• Category Archives Market Commentary
  • Macron’s Call to Federalize Europe

    France’s President Emmanuel Macron is calling for a radical restructuring of the whole EU. Macron has presented his map for the EU into 2024. He is proposing that the Eurozone budget must include a joint force for military operations. Macron intends to finance this new budget with its tax – the ‘EU tax’ he calls it.
    Macron has looked at the numbers and see that France will go the way of Greece if something is not changed and soon. Macron hopes just to throw all the rotten eggs into one basket and hope nobody will notice. It’s the Three Musketeers – All for one; One for All just times 28.
    Germany is still dominated by its misunderstanding of the Hyperinflation. Former Greek finance minister Yanis Varoufakis supports Macron’s federalist proposals on the euro single currency but believes only a real threat could make Germany budge on the issue. It has been Germany that opposed the consolidation of the debts to form the Euro. They are trying to remain isolated in their austerity posture refusing to budge on the debt consolidation, while at the same time they want the single currency to facilitate German exports eliminating foreign exchange risk among other members. They just cannot have it both ways.

    This post was published at Armstrong Economics on Oct 22, 2017.


  • US Treasury Rates Hit 10-Year Highs

    But the yield spread collapses to lowest since early in the Financial Crisis. Even the Fed is worried.
    US government bonds fell across the board on Friday. Yields rose and set a number of 10-year highs, in some cases ten years to the day.
    Many people have pointed at the Senate where the prospects of the tax cut are said to have ‘brightened’ when the Senate approved a budget resolution. The tax cuts, if they make it, are said to lower government revenues by $1.5 trillion over 10 years. So maybe the bond market is starting to pay attention to government deficits and the national debt once again. But the bond market hasn’t paid attention in many, many years, and until the proof is in, I doubt it.
    There are, however, other factors that predate Friday by many months. In fact, the moves in Treasury yields for maturities up to two years have been fairly consistent: yields have been surging.

    This post was published at Wolf Street by Wolf Richter ‘ Oct 22, 2017.


  • In The Shadows Of Black Monday – “Volatility Isn’t Broken… The Market Is”

    Authored by Christopher Cole via Artemis Capital Management,
    A full version of the article is available on the Artemis website.
    Volatility and the Alchemy of Risk
    The Ouroboros, a Greek word meaning ‘tail devourer’, is the ancient symbol of a snake consuming its own body in perfect symmetry. The imagery of the Ouroboros evokes the infinite nature of creation from destruction. The sign appears across cultures and is an important icon in the esoteric tradition of Alchemy. Egyptian mystics first derived the symbol from a realphenomenon in nature. In extreme heat a snake, unable to self-regulateitsbody temperature, will experience an out-of-control spike in its metabolism. In a state of mania, the snake is unable to differentiate its own tail from its prey, and will attack itself, self-cannibalizing until it perishes. In nature and markets, when randomness self-organizes into too perfect symmetry, order becomes the source of chaos.
    The Ouroboros is a metaphor for the financial alchemy driving the modern Bear Market in Fear. Volatility across asset classes is at multi-generational lows. A dangerous feedback loop now exists between ultra-low interest rates, debt expansion, asset volatility, and financial engineering that allocates risk based on that volatility. In this self-reflexive loop volatility can reinforce itself both lower and higher. In a market where stocks and bonds are both overvalued, financial alchemy is the only way to feed our global hunger for yield, until it kills the very system it is nourishing.
    The Global Short Volatility trade now represents an estimated $2+ trillion in financial engineering strategies that simultaneously exert influence over, and are influenced by, stock market volatility. We broadly define the short volatility trade as any financial strategy that relies on the assumption of market stability to generate returns, while using volatility itself as an input for risk taking. Many popular institutional investment strategies, even if they are not explicitly shorting derivatives, generate excess returns from the same implicit risk factors as a portfolio of short optionality, and contain hidden fragility.

    This post was published at Zero Hedge on Oct 21, 2017.


  • Bearish Fund Traders Head For Early Hibernation

    ‘Speculators’ have never been so confidently complacent that ‘all is well’.

    Speculative positioning in VIX futures and options remains at its most short in history as traders refuse to back away from ‘what works’ as realized volatility collapses to its lowest in over 60 years…

    This post was published at Zero Hedge on Oct 21, 2017.


  • The $2.5 Trillion Paradox: “While The Short End Is Optimistic, The Long End Has Never Been More Pessimistic”

    Last weekend, as Deutsche Bank’s derivatives strategist Aleksandar Kocic was looking at the spread between the short and long end of the curve, and while contemplating the lack of market volatility, he concluded that “given where long rates are, Fed appears as overly hawkish – it has only two more hikes to go and, for volatility and risk premia to reprice higher, the gap has to widen. As is appears unlikely that the Fed will be cutting rates any time soon, the gap could widen only if the Long rates sell off.”
    In practical terms – if only for bond traders – this meant that “for anything to happen, 5Y5Y sector has to move higher”, however the $2.5 trillion question is whether this sell off in long rates will be violent or controlled. Kocic concluded that “This is the catalyst for everything.”
    In other words, those lamenting the pervasive complacency and the ubiquitous lack of volatility in the market, may not have much more to wait: after just two more rate hikes, absent a parallel move wider across the rest of the curve, the Fed’s “breathing space” will collapse, and Yellen, or rather her successor, will lost control of both vol markets and long-dated yields, as the Fed effectively hikes into a self-made recession, where it itself inverts the yield curve. That would be a problem.

    This post was published at Zero Hedge on Oct 21, 2017.


  • Key Charts: Gold is Cheap and US Recession May Be Closer Than Think

    by Dominic Frisby of Money Week
    Every year, Ronald-Peter Stoeferle and Mark J Valek of investment and asset management company Incrementum put together the report In Gold We Trust – 160-plus pages of charts and thoughts, mostly gold-related, on the state of the world’s finances.
    There’s so much to look at and consider. It’s a sort of digital equivalent of a coffee-table book.
    Yesterday I got an email from them, containing a ‘best of’ – a compendium of some of the best charts from this year’s report.
    I thought in today’s Money Morning, we might flick through some of them…

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


  • 20/10/17: Lancet Report on Impact of Pollution

    A top-level, comprehensive report compiled by the Lancet Commission details estimates of economic and human costs of pollution worldwide. The full report is available here: Before I summarise some of its main findings, it is worth noting that such an undertaking is, by definition, a difficult one and the one that involves a lot of assumptions, models, estimates and uncertainty around its findings. There will be debates and there will be those who disagree with the report findings. However, two things are clear:
    Pollution is costly in terms of health, life, quality of human capital (young age development, etc), and economically; Incidences of pollution impacts are bound to be concentrated in the areas where other factors (e.g. poverty, location of extraction industries, etc) are also at play.

    This post was published at True Economics on Saturday, October 21, 2017.


  • Simply Unaffordable: These Cities Make USA Housing Look Dirt Cheap

    As the late Robert Palmer crooned, housing is simply unaffordable in many cities. And most of those cities are outside the USA.
    (Bloomberg) – As people around the world move into cities and look for housing, one thing is clear: Most will have a hard time paying for it.
    Average monthly take-home pay won’t cover the cost of buying a 1,000-square-foot residence or renting a three-bedroom home in any of the 105 metropolitan areas ranked by the Bloomberg Global City Housing Affordability Index – based on a general rule of thumb among U. S. lenders that people should spend no more than 28 percent of net income on housing costs. Only 12 cities would be considered affordable if they spend 50 percent.

    This post was published at Wall Street Examiner by Anthony B Sanders ‘ October 20, 2017.


  • The Case Against Gold as a Central Bank Asset

    What I’m about to write here, I have believed for close to 40 years. I wrote about it decades ago in Remnant Review. I’m not going to look through all of the published issues to find when I wrote it.
    What good is gold in the vaults of any central bank? I understand why it’s a good idea to have bullion gold coins in your “vault.” I don’t understand why it’s a good idea for central bankers to put gold bullion bars in their vaults.
    Central banks buy gold from the general public. They also buy gold from each other. Why do central bankers buy gold? They have to pay good money for it, meaning bad central bank fiat money.
    They can buy any financial asset. Why do they buy gold bullion? They never intend to sell gold to the public. So, they don’t intend to make a profit on their holdings of gold. It just sits there.
    Central bankers don’t own the assets that the banks hold. It doesn’t matter to them personally whether it’s gold or government bonds.
    THE GOLD COIN STANDARD
    In the era of the gold coin standard, when citizens could bring in paper money and demand gold coins from a local bank, this transferred tremendous authority into the hands of the general public. The public could participate in a run on a local bank’s gold. If this took place nationally, this would cause a run on the central bank’s gold. This would force the central bank to stop inflating through fiat money. That was the great advantage of the gold coin standard. It transferred power into the hands of the general public. The general public could veto central bank policies of monetary inflation.
    This is why all the governments of Western Europe outlawed the gold coin standard soon after World War I began in August 1914. Commercial bank runs began almost immediately. So, central banks and governments allowed commercial banks to break their gold contracts with their depositors. Then the central banks confiscated the gold in the commercial banks. They wound up with the public’s gold. It was a gigantic act of theft. It was the end of the gold coin standard. There was a huge loss of liberty.

    This post was published at Gary North on October 19, 2017.


  • Catalonia’s Political Crisis Snowballs into an Economic Crisis

    Independence would be ‘horrific’ and amount to ‘financial suicide,’ said Spain’s Economy Minister. But financial suicide for whom? It’s not easy being a Catalan bank these days. In the last few weeks the region’s two biggest lenders, Caixabank and Sabadell, have lost 9 billion of deposits as panicked customers in Catalonia have moved their money elsewhere. Many customers in other parts of Spain have also yanked their savings out of Catalan banks, but less out of fear than out of anger at the banks’ Catalan roots.
    Moving their official company address to other parts of Spain last week may have helped ease that resentment, allowing the two banks to recoup some 2 billion of deposits. But the move has angered the roughly 2.5 million pro-independence supporters in Catalonia, many of whom have accounts at one of the two banks. Today they expressed that anger by withdrawing cash en masse.
    Many protesters made symbolic withdrawals of 155 – a reference to Article 155 of the Spanish constitution, which Madrid activated today to impose direct rule over the semi-autonomous region. Others opted for 1,714 in a nod to the year 1714, when Barcelona was captured by the troops of King Felipe V, who then proceeded to suppress the rights of rebellious regions.

    This post was published at Wolf Street on Oct 21, 2017.


  • Doug Noland: Arms Race in Bubbles

    This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
    The week left me with an uneasy feeling. There were a number of articles noting the 30-year anniversary of the 1987 stock market crash. I spent ‘Black Monday’ staring at a Telerate monitor as a treasury analyst at Toyota’s US headquarters in Southern California. If I wasn’t completely in love with the markets and macro analysis by that morning, there was no doubt about it by bedtime. Enthralling.
    As writers noted this week, there were post-’87 crash economic depression worries. In hindsight, those fears were misplaced. Excesses had not progressed over years to the point of causing deep financial and economic structural maladjustment. Looking back today, 1987 was much more the beginning of a secular financial boom rather than the end. The crash offered a signal – a warning that went unheeded. Disregarding warnings has been in a stable trend now for three decades.
    Alan Greenspan’s assurances of ample liquidity – and the Fed and global central bankers’ crisis-prevention efforts for some time following the crash – ensured fledgling financial excesses bounced right back and various Bubbles hardly missed a beat. Importantly, financial innovation and speculation accelerated momentously. Wall Street had been emboldened – and would be repeatedly.

    This post was published at Wall Street Examiner on October 21, 2017.


  • MARKETS… WE GOT TROUBLE: Debt & Brain-Dead Retail Investors Prop Up Stocks

    As the Dow Jones Index hits another all-time high today, smart money is rushing to the exits. You see, smart money knows when something is too good to be true. Unfortunately for the retail investor who is suffering from acute BRAIN DAMAGE, they are doing quite the opposite. As institutions sellout on each new market price rise, retail investors are happily buying… hand over fist.
    And why shouldn’t they? These are good times. Well, maybe not for Americans living in Houston, parts of Florida, California or in Puerto Rico. Whatever happened to the news on the massive flooding and hurricane damage in Houston, Florida and Puerto Rico? I remember seeing videos of Miami Beach High-Rise Condos with seawater 5-8 feet surrounding the entire area. Does anyone have an idea of what happens to electrical systems when salt water floods buildings? It’s not good.
    Regardless… the amount of destruction major U. S. cities have experienced in the past three months is like nothing we have witnessed before. Regrettably, a lot of these homes and businesses will never be rebuilt. Not only don’t we have the money to do it, more importantly, we also don’t have the available energy. While the massive destruction by hurricanes, flooding and fire have not impacted the stock market currently, they will.

    This post was published at SRSrocco Report on OCTOBER 20, 2017.


  • Moody’s: Hartford Default Likely on Yearly Deficits Seen to 2036 (Connecticut Already Has 2nd Worst Public Pension Underfunding Requiring $22,745 Person To Fix)

    As we watch the alleged Federal government shutdown by politicians who crave spending more and more of YOUR money (without cutting spending), we see the same in various states and cities like Chicago, Illinois. Now Hartford CT is in on the overspending act.
    (Bloomberg) – Moody’s says the city of Hartford is likely to default on its debt as early as November without additional concessions from Connecticut.
    Moody’s sees Hartford’s operating deficits of $60 million to $80 million through 2036
    Hartford will look to bondholders to restructure roughly $604 million in general obligation and lease debt, Moody’s says.
    Moody’s sees additional grant revenue or amount equal to PILOT payments cutting view of operating deficits by over half.

    This post was published at Wall Street Examiner by Anthony B Sanders, repost courtesy of Snake Hole Lounge. ‘ October 19, 2017.


  • Has the OECD Been Told to Put Out Fake Opinions?

    They just don’t give up. Now the OECD is coming out telling Britain to have a new referendum and stay in the EU. They claim, without any evidence to back up one work, that they ‘believe’ it will have a positive impact on the British economy. One really has to wonder if they have not turned the charts on GDP upside down.

    This post was published at Armstrong Economics on Oct 21, 2017.


  • Bank Of America: “This Could Send The Nasdaq To 10,000”

    Last weekend, One River’s CIO Eric Peters explained what he thought would be the nightmare scenario for the next Fed chair, who as we now know will either be Jerome Powell or John Taylor, or both (with an outside chance of Yellen remaining in her post). According to the hedge fund CIO, the “worst case scenario” is one in which despite an improving economy, yields simply refuse to go up, leading to the final asset bubble and Fed intervention that “pops” it:
    ‘if we don’t see a sustained cyclical jump in wages, then yields won’t go up. And if yields don’t go up, then the asset price ascent will accelerate,’ continued the strategist. ‘Which will lead us into a 2018 that looks like what we had expected out of 2017; a war against inequality, a battle for Main Street at the expense of Wall Street, an Occupy Silicon Valley movement.’ He paused, flipping through his calendar. “Then you’ll have this nightmare for the next Federal Reserve chief, because they’ll have to pop a bubble.’ While Peters never names names in his pieces, the “strategist” in the weekend letter was BofA’s Michael Hartnett, who several days after Peters penned the above, followed up with some thoughts of his own on precisely this topic, and in a note released this week, described what he believes is the “biggest market risk” for the market. Not surprisingly, it is precisely what Peters was referring to in the above excerpt.

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


  • Trump’s Fed Chair Problem (How Do We Awaken Dorothy From Her Monetary Oz?)

    President Trump has a problem. And it is who to select as The Federal Reserve Chair by November 3rd. Of course, he can always keep mega-dove Janet Yellen. Or he choose someone new like National Economic Council Director Gary Cohn, Fed Board Governor Jerome Powell, former Fed Governor Kevin Warsh or Stanford University economist John Taylor.
    I like the ‘Bay Area Brawl.’ Berkeley’s Yellen versus Stanford’s Taylor. That is, if Taylor is actually going to follow his own Taylor Rule. And then it depends of who estimates the Taylor Rule.
    For example, Glenn Rudebusch at the San Francisco Fed’s specification of the Taylor Rule says that the Fed Funds Target Rate should be 5.73% (compared to the actual rate of 1.25%).

    This post was published at Wall Street Examiner by Anthony B Sanders ‘ October 20, 2017.