• Tag Archives Fed
  • This is What it Looks Like When Credit Markets Go Nuts

    Pricing of risk kicks bucket in record central-bank absurdity.
    As the days pass, the perverse effects of central bank policies on the financial markets are getting more and more amazing. This includes the record-setting nuttiness now reigning in the European bond market, compared to the mere semi-nuttiness in the US bond market.
    The 10-year yield of US Treasury Securities closed at 2.34% yesterday and at 2.33% today. This is low by historical standards. It’s barely above the rate of consumer price inflation as measured by CPI, which was 2.2% in September. This means that coupon payments barely make up for the loss of purchasing power. If inflation ticks up just a little, bondholders will be left in the hole. And a yield this low doesn’t compensate bondholders for any other risks, including duration risk, which can be significant. In other words, this is a bad deal.
    But in this strange world, it looks practically sane, compared to the Draghi-engineered negative-yield absurdity that has overtaken the Eurozone, where the average yield of euro junk bonds – the riskiest bonds out there – dropped to 2.16%.
    This chart, based on the BofA Merrill Lynch Euro High Yield Index via the St. Louis Fed, shows how the average euro junk-bond yield (red line) has plunged so far this year, on the way to what? Zero? The 10-year US Treasury yield (black line) has started rising in past weeks and, in late September rose above the euro junk bond yield for the first time ever:

    This post was published at Wolf Street on Oct 19, 2017.

  • Get Ready To Party Like It’s 2008

    Apparently Treasury Secretary, ex-Goldman Sachs banker Steven Mnuchin, has threatened Congress with stock crash if Congress didn’t pass a tax reform Bill. His reason is that the stock market surge since the election was based on the hopes of a big tax cut. This reminded me of 2008, when then-Treasury Secretary, former Goldman Sachs CEO, Henry Paulson, and Fed Chairman, Ben Bernanke, paraded in front of Congress and threatened a complete systemic collapse if Congress didn’t authorize an $800 billion bailout of the biggest banks.
    The U. S. financial system is experiencing an asset ‘bubble’ that is unprecedented in history. This is a bubble that has been fueled by an unprecedented amount of Central Bank money printing and credit creation. As you are well aware, the Fed printed more than $4 trillion dollars of currency that was used to buy Treasury bonds and mortgage securities. But it has also enabled an unprecedented amount of credit creation. This credit availability has further fueled the rampant inflation in asset prices – specifically stocks, bonds and housing, the price of which now exceeds the levels seen in 2008 right before the great financial crisis.
    However, you might not be aware that western Central Banks outside of the U. S. continue printing money that is being used to buy stocks and risky bonds. The Bank of Japan now owns more than 75% of that nation’s stock ETFs. The Swiss National Bank holds over $80 billion worth of U. S. stocks, $17 billion of which were purchased in 2017. The European Central Bank, in addition to buying member country sovereign-issued debt is now buying corporate bonds, some of which are non-investment grade.

    This post was published at Investment Research Dynamics on October 19, 2017.

  • Stocks and Precious Metals Charts – Stock Option Expiration on Friday – Anything Goes

    “Wall Street did not accidentally run a barge aground and leave a small oil slick on the Hudson River. Wall Street did not accidentally release tainted lettuce that sickened a few dozen people.
    What Wall Street did was intentional and criminal: it financially engineered a toxic subprime house of cards which it knew from its own internal reviews was going to collapse; it then molded the toxic product into inscrutable bundles; it sold the bundles to unsuspecting investors around the globe while making side bets that it would all come crashing down.
    Then, after causing the greatest financial collapse in the United States since the Great Depression, Wall Street’s unrepentant scoundrels paid themselves billions of dollars in bonuses with taxpayer bailout funds.”
    Pam and Russ Martens, Wall Street On Parade
    There will be a stock options expiration for October on this Friday.
    The touts are talking up stocks this week. I’ll take that as a good sign to take profits out of equities if you have them. We are nearing what is likely to be at least a short term top.
    The bullish argument is that the Fed will keep supplying easy money to Wall Street, and they and their minions will keep piling into stocks because they have no other choice. That is sounding a bit tired at this point.

    This post was published at Jesses Crossroads Cafe on 18 OCTOBER 2017.

  • Big Blue Blasts Dow To (Another) New Record High As Chinese Yield Curve Inverts

    Don’t fight The Fed or The Machines…
    The Dow is now the 2nd most overbought in 22 years… 3rd most overbought in 62 years
    Kicking off The National Congress last night, Xi’s words did not manage to inspire the bond market as China’s yield curve inverted once again…

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

  • Paulsen: Tax Cut May Lead to Overheating, Help to End Bull Market

    Jim Paulsen, Chief Investment Strategist for the Leuthold Group, discusses his outlook on the US stock market and the economy with FS Insider. He is still bullish, citing 3 basic pillars holding up this bull market, but also explains why a tax cut at this point in the cycle will likely do more harm than good in the short-term, even though tax reform is important long-term for US competitiveness.
    No Need to Panic on Rate Hikes
    Though the Fed has been raising rates, real rates are still negative. Historically, the three-steps-and-a-stumble rule says that once the Fed tightens three times, that signals the end of the recovery and the beginning of the bear market, Paulsen stated.
    However, with unprecedented levels of stimulus and debt, ‘monetary policy [is] so far out of bounds from anything it used to be,’ Paulsen said, and getting back to normal may take quite some time.
    The Fed has already raised interest rates four times since 2015, and yet the Fed funds rate is still about a half of a percent or more below consumer price inflation. As a result, rate increases haven’t had much impact as the economy and stock markets continue to accelerate.

    This post was published at FinancialSense on 10/18/2017.

  • Beige Book Signals Inflation & Healthcare Concerns Amid Modest Growth

    Despite major disruptions from Hurricanes Harvey and Irma, all 12 Federal Reserve Districts indicated that economic activity increased in September through early October. Several Districts noted increased manufacturing input costs, citing storm impacts (with 58 mentions of the word Hurricane) and labor constraints (employers were having difficulty finding qualified workers), but The Fed notes healthcare service prodviders were less upbeat.
    Full Fed Summary:
    Overall Economic Activity
    Reports from all 12 Federal Reserve Districts indicated that economic activity increased in September through early October, with the pace of growth split between modest and moderate. The Richmond, Atlanta, and Dallas Districts reported major disruptions from Hurricanes Harvey and Irma in some areas and sectors, including transportation, energy, and agriculture. Manufacturing activity and nonfinancial services expanded modestly to moderately in most Districts. Retail spending rose slowly, while vehicle sales and tourism increased in most Districts. Residential construction continued to increase, and growth in commercial construction was up slightly on balance. Low home inventory levels continued to constrain residential sales in many areas, while nonresidential real estate activity increased slightly overall. Loan demand was generally stable to modestly higher. Growth in the energy sector eased slightly. Agricultural conditions were mixed; while some regions were reporting better-than-expected harvests, low commodity prices continued to weigh down farm incomes.
    Employment and Wages
    Employment growth was modest on balance, with most Districts reporting flat to moderate increases. Labor markets were widely described as tight. Many Districts noted that employers were having difficulty finding qualified workers, particularly in construction, transportation, skilled manufacturing, and some health care and service positions. These shortages were also restraining business growth. Firms in several Districts reported that scarcity of labor, particularly related to construction, would be exacerbated by hurricane recovery efforts. Despite widespread labor tightness, the majority of Districts reported only modest to moderate wage pressures. However, some Districts reported stronger wage pressures in certain sectors, including transportation and construction. Growing use of sign-on bonuses, overtime, and other nonwage efforts to attract and retain workers were also reported.

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

  • Silver Bullion Prices Set to Soar

    Silver bullion prices are expected to jump as solar and smartphone demand rises and the Fed tries to stave off economic weakness
    by Myra Saefong via Barrons
    Gold prices have far outpaced gains in silver so far this year, but silver will emerge as the winner for the second year in a row.
    With a per-ounce price of $17.41 for silver futures as of Friday, analysts say the white metal is poised for a big climb, particularly as the gold-to-silver ratio stands well above historical averages. ‘Silver is definitely undervalued compared to gold and as a stand-alone investment. I consider it likely to be the most undervalued asset in the general investment markets,’ says Paul Mladjenovic, author of Precious Metals Investing For Dummies.

    This post was published at Gold Core on October 18, 2017.

  • Krugman and the “Heroic” Fed

    Once an avid reader of Paul Krugman’s New York Times twice-weekly columns, I admit to rarely even glancing at his work now, since I know that anything he writes is going to have the theme of ‘Trump evil, Democrats good’ each time, and it doesn’t take long to get one’s fill of that, even if one disagrees with Donald Trump’s policies or cringes at some of his public statements. The real problem, however, is that Krugman also manages to endorse unsound and inflationary economic policies as a ‘solution’ to what he calls ‘Trumpism.’
    If one reads Krugman to see what ‘vulgar’ Keynesian fallacies he is promoting, the man rarely disappoints, and a recent column in which he attacks what he believes will be Trump’s future choice to head the Federal Reserve System only burnishes Krugman’s Keynesian credentials. After claiming that Trump has been like a ‘Category 5 hurricane sweeping through the U. S. government, leaving devastation in his wake,’ Krugman then worries if the Fed will suffer the same fate. One only could hope….
    Before looking at Krugman’s worshipful commentary on the current Fed leadership, a brief point is in order regarding the rest of official Washington that Trump allegedly has devastated. People like Krugman believe that Washington and its gaggle of Alphabet-Soup agencies regulating nearly every aspect of individual lives is the very source of social stability and economic prosperity in this country – provided there are little or no restraints on what government agents can do. As Krugman and his fellow progressives see it, we need more, not less, bureaucratic control of our lives, and especially control by people of progressive bent with ‘elite’ academic credentials, since they are smarter than the rest of us, so they should be able to tell us what to do.

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

  • “The System Is Broken”: Angry Baltimore Dad Lashes Out As 12th Grader Tests At 4th Grade Math Level

    One Baltimore resident and disable Army veteran, Victor Able, Sr., is fed up with the public education that his son, a 12th grader on the verge of graduation, received from City Neighbors Charter School after he recently tested at 4th grade level in math and 5th grade level in reading. Able says his son was simply passed to the next grade year after year so that his school could continue to receive extra federal funding even though it failed to deliver results. After his complaints fell on deaf ears at city council and the mayor’s office, Able has now hired an attorney to address a system he says is “broken.” Per Fox News:
    According to the IEP report, the 12th grader reads at a 5th grade level; does math at a 4th grade level.
    ‘It’s not supposed to happen,’ stated Able. ‘I don’t want him to fall out into the streets.’
    ‘They failed my son,’ said Able. ‘Not just my son, a whole lot of kids. The system is broken. They need to stop and fix it.’
    Able told Project Baltimore he has hired an attorney and has a meeting with the school later this month.
    Confronted with the complaint, City Neighbors released the following generic statement which we can only assume roughly translates to ‘we allow teachers the “autonomy” to consistently fail and never hold them to account because their union says we’re not allowed to’…but that’s a very rough translation.

    This post was published at Zero Hedge on Oct 17, 2017.

  • Speculation Swirls, Trial Balloons Fly: Who’s Next Up for Fed Chair?

    Speculation continues to swirl around the question of who President Trump will appoint as Federal Reserve Chair when Janet Yellen’s term comes to an end in February.
    Trump will reportedly meet with Yellen this week to discuss the possibility of her staying on as the head of the central bank. During the presidential campaign, Trump was highly critical of Yellen, saying she is ‘obviously political,’ and accusing her of ‘doing what Obama wants her to do.’
    A number of other names have been floated for the job in recent weeks. The mix includes both ‘dovish’ and ‘hawkish’ contenders. Some of the names bandied about include Fed Governor Jerome Powell, Fed Governor Kevin Warsh, Stanford economist John Taylor, National Economic Council Director Gary Cohn, and Federal Reserve Bank of Minneapolis president Neel Kashkari.
    Of course, nobody knows what Trump will ultimately decide. We’ve seen this same swirl of speculation around other appointments. It almost seems like Trump revels in floating trial balloons, throwing out names, and keeping people guessing. It shouldn’t surprise anybody if Trump ultimately comes out of left field and appoints somebody not even on the current speculative list.

    This post was published at Schiffgold on OCTOBER 17, 2017.

  • Trump Expected To Announce His Pick For Fed Chair In Next Two Weeks

    In the latest update on Trump’s search for the next Fed Chair, Reuters reported that the search has narrowed down to 5 finalists – Yellen, Warsh, Taylor, Powell and Cohn (condolences to Jeff Gundlach: his dark horse candidate, Neel Kashkari did not make the cut) – and that after meeting Yellen on Thursday, Trump will have discussed the Fed job with all five candidates. More importantly was the news that Trump is expected to announce his decision for next Fed Chair in the next 2 weeks, before he leaves for his Asian trip on November 3.

    This post was published at Zero Hedge on Oct 17, 2017.

  • Wheezing Consumers & Slowing Economy, No Problem: UK Inflation Jumps Most in 5+ Years. Rate Hike Due in November

    The Fed leads, other central banks follow.
    The UK is not the only one. But it’s furthest ahead. In the US, consumer prices as measured by the Consumer Price Index rose 2.2% in September compared to a year ago. In the Eurozone, prices rose 1.5%. And today the UK’s Office for National Statistics reported that consumer prices in the UK jumped 3.0%, after having already risen 2.9% in August. It was the biggest increase since April 2012.
    And inflation is outpacing wage increases, which inched up a meager 2.1%, slamming consumers further, and hampering the UK economy that is already showing signs of strain, with, for example, new vehicles sales plunging over 9% in September from a year ago.
    Inflation has now been above the Bank of England’s target of 2.0% for the eighth month in a row:

    This post was published at Wolf Street on Oct 17, 2017.


    GOLD: $1302.35 DOWN $1.64
    Silver: $1733 DOWN 6 cents
    Closing access prices:
    Gold $1295.50
    silver: $17.24
    PREMIUM FIRST FIX: $8.05 (premiums getting larger)
    Premium of Shanghai 2nd fix/NY:$8.60(PREMIUMS GETTING LARGER)
    LONDON FIRST GOLD FIX: 5:30 am est $1305.10
    LONDON SECOND GOLD FIX 10 AM: $1299.60
    For comex gold:
    TOTAL NOTICES SO FAR: 2353 FOR 235,300 OZ (7.318TONNES)
    For silver:
    45,000 OZ/
    Total number of notices filed so far this month: 562 for 2,810,000 oz
    Bitcoin: $5659 bid /$56 79 offer up $171.00

    This post was published at Harvey Organ Blog on October 16, 2017.

  • Morgan Stanley Sees “Greater Risk For A Correction Than We’ve Seen In A While”…But There’s A Catch

    As U. S. equity markets casually melt up to all new highs with each passing day, Morgan Stanley Equity Strategist Michael Wilson, whose 2,550 year-end price target from back in August was just breached in a matter of months, says he’s getting somewhat concerned given Fed tightening, tax cut legislation that looks increasingly unlikely to pass, USD strengthening and extreme levels in pretty much every economic indicator which will make future improvement nearly impossible.
    Given that, Wilson says he now sees “a greater risk for a correction than we have seen in a while…”

    This post was published at Zero Hedge on Oct 16, 2017.

  • Is the Fed Setting Itself up to Fail in the Next Recession?

    The Federal Reserve remains committed to a December rate hike, persistently low inflation notwithstanding. With unemployment below Fed estimates of its longer-run natural rate, most FOMC participants do not need evidence of stronger inflation to justify further rate hikes. Ongoing solid job growth will be sufficient cause for tighter policy, especially in what they perceive to be an environment of loosening financial conditions. The main risk from this scenario is that the US economy enters the next recession with diminished inflation expectations, which could further hobble central bankers already facing the prospect of returning to the effective lower bound in the next cycle.
    The minutes of the September 2017 FOMC meeting exposed central bankers as generally disconcerted with the behavior of inflation this year:
    …many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted. A few of these participants thought that no further increases in the federal funds rate were called for in the near term or that the upward trajectory of the federal funds rate might appropriately be quite shallow. Some other participants, however, were more worried about upside risks to inflation arising from a labor market that had already reached full employment and was projected to tighten further.

    This post was published at FinancialSense on 10/16/2017.

  • SWOT Analysis: Gold In Focus After Climbing Above Key Threshold Level

    The best performing precious metal for the week was palladium, up 7.28 percent as money managers raised their net-long positions on continued expectations that the shift from diesel to gasoline powered cars will continue. Gold traders and analysts surveyed by Bloomberg are bullish for the first time in five weeks, reports Bloomberg. Following the release of the Fed minutes which showed rising concern about low inflation, the yellow metal climbed to a two-week high. A fresh flare-up in tensions with North Korea pushed gold higher this week, writes Bloomberg, along with a U. S.-Turkey diplomatic spat regarding visitor visas was supportive. The Indian government withdrew an order that brought the gold industry under anti money-laundering legislation, reports Bloomberg. Jewelers were included in the Prevention of Money-Laundering Act in August that increased compliance requirements. In response to the rule reversal, shares of jewelers climbed in the country. This move comes just as gold buying improves before the Hindu festival of Diwali, the peak season for demand, the article continues. Weaknesses
    The worst performing precious metal for the week surprisingly was gold, up more than 2 percent, despite grabbing most of the precious metals headlines. According to the People’s Bank of China website, gold reserves in China came in at 59.24m fine troy ounces in September, unchanged again from the previous month, which unfortunately is beginning to become a trend. Chinese markets had been closed the prior week to mark National Day.

    This post was published at GoldSeek on Monday, 16 October 2017.

  • The Fed Is Confused about What Drives Inflation

    On October 4 2017, the former governor of the Federal Reserve Daniel Tarullo in a speech at the Brookings think-tank in Washington said Fed policy makers do not have a reliable theory of what drives inflation. According to Tarullo, central bankers should pay less attention to theoretical models and more to actual data. However, how is it possible to make any sense of the data without having a reliable theory?
    The Importance of Theory One purpose of a theory is to enable one to ascertain the definition of a phenomenon that is subject to investigation. The correct definition attempts to identify the essence of the phenomenon (i.e., the key parts that drives the phenomenon). For instance, the definition of human action is not that people are engaged in all sorts of activities, but that they are engaged in purposeful activities – it is purpose that gives rise to an action.
    So when Tarullo states that Fed policy makers do not know the causes that drive inflation he basically says that Fed policy makers have not as yet established the correct definition of inflation.
    Is it then valid to be practical, as suggested by Tarullo, to focus only on the data to understand what inflation is all about? If Fed policy makers respond to changes in price indices without establishing what drives these changes this runs the risk of making things much worse.

    This post was published at Ludwig von Mises Institute on October 16, 2017.

  • Pentagon Worried about Hackers Causing Stock Market Crash

    The Pentagon?! But no one’s worried when stocks get manipulated higher.
    It’s funny, the all-out government effort to prevent a major decline of the stock market, or of individual stocks, via manipulation or hacking. Now even the Pentagon is looking into it.
    What’s funny is that everyone cheers when manipulation, hacking, and other shenanigans cause the market or individual stocks to soar. It’s just declines they’re worried about at these precarious levels.
    Manipulating stocks higher is a time-honored game that routinely receives kudos from all around. The Fed printed nearly $4 trillion and cut rates to zero for eight years – no matter what the damage to the real economy – for the sole purpose of manipulating up asset prices including stock prices. ‘Wealth effect,’ Ben Bernanke called it. Corporate executives and analysts exaggerate future earnings only to deflate them at the last minute, because stock prices are ‘forward looking’ and fake future earnings is all that matters, even if reality now sucks. And on and on. Whatever it takes to push stock prices up, by hook or crook, is cool. These are our heroes.
    But when some lonely dude might hack into high-speed stock trading systems or spook the trading algos, quant-fund managers, and high-speed traders and throw algorithmic trading off track to where prices might actually fall in a major way, all heck breaks loose, and the Pentagon feels empowered to step in.

    This post was published at Wolf Street by Wolf Richter ‘ Oct 15, 2017.

  • Eric Peters: “This Is The Nightmare Scenario For The Next Fed Chair”

    While we will have much more to share from the latest weekend letter by One River’s Eric Peters shortly, we found the following section on inflation vs asset bubbles – a topic which BofA’s Michael Hartnett has been focusing extensively on in the past year and which serves as the basis for the “Icarus Rally” – particularly notable as it explains all of today’s comments from Janet Yellen and other central bankers, discussing why it is only a matter of time before inflation returns, as the alternative, as Peters’ explains, is a world in which yields simply refuse to go up, leading to a nightmare scenario for the next Fed chair, who will be forced to pop the world’s biggest asset bubble.
    Excerpted from the latest weekend notes by One River CIO, Eric Peters:
    ‘Why are we not experiencing deflation?’ he asked. ‘How can the top five stocks in the Nasdaq reduce US GDP but we feel better off?’ he asked. ‘Why are Americans buying no more cars today than in 1978 when our population is 100mm higher?’ he asked. ‘Why compare today to a world of combustion engines when we have so many more interesting things to do without moving an inch?’ he asked.

    This post was published at Zero Hedge on Oct 15, 2017.