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.

“One Simple Reason The Yield Curve Is Collapsing”

The divergence between the ‘hope’ melt-up in stock markets and the ‘nope’ collapse of the US Treasury yield curve has never been so wide… and has never engendered so many excuses by commission-takers and asset-gatherers for why the latter is wrong and the former correct.
One thing is clear, as The Fed tightens rates, the market is increaingly insensitive to the next tightening as financial conditions have eased dramatically as the Fed tightens. Former fund manager Richard Breslow suspects ‘you ain’t seen nothing yet’ as the linkage between FOMC raising rates and a flattening yield curve suggests this tradable trend is far from over.
Via Bloomberg,
The yield curve in the Treasury market has continued on its flattening way. Look at a one-year chart and it shows a relentless, if at times choppy, move from its widest at the beginning of the period to today’s new tight. Everyone seems to have their theories why and what it means, giving clear proof that great minds can differ. And even the bond market isn’t simply well-established science. One thing that they do agree upon is the obvious: it’s been a clear, tradable trend. But before we start waxing eloquent on the historic magnitude of the move, keep in mind, this tightening absolutely pales in comparison to several others of the last 25 years.

This post was published at Zero Hedge on Nov 7, 2017.

The New Fed Next Year Could Be Off the Charts

Dudley to Quit. 5 Vacancies on the FOMC. No one knows what the Fed will look like.
The next slot on the Fed opens up: New York Fed President William Dudley will announce his retirement as soon as next week, ‘several people familiar with his plans’ told CNBC. He may stay on till his replacement is found and approved, likely to happen in the spring or summer next year. The New York Fed has already formed a search committee, the people said.
This is unexpected; his 10-year term will expire in 2019. He could have stayed on for the sake of stability. He is one of the most influential figures on the Fed’s policy-setting Federal Open Markets Committee (FOMC) and is considered a ‘dove.’
The 12-member FOMC is composed of:
The seven members of the Board of Governors which is in the process of being nearly completely turned over The president of the New York Fed who is retiring. And on a one-year rotating basis four presidents of the remaining 11 regional Federal Reserve Banks. The president of the New York Fed is special among the heads of the regional Fed banks: That person always serves as vice chair of the FOMC and, unlike the rest of them, votes at every meeting.
So next year the FOMC will be a different animal.

This post was published at Wolf Street on Nov 5, 2017.

Ahead, Not Behind

This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
Back in September, the FOMC announced that it was in October going to start normalizing its balance sheet. The policy statement issued that day included all the usual qualifications of ‘solid’, ‘strengthen’, and ‘picked up.’ The near-term risks to the economy, it was written, ‘appear roughly balanced.’
Not all was well with the economic situation, however, as the central bank’s policymaking body continues to wrestle with inflation. They might wish for political relief to their dual mandate, but in this case they have no choice but to live with the results – especially since they are largely of their own making. After mentioning economic risks, the statement then throws out there, ‘but the Committee is monitoring inflation developments closely.’

This post was published at Wall Street Examiner on November 3, 2017.

Stocks and Precious Metals Charts – Hi Ho Nickel?

Put another nickel in
In the nickelodeon
All I want is having you
And music, music, music.
Teresa Brewer, Music, Music, Music
“A nickel’s not worth a dime anymore.”
Yogi Berra
The FOMC did nothing with rates, but remarked that in their judgement the growth in the economy has changed from ‘moderate’ to ‘solid.’ The market is looking for a rate increase at the December meeting.
I am solidly willing to speculate that the Fed will flip their judgement faster than a flapjack in a NJ diner in the not too distant future. But let’s see what happens.
The markets are widely pricing in a rate increase from the Bank of England this week. Let’s see if they get it.

This post was published at Jesses Crossroads Cafe on 01 NOVEMBER 2017.

Treasurys Gain, Curve Flattens After Refunding Auction Sizes Remain Unchanged

When previewing today’s FOMC announcement, we said that at least according to some, this morning’s refunding announcement may have a bigger impact on the market as there is less consensus (and more confusion) about what would be unveiled. As JPM analyst Jay Barry told Bloomberg, the quarterly refunding announcement at 8:30am ET Wednesday ‘has the possibility to be a bigger event for markets in the morning than the Fed statement in the afternoon’ as participants are divided on whether the Treasury will announce increases to coupon auction sizes Wednesday, or wait until the 1Q refunding announcement in February:
‘There’s a dispersion of views because of the pivot the Treasury Department has had over last few years,’ specifically toward portfolio metrics and aiming to extend the weighted average maturity of the portfolio. Merely reversing the cuts that have been made to 2Y and 3Y auctions since 2013 wouldn’t serve that objective. ‘If they don’t get announced tomorrow, it’s a muted rally, and if they do, it’s a muted steepening.’
Furthermore, as Bloomberg summarizes, going into today’s announcement, market participants were divided leading into the announcement with most seeing no increase immediately to auction sizes just yet, seeing only bill auction changes for now: Barclays, NatWest, Bank of America, Credit Agricole, Jefferies, Stone & McCarthy Research Associates and Citigroup all saw no change; JPMorgan Chase, among other, looked for small increases across maturities.
Well, moments ago the US Treasury reported the breakdown of the refunding auctions, which led to Treasuries promptly paring some early losses (and leading to the predicted muted curve flattening) after the Treasury Department maintained its coupon auction sizes over the next three months, while the refunding statement did not comment on ultra-long issuance.

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

Previewing Today’s Fed Policy Decision

While normally Wednesday’s Fed meeting would be the week’s biggest market-moving event, this time – smack in the middle of the busiest earnings week of the year – it may not even make the top three, buried ahead of the coming news of the next Fed Chair (in which Trump is set to unveil Jerome Powell on Thursday), and the GOP tax bill (which just saw its Wednesday release delayed by one day). One can make the argument that tomorrow’s fully priced in FOMC announcement is also secondary to not only Friday’s jobs report, which may help decide who is right, the Fed’s “dots” or the market, but also to tomorrow’s Treasury refunding announcement.
In fact, the latter is precisely what JPM analyst Jay Barry claimed earlier today, saying the “quarterly refunding announcement at 8:30am ET Wednesday ‘has the possibility to be a bigger event for markets in the morning than the Fed statement in the afternoon’ and since market are ‘priced for a December hike,’ the FOMC meeting isn’t likely to alter expectations in a way that would move the market. Where there is confusion is in the Treasury market, where market participants are divided on whether the Treasury will announce increases to coupon auction sizes Wednesday, or wait until the 1Q refunding announcement in February: ‘There’s a dispersion of views because of the pivot the Treasury Department has had over last few years,’ specifically toward portfolio metrics and aiming to extend the weighted average maturity of the portfolio. Merely reversing the cuts that have been made to 2Y and 3Y auctions since 2013 wouldn’t serve that objective.
‘If they don’t get announced tomorrow, it’s a muted rally, and if they do, it’s a muted steepening, but I think it’s all small because the numbers we’re talking about are only $1 billion month, and because Treasury has been clear in communicating that financing needs are moving higher over the medium term’

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

The Swamp Wins: Trump Expected to Nominate Powell to Replace Yellen

In the end Donald Trump will get what he wanted, a ‘low interest rate person’ who also happened to be a ‘Republican.’ Jerome Powell is expected to replace Janet Yellen in an announcement later this week. If so, this means Trump will ensure that, while the stationary at the Eccles Building will change, the monetary policy guiding it likely will not.
The fact that, in naming Powell, Trump is picking an Obama-appointed Fed Governor for his most important nominations is itself quite fitting. While we have long known that bad monetary policy is bipartisan, Powell’s nomination serves as a particularly useful illustration of how little has changed in Washington since the Bush Administration.
Of course, just as Trump received his loudest applause from Washington for doing his best impersonation of his two predecessors, the President is already being praised for making a ‘grown up’ decision when it comes to the Fed. While his awareness optics likely prevented him from ever truly considering reappointing Janet Yellen – – the preferred choice of the DC and NY – Powell’s nomination ensures that Trump’s scathing criticism of the monetary orthodox has been predictably discarded alongside a number of his most exciting campaign promises.
Now we will see how else Trump squanders his historic opportunity to rearrange the Fed. The administration has signaled that its plans to form a policy consensus with its remaining Fed choices – as opposed to opening FOMC meetings into some truly spirited debate.

This post was published at Ludwig von Mises Institute on October 31, 2017.

US Futures Rebound After Disappointing Chinese, European Data

Yesterday’s sharp Chinese selloff is now a distant memory after the BTFDers emerged, and this morning U. S. equity futures are once again levitating as the FOMC begins its two-day policy meeting, following an uneventful BOJ announcement on Tuesday morning which left all QE parameters unchanged. Asian stocks traded mixed steady while European shares climb.
The key event overnight was the BOJ meeting, in which the central bank maintained QQE with Yield Curve Control and kept NIRP unchanged at -0.1% as expected. The decision to keep QQE with YCC was made by 8-1 vote, with Kataoka the sole dissenter again who suggested the BoJ needs to buy JGBs so that 15yr yield stays below 0.2%, while Kataoka also commented that the BoJ should ease if domestic factors lead to delays in reaching the inflation target. In terms of changes to its outlook forecasts, the BoJ raised FY 17/18 Real GDP growth forecast to 1.9% from 1.8%, while it cut Core CPI forecasts to 0.8% from 1.1% for FY 17/18 and to 1.4% from 1.5% for FY 18/19
Asian shares rose in afternoon trading, with the MSCI Asia Pacific Index gaining 0.1 percent to 168.29 and ignoring the overnight miss across the board in Chinese PMIs…

This post was published at Zero Hedge on Oct 31, 2017.

Asian Metals Market Update: October-30-2017

Traders will try to guess the pace of interest rate hikes next year through the FOMC meet and US October NFP this week. The December interest rate hike has already been factored in by the markets. I do not think that change in Federal Reserve chairman will alter the interest rate hike strategy for next year. There is no central bank chief in the world who can do a Volcker on interest rates and the economy. All central bank chiefs like bubbles to be formed. I do not expect more than four interest rate hikes by the Federal Reserve in the next fifteen months.
Asian demand for gold and silver will be on the higher side.

This post was published at GoldSeek on 30 October 2017.

The Big Macro Play Ahead

At NFTRH, we are about major macro turning points above all else. Of course, it is often years between these turning points or points of significant change so we are also about the here and now, and managing the trends, Old Turkey style.*
Since we are all learning all the time, I have no problem admitting to you that while right and bullish on commodities and stocks in 2009, after becoming bullish on the precious metals in Q4 2008, I completely ignored Old Turkey due to my inner biases. The result has been that after taking excellent profits from the precious metals bull, personally, I have greatly under performed the stock market bull despite holding a bullish analytical view for the majority of the post-2012 period.
Undeterred and ever plucky, we move forward. Currently, I play the bullish stock market like millions of other casino patrons, but this is as a trader and portfolio balancer, with the goal always to be in line with the macro backdrop of currency moves (I’ve been very long the US dollar for a few months now) and Treasury/Government bond yields and yield relationships.
This week something happened that has gotten me geeked out like at no other time since Q4 2008, when it was time to put the real precious metals fundamental view (as opposed to commonly accepted gold bug versions) to the test and go all-in. This week, assuming it is confirmed by remaining active through the FOMC next week, we got a short-term signal in Treasury bond yields that starts the clock ticking on a big macro decision point, which may include an end to the stock mania and the beginning of a sustained bull phase in the gold sector, among other things.
But first, we need to understand that the macro moves at an incredibly slow pace and one challenge I have had is to manage what I see clearly out ahead with the extended periods of intact current trend that seem to take forever to change. We as humans (and quants, algos, black boxes, casino patrons and mom & pop) are increasingly encouraged to try to compute massive amounts of information in real time and distill a market view from that at any given time, all at the behest of an overly aggressive financial media that wants to harvest your over exposed, bloodshot eyeballs on a daily, no hourly basis.

This post was published at GoldSeek on 27 October 2017.

Stocks and Precious Metals Charts – FANG’d

“Und der Haifisch, der hat Zhne
und die trgt er im Gesicht
und Macheath, der hat ein Messer
doch das Messer sieht man nicht.”
Berthold Brecht, Die Moritat von Mackie Messer, 1928
The results after the bell last night from the usual big cap tech suspects lit a fire until the Nasdaq 100, as you can see from the chart below.
That is the look of real pain for the big cap tech bears.
There will be an FOMC meeting next week. President Trump has also indicated that he will be naming the next Fed Chair.
And as usual with the beginning of a new month, we will be having a Non-Farm Payrolls Report on Friday November 3.
Have a pleasant weekend.

This post was published at Jesses Crossroads Cafe on 27 OCTOBER 2017.

Asian Metals Market Update: October-26-2017

Traders will start taking positions for next week’s FOMC meet. Everything is factored in traders before the FOMC on interest rate trend and US economic growth. US housing numbers failed to add gains to the US dollar. This makes me believe that short sellers need to be careful in gold and silver. Gold and silver investment demand is seen from Europe. Asian gold investment demand is more or less zilch at the moment. Asians are looking for a price reversal for investment. Technically short term gold and silver are in a neutral zone. I will prefer to call it as a cyclical trend.
Interest rates are not expected to rise in next week’s FOMC meet. Only there will be a reconfirmation of a December interest rate hike. All is well with the US economy as well as the global economy. There are signs of a small crash in global stock markets anytime. This is not happening. The longer it takes for global stock markets to see a short term correction, the longer will be the next big correction. I know all central banks and politicians do not like a correction in stock markets. All the central banks policies are stock market friendly instead of being employment friendly. But central needs to let the stock market correct on its own so that a bubble does not form. The current global circumstances envisages a continued bull run in global stock markets for the next six months to next nine months. The whole worlds stock markets cannot continue to rise endlessly for a long period of time. A few stock markets will burst. Once that starts, gold and bitcoin will zoom. For the first time I have added bitcoin as a safe haven. Bitcoins and crypto currencies will get safe haven status as time progresses.

This post was published at GoldSeek on 26 October 2017.

A Big Decision Is Coming

Fed decision day is coming. Not the Federal Open Market Committee (FOMC) decision (although that one is coming November 1). No, we’re talking about THE decision, which will make the policy decisions at future FOMC meetings all the more riveting for the capital markets.
THE decision we are referring to is going to be made by President Trump and it involves selecting an individual to be the next Chairman of the Federal Reserve Board of Governors.
It is possible that the next person is the current person. Janet Yellen’s term as Fed Chairman ends on February 3, 2018, yet her reappointment is in question.
Soon enough, the president will be providing everyone with an answer as to whether Ms. Yellen will get the opportunity to take another turn as Fed chair or be forced to cede that post to another individual.
THE decision, according to news reports, is expected to be made sometime before the president departs on November 3 for an 11-day trip to Asia and Hawaii.
Other than Ms. Yellen, leading candidates include Fed Governor Jerome Powell, former Fed Governor Kevin Warsh, National Economic Council Director Gary Cohn, and Stanford University economist John Taylor whose eponymous Taylor Rule has been praised and derided through the years as a potential guideline for setting monetary policy.

This post was published at FinancialSense on 10/23/2017.

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.

Asian Metals Market Update: October-12-2017

Gold and silver rose as the FOMC did not say anything new on the economy or interest rate cycle. Low inflation could derail the Federal Reserve interest rate cycle. Physical gold and silver demand will be on the higher side in Asia as well as Europe if prices rise today. I also expect short positions to get converted into long positions if gold and silver rise. There are all of the ingredients for a new gold rally: (a) Extreme geopolitical risk never before seen in decades (b) Global growth hitting peak growth with very high chance of a reversal (c) The US dollar moving towards its last phase of its death (d) Last but not the least, new technologies are using gold and will use gold. Till now gold’s rise was attributed to safe haven status and traditions in Asia. The double whammy for gold bulls is industrial demand.
Higher global interest rate cycle will only slow down the pace of rise of gold and silver and not the rise

This post was published at GoldSeek on 12 October 2017.

FOMC Minutes Show Schizophrenic Fed Fears Low Inflation Is Here To Stay But Push For Another Rate Hike In 2017

The yield curve has collapsed since The Fed’s hawkish September statement (but bank stocks have soared) as rate-hike odds hit 80%and balance sheet normalization is believed to be like watching paint dry. All eyes going into the FOMC Minutes were on just how transitory The Fed believed inflation’s dip was – “many Fed officials concerned low inflation is not transitory,” but schizophrenically “many Fed officials saw another rate hike warranted this year.”
While the dollar was weak on the market’s first skim of the minutes, with algos focusing on the “low inflation not only transitory”, the offset was the noted bizarro preview that “another hike in 2017 is warranted”, which confirms what we suggested one month ago, namely that the Fed is no longer data dependant, but will continue hiking until the Fed regains control over the stock bubble.
Furthermore, while it is clear that the Fed will keep a very close eye on inflation data into the December meeting, it is unclear just how it will be able to do that: as the minutes read: “Participants generally agreed it would be important to monitor inflation developments closely. Several of them noted that interpreting the next few inflation reports would likely be complicated by the temporary run-up in energy costs and in the prices of other items affected by storm-related disruptions and rebuilding.’
The next CPI print is this Friday, and it will be significantly impacted by the Hurricanes, to the upside: will the Fed ignore it or will it focus on this as confirmation of a job well-done and hike aggressively in the coming months?
Additional highlights include:

This post was published at Zero Hedge on Oct 11, 2017.

The Key Things To Look For In Today’s FOMC Minutes

Looking at today’s scheduled release of Minutes from the September FOMC meeting (which at least according to one trader will be the “start of the market changeover process“), RanSquawk reminds us that the Federal Open Market Committee stood pat at the meeting, as expected. The Committee also announced that it would begin to shrink the size of its balance sheet in October, as expected, with the process falling in line with a previously disclosed detailed plan. Additionally, the summary of economic projections saw the FOMC trim its “longer run” Federal Funds target rate expectations, while the nearer-term core PCE projections were also trimmed, and GDP estimates were raised.
With that in mind, here is what Wall Street expects from the minutes to be released at 2pm ET today, courtesy of RanSquawk.
RBC suggests that the ‘debate surrounding the drop back in core inflation this year was particularly lively. The bounce-back in CPI inflation appears to have convinced the centrists that the earlier weakness was partly due to transitory factors, whereas the doves are still worried about potential structural factors or lingering cyclical slack.’ This was reflected by the fact that 12 of 16 officials that submitted projections still anticipated at least one more rate hike this year.
In the press conference that followed the decision Fed Chair Janet Yellen noted that ‘low inflation this year, despite a substantial improvement in labour market conditions, created uncertainty for monetary policymakers.’ Although she did note that low inflation may be ‘transitory’ and as a result it does not negate the need for gradual policy tightening.

This post was published at Zero Hedge on Oct 11, 2017.