising the question as to why Yellen would attempt to downplay those risks to the American people.

    This post was published at Wall Street On Parade on December 27, 2017.