Rates ‘Liftoff’ Getting Closer, Goldman Warns

Recent comments from FOMC participants on the forward guidance and the appropriate timing of the first hike of the fed funds rate suggest, Goldman warns, a greater clustering of FOMC participants’ views around a mid-2015 ‘liftoff’ in rates. Similarly, private sector forecasts for the first hike are becoming more centered on mid-2015 rather than August to September.
Via Goldman Sachs,
In today’s note, we review recent comments from FOMC participants on the forward guidance and the appropriate timing of the first hike of the funds rate in advance of next week’s September meeting.
With respect to the forward guidance, both Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren expressed discomfort with the FOMC’s current calendar guidance last week. President Mester expressed concern with the FOMC statement’s guidance “that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends,” which Philadelphia Fed President Charles Plosser dissented against at the July meeting. She argued that the forward guidance should instead be calibrated to distance from the Fed’s goals and the speed at which progress is being achieved. President Rosengren likewise argued that as the economy approaches full employment, the Fed should stop providing calendar guidance.

This post was published at Zero Hedge on 09/12/2014.

Stocks Slump As Hawkish Fed Fears Send 10Y Yields Back Over 2.60%

It appears the upwards revisions for retail sales and not missing expectations for the headline data is thegood news that is bad news for markets. With just a few days until the FOMC, it seems market perceptions of potential fed hawkishness (no good excuses recently not to be) is weighing on bonds and stocks. Treasury yields are accelerating higher (10Y above 2.60% for first time since July) tracking oddly perfectly with USDJPY and stocks, having entirely decoupled from JPY, are tanking on the rising rates/Fed hawkishness concerns. Of course, it’s Friday so anything goes before we close.

This post was published at Zero Hedge on 09/12/2014.

BofA Warns “Risk Of Selloff” After September’s FOMC

While BofAML’s Michael Hanson expects Yellen’s overall tone to remain dovish, market perception will be key. The combination of changes to the forward guidance language, upward drift of the dots, and any comments seen as potentially hawkish, could lead to a selloff…
Via BofAML,
Risk of a hawkish read
The September FOMC meeting may be the most anticipated in nearly a year. We expect no fundamental changes in Fed policy, despite revising the statement to clarify policy data dependence and some upward drift in the dots. The FOMC should taper by another $10bn as well. Fed Chair Janet Yellen’s press conference will set the tone for the market reaction. While we anticipate she will continue to support a patient and gradual normalization process, the risk is that markets may sell off on the perception of a less dovish Fed.

This post was published at Zero Hedge on 09/12/2014.

Paul Volcker: Ultimate Villain

Few historical figures of our recent era have been (falsely) lionized in a more egregious manner than the infamous Paul Volcker. According to the economic mythology written by our Revisionists (i.e. our ‘history’); Volcker almost single-handedly ‘rescued’ the U. S. economy – and thus the entire Western bloc – with the ultra-extreme monetary policies for which he is credited as the architect at the end of the 1970′s.
During 1979 and 1980 the FOMC [Federal Open Market Committee], under Volcker’s leadership, sought to reign in [sic] double-digit inflation by setting strict money supply growth targets… The result of the switch in policy was a substantial rise in interest rates, with the prime rate peaking at 21.5 percent in December 1980.
The reality was that Paul Volcker was a monetary berserker. The task assigned to him by his Masters (the Old World Order) was not to ‘save’ our economies – but to destroy them. In a recent commentary; Darryl Schoon identifies what Paul Volcker really represented:
In August 1971, at the urging of Paul Volcker, then Under-Secretary of the Treasury, President Nixon ended the convertibility of the dollar to gold; and for the first time in history gold was no longer money…
Paul Volcker took full responsibility for triggering capitalism’s end game. In a 2013 interview, Volcker explained his role in that consequential act with more than a modicum of pride: ‘I certainly was a major proponent of suspending gold convertibility, in fact the principal planner.’ [emphasis mine] As all sophisticated readers understand; it was the assassination of the gold standard (by Nixon/Volcker) which instigated the runaway inflation of the 1970′s – as all of our currencies were no longer ‘backed’ (i.e. anchored) by any hard asset. Thus even if one actually believed the mythological account of Volcker’s exploits as written by the Revisionists; the best that could be said of this bankers’ stooge was that he was trying to fix a problem which he created.

This post was published at BullionBullsCanada on 10 September 2014.

Ira Epstein’s Gold Report

For a number of months I’ve been telling you that the next catalyst for gold was the combination of a rising US Dollar and rising US interest rates. It’s a fate de complete concerning the rising Dollar against most world currencies. As for US interest rates, very quietly if you’re not watching the markets as I do, they’re slowing beginning to rise. Today there was talk about a report published by the San Francisco Federal Reserve saying that rates will rise sooner than expected due to improved US economic data. A clue if that’s correct will come when the Federal Reserve meets at the next FOMC meeting and changes the wording concerning interest rates staying low for a long period of time.
As you already know the Ukrainian situation and threats of increased sanctions by the US and Europe has done nothing to support gold prices. If anything, gold has plunged to new break lows from this year’s high and looks like last year’s low near $1180 might be challenged.
The next event that might impact gold is the vote in Scotland for independence from the United Kingdom. The vote’s outcome is too close to call according to the latest Scottish polls. All of England’s bigwigs began touring Scotland yesterday trying to convince the Scots to stay within the UK, with the exception of Queen Elizabeth. If the outcome of the vote is yes, to breakaway, that will act as a catalyst for Catalonia to call for a vote for independence from Spain.
What this might do is cause gold to rally as a yes vote not only would not be good for England but it would have ramification in Spain, a Eurozone member. The Eurocurrency is probably headed into the mid 120′s as it is. A yes vote for Scottish independence might be the trigger for the low 120′s in the Euro, which would propel the Dollar even higher.

This post was published at GoldSeek on 11 September 2014.

One Bank Has Had Enough: FBN Says “Time To Turn The Boat Around” Switching To Bearish Outlook, 1870 Target

As someone who steadfastly held onto a bullish outlook, I desperately hoped that volatility would remain contained as the various sentiment metrics that I track, such as TICK readings and open interest in the futures, pushed deeper into overbought territory. Trading ranges crept higher last week and have failed to narrow. Although the amount of skittishness is not excessive, it has moved to dangerous grounds to push many of those investors who have feasted on dips over the past five years to the sidelines. Consequently, I am officially switching to an intermediate term bearish outlook this morning.
I assess the fundamental environment as neutral. While extremely transparent monetary policy and estimated robust earnings growth are unambiguously favorable, the forward multiple on the S&P 500 still resides within spitting distance of its upper bound since 1990 save the era of the Dot Com Bubble. Hence, stocks bumped into a ceiling once the blue chip index began flirting with 2,000 as companies have little room for error when announcing their results.
Some macro data points have exhibited definitive signs that the economy has accelerated. However, weakness overseas and a disappointing miss of consensus by the Jobs Report throws into question the optimistic assumptions about the global recovery. Moreover, a relentless rally in the Dollar will crimp profits for multinational corporations. The strength in the Greenback is starting to garner attention from traders. With the Fed ambling toward a path of restrictive measures, this trend in the F/X markets is secular in nature. Nevertheless, the FOMC will almost assuredly delay any decision to pare its balance sheet passively via a cessation of the reinvestment of the proceeds of maturing assets until mid-2015 at the earliest such that any retracement that does arise will be cyclical in nature to offer a fortuitous buying opportunity at its terminus.

This post was published at Zero Hedge on 09/10/2014.

What Mario Draghi Really Did

New ECB actions were specifically intended to reap benefits through Euro currency devaluation. To achieve this aim, Draghi announced cuts in interest rates as well as administering Euro ‘printing’ through balance sheet expansion (1,000bln or so). The ECB has had recent success as the EUR/USD dropped over 1.5% today and has fallen 5% since July.
A weaker currency is desirable during periods of recessions and subdued inflation. Doing so, however, is not always seamless or the most ideal policy. Many global central banks, for instance, needed to follow the Fed’s lead in cutting rates after the 2008 crisis or risked having an undesirable appreciation of their home currency. Tensions can periodically arise, because two countries cannot become ‘more competitive’ at the same time (‘a race to the bottom’). Clearly, a weaker currency in one country means a stronger currency in another.
There are times, however, when currency movements are mutually beneficial. Against the USD, Draghi is maximizing his efforts to weaken the Euro by trying to utilize ideal timing; expanding the ECB balance sheet at precisely the same time that the Fed’s is flat lining. The widening of interest rate differentials also helps. The FOMC likely welcomes today’s actions. Ideally, Draghi would have also wanted a Quid Quo Pro with Italy and France regarding economic reform; this sounds good in theory, but it is not how politics work.
Despite Draghi’s vacant pleas for fiscal ‘arrows’, he had to ‘do his part’, particularly after backing himself into a corner after his Jackson Hole speech. Nonetheless, ECB actions surpassed expectations today. However, this probably means that the bazooka of sovereign QE is off the table for a while.

This post was published at Zero Hedge on 09/04/2014.

Citi Warns Every FX Trade Is The Same Carry Trade Now

In Citi’s Steven Englander’s latest note, he notes that every major FX trade in place right now is a carry trade in one form or another, differing only in their scope and in the risk they entail. This has 5 significant implications…
Via Citi,
This note argues that every major FX trade in place right now is a carry trade in one form or another, differing only in their scope and in the risk they entail. Consider the following trades that encompass the vast majority of FX trades in place:
1) In Asia, long CNH, short USD
2) In G3, long USD, short EUR and JPY
3) In G10 long AUD and NZD, short G3
4) Globally, long EM, short G3
In the short term, we think 2) remains the most robust because acutely disappointing economic outcomes will likely induce ECB and BoJ action. If anything, FX moves are lagging moves in vol-adjusted carry. Fear of more aggressive Fed tightening is the likely driver of higher volatility but this would push spreads further in favor of the USD, offsetting some of the impact of higher volatility. Hence, these carry trades are not as vulnerable as 3) or 4) to Fed-induced volatility. However, we saw earlier this year that long USD against EUR and JPY is sensitive to generalized position unwinds, at least temporarily.
On a 2-4 month horizon 3) and 4) are the most vulnerable because we expect investors to become much less certain that the Fed pricing pace will be as shallow as the market now expects (link), and they would be hit doubly by any backing up of volatility. We look to payrolls and FOMC this week and next as potential triggers for an unwind of these trades, but we think there will be more sensitivity once QE is ended and the unemployment rate falls below 6% — most likely in early November.

This post was published at Zero Hedge on 09/03/2014.

US 10-Year Treasury Cheapest in G7, Yield Spread Near Record High

Saxo Bank chief economist Steen Jakobsen point out US 10-Year treasury is the cheapest in G7 with the spread near a record high. Spread of US 10-Year Note Yield vs. G7 Average Yield

Via email Steen says …
US 10 Year cheapest in G-7! This is one of the reasons for my change to US fixed income and short US Dollar.
US 10 Year spread vs. G-7 equivalent now at 79 bps – close to all time high. As the chart indicates there is considerable mean-reversion in this data series.
The market is long, very long the US dollar into ECB and FOMC meetings where consensus quietly is looking for 10 bps cut by the ECB, maybe even announcement of “private” ABS [Asset Backed Securities]. In the US the regional banks want the discount rate normalized, but reality is close by.

This post was published at Global Economic Analysis on August 27, 2014.

Meet The LMCI – -The Fed’s New Goal-Seeked, 19-Factor Labor Market Regression Rigmarole

In the rush to make QE’s taper and the follow-on ‘forward guidance’ appear more data-related than of due concerns about the structural (and ultimately philosophical) flaws in the economy, the regressionists of the Federal Reserve have come up with more regressions. The problem was always Ben Bernanke’s rather careless benchmarking to the unemployment rate. In fact, based on nothing more than prior regressions the Fed never expected the rate to drop so quickly.
Given that the denominator was the driving force in that forecast error, the Fed had to scramble to explain itself and its almost immediate violation of what looked like an advertised return to a ‘rules regime.’ When even first mentioning taper in May 2013, Bernanke was careful to allude to the crude deconstruction of the official unemployment as anything but definitive about the state of employment and recovery.
So at Jackson Hole last week, Bernanke’s successor introduced the unemployment rate’s successor in the monetary policy framework. Janet Yellen’s speech directly addressed the inconsistency:
As the recovery progresses, assessments of the degree of remaining slack in the labor market need to become more nuanced because of considerable uncertainty about the level of employment consistent with the Federal Reserve’s dual mandate. Indeed, in its 2012 statement on longer-run goals and monetary policy strategy, the FOMC explicitly recognized that factors determining maximum employment ‘may change over time and may not be directly measurable,’ and that assessments of the level of maximum employment ‘are necessarily uncertain and subject to revision.’
Economists inside the Fed (remember, these are statisticians far more than anything resembling experts on the economy) have developed a factor model to determine what Yellen noted above – supposedly they will derive’nuance’ solely from correlations.

This post was published at David Stockmans Contra Corner on August 26, 2014.

What Yellen’s Speech Means For Gold And Bitcoin

Ms. Yellen clarified the Federal Reserve’s most recent FOMC meeting minutes, as it did not divulge into the finer details underlying their decisions to keep their policy rate at 0-0.25%. They are maintaining accommodative monetary policy because the labor conditions are so nuanced, they cannot use the simple unemployment figure and inflation itself as the deciding point to raise the fed funds rate.
While a full fledged discussion of her take on labor conditions would be too onerous for this context- I will summarize. One of the primary issues is the labor force participation rate: its dynamics have changed since the great recession of 2008, such that more people are removing themselves from the available labor pool for a variety of reasons. Some are taking disabilities, others are going back to school (become more competitive to get a job), and many are retiring early(if you can’t get a job now, why not just start living off of government payments and your 401K); much of this is caused by the prevailing conditions following the recession, and will likely abate once the economy turns around substantially.
Another major issue lies in what we consider ‘employed’: after 2008, we have been continuing to count people who work part-time jobs, but who are really seeking full-time employment, as employed. In reality, someone working only a part-time job, or two of them, is not in the same boat as a person will a full-time job for reasons like reliable hours, job security, and benefits. When you have a disproportionate amount of people in the former condition, making judgments about the economy can be spurious at best.

This post was published at GoldSilverWorlds on August 26, 2014.

‘Monetary Policy’ Gone Berserk

One issue the financial media is willing to ignore, but has been foremost in my mind for many years is the utter recklessness of the Federal Reserve’s ‘monetary policy.’ Below is a chart the public will never see on CNBC, or anywhere else, but I believe is vital to understand the threat that Washington and Wall Street currently present to the world at large. You’re looking at what academic-quack economists have done to the global reserve currency to save the hides of the banking elite, who for decades have acted as if Wall Street was their private fiefdom.

The FOMC calls this ‘monetary policy’ but for me something completely different comes to mind: legalized counterfeiting. Unfortunately, for years the baby-boomer generation (and their children; the Gen-Xers) have sought pleasure in immediate consumption. It’s hard to blamethem since the Fed destroyed their incentive to save by lowering the Fed Funds Rate to nearly 0% in December 2008. This rate can never be raised (despite the Fed rhetoric) without blowing up the budget deficit, sinking the economy in the process. For decades American’s, (and just about everyone else) have taken full advantage of the debt generously provided by the banking system to leverage their income, and now far too many people are hooked on cheap credit and just one paycheck away from insolvency, as are their employers.

This post was published at Gold-Eagle on August 24, 2014

Ponzi Economics

Casey Research provides a lucid interview with David Stockman, former Reagan administration budget director and author of The Triumph of Crony Capitalism.  Stockman explains that in today’s economy, companies are reporting profits today that are “based on a debt-bloated economy that isn’t sustainable.”  Furthermore, “This market isn’t real. … the 2% on the 10 year, 90 basis points on the 5 year, 30 basis points on the 1 year – those are medicated, pegged rates created by the Fed, and which fast money traders trade against as long as they’re confident the Fed can keep the whole market rigged. Nobody in their right mind wants to own the ten year bond at a 2% interest rate, but they’re doing it because they can borrow overnight money for free … put it on Repo, collect 190 basis points on the spread and laugh all the way to the bank.”

“The Fed has destroyed the money market, it’s destroyed the capital markets.  They have something you can see on a screen called an interest rate – that isn’t a market price of money…. that is an administered price that the Fed has set and that every trader watches by the minute to make sure that he’s still in a positive spread. … You can’t have capitalism if the capital markets are dead, if the capital markets are simply a branch office (a branch casino) of the central bank and that’s essentially what we have today.”

The 12 members of the FOMC are the western world’s Monetary Politbureau – “monetary central planners who are attempting to use the crude instrument of interest rate pegging and yield curve manipulation and essentially buying debt that no one else would buy in order to keep this whole system afloat. It’s Ponzi Economics!!