• Tag Archives Fed
  • Even the Mainstream Sees the Disconnect Between Fed Rhetoric and Actual Data

    The Fed is hawkish about jacking up interest rates, but even the mainstream is catching on to the disconnect between Fed rhetoric and actual data.
    The recent Federal Reserve rate increase and talk of more boosts in the future has sparked a rally for the dollar. This has caused the price of gold to sag. But TJM Institutional Services managing director Jim Iuorio recently said on CNBC’s Futures Now that he’s still bullish on gold because he thinks the Fed’s hawkish tone doesn’t line up with actual economic data.
    I’m a longer-term bull in gold and if you look at the long-term chart the trend is still higher. What the Fed said yesterday is disconcerting to the market, and that’s why the dollar rallied so hard. But as we start to move away from that, we start to see some data that is deteriorating, the dollar should shrink back again and gold should be fine.

    This post was published at Schiffgold on JUNE 21, 2017.


  • 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.


  • 5 Ways Fed Rate Hikes May Squeeze Your Wallet

    The Federal Reserve nudged up interest rates another .25 points last week. Of course, nobody was surprise by the central bank’s move. It was widely expected. Nevertheless, the Fed’s latest policy move has everybody bullish on increasing rates into the future
    Of course, nothing has fundamentally changed. As Paul Singer said earlier this month, the financial system is no more sound than it was in 2008. All of this talk about rate hikes will vanish like a vapor if actual economic data continues to point toward a slowdown.
    But since everybody is talking rate hikes right now, this is probably a good time to consider just how rising interest rates will effect your wallet.
    We tend to think about Federal Reserve policy in macro-economic terms. How will it effect the stock market? What kind of bubbles will it blow up? How will it impact the price of gold? But Fed policy also has a direct effect on the average American. In simplest terms, rising rates mean it will cost you more to pay off credit cards and other loans. That’s not good news for an economy buried in debt.
    Here are five ways rising interest rates can put the squeeze on your pocketbook.

    This post was published at Schiffgold on JUNE 21, 2017.


  • Oil, Gold and Bitcoin

    The falling price of oil did not garner any mainstream financial media attention until today, when U. S. market participants woke up to see oil (both WTI and Brent) down nearly $2. WTI briefly dropped below $43. The falling price of oil reflects both supply and demand dynamics. Demand at the margin is declining, reflecting a contraction in global economic activity which, I believe the data shows, is accelerating. Supply, on the other hand, is rising quickly as U. S. oil producers – specifically distressed shale oil companies – crank out supply in order to generate the cash flow required to service the massive energy sector debt load.
    I am quite surprised by the rapid fall of oil (WTI basis) from the $50 level, because I concluded earlier this year that the Fed was attempting to ‘pin’ the price of oil to $50:
    The graph above is a 5-yr weekly of the WTI continuous futures contract. Oil bottomed out in early 2016 and had been trending laterally between the mid-$40’s and $55. I read an analysis in early 2016 that concluded that junk-rated shale oil companies would implode if oil remained in the low $40’s or lower for an extended period of time. Note that some of the TBTF banks who underwrote shale junk debt were stuck with unsyndicated senior bank debt (i.e. they were unable to find enough investors to relieve the banks of this financial nuclear waste). Thus, the Fed has been working to keep the price of oil levitating in the high $40’s/low $50’s, in part, to prevent financial damage to the big banks who have big exposure to shale oil debt.

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


  • The Metals Market Is Out Of Room And Time

    Now that we have moved beyond the Fed-event, many have become quite bearish the metals once again. Many are again expecting the December 2016 lows to be tested, with just as many thinking it will be broken.
    But, what I find quite comical are those that maintain a linear perspective on the market. Each of the Fed interest raises recently has seen the metals rally right after. So, there were many coming into the Fed day expecting the same. So, this is simply yet another reminder that markets do not react linearly, and that the substance of news events or Fed actions do not predict market direction.
    As for us, our expectations have not changed no matter what the Fed did or did not do. For weeks, I had been suggesting that the GDX can rally up towards the 24 region, and then provide us with a pullback. Nothing the Fed has done or not done has moved the market at all outside of our expectations. And, thus far, the market has been playing out almost perfectly, based upon the pattern we have been outlining, which you can see based upon the attached chart we had been using this week to direct us in our expectations for the GDX.

    This post was published at GoldSeek on Wednesday, 21 June 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.


  • Coming Apart: The Imperial City At The Brink

    David Stockman routinely refers to President Trump as the ‘Great Disrupter’. But this is not a bad quality, he insists. Rather, it is a necessary one: Stockman argues (my paraphrasing) that Trump represents the outside force, the externality, that tips a ‘world system’ over the brink: It has to tip over the brink, because systems become too ossified, too far out on their ‘branch’ to be able to reform themselves. It does not really matter so much, whether the agency of this tipping process (President Trump in this instance), fully comprehends his pivotal role, or plays it out in an intelligent and subtle way, or in a heavy-handed, and unsubtle manner. Either serve the purpose. And that purpose is to disrupt.
    Why should disruption be somehow a ‘quality’? It is because, during a period when ‘a system’ is coming apart, (history tells us), one can reach a point at which there is no possibility of revival within the old, but still prevailing, system. An externality of some sort – maybe war, or some other calamity or a Trump – is necessary to tip the congealed system ‘over’: thus, the external intrusion can be the catalyst for (often traumatic) transformational change.
    Stockman puts it starkly: ‘the single most important thing to know about the present risk environment [he is pointing here to both the political risk as well as financial risk environment], is that it is extreme, and unprecedented. In essence, the ruling elites and their mainstream media megaphones have arrogantly decided that the 2016 [US Presidential] election was a correctible error’.
    But complacency simply is endemic: ‘The utter fragility of the latest and greatest Fed bubble could not be better proxied than in this astounding fact. To wit, during the last 5,000 trading days (20 years), the VIX (a measure of market volatility) has closed below 10 on just 11 occasions. And 7 of those have been during the last month! … That’s complacency begging to be monkey-hammered’, Stockman says.

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


  • Hong Kong Warns: Its Housing Bubble is a ‘Dangerous Situation’

    The HK financial system is ‘very strong’ and ‘can withstand an adjustment in the property market.’
    The Hong Kong dollar is pegged to the US dollar. Hong Kong’s monetary policy is follows the Fed’s monetary policy. The Fed has embarked on a tightening cycle, raising rates four times so far. The Hong Kong Monetary Authority has followed each time. Last week, it raised its policy rate by 25 basis points to 1.5%. This will have consequences for the most expensive and ludicrously inflated housing bubble in the world.
    ‘We have to warn our people about the dangerous situation of the property market at the moment,’ Hong Kong Financial Secretary Paul Chan told Bloomberg TV.
    ‘No one can tell how deep the adjustment will be or what is the appropriate level of adjustment because it is market force,’ he said. ‘It is not up to the government to dictate, but I think it is important for people to recognize it is risky.’
    But he doesn’t expect a repeat of what happened when Hong Kong’s prior housing bubble imploded during the Asian Financial Crisis.

    This post was published at Wolf Street on Jun 20, 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.


  • Deloitte Audited the Fed for Eight Straight Years of the Financial Crash

    In 2006 the Federal Reserve’s books were audited by PricewaterhouseCoopers. But beginning in 2007 and for every year thereafter through 2014, the Fed’s books were audited by Deloitte & Touche. That’s a very long eight years that just happen to coincide with the greatest economic upheaval in the U. S. since the Great Depression. (Since 2015, KPMG has issued the annual audited statement of the Fed’s books.)
    We’re not suggesting that Deloitte didn’t do its job properly but we are suggesting that the Fed benefited by not having a bunch of different prying eyes looking at its books during those bizarre years when its assets ballooned from $914.8 billion at the end of 2007 to $4.5 trillion in 2014. In just the single year of 2013 the Fed’s assets jumped by a staggering $1 trillion from $2.9 trillion at the end of 2012 to $4 trillion at the end of 2013, according to Deloitte’s audited financial statement of the Fed’s books.

    This post was published at Wall Street On Parade on June 20, 2017.


  • The Fed Rate Hike and Gold – Precious Metals Supply and Demand

    Shrinking the Balance Sheet? The big news last week came from the Fed, which announced two things. One, it hiked the Fed Funds rate another 25 basis points. The target is now 1.00 to 1.25%, and there will be further increases this year. Two, the Fed plans to reduce its balance sheet, its portfolio of bonds.
    ***
    It won’t do this by actually selling, but by not reinvesting some of the principal repaid as the Treasury rolls over each bond at maturity. This is like reducing the workforce by a hiring freeze and attrition, rather than by layoffs.
    We are no Fed insiders, but if we were to take an educated guess, we would read the last part as a shuffle between the Fed and the banks. No one can afford rising long-term bond yields, as the banks hold plenty of them and this would be a capital loss. Also, if bond prices drop then all other asset prices would drop too. Banks would take another hit.

    This post was published at Acting-Man on June 20, 2017.


  • El-Erian Warns “The Fed No Longer Has Your Back”

    In hiking rates and, more notably, reaffirming its forward policy guidance and setting out plans for the phased contraction of its balance sheet, the Federal Reserve signalled last week that it has become less data dependent and more emboldened to normalise monetary policy. Yet, judging from asset prices, markets are failing to internalise sufficiently the shift in the policy regime. Should this discrepancy prevail in the months to come, the Fed could well be forced into the type of policy tightening process that could prove quite unpleasant for markets.
    Setting aside multiple signs of an economic soft patch and sluggish inflation, the Federal Reserve did three things on Wednesday that lessen monetary stimulus, only the first of which was widely expected by markets: It raised interest rates by 25 basis points, reiterated its intention to hike four more times between now and the end of next year (including one in the remainder of 2017), and set out a timetable for reducing its $4.5bn balance sheet.
    These three actions confirm an evolution in the Fed’s policy stance away from looking for excuses to maintain a highly accommodative monetary policy – a dovish inclination that dominated for much of the aftermath of the 2008 global financial crisis. Rather, the Fed is now more intent on gradually normalising both its interest rate structure and its balance sheet. As such, it is more willing to ‘look through’ weak growth and inflation data.
    This evolution started to be visible in March when Fed officials worked hard, and successively, to aggressively manage upwards expectations that were placing the probability of an imminent rate hike at less than 30 per cent. With that, the hike that followed was an orderly one.

    This post was published at Zero Hedge on Jun 19, 2017.


  • Are Central Banks Getting Ready to Crash the System Again?

    While investors pile into Tech Stocks based on endless promotion from the financial media, the US economy is rolling over.
    Last week the NY Fed downgraded its economic forecast for 2Q17 to just 1.9%. Even worse, it is now forecasting 2017 total growth to be a measly 1.5%.
    Yes, 1.5%.
    There is a clear trend to this chart… and it’s NOT up.

    This post was published at GoldSeek on 19 June 2017.


  • Mark Hanson: Housing Bubble 2.0 – The End Is Nigh?

    The incredible essay below is reproduced here with permission by Dr. Hunt for Epsilon Theory. If Dr. Hunt is even moderately accurate, which I believe he is, the housing market headwind on deck could be every bit as powerful as what hit at the end of Bubble 1.0.
    Bottom line: The Fed, during Obama, did everything in its power to surge all asset prices – stocks, bonds, real estate, collectables, et al – with no regard for its own guidance, as to when it would take its lead-foot off the accelerator. Now, under Trump, they are doing the exact opposite; looking ‘through’ all the obvious coincident and near/mid term, economic weakening trends in an effort to raise rates as quickly as possible. If, the past 8-years of a Fed in Armageddon-mode created the ‘everything bubble’ (hat-tip Wolf Richter), what will shifting monetary policy into reverse do to said asset price levels?
    Back in Bubble 1.0, the helium came out of house prices when the ‘unorthodox credit and liquidity’ was forced out of the markets all at once precipitated by the mortgage credit market implosion. Quickly, house prices ‘reattached’ to end-user, shelter-buyer employment, income, and credit fundamentals…or, to what end-user, shelter-buyers could really buy using a traditional, 30-year fixed rate mortgage, and a truthful loan application, which was about 30% less.
    What’s really the difference between the ‘unorthodox credit and liquidity’ coming out back then and coming out now from a Fed in reverse? House prices didn’t surpass their 2007 peaks because everybody is working, making more money (with the exception of those in the footprint of tech bubble 2.0). They have been goosed for years by unorthodox demand using unorthodox credit and liquidity (i.e., investors, speculators, flippers, floppers, foreigners, money launderers, options, etc etc) just like in Bubble 1.0.

    This post was published at Zero Hedge on Jun 19, 2017.


  • 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.


  • “Grouchy” SocGen Analyst: “Fed Will Be Buying Again Long Before They Finish Normalizing”

    Over the weekend, One River’s CIO Eric Peters said that last week’s announcement by the Fed marked the “end of the QE era.” At least one person, however, is not convinced: as the “increasingly grouchy” SocGen FX strategist Kit Juckes writes in his overnight note, slams calls that the Fed’s announcement was a “hawkish hike”, and says that “while we got more detail about the Fed’s plans to run down its balance sheet, these amount to a pace so slow that they’ll still have boatloads of bonds on board when the next recession strikes. My guess is they’ll be buying again long before they finish normalising the balance sheet (whatever that really means).”
    Looking at the Fed’s disclosed projections, which anticipate the Fed to continue normalizing until 2020, or well past the point the next recession is expected, his skepticism is certainly warranted.

    This post was published at Zero Hedge on Jun 19, 2017.


  • Key Events In The Coming Quiet Week: Brexit, Housing And Lots Of Fed Speakers

    In an otherwise relatively quiet week in which the only upcoming US data is housing, current account and jobless claims, UK politics will again draw attention, one year (on Friday) after the Brexit referendum and as noted earlier, Brexit negotiations begin on Monday, despite lingering political uncertainty in the UK. Also no less than 9 FOMC members are scheduled to speak this week.
    On Wednesday the Queen’s Speech will mark the opening of parliament and outline the government’s legislative program, despite no formal agreement between the Conservative Party and the DUP (at time of writing). Bank of England speakers will also get attention after last week’s surprisingly hawkish BOE, particularly Governor Carney’s re-scheduled Mansion House speech. Overall we could see a headline-heavy week, making for a volatile period ahead for GBP.
    A quick snapshot of what to expect:
    A very light calendar in the US, with only housing data, current account
    balance and the usual weekly jobless claims. We do hear from various
    Fed speakers, including New York Fed President Dudley on Monday and Vice
    Chair Fischer on Tuesday.

    This post was published at Zero Hedge on Jun 19, 2017.


  • Bi-Weekly Economic Review: Has The Fed Heard Of Amazon?

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    The economic surprises keep piling up on the negative side of the ledger as the Fed persists in tightening policy or at least pretending that they are. If a rate changes in the wilderness can the market hear it? Outside of the stock market one would be hard pressed to find evidence of the effectiveness of all the Fed’s extraordinary policies of the last decade. Even there, I’m not sure QE is actually the culprit that has pushed valuations to, once again, incredible heights. I’m also not sure exactly what the Fed is trying to accomplish and I don’t think it really does either. All evidence points to the nonsensical idea that interest rates need to be raised so the Fed will have room to cut them later. Unfortunately, that is as logical as monetary policy gets these days.
    I may not know what’s going on and Janet Yellen surely doesn’t but the bond market usually does. And unlike Yellen we here at Alhambra do pay attention to what the bond market is telling us. It isn’t a tale of full employment and imminent wage and cost push inflation. It also isn’t a tale of robust growth that needs reining in lest it get out of control and put too many people back to work. So, we are left scratching our collective heads trying to figure out what exactly is motivating Yellen & Co. to try and slow down an economy moving at the speed of a sloth.

    This post was published at Wall Street Examiner by Joseph Y. Calhoun ‘ June 18, 2017.