• Tag Archives Debt
  • FX Weekly Preview: Tax Cuts, Rising Debt, Fed Hikes And More “Fake” News; USD Vol Rising

    After a week when little other than politics has been ‘running’ the currency and rates markets, we expect more of the same but with the (now) backdrop of tier one data in the US to look to towards the latter end of this week. US payrolls is something which will be put on the back-burner as traders and investors alike size up the reaction to the Senate vote on the tax (cut) bill, which will be exacerbated by the retraction of the ABC story on Michael Flynn. The initial release on Friday reported the former national security adviser was ready to testify that Donald Trump had directed him to contact the Russians whilst a running candidate, but this was corrected to president elect which is standard procedure in foreign policy. The reporter, Brian Ross has since been dismissed by ABC, much to the satisfaction of the president, who continues to fight the good fight against fake news.
    There will in all likelihood, be many more twists and turns, and no doubt more news – fake or otherwise – but next week will likely see US equities testing higher again, followed by the carry trade, but to a lesser degree. USD/JPY took a sharp downturn from near 113.00 levels, before dip buyers contained the sell off to the mid 111.00’s, and ending the week above 112.00 is likely to see a return to the highs before the market then starts to evaluate the effective gains of the tax cut bill, which has yet to meet agreement between House and Senate. The president expects to sign off this legislation by year end.
    Back to the economy, where we will need to see continued improvement in order to underpin the 3 Fed hikes anticipated next year, and US factory orders on Monday kick off the week, followed by the ISM non manufacturing indices on Tuesday. Then it’s all eyes on the Nov payrolls report on Friday, where the consensus is for a 200k rise in the headline number, but hourly earnings seen tailing off from the 0.5% seen in Oct. We continue to see 2.50% capping 10yr yields, and as a such, the upper end of the USD/JPY range looks even less likely to exceed 115.00. Japanese GDP for Q3 due out on Thursday, but at 1.5% expected, is hardly going to light the fire under the JPY. Growth is picking up pace however, and provides food for thought further down the line when considering longer term (JPY) undervaluation.

    This post was published at Zero Hedge on Dec 3, 2017.


  • Maduro Unveils “The Petro”: Venezuela’s Official Cryptocurrency To “Overcome Financial Blockade”

    You sure he didn't say 'KLEPTO-currency'? — Wild Goose (@TrueSinews) December 3, 2017

    Three months ago, in a not entirely surprising move meant to circumvent US economic sanctions on Venezuela, president Nicolas Maduro announced that his nation would stop accepting dollars as payment for oil imports, followed just days later by the announcement that in a dramatic shift away from the Petrodollar and toward Beijing, Venezuela would begin publishing its oil basket price in Chinese yuan. The strategic shift away from the USD did not work quite as expect, because a little over two months later, both Venezuela and its state-owned energy company, PDVSA were declared in default on their debt obligations by ISDA, which triggered the respective CDS contracts as the country’s long-expected insolvency became fact.
    Fast forward to today when seemingly impressed by the global crypto craze, Maduro on Sunday announced the creation of the “Petro“, Venezuela’s official cryptocurrency “to advance in the matter of monetary sovereignty, to make financial transactions and to overcome the financial blockade”.
    “Venezuela announces the creation of its cryptocurrency, the Petro; this will allow us to move towards new forms of international financing for the economic and social development of the country,” Maduro said during his weekly television program, broadcast on the state channel VTV.

    This post was published at Zero Hedge on Dec 3, 2017.


  • More on Interest Rates and Time Preference

    In a recent column for Mises Wire, Doug French raised very important issue of negative interest rates. Quoting Fleckenstein Capital He wrote,
    Yesterday a Parisian BBB-rated company (i.e., quasi junk) issued $500 million in three-year notes yielding negative 0.026%. We have been peppered with so many absurdities, nothing seems absurd anymore…
    French continues with his own observations:
    [The French utility company] Veolia Environnement S. A. floated 500 million of debt, rated just 2 notches above junk, with a three year maturity priced to yield negative 0.026%. As Grant’s Almost Daily writes, ‘Even better: Investor demand for the Veolia issue was such that the offering was oversubscribed by more than 4:1. Said another way, three out of four investors who wished to lose money on a yield-to-maturity basis were left disappointed.’
    Clearly, this supposedly contradicts the view of important thinkers such as Mises and Rothbard that individuals always assign a greater importance to present goods versus future goods (i.e.. that interest rates must be always positive). This is also known as a positive time preference.
    Before attempting to reconcile the apparent contradiction of the facts of reality and the positive time preference theory of interest let us have a look at the essence of this theory.

    This post was published at Ludwig von Mises Institute on 12/02/2017.


  • Short Sellers Are Aggravating China’s Bond Rout – Regulators AWOL (For Now)

    After the Party Congress finished in October and China’s centrally planned markets were released (somewhat) from the vice-like grip which had prevailed during the proceedings, we noted the comment from Huachuang Securities that China’s bond holders may be about to get hit by ‘daggers falling from the sky’, referring to deleveraging. They were right, to some extent, as first the government bonds, then corporate bonds sold off during November. This was driven by the authorities tightening credit conditions and redemptions in Wealth Management Products, which led to some unravelling in the latter Ponzi scheme. However, as Bloomberg explains, another factor has been at work, a rise in short-selling, which might not please the central planners.
    While the nation’s debt market has no official measure of short sales, analysts say a surge in bond lending has been partially fueled by rising bearish bets. A record 1.82 trillion yuan ($274 billion) of notes has been lent out this year, 18 percent more than the total for all of last year, according to clearinghouse ChinaBond. Short sellers profit from falling bond values by selling borrowed notes and buying them back after prices fall. “This creates a vicious feedback loop — when institutions think bonds will fall, they borrow and sell, causing a plunge in the securities, which then drags futures down, and thus there’s more shorting,” said Wang Wenhuan, an analyst at Huachuang Securities Co. in Shanghai. “As investors are still quite cautious, there will likely be more bond borrowing in the near term as yields climb.”

    This post was published at Zero Hedge on Dec 2, 2017.


  • The Complete Idiot’s Guide To Being An Idiot

    Authored by MN Gordon via EconomicPrism.com,
    There are many things that could be said about the GOP tax bill. But one thing is certain. It has been a great show.
    Obviously, the time for real solutions to the debt problem that’s ailing the United States came and went many decades ago. Instead of addressing the Country’s mounting insolvency, lawmakers chose the expedient without exception. They kicked the can from yesterday to today.
    Presently, there are no good options left to fix the mathematics bearing down on us all. Hence, in the degenerate stage of an overburdened nation-state, style over substance is what counts. Without question, Congress and President Trump played their parts to push the bill with much bravura.
    On Tuesday, for example, President Trump, Senate Majority Leader Mitch McConnell, and House Speaker Paul Ryan held a White House meeting with two empty chairs. Apparently, Senate Minority Leader Chuck Schumer and House Minority Leader Nancy Pelosi didn’t want to participate in a ‘show meeting.’ Thus, they made a spectacle of themselves and ditched the meeting.
    Indeed, their absence was all part of the show. Moreover, the entire episode was show; nothing more. At the time of this writing (Thursday night), the show continues on. The last we heard, the Senate vote had been delayed until Friday. By the time you read this it may be a done deal – or maybe not.
    Regardless, the tax bill is all quite meaningless when you have a fiat currency that’s been stretched out like silly putty. No doubt, this has propagated immense financial speculation while outrunning actual economic growth. The effect has manifested in strange and unexpected ways.

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


  • Banks and the Fed’s Duration Trap

    This is a syndicated repost courtesy of theinstitutionalriskanalyst. To view original, click here. Reposted with permission.
    Atlanta | Is a conundrum worse than a dilemma? One of the more important and least discussed factors affecting the financial markets is how the policies of the Federal Open Market Committee have affected the dynamic between interest rates and asset prices. The Yellen Put, as we discussed in our last post for The Institutional Risk Analyst, has distorted asset prices in many different markets, but it has also changed how markets are behaving even as the FOMC attempts to normalize policy. One of the largest asset classes impacted by ‘quantitative easing’ is the world of housing finance. Both the $10 trillion of residential mortgages and the ‘too be announced’ or TBA market for hedging future interest rate risk rank among the largest asset classes in the world after US Treasury debt. Normally, when interest rates start to rise, investors and lenders hedge their rate exposure to mortgages and mortgage-backed securities (MBS) by selling Treasury paper and fixed rate swaps, thereby pushing bond yields higher.

    This post was published at Wall Street Examiner by (Admin) Bill Patalon ‘ November 30, 2017.


  • 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.


  • 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.


  • 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.


  • 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.


  • 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.


  • US Retail Companies Have a Massive Bill to Pay Come 2018

    Right now, retail stores are closing at a pace that we haven’t seen since the 2008-2009 financial crisis. Some are calling it a ‘retail apocalypse’ as a number of major headwinds approach, including increasing pressure from Amazon and the sad fact that most brick-and-mortar retailers simply built way too many stores and borrowed too much money to do so.
    Though many are likely aware of the above, what isn’t so well known is how much debt is coming due starting next year. That’s really the heart of the issue, which is why America’s ‘Retail Apocalypse’ Is Just Getting Started, Bloomberg’s Matt Townsend explained to Financial Sense Newshour on today’s podcast.
    Debt Is the Main Challenge Retailers Face
    Though online retailers are definitely a threat and many traditional retail businesses are overstored, what’s really going to drive the shakeout of legacy retailers is debt.
    ‘What really drives a company out of business is, if they have a lot of debt and their business is deteriorating, that will force them into bankruptcy and potentially liquidation,’ Townsend said.
    And the fact is, a lot of this debt is starting to come due next year, Townsend stated, and many retailers may not to be able to pay it off or refinance it.

    This post was published at FinancialSense on 11/29/2017.


  • US Gross National Debt Jumps $723 billion in 12 Weeks, Yellen ‘Very Worried about Sustainability of US Debt Trajectory’

    But only a few lost souls in Congress care. Even as lawmakers are trying to cobble together a tax-cut bill that would cut revenues by $1.5 trillion over ten years, the gross national debt has spiked $723 billion over the past 12 weeks since Congress suspended the ‘debt ceiling.’ It just hit $20.57 trillion, or 105% of GDP.
    Over the past six years, since November 2011, the gross national debt has surged nearly 40%, or by $5.8 trillion. Back in 2011, gross national debt amounted to 95% of GDP. Before the Financial Crisis, it was at 63% of GDP. There are no signs that the relentless rise in the debt is slowing down. On the contrary – the tax cuts are going to steepen the curve:
    ***
    In the chart above, note the last three debt-ceiling fights – the flat lines in 2013, 2015, and 2017, followed each time by an enormous spike when the debt ceiling was lifted or suspended, and when the ‘extraordinary measures’ with which the Treasury keeps the government afloat were reversed.

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


  • Canadian Households Most Debt-Heavy in the World

    Time to get some financial consulting from those who are not paid to sell us debt and risk. Listening to the banks/broker/dealers/auto sellers have dug undisciplined households a very deep hole. Debt weight will continue to hold back our economy, savings, and investment until it is paid down and written off over the coming years and months. In a heavily indebted world, Canada is leading the pack in terms of household debt to GDP. Nothing to be proud of here. This data is at the end of Q4 last year, debt has climbed further in 2017.

    This post was published at FinancialSense on 11/29/2017.


  • What Happens to the Federal Debt If the Bond Bubble Pops?

    Earlier this month, Mint Capital strategist Bill Blain warned that the bond bubble is about to burst.
    A crash in the bond market would likely take stocks down with it, but there is another impact that is less obvious. It could have a huge impact on the United States’ ability to finance its massive debt.
    As Dan Kurz of DK Analytics points out, the federal government would have a difficult time even paying the interest on the debt in a ‘normalized’ interest rate environment.
    Neither US federal debt, nor virtually any OECD government debt, could be easily carried with ‘normalized’ interest rates, which would readily be 2 to 5 percentage points higher than current short-term (ZIRP-dominated) and long-term (based on 10-year OECD government bonds with no or very nominal yields) rates. For the US government, whose cost of funds is currently around 1.4% thanks to both massively lower, QE-enabled long-term rates and to a propensity to fund deficits and refinance debt with more shorter-term funding – which has been extremely cheap thanks to ZIRP or near ZIRP for nearly nine years – every one percentage point higher average cost of funding $20.5 trillion in debt would equate to a $205 billion higher annual interest expense.’

    This post was published at Schiffgold on NOVEMBER 29, 2017.


  • Stock Market Lazes Happily on a Powerful Time Bomb, and the Fed Begins to Worry

    Pointing at ‘excesses,’ ‘distortions,’ and ‘imbalances.’
    Margin debt in the stock market hit another record, $561 billion at the end of October, up 16% from a year ago, the New York Stock Exchange reported on Tuesday. Margin debt and the stock market move together. And even on an inflation-adjusted basis, the surge has been breath-taking.
    This chart shows margin debt (red line, left scale) and the S&P 500 (blue line, right scale), both adjusted for inflation to tune out the effects of the dwindling value of the dollar over the decades (chart by Advisor Perspectives):

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


  • GOP Tax Plan: Government on a Credit Card

    The middle class is not getting tax relief under the Senate plan currently under consideration. It’s getting big government on a credit card.
    Here’s a fun fact. Did you know virtually all of the individual tax cuts in the Senate version of tax reform are temporary?
    Indeed, what the Senate giveth, it also taketh away. Most of the tax cuts for individuals would expire in 2026 under the Senate plan.
    So what’s the reasoning behind sunsetting the tax cuts?
    Under Senate rules, any bill adding more than $1.5 trillion to the deficit over 10 years must pass the Senate by 60 votes. Republicans have to keep their plan under that figure to have any chance at passing it. They don’t have 60 votes. By allowing the individual tax cuts to expire within that 10-year window, the total deficit increase comes in right under that max amount.
    One might pause here to consider that a $1.5 trillion increase in the deficit is somehow considered trivial. As we have reported, many economists say the substantial increase in debt that will occur if Congress passes tax cuts without any accompanying decrease in the size of government will fail to spark the economic growth being promised.

    This post was published at Schiffgold on NOVEMBER 28, 2017.


  • Consumer Is Ready to Keep Consuming

    For years we have been hearing chimerical Cassandra calls of consumer calamity. ‘The consumer is getting tired, debt levels are too high, incomes are rising too slow.’ Ironically these charts below were used by a Business Insider article today titled:
    ‘Americans are having trouble paying off their credit cards – and it could spell trouble for the economy’.

    This post was published at FinancialSense on 11/27/2017.


  • Financial Advice from Dr Wayne Dyer

    Financial Wisdom from Dr Wayne Dyer
    – Don’t make money the guiding principle for what you have or do
    – Avoid debt, focus on value rather than price in $, &
    – Do everything you can to eschew debt
    – Finding the inherent value in everything
    – A dollar does not determine worth
    – The 12-step program to simplicity
    ***
    DR WAYNE DYER was an American philosopher, self-help author and a motivational speaker. Dyer was an internationally renowned author and speaker in the fields of self-development and spiritual growth. Over the four decades of his career, he wrote more than 40 books, including 21 New York Times bestsellers.
    Dyer created many audio and video programs, appeared on thousands of television and radio shows and starred in 10 National Public Television specials – featuring his books Manifest Your Destiny, Wisdom of the Ages, There’s a Spiritual Solution to Every Problem, and the New York Times bestsellers 10 Secrets for Success and Inner Peace, The Power of Intention, Inspiration, Change Your Thoughts – Change Your Life, Excuses Begone!, Wishes Fulfilled, and I Can See Clearly Now.

    This post was published at Gold Core on November 27, 2017.