• Tag Archives Interest Rates
  • Are We There Yet? Here Is Howard Marks’ “Bubble Checklist”

    As first reported yesterday, in his latest nearly-30 page memo, a distinctly less optimistic Howard Marks – hardly known for his extreme positions – “sounded the alarm” on markets by laying out a plethora of reasons why investors should be turning far more cautious on the risk, and summarizing his current view on the investing environment with the following 4 bullet points:
    The uncertainties are unusual in terms of number, scale and insolubility in areas including secular economic growth; the impact of central banks; interest rates and inflation; political dysfunction; geopolitical trouble spots; and the long-term impact of technology. In the vast majority of asset classes, prospective returns are just about the lowest they’ve ever been. Asset prices are high across the board. Almost nothing can be bought below its intrinsic value, and there are few bargains. In general the best we can do is look for things that are less over-priced than others. Pro-risk behavior is commonplace, as the majority of investors embrace increased risk as the route to the returns they want or need. Among the items on Marks’ of the items, the one we focused on yesterday, had to do with Marks recurring warnings on ETFs and passive investing. To be sure, he also covered pretty much everything else from equities, to the record low VIX, to FAANG stocks, to record tight credit spreads, to EM debt, to PE and even Bitcoin.

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

  • FOMC Preview: Just 2 Things To Watch For In Today’s Fed Statement

    Unlike the June Fed meeting, the FOMC announcement at 2pm today is expected to be an uneventful affair: as DB’s Jim Reid pointed out earlier, “given its late July and given the Fed will likely announce an end to balance sheet reinvestment in September (starting from October), this could be a relatively dull meeting.”
    Big picture: the FOMC is expected to keep interest rates unchanged at this meeting at 1.00%-1.25%, after hiking last month. According to RanSquawk, all analysts surveyed by Reuters expect the Fed to keep rates unchanged. The market agrees with them: Fed Funds currently price in a 0% chance of a rate hike today.
    And, as BofA notes, the market is clearly not expecting any Fed balance sheet reduction today either:

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

  • The Fed Delays Raising Rates As It Waits Patiently For The Economy To Collapse – Episode 1342a

    The following video was published by X22Report on Jul 26, 2017
    DR Horton posts slowest growth, this has to do with the housing market losing steam, not because of lumber prices or the weather. The Fed is holding steady on interest rates, they say they are going to unwind their balance sheet. They are waiting patiently for the economy to come crashing down, if rate increase didn’t trigger it, they will raise rates one more time. The USD is crashing as the Fed raise rates the dollar collapses further.

  • Outside the Box Hoisington Quarterly Review and Outlook, Second Quarter 2017

    I have often written about the Fed’s abysmal track record in managing the economy. In today’s Outside the Box, Lacy Hunt and Van Hoisington of Hoisington Investment Management give us an in-depth tutorial on the reasons for the Fed’s consistently poor record.
    They start by considering the Fed’s ‘dual mandate,’ which sets ‘the goals of maximum employment, stable prices and moderate long-term interest rates.’ (And yes, that is actually three goals, not two.) But a problem arises, the authors note, ‘because considerable time elapses between the implementation of the monetary actions designed to follow the mandate and when the impact of those actions take effect on broader business conditions.’ The time lag can easily be three years or longer, with the result that policy changes often end up being pro- rather than countercyclical. To make matters even worse, ‘the economic risks from adherence to this dual mandate are now much greater than historically due to the economy’s extreme over-indebtedness, poor demographics and a fragile global economy.’
    In the real world, the dual mandate can break down. Now, the Fed is tightening over concerns about wage pressure from a low level of unemployment, yet inflation has run consistently below the Fed’s 2% target for the past year or more. Enter the Phillips curve.

    This post was published at Mauldin Economics on JULY 26, 2017.

  • The Two Charts That Dictate the Future of the Economy

    If you study these charts closely, you can only conclude that the US economy is doomed to secular stagnation and never-ending recession.
    The stock market, bond yields and statistical measures of the economy can be gamed, manipulated and massaged by authorities, but the real economy cannot. This is espcially true for the core drivers of the economy, real (adjusted for inflation) household income and real disposable household income, i.e. the real income remaining after debt service (interest and principal), rent, healthcare co-payments and insurance and other essential living expenses.
    If you want to predict the future of the U. S. economy, look at real household income. If real income is stagnant or declining, households cannot afford to take on more debt or pay for additional consumption.
    The Masters of the Economy have replaced the income lost to inflation and economic stagnation with debt for the past 17 years. They’ve managed to do so by lowering interest rates (and thus lowering interest payments), enabling households to borrow more (and thus buy more) with the same monthly debt payments.
    But this financial shuck and jive eventually runs out of rope: eventually, the rising cost of living soaks up so much of the household income that the household can not legitimately afford additional debt, even at near-zero interest rates.
    For this reason, real household income will dictate the future of the economy. If household incomes continue stagnating or declining, widespread advances in prosperity are impossible.

    This post was published at Charles Hugh Smith on Tuesday, July 25, 2017.

  • Last Chance for the Dollar to Rally

    I think we need to focus on what is happening to the dollar. The intermediate cycle is now 63 weeks long. Clearly that isn’t normal. I’ve maintained for several years that the end game was going to play out in the currency markets. There has to be consequences to printing trillions and trillions of currency units , and leaving interest rates at 0 for 8 years. I don’t think the consequences are going to be deflation. I think the end game will be inflation, just like it was in the 70’s, and just like it was in 2007 and 2008.
    It’s taken a while to manifest as other countries have jumped into the game and turned on their printing presses as well, so the collapse in the currency I’ve been looking for has taken quite a while to unfold. The first leg down ended in 2008.
    The dollar rally out of the 2014 3 YCL has fooled everyone into thinking the dollar is strong and the euro is going to collapse. So everyone is now on the wrong side of the market. That’s pretty much how every bear market starts with everyone on the wrong side of the boat.

    This post was published at GoldSeek on Sunday, 23 July 2017.

  • California homeowners are getting older and taking homes into the grave. Property turnover has fallen substantially since 2000.

    California homeowners are entering into their geriatric phase. The share of homes owned by older Californians has grown substantially since 2000. The Taco Tuesday baby boomer crowd is dominating the ranks of homeowners. This trend is new and because of key items like Prop 13 and Millennials living with parents, very few homes are turning over. The first time home buyer in California is simply getting older and older contrary to the house humping cheerleaders talking about the days of ‘sucking it up’ and having to save to buy a home. Of course many were not contending with hot global money, limited inventory, artificially low interest rates, and a delusion of crap shack grandeur. Now some yell from their beer belly exposed guts and a savory carne asada taco in the other hand that people should move out if they don’t like it here (and many are). The economics of course are more subtle.
    California old folks home
    The old dominate the homeownership ranks in California. Fewer properties are turning over because many older homeowners are now having their grown adult children moving back in. Which makes sense since many bought because they were itching to pop out offspring. Now their offspring is itching to pop out offspring but many are hesitant to do that when a ‘starter home’ is $700,000 and many times is in an area with bad schools.

    This post was published at Doctor Housing Bubble on July 22nd, 2017.

  • David Stockman Warns The Market’s “Chuck Prince Moment” Has Arrived… “Only More Dangerous”

    On July 10, 2007 former Citigroup CEO Chuck Prince famously said what might be termed the ‘speculator’s creed’ for the current era of Bubble Finance. Prince was then canned within four months but as of that day his minions were still slamming the’buy’ key good and hard:
    ‘When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,’ he said in an interview with the FT in Japan.
    We are at that moment again. Only this time the danger of a thundering crash is far greater. That’s because the current blow-off top comes after nine years of even more central bank policy than Greenspan’s credit and housing bubble.
    The Fed and its crew of traveling central banks around the world have gutted honest price discovery entirely. They have turned global financial markets into outright gambling dens of unchecked speculation.
    Central bank policies of massive quantitative easing (QE) and zero interest rates (ZIRP) have been sugar-coated in rhetoric about ‘stimulus’, ‘accommodation’ and guiding economies toward optimal levels of inflation and full-employment.

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

  • Doug Noland: New Age Mandate

    This is a syndicated repost courtesy of Credit Bubble Bulletin . To view original, click here. Reposted with permission.
    A journalist’s question during Mario Draghi’s ECB post-meeting press conference: ‘… There was a sharp reaction from financial markets to your Sintra speech. You must have looked at the Fed experience of 2013. Is there any concern in the Governing Council that the so-called tantrum or a similar reaction can happen in the eurozone when you start discussing changes in your stance?’
    Draghi: ‘I won’t comment on market reactions, but let me give you the bottom line of our exchanges: basically, inflation is not where we want it to be, and where it should be. We are still confident that it will gradually get there, but it isn’t there yet, and that’s why the Governing Council reiterated the forward guidance, the asset purchase programme, the interest rates and all this package of monetary accommodation; and reiterated that the present very substantial monetary accommodation is still necessary. Let me read the introductory statement: ‘Therefore a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to gradually build up and support headline inflation developments in the medium term.’
    Draghi continued: ‘But let me just make clear one thing: after a long time, we are finally experiencing a robust recovery, where we only have to wait for wages and prices to move towards our objective. Now, the last thing that the Governing Council may want is actually an unwanted tightening of the financing conditions that either slows down this process or may even jeopardise it; and that’s why we retain the second bias, or let’s call it, reaction function. ‘If the outlook becomes less favourable or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, we stand ready to increase our asset purchase programme in terms of size and/or duration.’ And I think the Governing Council has given enough evidence that when flexibility is needed to achieve its objectives, it has been very able to find all that was needed. So that’s why we keep this bias.’
    This exchange gets to the heart of a momentous issue. Recall the swift market reaction to ‘hawkish’ Draghi’s comments from Sintra (June 26-28 ECB Forum on Central Banking) and, soon after, ECB officials expressing that markets had misinterpreted his remarks. Markets this week were awaiting ‘dovish’ clarification. Draghi soundly beat expectations.

    This post was published at Wall Street Examiner on July 22, 2017.

  • Dollar Slide Continues

    The US dollar lost ground against all the major currencies, save sterling, over the past week, and also fell against most emerging market currencies. There is little from a technical or fundamental perspective, including next week’s FOMC meeting, that suggests a reversal is at hand.
    Investors accept that the US economy rebounded in Q2 from another below average Q1 performance. They accept that the jobs market is still healthy. What they doubt is that the Federal Reserve will raise interest rates in the face of price pressures that have moderated. The fiscal course of the Trump Administration is also doubted. Not to put too fine a point on it, but the mess over health care, has left investors with a bad taste of what the legislative meal will look like.
    At the same time the trajectory of the US policy mix moves away from the very supportive tighter monetary/looser fiscal policy, negative considerations for Europe have been lifted or substantially reduced. Looking at the charts, the turn came in late April when it became clear the National Front challenge in was going to be repulsed. The political threat in Europe dissipated. The regional economy is enjoying the broadest and strongest expansion in a decade. Given the improvement in the balance of risk, the ECB began adjusting its communication to help prepare the markets for an adjustment in the accommodation. This spurred rise in market rates.
    The Dollar Index fell for a second consecutive week. It has fallen in six of the past seven sessions. The week’s 1.25% decline took it blow 94.00, its lowest level since June 2016. This area is important from a technical perspective, and a convincing break could open the door to another 3-5% decline. Daily and weekly technical indicators are over-extended as one would imagine, but only the Slow Stochastics have stopped falling. Given the pace and extent of the Dollar Index slide, and the positioning, we want to be sensitive to any reversal pattern in the coming sessions, but our point is that there is not much nearby chart-based support.

    This post was published at Zero Hedge on Jul 21, 2017.

  • How can the Fed possibly unwind QE?

    There are currently two important items on the Fed’s wish list. The first is to restore interest rates to more normal levels, and the second is to unwind the Fed’s balance sheet, which has expanded since the great financial crisis, principally through quantitative easing (QE). Is this not just common sense? Maybe. It is one thing to wish, another to achieve. The Fed has demonstrated only one skill, and that is to ensure the quantity of money continually expands, yet they are now saying they will attempt to achieve the opposite, at least with base money, while increasing interest rates.
    Both these aims appear reasonable if they can be accomplished, but the game is given away by the objective. It is the desire to return the Fed’s interest rate policies and balance sheet towards where they were before the last financial crisis, because the Fed wants to be prepared for the next one. Essentially, the Fed is admitting that its monetary policies are not guaranteed to work, and despite all the PhDs employed in the federal system, central bank policy remains stuck in a blind alley. Fed does not want to institute a normalised balance sheet just for the sake of it.

    This post was published at GoldMoney on July 20, 2017.

  • The Elephant in the Room: Debt

    It’s the elephant in the room; the guest no one wants to talk to – debt! Total global debt is estimated to be about $217 trillion and some believe it could be as high as $230 trillion. In 2008, when the global financial system almost collapsed global debt stood at roughly $142 trillion. The growth since then has been astounding. Instead of the world de-leveraging, the world has instead leveraged up. While global debt has been growing at about 5% annually, global nominal GDP has been averaging only about 3% annually (all measured in US$). World debt to GDP is estimated at about 325% (that is all debt – governments, corporations, individuals). In some countries such as the United Kingdom, it exceeds 600%. It has taken upwards of $4 in new debt to purchase $1 of GDP since the 2008 financial crisis. Many have studied and reported on the massive growth of debt including McKinsey & Company http://www.mickinsey.com, the International Monetary Fund (IMF) http://www.imf.org, and the World Bank http://www.worldbank.org.
    So how did we get here? The 2008 financial crisis threatened to bring down the entire global financial structure. The authorities (central banks) responded in probably the only way they could. They effectively bailed out the system by lowering interest rates to zero (or lower), flooding the system with money, and bailing out the financial system (with taxpayers’ money).
    It was during this period that saw the monetary base in the US and the Federal Reserve’s balance sheet explode from $800 billion to over $4 trillion in a matter of a few years. They flooded the system with money through a process known as quantitative easing (QE). All central banks especially the Fed, the BOJ and the ECB and the Treasuries of the respective countries did the same. It was the biggest bailout in history. As an example, the US national debt exploded from $10.4 trillion in 2008 to $19.9 trillion today. It wasn’t just the US though as the entire world went on a debt binge, thanks primarily to low interest rates that persist today.

    This post was published at GoldSeek on Friday, 21 July 2017.

  • Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing

    – Gold hedge against currency devaluation – cost of fuel, food, housing
    – True inflation figures reflect impact on household spending
    – Household items climbed by average 964%
    – Pint of beer sees biggest increase in basket of goods – rise of 2464%
    – Bread rises 836%, butter by 1023% and fuel (diesel) up by 1375%
    – Gold rises 2672% and hold’s its value over 40 years
    – Savings eaten away by money creation and negative interest rates
    – Further evidence of gold’s role as inflation hedge and safe haven
    Editor: Mark O’Byrne
    Remember when you were taught about the inflation of the Weimar Republic in Germany at school? More recently I was taught about the inflation of Zimbabwe. In both instances we were given examples of how much the staple food of people cost – the humble loaf of bread.

    This post was published at Gold Core on July 21, 2017.

  • The “Wipeout Scenario”: 250% Losses If VIX Spikes To 20

    How Bad a Damage If Volatility Rises: The Bear Trap of Short Vol ETFs
    As if there was any need for any more threats to financial stability in a world overburdened with debt facing rising interest rates on bubble valuations in both bonds and equities, within an environment dominated by economic policy shifts and political gridlock, there is a potential bear trap right in today’s most fashionable investment products, which risks deflating fast: Short Vol Exchange-Traded Notes and, more broadly, volatility-driven investment vehicles. In this note we will discuss briefly the former. A full analysis and access to our data room is available upon request.
    Years of Central Banks’ hyper-activism, financial repression and regular bail-out of financial assets led to a collapse in volatility, and the ensuing investment mania in volatility-driven strategies: risk parity funds in primis, vol-levers of all types, but also exchange-traded notes directly linked to volatility. Among these, Short Vol ETFs have grown relentlessly, oftentimes including leveraged plays, oftentimes sold to retail, fully or partially un-aware of how quick wipe-out-type risks can materialize on such products, and how close we got to such wipe-out risks. For the purposes of our scenario analysis, we will define a wipe-out risk as one of losing more than 75% of the original investment.
    We find that the total size for vol-linked ETFs, after leverage and Beta-adjusted is almost $40bn.

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

  • Yield Curve Not Suggesting Imminent Market Peak, Recession

    One of the most frequently cited predictors of a recession is when short-term interest rates rise above long-term interest rates. This is referred to as an “inversion of the yield curve” and typically happens when bond investors have a negative outlook on the economy. If you’re not familiar with the basics of the yield curve, please see What Is the Yield Curve Telling Us about the Future? for more background.
    Here is what the Federal Reserve Bank of New York says on their website regarding the Yield Curve as a Leading Indicator:
    The yield curve has predicted essentially every U. S. recession since 1950 with only one “false” signal, which preceded the credit crunch and slowdown in production in 1967. There is also evidence that the predictive relationships exist in other countries, notably Germany, Canada, and the United Kingdom.
    Currently, the yield curve for the US is flattening – and not inverted – so there is no imminent signal that the US economy is facing a recession.
    The big question is timing.

    This post was published at FinancialSense on 07/19/2017.

  • Investors Are Pouring Money Into Silver ETFs

    Silver, known for being a market of extremes, is living up to its reputation this year.
    Prices rallied 17 percent in the first four months of the year, only to reverse and wipe out those gains. Despite the selloff, investors are pouring money into exchange-traded funds, and assets have reached a record 21,211 metric tons, valuing the holdings at $11 billion. At the same time, the picture is bearish in the futures market, where hedge funds now hold the first net-short position in two years.
    Different kinds of investors are driving the opposing trends, according to George Coles, an analyst at research firm Metals Focus Ltd. Large, active hedge funds shorted Comex futures because of the risk of higher U.S. interest rates, driving silver prices lower, he said. ETF buyers tend to be smaller traders that use silver for long-term diversification of their portfolios. They’ll be rewarded for their bullishness as slower U.S. economic growth spurs demand for haven assets, Coles said.
    “This may be a case of the smaller investors versus the big guys,’ Coles said in a phone interview from London. ‘In this case, the smaller guys may be right.’
    He’s predicting that silver prices have probably bottomed and will rebound from current levels. Prices will reach $20.25 an ounce in the next 12 months, an increase of 25 percent from the current value of $16.164.

    This post was published at bloomberg

  • Did the Fed Just Ring a Bell At the Top?

    Very few investors caught on to it, but a few weeks ago the Fed made its single largest announcement in eight years.
    First let me provide some context.
    For eight years now, the Fed has propped up the stock market. In terms of formal monetary policy the Fed has:
    Kept interest rates at ZERO for seven years making money virtually free and forcing investors into stocks and junk bonds in search of yield.
    Engaged in over $3.5 TRILLION in Quantitative Easing or QE, providing an amount of liquidity to the US financial system that is greater than the GDP of Germany.
    In terms of informal monetary policy, the Fed has consistently engaged in verbal intervention any time stocks came in danger of breaking down.
    For eight years, ANY time stocks began to break through a critical level of support a Fed official appeared to issue a statement about future stimulus or maintaining its accommodative monetary policies.

    This post was published at GoldSeek on 19 July 2017.

  • Hedge Funds Are Losing Faith in Precious Metals

    Gold is out of favor with money managers and it’s not the only precious metal facing investor exodus.
    Hedge funds and other large speculators are hitting the exit as they brace for monetary tightening in the U.S. and Western Europe. Money managers are not waiting around for signs that the Federal Reserve may change its rate trajectory, as they turn bearish on precious metals. These charts show the trend in sentiment.
    In the week ended July 11, the net-long position in gold fell to the lowest in 17 months, before the metal posted its first weekly gain in six weeks. The changes came just before government data showed consumer prices were little changed, fueling speculation the Fed may take longer to meet its goal, especially after Chair Janet Yellen said earlier in the week she sees uncertainty over inflation.
    Silver is also losing its luster in the eyes of hedge funds. The position in gold’s cheaper cousin swung to a net-short from a net-long and is the most bearish since August 2015. Investors concerned by the prospect of higher interest rates exited in droves — just as the metal capped its biggest weekly advance in six months on dovish U.S. economic data.
    Money managers pushed their net-short position in platinum — used to curb vehicle emissions — to a record before data showed European car sales slowed in June as Brexit-related concerns weighed on a peaking vehicle market.

    This post was published at bloomberg

  • Preparing for the End Game

    A Potential Road Map for the End of the Current Bull Market & Economic Expansion
    History books refer to the last economic slowdown we experienced, triggered by the 2007-2008 financial crisis, as the Great Recession. Its impacts were so severe – the worst global recession since the Great Depression of the early 1930s – that central banks across the globe responded with an unprecedented emergency stimulus. But that era is now drawing to a close and, with it, the countdown to the next economic recession and bear market in equities has begun.
    Economic, Market Cycles and Monetary Policy
    Central banks raise interest rates when they feel an economy is overheating and they are more concerned about price stability (inflation) than growth. Central banks cut interest rates when their primary concern is growth. A natural question to ask is, ‘How do central banks know when to stop raising rates?’ When something breaks!
    Those who are the most leveraged with the weakest balance sheets are the first casualties when the Federal Reserve begins to raise interest rates and remove liquidity from the financial system. These are the entities Warren Buffet was referring to when he famously said, ‘It’s only when the tide goes out that you learn who has been swimming naked.’
    As the casualties build and those naked run for cover, eventually the increased financing costs and slower economic activity culminate in a recession (in red).

    This post was published at FinancialSense on 07/18/2017.

  • Gold Prices Rise 3rd Day as US Debt Ceiling ‘Blocks Fed Rate Hikes’, Dollar Falls

    Gold prices rose sharply for the third session running in London on Tuesday, gaining as world stock markets fell, commodities rose, and interest rates on major government bonds retreated to new lows for July.
    Silver stalled at $16.14, unchanged from Monday’s jump, while platinum gave back $10 per ounce from yesterday’s spike to 1-month highs at $934.50 per ounce.
    Peaking above $1238, gold priced in US Dollars recovered almost the last of this month’s earlier 3% loss, driven by “technical follow-up buying” after breaking above the “important” 200-day moving average according to a commodities note from German bank Commerzbank.
    “The weak US Dollar is also playing its part – it has depreciated to a 14-month low against the Euro.”
    Looking at US interest rates, “[Last week’s] unexpectedly dovish tone from Fed Chair [Janet Yellen] and weaker than expected CPI [inflation] data raised questions on the Fed’s ability to stay its course,” says a note from Canadian brokerage T. D. Securities.

    This post was published at FinancialSense on 07/18/2017.