• Tag Archives Fed
  • An Open Letter To The Fed’s William Dudley

    Authored by MN Gordon via EconomicPrism.com,
    Dear Mr. Dudley,
    Your recent remarks in the wake of last week’s FOMC statement were notably unhelpful.
    In particular, your excuses for further rate hikes to prevent crashing unemployment and rising inflation stunk of rotten eggs.
    Crashing Unemployment
    Quite frankly, crashing unemployment is a construct that’s new to popular economic discourse, and a suspect one at that.
    Years ago, prior to the nirvana of globalization, the potential for wage inflation stemming from full employment was the going concern. Now that the official unemployment rate’s just 4.3 percent, and wages are still down in the dumps, it appears the Fed has fabricated a new bugaboo to rally around. What to make of it?
    For starters, the Fed’s unconventional monetary policy has successfully pushed the financial order completely out of the economy’s orbit. The once impossible is now commonplace.

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

  • Doug Noland: Washington Finance and Bubble Illusion

    This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
    June 18 – Financial Times (Mohamed El-Erian): ‘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.’
    I’m not yet ready to move beyond the recent focus on global monetary policy. Belatedly, the Fed has become ‘more emboldened to normalise monetary policy.’ Global policymakers may finally be turning more emboldened, though taking their precious time has nurtured alarming market complacency.
    Over a period of years, securities markets became progressively more emboldened to the view that higher asset prices were the top priority of global central banks. For years I’ve argued that this is one policy slippery slope. For good reason, markets do not these days take seriously the threat of a tightening of financial conditions. The Fed and fellow central banks will surely seek to avoid what at this point would be a painful development for the global securities markets. When faced with a well-established Bubble, the notion of a painless tightening of financial conditions is a myth.

    This post was published at Wall Street Examiner by Doug Noland ‘ June 24, 2017.

  • Goldman Finds Most Modern Recessions Were Caused By The Fed

    One week ago, Deutsche Bank issued a loud warning that as a result of the aging of the current economic expansion, now the third longest in history at 32 quarters, if with the lowest average growth rate of just 2%…

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

  • Our Lawless Central Bank

    The economic arguments against central banks are numerous to say the least. Through the writings of Ludwig von Mises and Murray Rothbard we have a wide variety of critiques that explain the many ways the central banks distort economies, cause booms and busts, punish savers, and chose winners and losers through monetary policy.
    But, even if confronted with these arguments, and one remains supportive of central banks, other non-economic arguments must still be addressed.
    For example, it is becoming increasing important – in our current age of “non-traditional” monetary policy – to take note of the fact that central banks, and especially the Federal Reserve, are essentially unrestrained by law.
    Economists themselves often defend this total unmooring from legal or political accountability, saying it is necessary for the Fed to have “independence” from elected officials.
    In reality, however, this “independence” is best described as “total lack of accountability.”
    Writing in today’s Dallas Morning News, Texas Tech economist Alexander William Salter writes:

    This post was published at Ludwig von Mises Institute on 06/22/2017.

  • Dear Market, I Think Janet Yellen Broke Up With You Last Week

    Authored by Ben Hunt via Epsilon Theory blog,
    Let’s review, shall we? Last fall, the Fed floated the trial balloon that they were thinking about ways to shrink their balance sheet. All very preliminary, of course, maybe years in the future. Then they started talking about doing this in 2018. Then they started talking about doing this maybe at the end of 2017. Two days ago, Yellen announced exactly how they intended to roll off trillions of dollars from the portfolio, and said that they would be starting ‘relatively soon’, which the market is taking to be September but could be as early as July.
    Now what has happened in the real world to accelerate the Fed’s tightening agenda, and more to the point, a specific form of tightening that impacts markets more directly than any sort of interest rate hike? Did some sort of inflationary or stimulative fiscal policy emerge from the Trump-cleared DC swamp <sarc>? Umm … no. Was the real economy off to the races with sharp increases in CPI, consumer spending, and other measures of inflationary pressures? Umm … no. On the contrary, in fact.
    Two things and two things only have changed in the real world since last fall. First, Donald Trump – a man every Fed Governor dislikes and mistrusts – is in the White House. Second, the job market has heated up to the point where it is – Yellen’s words – close to being unstable, and is – Yellen’s words – inevitably going to heat up still further.
    What has happened (and apologies for the ten dollar words) is that the Fed’s reaction function has flipped 180 degrees since the Trump election. Today the Fed is looking for excuses to tighten monetary policy, not excuses to weaken. So long as the unemployment rate is on the cusp of ‘instability’, that’s the only thing that really matters to the Fed (for reasons discussed below). Every other data point, including a market sell-off or a flat yield curve or a bad CPI number – data points that used to be front and center in Fed thinking – is now in the backseat.

    This post was published at Zero Hedge on Jun 23, 2017.

  • Jim Rickards Exclusive: Dollar May Become ‘Local Currency of the U.S.’ Only

    Mike Gleason: It is my great privilege to be joined now by James Rickards. Mr. Rickards is editor of Strategic Intelligence, a monthly newsletter, and Director of the James Rickards Project, an inquiry into the complex dynamics of geopolitics and global capital. He’s also the author of several bestselling books including The Death of Money, Currency Wars, The New Case for Gold, and now his latest book The Road to Ruin.
    In addition to his achievements as a writer and author, Jim is also a portfolio manager, lawyer and renowned economic commentator having been interviewed by CNBC, the BBC, Bloomberg, Fox News and CNN just to name a few. And we’re also happy to have him back on the Money Metals Podcast.
    Jim, thanks for coming on with us again today. We really appreciate your time. How are you?
    Choose From 10-100oz Pure Silver Trusted Bullion Dealer – Buy Now! silvergoldbull.com Jim Rickards: I’m fine, Mike. Thanks. Great to be with you. Thanks for having me.
    Mike Gleason: Absolutely. Well first off, Jim, last week, the fed increased the fed funds rate by another quarter of a point as most of us expected, but during that meeting, we also heard Janet Yellen say she wants to normalize the Fed’s balance sheet, which means the Fed could be dumping about $50 billion in financial assets into the marketplace each month. Now you’ve been a longtime and outspoken critic of the fed and their policies over the years. So, what are your thoughts here, Jim? Do you believe they will actually follow through on this idea of selling off more than $4 trillion in bonds and other assets on the Fed’s books? And if so, what do you think the market reaction would be including the gold market?
    Jim Rickards: Well, I do think they’re going to follow through. Of course, it’s important to understand the mechanics of the Fed. They’re actually not going to sell any bonds. But they are going to reduce their balance sheet by probably two to two and a half trillion. So just to go through the history and the math and the actual mechanics there, so prior to the financial crisis of 2008, the Fed’s balance sheet was about $800 billion. As a result of QE1, QE2, QE3, and everything else the fed has done in the meantime, they got that balance sheet up to $4.5 trillion. By the way, if the Fed were a hedge fund, they’d be leveraged 115 to one. They look a really bad hedge fund. But that’s how much the Fed is leveraged, they have about 40 billion of equity, versus 4.5 trillion of assets. Mostly U. S. government securities of various kinds. So, they’re leveraged well over 100 to one.

    This post was published at GoldSilverWorlds on June 23, 2017.

  • Central Banks – Tiptoeing Toward the Exit

    Frisky Fed Hike-o-Matic
    We haven’t commented on central bank policy for a while, mainly because it threatened to become repetitive; there just didn’t seem anything new to say. Things have recently changed a bit though. A little over a week ago we received an email from Brian Dowd of Focus Economics, who asked if we would care to comment on the efforts by the Fed and the ECB to exit unconventional monetary policy and whether they could do so without triggering upheaval in the markets and the economy**, so we are taking this opportunity to do just that.
    First of all, the FOMC appears to have decided it will no longer be deterred by short term weakness in economic data and continue to implement its rate hike plans anyway. As we have pointed out several times, these baby step hikes in the federal funds rate (modeled after Bernanke’s pre-crash rate hike campaign in 2004-2007) are in some sense atually meaningless.
    That is mainly due to the fact that interbank lending of reserves is essentially dead, as banks continue to hold massive excess reserves as a result of QE. The FF rate is therefore no longer really a ‘monetary policy tool’, since the traditional method of keeping it on target by adding or draining reserves has become moot. The only way to keep the federal funds rate within the Fed’s target corridor (note they use a range these days instead of a precise target rate) is to pay interest on reserves (IOR).

    This post was published at Acting-Man on June 24, 2017.

  • The Incredible Shrinking Relative Float Of Treasury Bonds

    Via Global Macro Monitor blog,
    Lots of hand wringing these days about the flattening yield curve. We still maintain our position that the signal from the bond market is significantly distorted due to the global central bank intervention (QE) into the bond markets. See here and here.
    Most of what is happening with the U. S. yield curve is technical. Sure, traders can get a wild hair up their arse, believing the economy is slowing and try and game duration by punting in the cash or futures markets. Given the small relative float of the U. S. Treasury bond market, however, it doesn’t take much buying to move yields. In the words of economists, the supply curve of outstanding Treasuries is very inelastic.
    This is illustrated in the following chart. The combined market cap of just Apple and Amazon at today’s close is larger than the entire the float of outstanding Treasury notes and bonds that mature from 2027-2027. We define float (US$1.16 trillion) as total Treasury securities (2027-2047) outstanding (US$1.73 trillion) less Fed holdings (US$575 billion).

    This post was published at Zero Hedge on Jun 23, 2017.

  • Stock Futures Fell This Morning as the Senate Debates Healthcare

    This is a syndicated repost courtesy of Money Morning – We Make Investing Profitable. To view original, click here. Reposted with permission.
    The Dow Jones news today features banks passing a Fed stress test and the Senate debating a new healthcare bill to replace Obamacare. Dow Jones futures are down 27 points this morning while crude oil prices stay near yearly lows.
    Here are the numbers from Thursday for the Dow, S&P 500, and Nasdaq:
    Index Previous Close Point Change Percentage Change Dow Jones 21,397.29 -12.74 -0.06% S&P 500 2,434.50 -1.11 -0.05% Nasdaq 6,236.69 +2.73 +0.04

    This post was published at Wall Street Examiner by Garrett Baldwin ‘ June 23, 2017.

  • RBC: The Next Pain Trade Is Coming In 1-3 Months

    With everyone suddenly back on the deflation (or un-reflation, or disinflation) bandwagon, is it possible that the crowd will once again be caught wrongfooted? According to RCB’s Charlie McElligott the answer, not surprisingly, is yes and in his latest market note, the cross-asset strategist says ignore the noise coming out of the Fed and focus on China instead. He explains why below:
    I Further build the case for a tactical factor-reversal trade (1-3 month scope), where on account of a number of ‘higher rates’ macro catalysts and quant seasonality trends, I see scope for ‘Value’ and ‘Size’ to reverse their recent underperformance relative to ‘Anti-Beta,’ ‘Growth’ and ‘Momentum.’
    The latest data-point strengthening my view on the trade is the positive impact that the past few weeks of PBoC liquidity injections are likely to have on the industrial metals complex, which in turn will further feed through to ‘inflation expectations’ as a POSITIVE driver, capable of arresting the recent breakdown there. This in turn would act as a catalyst for higher rates which can ultimately inflect popular ‘slow-flation’ trade positioning.

    This post was published at Zero Hedge on Jun 23, 2017.

  • “The Hope Trade” Is Over: BofA Slashes Its 2017 GDP Forecast To Just 2.1%

    First they came for the Trump Trade… then they came for the hope. And, as a result, BofA has thrown in the towel on its economic rebound for this year.
    As BofA’s Michelle Meyer writes, “Hopes for a big fiscal stimulus have faded, prompting us to revise our 2018 GDP growth forecast to 2.1%, down from 2.5%. While growth will be slower, it is important to remember that the economy does not “need” stimulus to expand.” Unless it does of course, because as Citi showed recently, all central bank liquidity injections are fungible, and prop up not only stocks but also economies.
    In any case, here is BofA’s explanation why it, like the rest of Wall Street not to mention the Fed, were all wrong.
    Revising 2018
    Back in November when we released our Year Ahead piece, we argued that growth would be a trend-like 2% this year but would rise to 2.5% next year amid fiscal stimulus. We feel generally comfortable with our forecast for this year but now believe growth will end up being slower next year. We are therefore revising our forecast to 2.1% for 2018, implying that the economy will continue to grow modestly above trend .

    This post was published at Zero Hedge on Jun 23, 2017.

  • Proof That This Economic recovery narrative is false

    A hallucination is a fact, not an error; what is erroneous is a judgment based upon it.
    Bertrand Russell
    The financial media has provided reams of data trying to lay out the case that this economic recovery is real. Many of the statistics provided do indeed support the theme that the outlook is improving. One must, however, keep these two facts in mind when looking at the data:
    The Fed poured huge amounts of money into this market. Minus the money, this so-called economic recovery would have never come to pass Due to the low-interest rate environment, corporation borrowed money on the cheap and poured billions into share buybacks since the crash of 2009. Hence, while some of these statistics paint a rosy picture, the outlook is far from rosy as two key leading economic indicators have failed to confirm this recovery from the onset.
    The Baltic Dry index is trading 92% below its all-time high. Now imagine the Dow was in the same position and the press instead of calling it a crash, made the assertion that we were in the midst of a raging bull market. You would think they were insane. Well, the same analogy applies today; this index clearly indicates that there is no recovery on a global basis and that hot money is creating the illusion of one. Remove this excess cash from the system, and the economy together with the stock market will collapse.
    This once highly effective leading economic indicator appears to no longer work as the playing field has been altered. However, it is working, as it is indicating this recovery is nothing but a sham. It can longer be used as a tool to gauge the direction of the stock market or the strength of the economy becaus

    This post was published at GoldSeek on Friday, 23 June 2017.

  • Gold’s True Fundamentals

    To paraphrase Jim Grant, gold’s perceived value in US$ terms is the reciprocal of confidence in the Fed and/or the US economy. Consequently, what I refer to as gold’s true fundamentals are measures of confidence in the Fed and/or the US economy. I’ve been covering these fundamental drivers of the gold price in TSI commentaries for almost 17 years. It doesn’t seem that long, but time flies when you’re having fun.
    Note that I use the word ‘true’ to distinguish the actual fundamental drivers of the gold price from the drivers that are regularly cited by gold-market analysts and commentators. According to many pontificators on the gold market, gold’s fundamentals include the volume of metal flowing into the inventories of gold ETFs, China’s gold imports, the volume of gold being transferred out of the Shanghai Futures Exchange inventory, the amount of ‘registered’ gold at the COMEX, India’s monsoon and wedding seasons, jewellery demand, the amount of gold being bought/sold by various central banks, changes in mine production and scrap supply, and wild guesses regarding JP Morgan’s exposure to gold. These aren’t true fundamental price drivers. At best, they are distractions.
    In no particular order, the gold market’s six most important fundamental price drivers are the trends in 1) the real interest rate, 2) the yield curve, 3) credit spreads, 4) the relative strength of the banking sector, 5) the US dollar’s exchange rate and 6) commodity prices in general. Even though it creates some duplication, the bond/dollar ratio should also be included.

    This post was published at GoldSeek on 23 June 2017.

  • One “Data-Dependent” Trader Is “Looking At The Bounce In Gold As Sentiment Indicator”

    As US (and global) economic data has disappointed at a rate not seen since Bernanke unleashed Operation Twist and QE3, so traders are shrugging off declining earnings expectations and weak macro data in favor of the continued belief that The Fed (or ECB or BoJ or BoE or PBOC or SNB) has their back. So, as former fund manager Richard Breslow notes below, it appears the ‘data’ that everyone is ‘dependent’ upon is very much in the eye of the beholder…
    Via Bloomberg,
    We’re all data-dependent. It’s not just the central banks that hide behind that aphorism. Traders and investors operate that way too. It’s just that data is a very poorly defined word and concept. The dictionary speaks of facts and specifics. But in reality it includes, biases, positions and a whole lot of other subjective factors. You and I can, quite properly, look at the same data and react differently.
    So while it’s a universally held concept that is proudly used to denote dispassionate rationality, it’s in fact a meaningless one.

    This post was published at Zero Hedge on Jun 23, 2017.

  • What Derek Carr’s Contract Teaches Us about Wall Street and Income Inequality

    Derek Carr has just signed the most lucrative deal in NFL history, receiving a five-year extension worth $125 million with the soon-to-be Las Vegas Raiders. At $25 million per year, Carr edges out Indianapolis Colts quarterback Andrew Luck (though Luck’s contract did reward him with over twice as much in guaranteed money). Carr also becomes a big winner in the Raiders’ taxpayer-funded escape from Oakland, with his contract scheduled so most of the money kicks in after the franchise moves to income-tax-free Nevada.
    While the structure of Carr’s contract offers another opportunity to discuss the ‘jock tax,’ it also serves to illustrate a more important issue: why Wall Street wins whenever the Fed expands the monetary supply.
    After all consider this: while Derek Carr has certainly proven to be a promising young player at perhaps the most important position in professional sports, he is by no means the most accomplished player at his position or in the NFL. He’s been selected to the Pro Bowl twice, once as an alternate. His career QB rating is beneath players such as Chad Pennington, Carson Palmer, and Colin Kaepernick. Meanwhile he’s led his team to the playoffs once, unfortunately breaking his fibula before he could make a start in the post-season.
    So why, then, is he being rewarded with the NFL’s largest contract?
    The answer itself is fairly obvious: he was due a new deal at a time when the salary cap has never been higher. As such, NFL salaries have more to do about the size of the salary cap when a contract is signed, than it is about the merit of the individual player. Of course, over time Carr’s yearly salary will be used as a starting point with other more accomplished quarterbacks, and the average for the position will gradually rise over time. Matthew Stafford, for example, is likely to sign an even larger contract in the coming months. Salaries league-wide will rise with salary cap inflation.

    This post was published at Ludwig von Mises Institute on June 23, 2017.

  • BofA: “Central Banks Are Now In A Desperate Dilemma”…”Start Buying Volatility”

    One week after the second biggest weekly inflow to Wall Street on record, the “risk on” rotation ended abruptly in the ensuing five days, when as Bank of America writes overnight, it observed “Inflows to structural “deflation”, outflows from cyclical “inflation”; with oil the “poster child” for this trend.”
    Half a year after central bankers around the globe rejoiced that the Trump victory may finally spur the long-delayed period of global reflation, that hope is now dead and buried (even as the Fed keeps hiking into some imaginary inflation wave) which BofA’s Michael Hartnett observes not only in asset prices, but also in fund flows.
    As the BofA strategist writes in a note aptly titled “Bubble, bubble, oil & trouble”, the big flow message “is structural “deflation” dominating cyclical “inflation” (oil price is the “poster child” for victory of deflation): outflows from TIPS; first outflows from bank loans in 32 weeks; outflows from US value funds in 8 of past the 9 weeks; 1st inflows to REITS in 11 weeks; biggest inflows to utilities in 51 weeks.”
    More importantly the tsunami of recent inflows, mostly into US equities, appears to finally be slowing: following sizable inflows to equities & bonds last week ($33.5bn in aggregate), a week of modest flows: $5.0bn into bonds, $0.5bn into equities, $0.8bn outflows from gold. Additionally, after the recent “tech wreck”, flows show confirm that contrarians – or simply stopped out algos – have flirted with sector rotation as inflows to energy ($0.4bn) were offset by outflows from tech ($0.2bn) & growth funds ($2.1bn);
    Looking at BofA’s client base, Harnett notes that private clients were also sellers of tech past 4 weeks; and adds that despite the 20% YTD decline in oil price, energy funds ($2.8bn) and MLPs ($2.6bn) see inflows in 2017.

    This post was published at Zero Hedge on Jun 23, 2017.

  • Why Is the Fed So Desperate to Raise Rates? Jim Rickards Explains (Video)

    The June Federal Reserve rate hike wasn’t a surprise. Most analysts expected Yellen and company to boost rates by 0.25 points. The only thing that was a little surprising was the hawkish tone the central bankers took at the most recent Federal Open Market Committee meeting. The Fed is hinting it will continue to push forward with interest rate normalization and begin to shrink its balance sheet. This raises an important question.
    As we have pointed out, the data simply doesn’t support the hawkish stance taken by the Fed. Even some mainstream analysts have made this observation. So what gives? Why is the Federal Reserve so desperate to hike rates?

    This post was published at Schiffgold on JUNE 23, 2017.

  • The ECB Blames Inflation on Everything but Itself

    Unsurprisingly, central banks are reluctant to claim credit for inflation. In their latest bulletin, the European Central Bank (ECB) published the graph below explaining what causes inflation.
    See the problem? Neither the money supply nor the ECB are mentioned. While there are many factors that influence the purchasing power of money, inflation is still inherently a monetary phenomenon and the role central banks play simply can’t be ignored.
    Instead, the ECB prefers to do what all central banks did just before the 2009 great recession: blame inflation on rising food and energy prices. But large central banks like the ECB have a strong and disproportionate effect on energy prices, as predicted by Austrian business cycle theory. The rise in oil prices in 2007, for example, was triggered by the end of the euphoric monetary boom initiated by the Fed and the ECB in the years prior. As investment in energy production was fueled, in part, by credit expansion instead of real savings. The quantity of producer’s goods – or at least of some of them – revealed themselves to be insufficient to complete the plans of entrepreneurs, thus generating a sharp increase in their prices.

    This post was published at Ludwig von Mises Institute on June 23, 2017.

  • The Fed Is Now Preparing For The Next Economic Crisis, Here’s How – Episode 1313a

    The following video was published by X22Report on Jun 22, 2017
    Sears Canada decided to announce that it will be declaring bankruptcy, approximately 3000 people will lose their jobs. Warren Buffett steps in and purchases Home Capital Group, big surprise since they were on the verge of collapsing. Junk bonds are signalling the great debt binge is now coming to an end. The Fed announced that will start to unwind its balance sheet, why now? The obvious reason is that the bubbles are at the top, its time to unload and prepare for the next economic crisis.

  • Data Says Fed Is Making A Mistake

    In their policy announcement last week, the members of the FOMC claimed:
    ‘Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.’
    Economic data has continued to remain extremely soft given the rise in confidence. We addressed previously that while the ‘soft data’ was hitting the highest levels seen since the ‘Great Recession,’ actual economic activity had failed to catch up. As noted on last week:
    ‘For the 13th straight week, US economic data disappointed (already downgraded) expectations, sending Citi’s US Macro Surprise Index to its weakest since August 2011 (crashing at a pace only beaten by the periods surrounding Lehman and the US ratings downgrade). The last time, Us economic data disappointed this much, Ben Bernanke immediately unleashed Operation Twist… but this time Janet Yellen is hiking rates and unwinding the balance sheet?’

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