• Tag Archives Monetary Policy
  • ‘Low Inflation’ In Not ‘Good’ – It’s Pure Propaganda

    Analysts who advocate a monetary policy that targets ‘low inflation’ are the equivalent of chickens in the barnyard rooting for Colonel Sanders to succeed. This idea that a low level of inflation being good for the economy is beyond moronic.
    The fiat currency money system era was accompanied by the erroneous notion that a general increase in the price of goods and services is ‘inflation.’ But technically this definition is wrong. ‘Inflation’ is the ‘decline in the purchasing power of currency.’ This decline occurs from actions that devalue a currency. Rising prices are the visible evidence of ongoing currency devaluation.
    Currency devaluation occurs when the rate of growth in a country’s money supply exceeds the rate of growth in real wealth output. Simply stated, it’s when the amount of money created exceeds the amount of ‘widgets’ created, where ‘widgets’ is the real wealth output of an economic system.

    This post was published at Investment Research Dynamics on July 26, 2017.


  • World Stock Markets, Gold, Boosted By Dovish FOMC Statement Wed. PM

    (Kitco News) – Global stock markets were mostly firmer overnight in the wake of a U. S. Federal Reserve meeting that produced a statement most of the markets deemed as leaning to the dovish side of U. S. monetary policy. Recent corporate earnings reports have also been mostly upbeat. U. S. stock indexes are pointed toward higher and record high openings when the New York day session begins.
    Gold is posting solid gains Thursday in the wake of the dovish Fed statement that pushed the U. S. dollar index to a 13-month low. Reports overnight said India is moving to make ‘paper’ gold (such as sovereign gold bonds) more attractive to its domestic investors, in order to reduce demand for actual gold bullion.

    This post was published at Wall Street Examiner on July 27, 2017.


  • Markets On Hold Ahead Of FOMC Meeting Conclusion This P.M.

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    (Kitco News) – World stock markets were mostly firmer in subdued trading overnight, as the marketplace awaits today’s FOMC meeting conclusion. U. S. stock indexes are slightly higher just ahead of the New York day session.
    Gold prices are moderately lower today on more profit-taking from the shorter-term futures traders, after recent price gains.
    Traders and investors are awaiting the conclusion of the Federal Reserve’s Open Market Committee meeting (FOMC) that began Tuesday morning and ends early this afternoon with a statement. No changes in U. S. monetary policy are expected. However, the Fed could indicate the timing of reducing its big balance sheet of U. S. securities. The tone of the FOMC statement will also be important for markets. Just recently Federal Reserve Chair Janet Yellen has sounded a more dovish tone on U. S. monetary policy.
    In overnight news, the U. K.’s second-quarter GDP came in at up 0.3% on the quarter and up 1.7%, year-on-year. Those numbers were right in line with market expectations.

    This post was published at Wall Street Examiner on July 26, 2017.


  • World Stock Markets Mixed, Quiet; FOMC Meeting In Spotlight

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    Global equity markets were steady to narrowly mixed in quieter overnight dealings. U. S. stock indexes are pointed toward firmer openings when the New York day session begins. The U. S. indexes are at or near record highs with no early chart clues to suggest they are topping out.
    Gold prices are moderately lower in pre-U. S. session trading, on some normal profit taking from recent gains that saw prices hit a four-week high on Monday.
    Focus of the world marketplace is on the Federal Reserve’s Open Market Committee meeting (FOMC) that begins Tuesday morning and ends early Wednesday afternoon with a statement. No changes in U. S. monetary policy are expected. However, the Fed could indicate the timing of reducing its big balance sheet of U. S. securities. The tone of the FOMC statement will also be important for markets. Just recently Federal Reserve Chair Janet Yellen has sounded a more dovish tone on U. S. monetary policy.
    In overnight news, the closely watched German Ifo business sentiment index rose to a record 116.0 in July, from 115.2 in June. A July reading of 114.9 was forecast.

    This post was published at Wall Street Examiner on July 25, 2017.


  • BoJ Keeps Rates Unchanged, Postpones 2% Inflation Deadline

    The Bank of Japan kept its monetary stimulus program unchanged even as it pushed back the projected timing for reaching 2 percent inflation for a sixth time.
    The downgraded price outlook will raise more questions about the sustainability of the BOJ’s stimulus at time when other major central banks are turning toward normalizing their monetary policy. The European Central Bank, which is said to examine options for winding down quantitative easing, concludes its own governing council meeting later on Thursday.
    By again delaying the timing for hitting its price goal, the BOJ acknowledged the need to continue easing for at least several more years, probably beyond 2020 because of a sales-tax increase scheduled for late 2019, said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG and a former BOJ official.
    “Going forward, there will be even more attention on the sustainability of the stimulus from market participants and lawmakers,” Shirawaka said.
    BOJ Governor Haruhiko Kuroda said it was regrettable the central bank needed to push back its inflation goal again, saying it hadn’t intentionally made its forecasts too optimistic. He noted that central banks in the U.S. and Europe had also overestimated inflation.

    This post was published at bloomberg


  • Leading Indicators Not Suggesting Imminent Market Peak, Recession

    Several skeptics responded to our piece last week looking at the yield curve as a leading indicator (see Yield Curve Not Suggesting Imminent Market Peak, Recession) by saying that the yield curve is no longer reliable because of the Fed’s distortions on the market.
    This was essentially the same view given by Bill Gross in his July newsletter where he wrote: ‘the reliance on historical models in an era of extraordinary monetary policy should suggest caution.’ Gross highlighted the yield curve as a specific example.
    Assuming the yield curve has lost its predictability, what is the message coming from other leading indicators?
    One we cite regularly on our site and podcast is the Conference Board’s US Leading Economic Index (LEI), which has averaged a 6.5 month advance warning prior to recessions since 1965. It is a composite of ten different indicators and, as they write on their website, is ‘designed to signal peaks and troughs in the business cycle.’ It is currently at a 4% annual growth rate (positive growth in green, negative in red) and, in agreement with the yield curve, is not warning of a major market peak or recession in the US (click any chart to enlarge).

    This post was published at FinancialSense on 07/24/2017.


  • Why the Gold Price Could Continue Beyond Today’s 4-Week High

    This is a syndicated repost courtesy of Money Morning – We Make Investing Profitable. To view original, click here. Reposted with permission.
    Over the last week, the gold price has bounced back above the $1,200 threshold. With the metal currently trading at $1,251, it’s set to post a weekly gain of 1.7%. The price of gold’s rally this week to its highest level since June 23 came mostly on the back of comments from Mario Draghi, president of the European Central Bank (ECB). Draghi said during the bank’s policy meeting on Thursday that the ECB had not yet formalized plans to roll back monetary policy stimulus.
    The Bank of Japan (BoJ) also said its inflation expectations were not meeting targets, with the current 1.1% inflation rate below the previous forecast of 1.4%. The BoJ noted that a dovish monetary policy would persist for some time.
    And that echoed what U. S. Federal Reserve Chair Janet Yellen said in her Congressional testimony last week, when she admitted the global inflation slowdown could call for an ‘adjustment’ to the Fed’s policy.

    This post was published at Wall Street Examiner by Peter Krauth ‘ July 21, 2017.


  • BIll Gross: Beware The “Unknown Consequences Lurking In The Shadows”

    Starting off with two macabre examples of extreme behavior – one man who can’t stop eating and another one who can’t start – in his latest monthly letter Bill Gross says that “monetary policy in the post-Lehman era” has become the modern equivalent of gluttony: “they can’t seem to stop buying bonds, although as compulsive eaters and drinkers frequently promise, sobriety is just around the corner.”
    Pointing out a number we discussed just yesterday, Gross notes that “to date, since the start of global Quantitative Easing, over $15 trillion of sovereign debt and equities now overstuff central bank balance sheets in a desperate effort to keep global economies afloat.” What Gross is referring to, of course, is the chart we showed just yesterday in “The Most Dangerous Moment”: Why Every Bank Is Suddenly Talking About Q3 2018”

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


  • World Stock Markets Firmer; ECB Meeting Conclusion Awaited

    This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
    (Kitco News) – Most world stock markets were firmer overnight, continuing to see upside support from generally upbeat corporate earnings reports. U. S. stock indexes hit record highs on Wednesday and are poised to move still higher when the New York day session begins.
    Gold prices are lower in pre-U. S.-session trading today. Some mild profit taking from the shorter-term futures traders is featured after recent good gains in the yellow metal.
    In overnight news, the Bank of Japan at its latest monetary policy meeting Thursday scaled back its inflation expectations to suggest its easy-money policies can remain in place longer.
    The European Central Bank is meeting Thursday. The marketplace is awaiting the ECB’s stance on future monetary policy for the Euro zone. ECB President Mario Draghi’s press conference will be the highlight of the ECB meeting.

    This post was published at Wall Street Examiner by Jim Wyckoff ‘ July 20, 2017.


  • Gradually… And Then Suddenly

    What do socialism and modern monetary policy have in common? Magical thinking. For both, it’s true on the giddy years up, and it’s true on the sad years down.
    If you’ve been reading my notes immediately before and after the June Fed meeting (‘Tell My Horse’ and ‘Post-Fed Follow-up’), you know that I think we now have a sea change in what the Fed is focused on and what their default course of action is going to be. Rather than looking for reasons to ease up on monetary policy and be more accommodative, the Fed and the ECB (and even the BOJ in their own weird way) are now looking for reasons to tighten up on monetary policy and be more restrictive. As Jamie Dimon said the other day, the tide that’s been coming in for eight years is now starting to go out. Caveat emptor.
    The question, then, isn’t whether the barge of monetary policy has turned around and embarked on a tightening course – it has – the question is how fast that barge is going to move AND whether or not the market pays more attention to the actual barge movements than what the barge captain says. I promise you that the barge captains of both the Fed and the ECB believe they can tighten and taper without killing the market so long as they jawbone this constantly. This is the Common Knowledge Game in action, this is the Missionary Effect, this is Communication Policy … this is everything that I’ve been writing about in Epsilon Theory over the past four years! And as we saw with the market’s euphoric reaction to Yellen’s prepared remarks for her Humphrey-Hawkins testimony last Wednesday, which were presented as oh-so dovish when they really weren’t, this jawboning strategy could absolutely work. It WILL absolutely work unless and until we get undeniably ‘hot’ inflation numbers – particularly wage inflation numbers – from the real world.
    So what’s up with that? How can we have wage inflation running at a fairly puny 2.5% (Chart 1 below) when the unemployment rate is a crazy low 4.3% (Chart 2 below) and other indicators, like the NFIB’s survey of ‘Small Business Job Openings Hard to Fill’ (Chart 3 below) are similarly screaming for higher wages?

    This post was published at Zero Hedge on Jul 19, 2017.


  • 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.


  • 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.


  • Have Bundesbank Agents Infiltrated the Fed?

    Germany’s central bank is the Bundesbank. Prior to the commencement of trading of the euro in January 1999, the Bundesbank conducted Germany’s monetary policy. The Bundesbank has a reputation for pursuing general price-level stability above all else. You might say that the Bundesbank has inflation phobia. The reason for this Bundesbank inflation phobia is the remembrance of the hyperinflation Germany experienced between World Wars I and II. Given the US central bank’s recent actions, it would almost seem that the Fed has developed inflation phobia too.
    Although the US does not have general price-level stability, the rate of change of the consumer price index (CPI), no matter how you slice or dice it, is absolutely low. This is illustrated in Chart 1. Plotted in Chart 1 are the 12-month percentages changes in monthly observations of various CPI measures – the CPI including all of its goods/services items, the CPI excluding its energy goods/services items and the Cleveland Fed’s 16% trimmed-mean CPI. The 16% trimmed-mean CPI eliminates components showing extreme monthly price changes. Eight percent of the weighted components with the highest and lowest one-month price changes are eliminated and the mean is calculated from the remaining components, making the 16% trimmed- mean CPI less volatile than either the CPI or the CPI excluding prices for energy goods/services. In the 12 months ended June 2017, the percentage changes in the CPI with all items, the CPI excluding energy items and the 16% trimmed-mean CPI were 1.6%, 1.6%, and 1.9%, respectively. Moreover, the 12-month percentage change in the CPI, no matter how you measure it, has been trending lower since the first two months of 2017.

    This post was published at FinancialSense on 07/17/2017.


  • SWOT Analysis: A Closer Look at Novo Resources

    Strengths
    The best performing precious metal for the week was silver, climbing up 2.35 percent with the changing sentiment toward precious metals. Gold notched its first weekly gain in a number of weeks on weaker-than-expected inflation and retail sales data. Federal Reserve Chair Janet Yellen took a decidedly dovish stance this week, signaling the Fed was in no hurry to tighten monetary policy with monthly consumer prices growth falling short of the Fed’s target 2 percent. The gold market responded positively, with gold futures jumping sharply above $1,220 after her testimony.

    This post was published at GoldSeek on Monday, 17 July 2017.


  • Bank Of America Explains What Federer’s Victory Means For Fed Monetary Policy

    On Sunday, Roger Federer did what many in recent years said was impossible, when he won his record, 8th Wimbledon title, defeating Croatia’s Cilic in straight sets.
    Away from the court, the victory may be an ominous sign for EM bears. As Bloomberg’s Marc Cudmore said earlier this week, when he explained why he more focused on this Fed rather than the one run by Janet Yellen, “The Fed” has won seven of the past 14 championships. In every year he’s been victorious, both the MSCI EM Currency Index and the MSCI EM Equity Index have gained. By contrast, in five of the seven years he hasn’t finished triumphant, both those indexes have dropped.

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


  • Market Liquidity Conditions Are Still Loose As A Goose

    Since the Fed began raising interest rates in December 2015, financial market liquidity conditions have loosened considerably. Recall our post, Orwellian Monetary Policy, which we wrote in May.
    ‘Tightening is Easing’
    Since U. S. monetary policy began tightening in December 2015, the Fed has added liquidity to the financial system through interest payments to banks on excess reserves and has reduced its surplus to the Treasury adding to the fiscal deficit. Thus the financial system has had an effective injection of central bank liquidity and a fiscal expansion during a period of monetary tighenting. – Global Macro Monitor
    The current Fed policy effectively injects liquidity into the financial system through raising the IOER rate – printing money to make interest payments on reserves banks hold on deposit at the Fed. This compares to the traditional monetary where the Fed drains reserves from the financial system to drive the Fed Funds rate higher. We are years off to getting back to traditional monetary policy. Maybe not in our lifetime.

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


  • Deutsche: The Fed Has Created “Universal Basic Income For The Rich” And Now It Can’t Get Out

    Two weeks after Aleksandar Kocic highlighted the moment in 2012 when the market stopped caring about newsflow and reality, and, in a word “broke” with pervasive complacency setting in regardless of macro uncertainty…

    … Deutsche Bank’s post modernist master of stream-of-consciousness narrative is back with a new essay dissecting his favorite topic, the interplay between the Fed and markets, the so-called “umbilical limbo” that connects the two in the form of ultraeasy monetary policy and QE in general, and more importantly, the narrative that the Fed has spun over the past ten years, which while supportive of risk assets, has concurrently resulted in what Kocic calls a “permanent state of exception” from normalcy as a result of the Fed decision to defer the financial crisis indefinitely.

    This post was published at Zero Hedge on Jul 15, 2017.


  • Jobs and Inflation: Gradually and Then Suddenly

    The Fed and the ECB believe they can tighten and taper without killing the market so long as they jawbone this constantly.
    If you’ve been reading my notes immediately before and after the June Fed meeting (‘Tell My Horse’ and ‘Post-Fed Follow-up’), you know that I think we now have a sea change in what the Fed is focused on and what their default course of action is going to be. Rather than looking for reasons to ease up on monetary policy and be more accommodative, the Fed and the ECB (and even the BOJ in their own weird way) are now looking for reasons to tighten up on monetary policy and be more restrictive. As Jamie Dimon said the other day, the tide that’s been coming in for eight years is now starting to go out. Caveat emptor.
    The question, then, isn’t whether the barge of monetary policy has turned around and embarked on a tightening course – it has – the question is how fast that barge is going to move AND whether or not the market pays more attention to the actual barge movements than what the barge captain says. I promise you that the barge captains of both the Fed and the ECB believe they can tighten and taper without killing the market so long as they jawbone this constantly.
    This is the Common Knowledge Game in action, this is the Missionary Effect, this is Communication Policy … this is everything that I’ve been writing about in Epsilon Theory over the past four years! And as we saw with the market’s euphoric reaction to Yellen’s prepared remarks for her Humphrey-Hawkins testimony on Weds, which were presented as oh-so dovish when they really weren’t, this jawboning strategy could absolutely work. It WILL absolutely work unless and until we get undeniably ‘hot’ inflation numbers – particularly wage inflation numbers – from the real world.

    This post was published at Wolf Street on Jul 13, 2017.


  • All Conundrums Matter All Conundrums Matter

    This is a syndicated repost courtesy of Alhambra Investments. To view original, click here. Reposted with permission.
    Since we are this week hypocritically obsessing over monetary policy, particularly the federal funds rate end of it, it’s as good a time as any to review the full history of 21st century ‘conundrum.’ Janet Yellen’s Fed has run itself afoul of the bond market, just as Alan Greenspan’s Fed did in the middle 2000’s. But that latter example wasn’t truly the first conundrum for monetary policy. There remain a great many questions (in the mainstream, anyway) about the dot-coms.
    If we define conundrum more broadly as I believe more appropriate, then it’s not just about UST yields long or short. It is instead the lack of (monetary) effect through federal funds rate management. In the early 2000’s this was apparent in a whole range of factors – starting with the stock market.

    This post was published at Wall Street Examiner by Jeffrey P. Snider ‘ July 13, 2017.


  • Bank of America: “The Most Dangerous Moment For Markets Will Come In 3 Or 4 Months”

    Two weeks after BofA’s Michael Hartnett previewed (and timed) not only the “Great Fall” of stocks, but also explained that the Fed and global central banks are now in the business of making the “rich poorer“, he is out with a new note which looks at the Fed’s latest U-turn, which has unleashed the latest market buying spree, warning that “further upside in risk assets will create problems later in the year” (for three reasons he lists out), and concludes that “ultimately, we believe the extremely strong performance by equities and bonds in H1 is very unlikely to be repeated in H2.” Hartnett then goes back to his original thesis that the Fed will no longer pursue its primary mandate of pushing stocks (i.e. wealth effect and confidence) higher because it is “now politically unacceptable for the Fed and any other central bank to stoke a bubble on Wall St.”
    As a result, “monetary policy will have to tighten to raise volatility, reduce Wall St inflation, and reduce inequality. There are two ways to cure inequality: you can make the poor richer, or you can make the rich poorer. The Fed will reduce its balance sheet in the hope of making Wall St poorer.”

    This post was published at Zero Hedge on Jul 13, 2017.