• Tag Archives Fed
  • Watch Live: Senate Banking Committee ‘Grills’ Trump’s Fed Chair Nominee Jerome Powell

    Update (11:45 am ET): As Powell’s testimony draws to a close, analysts at Stone & McCarthy noted that – as expected – the future Fed chair’s comments were “generally dovish”.
    The hearing was largely free of surprises. As it neared its close, Powell offered his thoughts about the blockchain and digital currencies (one day they could impact the Fed’s policies, but right now they’re too small to matter), and the mysterious roots of low inflation (the Fed is still struggling to determine if it’s due to transitory factors, or some kind of fundamental shift.
    Here’s Stone & McCarthy:
    In his confirmation hearing before the Senate Banking Committee, Powell fielded questions mainly on the topics of raising interest rates, shrinking the balance sheet, and his views on “tailoring” regulation. Powell maintained the view that it is appropriate to gradually increase short-term rates against a backdrop of healthy, consistent growth with a strong labor market. He did not address inflation issues. He said GDP growth should be about 2.5% in 2017, and looking forward to “something pretty close to that” next year. Powell declined to specifically say if he would vote for another rate hike at the December 12-13 FOMC meeting. He did say “conditions are supportive” for another rate hike and “the case for raising rates at the next meeting is coming together”.

    This post was published at Zero Hedge on Nov 28, 2017.


  • The Yellen Put – Friend Or Foe?

    The term ‘Greenspan Put’ was coined after the stock market crash of 1987 and the subsequent bailout of Long Term Capital Management in 1998. The Fed under Chairman Alan Greenspan lowered interest rates following the fabled event of default and life continued.
    The idea of the Greenspan Put was that lower interest rates would cure the market’s woes. Unfortunately, the FOMC has since fallen into a pattern whereby longer periods of low or even zero interest rates are used to address yesterday’s errors, but this action also leads us into tomorrow’s financial excess. As one observer on Twitter noted in an exchange with Minneapolis Fed President Neel Kashkari:
    ‘Central Bankers are much like the US Forest Service of old. Always trying to manage ‘nature’ and put out the little brush fires of the capitalist system, while they seem incapable of recognizing they are the root cause of major conflagrations as a result.’
    When the Federal Open Market Committee briefly allowed interest rates to rise above 6% in 2000, the US financial system nearly seized up. Long-time readers of The Institutional Risk Analyst recall that Citigroup (C) reported an anomalous spike in loan defaults that sent regulators scrambling for cover. The FOMC dropped interest rates at the start of 2001 – nine months before the 911 terrorist attacks – and kept the proverbial pedal to the metal until June of 2004.

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


  • 2017: The Year of the Bubbles

    2017 may well go down in history as the year of the bubble.
    We’ve talked a lot about the stock market bubble in recent months, but there are a whole slew of bubbles floating around out there – most of them created by loose monetary policy that has dumped billions of dollars of easy money into the world’s financial systems over the last eight years.
    Even the Federal Reserve has taken notice of the stock market bubble and seems to be a bit spooked by the monster it created. According to the most recent FOMC minutes released by the Fed, several participants ‘expressed concerns about a potential buildup of financial imbalances,’ in light of ‘elevated asset valuations and low financial market volatility.’
    But the stock market isn’t the only bubble that’s blown up over the last year. Earlier this month, Mint Capital strategist Bill Blain warned us about the bond bubble.

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


  • “When To Worry?”: How Long After The Curve Inverts Does The Recession Begin

    The recent (bear) flattening of the US yield curve to levels not seen since before the GFC, a move which has only accelerated in recent weeks as the stock market hit all time highs, has prompted some to question the strength of the US economic cycle, and others to ask outright how long before the curve inverts, signaling an imminent recession. Here, as Citi’s Jeremy Hale notes, just as “Dr. Copper” can sometimes be viewed as a stock market precursor, so “Professor Curve” (particularly when inverted or aggressively flattening) can be viewed as a signal of that policy is too restrictive relative to economic fundamentals (especially when using term premium suggests the curve should already be inverted). That said, during an expansion it’s generally normal for the curve to flatten, as the economy expands and the output gap closes, as shown in the chart below. This can be attributed to expectation of a higher Fed funds rate, but also a lower term premium, or more ominously, an inability to pass through inflation to the broader economy, leading to tighter financial conditions which ultimately manifest in an economic contraction.
    ***
    Putting the recent 2s10s flattening in context (blue line on chart above), assuming this cycle started at the December 2013 steepness of 264bps, the curve has flattened for the past 60 months. On average, historic flattening cycles last for 2-2.5 years and flatten ~270bps from peak to trough. As Citi notes, we have flattened three quarters on the way there, or roughly 204bps so far in this cycle, therefore in comparison to previous episodes; perhaps this flattening dynamic is growing grey hairs… but it’s certainly not finished yet.

    This post was published at Zero Hedge on Nov 26, 2017.


  • Kunstler Warns “There Is Some Kind Of Revolution Coming To American Life”

    Authord by James Howard Kunstler via Kunstler.com,
    What if the fun and games of 2017 are over?
    The hidden message behind the sexual harassment freak show of recent weeks is that nothing else is sufficiently serious to occupy the nation’s attention. We’re living in the Year of Suspended Reality, stuck in the sideshow and missing the three-ring circus next door in the big tent.
    It probably all comes down to money. Money represents the mojo to keep on keeping on, and there is probably nothing more unreal in American life these days than the way we measure our money – literally, what it’s worth, and what everything related to it is worth.
    So there is nothing more unreal in our national life than the idea that it’s possible to keep on keeping on as we do.
    The weeks ahead may be most illuminating on this score. The debt ceiling suspension runs out on December 8, around the same time that the tax reform question will resolve one way or another. The debt ceiling means that the treasury can’t issue any more bonds, bills, or notes. That is, it can’t borrow any more money to pretend the government can keep running. Normally these days (and it’s really very abnormal), the treasury pawns off paper IOUs to the Federal Reserve and the Fed makes digital entries on various account ledgers that purport to be ‘money.’ And, by the way, the Fed is a consortium of private banks not a department of government – which is surely one of a thousand ways that the public is confused and deceived about what condition our condition is in, as the old song goes.

    This post was published at Zero Hedge on Nov 24, 2017.


  • The Debt Bubble Is Beginning To Leak Air

    ‘The current state of credit card delinquency flows can be an early indicator of future
    trends and we will closely monitor the degree to which this uptick is predictive of
    further consumer distress.’ – New York Fed official in reference to rising delinquency rate of credit cards.
    The recent sell-off in junk bonds likely reflects a growing uneasiness in the market with credit risk, where ‘credit risk’ is defined as the probability that a borrower will be able to make debt payments. This past week SocGen’s macro strategist, Albert Edwards, issued a warning that the falling prices of junk bonds might be ‘the key area of vulnerability that could bring down the inflated pyramid scheme that the Central Banks have created.’
    The New York Fed released its quarterly report on household debt and credit for Q3 last week. The report showed a troubling rise in the delinquency rates for auto debt and mortgages. The graph to the right shows 90-day auto loan delinquencies by credit score. As you can see, the rate of delinquency for subprime borrowers (620 and below) is just under 10%. This rate is nearly as high the peak delinquency rate for subprime auto debt at the peak of the great financial crisis. In fact, you can see in the chart that the rate of delinquency is rising for every credit profile. I find this fact quite troubling considering that we’re being told by the Fed and the White House that economic conditions continue to improve.

    This post was published at Investment Research Dynamics on November 22, 2017.


  • “Very Close To Irrational Exuberance”: Asian Equities Break Above All-Time High As Hang Seng Clears 30,000

    Following the new all-time high in US equities, the MSCI Asia Pacific Index broke through its November 2007 peak to make an all-time high in Wednesday’s trading session. This was something we noted could happen yesterday in ‘SocGen: Asian Equities Are So Awesome, A China Minsky Moment Is ‘Manageable’. The dollar weakened slightly after outgoing Fed Chairman, Janet Yellen, cautioned against interest rates rising too quickly in one of her last Q&As at NYU on Tuesday evening. The MSCI Emerging Market Index hit its highest level in six years and the Shanghai Composite rose 0.5% despite the lack of a net liquidity injection from the PBoC.
    As Bloomberg notes, Asian stocks headed for a record close for the second time this month as the regional benchmark gauge surpassed its 2007 peak, led by energy and industrial stocks after U. S. equities continued their bounce from a two-week slide.
    The MSCI Asia Pacific Index rose 0.7 percent to 172.70 as of 1:01 p.m. in Hong Kong. The gauge passed its 2007 closing high on an intraday basis on Nov. 9 but didn’t hold the level. Japan’s Topix index climbed for a second day Wednesday, rising 0.4 percent, after its worst week in seven months. Hong Kong’s benchmark Hang Seng Index breached the 30,000 level for the first time in a decade, boosted by China banks and energy stocks.
    ‘Anyone who missed the rally probably wonders if it is too late to join the party,’ Andrew Swan, head of Asian and global emerging markets equities at BlackRock Inc., said in a statement Wednesday. ‘We don’t believe it is.’

    This post was published at Zero Hedge on Nov 22, 2017.


  • Trusting the Fed: Will the White Knight Save the Day?

    As we reported last week, investors are in an era of ‘irrational exuberance.’
    The US stock market is at all-time highs. Meanwhile, market volatility is at lows not seen since the 1990s. In an odd juxtaposition of seemingly contradictory points of view, investors realize the market is overvalued, but at the same time, they believe it will continue to go up. According to a Bank of Ameria survey, 56% of money managers project a ‘Goldilocks’ economic backdrop of steady expansion with tempered inflation.
    In an article published at the Mises Wire, economist Thorsten Polleit adds some further analysis and asks a critical question.
    Credit spreads have been shrinking, and prices for credit default swaps have fallen to pre-crisis levels. In fact, investors are no longer haunted by concerns about the stability of the financial system, potential credit defaults, and unfavorable surprises in the economy or financial assets markets.
    ‘How come?’
    In simplest terms, most investors now believe the Federal Reserve will ride in like a white knight and save the day.
    After all, the Fed saved the day before. Surely it will do it again. Peter Schiff put it this way during an interview on The Street.

    This post was published at Schiffgold on NOVEMBER 22, 2017.


  • Bi-Weekly Economic Review: A Whirlwind of Data

    The economic data of the last two weeks was generally better than expected, the Citigroup Economic Surprise index near the highs of the year. Still, as I’ve warned repeatedly over the last few years, better than expected should not be confused with good. We go through mini-cycles all the time, the economy ebbing and flowing through the course of a business cycle. This being a particularly long half cycle, it has had more than its fair share of ups and downs but these mini up and down cycles within the larger cycle are nothing unusual. We are now in an up cycle and the data reflects that. But context is everything and as I keep saying with every one of these reports, not much has changed.
    This mini up cycle has been extended by the bounce back from the two hurricanes that hit earlier in the fall. How much of the recently better data is due to hurricane effects? I don’t know of any way to quantify it but when in doubt I always fall back on market based indicators. As I discussed in the update two weeks ago, the stock market is anticipating a future so bright we’ll have to all wear rose colored glasses so ignore that for a minute. All the other indicators we watch are not nearly as exuberant about the prospects for a sustained upturn in growth. The Fed may welcome the better data to justify their preferred course of action but evidence of a robust economy is hard to find outside the stock market.

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


  • FOMC Signals Dovish Inflation Concerns, Warns “Sharp Reversal” In Markets Could Damage Economy

    With a dumping dollar and collapsing yield curve since November’s FOMC, all eyes are on the Minutes for any signals of The Fed hawkishly ignoring inflation concerns but instead a few Fed officials opposed near-term hikes (on the basis of weak inflation). Furthermore, several Fed officials warned of the potential for bubbles, “in light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances.”
    Bloomberg’s Brendan Murray highlights the key aspects of The Fed Minutes
    Consistent with their expectation that a gradual removal of monetary policy accommodation would be appropriate, many participants thought that another increase in the target range for the federal funds rate was likely to be warranted in the near term if incoming information left the medium-term outlook broadly unchanged. Nearly all participants reaffirmed the view that a gradual approach to increasing the target range was likely to promote the Committee’s objectives of maximum employment and price stability.
    A few other participants thought that additional policy firming should be deferred until incoming information confirmed that inflation was clearly on a path toward the Committee’s symmetric 2 percent objective.
    Several participants indicated that their decision about whether to increase the target range in the near term would depend importantly on whether the upcoming economic data boosted their confidence that inflation was headed toward the Committee’s objective. A few participants cautioned that further increases in the target range for the federal funds rate while inflation remained persistently below 2 percent could unduly depress inflation expectations or lead the public to question the Committee’s commitment to its longer-run inflation objective.
    In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances. They worried that a sharp reversal in asset prices could have damaging effects on the economy.

    This post was published at Zero Hedge on Nov 22, 2017.


  • Last Time Housing, This Time Bonds

    Over the last couple of months, we’ve focused a lot of attention on the stock market bubble. But some analysts say we should be watching the bond market bubble. Last summer, former Fed chair Alan Greenspan issued an emphatic warning: Beware, the bond bubble is about to burst. And when it does, it will take stock prices down with it.
    Last week, Mint Capital strategist Bill Blain issued a similar warning.
    The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the credit market.’
    Blain noted that the People’s Bank of China recently dropped $47 billion into its financial system where bond yields have risen dramatically amid growing signs of wobble.
    The game’s afoot once more. The result is global stocks bound upwards. Again. It suggests central banks have little to worry about in 2018 – if markets get fractious, just bung a load of money at them. Personally, I’m not convinced how the tau of monetary market distortion is a good thing. Markets have become like Pavlov’s dog: ring the easy money bell, and markets salivate to the upside.’

    This post was published at Schiffgold on NOVEMBER 22, 2017.


  • Learning From the 1980s: The Power and Irony of ‘MDuh’

    Forget about big hair, Ray-Bans, and Donkey Kong. Don’t even think about Live-Aid, Thriller, and E. T. Above all else, the 1980s were the gravy days of the money supply aggregates.
    Beginning in late 1979, the Fed built its policy approach around the aggregates – primarily M1 but occasionally M2, and policymakers also monitored M3 while experimenting with M1B and, later, MZM. But those were just the ‘official’ figures. Economists and pundits debated the Fed’s preferred measures while concocting their own home-brewed variations.
    Notably, the Fed allowed interest rates to fluctuate as much as necessary to achieve its money growth targets. Fluctuate they did – rates soared and dipped wildly as a direct result of the Fed’s policy. The world, meanwhile, watched the action as attentively as a Yorkie watches breakfast, studying every wiggle in every M. Missing one wiggle could have meant the difference between exploiting the volatility that the Fed unleashed or being sunk by that same volatility.

    This post was published at FinancialSense on 11/21/2017.


  • Learning From The ’80s: The Power And Irony Of “MDuh”

    Authored by Daniel Nevins via FFWiley.com,
    Forget about big hair, Ray-Bans, and Donkey Kong. Don’t even think about Live-Aid, Thriller, and E. T. Above all else, the 1980s were the gravy days of the money supply aggregates.
    Beginning in late 1979, the Fed built its policy approach around the aggregates – primarily M1 but occasionally M2, and policy makers also monitored M3 while experimenting with M1B and, later, MZM. But those were just the ‘official’ figures. Economists and pundits debated the Fed’s preferred measures while concocting their own home-brewed variations.
    Notably, the Fed allowed interest rates to fluctuate as much as necessary to achieve its money growth targets. Fluctuate they did – rates soared and dipped wildly as a direct result of the Fed’s policy. The world, meanwhile, watched the action as attentively as a Yorkie watches breakfast, studying every wiggle in every M. Missing one wiggle could have meant the difference between exploiting the volatility that the Fed unleashed or being sunk by that same volatility.
    And to make sense of it all, the world looked to the most famous economist of his day, Milton Friedman. By converting a large swath of his profession to his strict brand of Monetarism, Friedman more than anyone else had triggered the monetary frenzy.
    But then, almost as quickly as the frenzy blew in, it blew right back out. With none of the Ms living up to their billings as economic indicators, the Monetarists drifted from view. Not in five minutes but in five years, give or take a couple, their period of fame was over. Friedman’s reputation as an economics savant fell particularly hard – his highly publicized forecasts proved inaccurate in each year from 1983 to 1986. And the Fed once again redesigned its approach, first deemphasizing and eventually dropping its money growth targets.

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


  • This Flat Yield Curve Is No Greenspan Conundrum (Low Inflation Prevails)

    This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
    Fed Study Says San Francisco Fed research blames low inflation, neutral rate There’s some risk that term premium could rise abruptly (Bloomberg) – This isn’t Alan Greenspan’s yield curve.
    The gap between short and longer-term interest rates has been narrowing even as the Federal Reserve raises its policy rate, a trend that echoes the so-called ‘flattening’ of the curve between June 2004 and December 2005. Then-Fed Chairman Greenspan called the mid-2000s episode a ‘conundrum,’ but the leveling out is no mystery this time around, Federal Reserve Bank of San Francisco researcher Michael Bauer writes in a note called the Economic Letter. Low inflation and neutral interest rates as well as political uncertainty are all weighing on longer-dated bond yields, keeping them low even as the Fed boosts the cost of borrowing in the near-term, Bauer writes. That’s important, because it means that if price pressures pick up quickly, investors could begin to demand better compensation for holding longer-dated securities – reversing the flattening and potentially dinging stock market valuations, which are based partly on the low level of yields in the bond market.

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


  • Yellen Confirms She Will Step Down When New Fed Chair Sworn In

    Federal Reserve Chair Janet Yellen says she will step down once her successor is sworn into the office, resolving a key question as to whether she would stay on in a diminished role.
    Yellen could technically stay on as a governor even after stepping down as the institution’s leader, because her term as governor does not end until January 31, 2024.
    Her decision to leave will give Trump an additional spot to fill on the Fed’s seven-person Board of Governors in Washington, which already has three openings.
    Yellen resignation letter – notably proclaiming everything is awesome…
    Economy ‘is close to achieving the Federal Reserve’s statutory objectives of maximum employment and price stability,’Yellen says in letter.

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


  • Doug Noland: Not Clear What That Means”

    This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
    November 15 – Bloomberg (Nishant Kumar and Suzy Waite): ‘Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved. ‘Have we learned our lesson? It depends what the lesson was…’ Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail. The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market ‘could have been dealt with differently.’ And in the ‘so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.’ ‘If you took all of the obvious problems from the financial crisis, we kind of solved none of them,’ Einhorn said… Instead, the world ‘went the bailout route.’ ‘We sweep as much under the rug as we can and move on as quickly as we can,’ he said.’
    October 12 – ANSA: ‘European Central Bank President Mario Draghi defended quantitative easing at a conference with former Fed chief Ben Bernanke, saying the policy had helped create seven million jobs in four years. Bernanke chided the idea that QE distorted the markets, saying ‘It’s not clear what that means’.’
    Once you provide a benefit it’s just very difficult to take it way. This sure seems to have become a bigger and more complex issue than it had been in the past. Taking away benefits is certainly front and center in contentious Washington with tax and healthcare reform. It is fundamental to the dilemma confronting central bankers these days.

    This post was published at Wall Street Examiner on November 18, 2017.


  • UBS Reveals The Stunning Reason Behind The 2017 Stock Market Rally

    It’s 2018 forecast time for the big banks. With Goldman unveiling its seven Top Trades for 2018 earlier, overnight it was also UBS’ turn to reveal its price targets for the S&P in the coming year, and not surprisingly, the largest Swiss bank was extremely bullish, so much so in fact that its base case is roughly where Goldman expects the S&P to be some time in the 2020s (at least until David Kostin revises his price forecast shortly).
    So what does UBS expect? The bank’s S&P “base case” is 2900, and notes that its upside target of 3,300 assumes a tax cut is passed, while its downside forecast of 2,200 assumes Fed hikes in the face of slowing growth:
    We target 2900 for the S&P 500 at 2018 YE, based on EPS of $141 (+8%) and modest P/E expansion to 20.6x.
    Our upside case of S&P 500 at 3300 assumes EPS gets a further 10% boost driven by a 25% tax rate (+6.5%), repatriation (+2%) and a GDP lift (+1.6%), while the P/E rises by 1.0x. Downside of 2200 assumes the Fed hikes as growth slows, the P/E contracts by 3x and EPS falls 3%. Congress is motivated to act before midterm elections while the Fed usually reacts to slower growth; so we think our upside case is more likely.

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


  • Goldman Reveals Its Top Trade Recommendations For 2018

    It’s that time of the year again when with just a few weeks left in the year, Goldman unveils its top trade recommendations for the year ahead. And while Goldman’s Top trades for 2016 was an abysmal disaster, with the bank getting stopped out with a loss on virtually all trade recos within weeks after the infamous China crash in early 2016, its 2017 “top trade” recos did far better. Which brings us to Thursday morning, when Goldman just unveiled the first seven of its recommended Top Trades for 2018 which “represent some of the highest conviction market expressions of our economic outlook.”
    Without further ado, here are the initial 7 trades (on which Goldman :
    Top Trade #1: Position for more Fed hikes and a rebuild of term premium by shorting 10-year US Treasuries. Top Trade #2: Go long EUR/JPY for continued rotation around a flat Dollar. Top Trade #3: Go long the EM growth cycle via the MSCI EM stock market index. Top Trade #4: Go long inflation risk premium in the Euro area via EUR 5-year 5-year forward inflation. Top Trade #5: Position for ‘early vs. late’ cycle in EM vs the US by going long the EMBI Global Index against short the US High Yield iBoxx Index. Top Trade #6: Own diversifed Asian growth, and the hedge interest rate risk via FX relative value (Long INR, IDR, KRW vs. short SGD and JPY). Top Trade #7: Go long the global growth and non-oil commodity beta through long BRL, CLP, PEN vs. short USD.

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


  • Retail Sales (US) Are Exhibit #1

    In January 2016, everything came to a head. The oil price crash (2nd time), currency chaos, global turmoil, and even a second stock market liquidation were all being absorbed by the global economy. The disruptions were far worse overseas, thus the global part of global turmoil, but the US economy, too, was showing clear signs of distress. A manufacturing recession had emerged which would only ever be the case on weak demand.
    But the Fed just the month before had finally ‘raised rates’ for the first time in a decade, though after procrastinating all through 2015. Still, surely these wise, proficient technocrats wouldn’t be so careless and clueless as to act in this way during a serious downturn. After all, what are ‘rate hikes’ but the central bank’s shifting concerns toward a faster economy perhaps reaching the proportions of overheating.
    The dissonance was striking, nowhere more so than at the Federal Reserve itself. On the day the FOMC voted for the first of what was supposed to be (by now) ten to fifteen increases (not just four) the central bank also released estimates on US Industrial Production that were negative year-over-year, a condition that just doesn’t happen outside of either a recession or a condition very close to one.
    The mainstream sided easily and eagerly with the technocrats. Even as the Fed failed to act month after month, the word ‘transitory’ printed prominently in each article rationalizing why a manufacturing recession just wouldn’t matter, the media would claim how ‘strong’ and ‘resilient’ especially US consumers were.

    This post was published at Wall Street Examiner on November 15, 2017.