“We Have Reached A Turning Point”: Trader Explains Why Today’s CPI Could Send Equities Reeling

From the latest Macro View by Bloomberg commentator and former Lehman trader, Mark Cudmore
Equities Must Fear CPI Now the Fed Put Era Is Over
A surprise in either direction from today’s U. S. consumer price index print is likely to hurt global stocks.
For many years, in the wake of QE, we became used to markets where ‘good data is good for equities and bad data is good for equities.’ The logic was that bad data implied a greater likelihood more liquidity would be pumped into the system, whereas good data inspired confidence that the economic recovery was on track.
Today might mark a turning point where we more frequently trade the opposite dynamic. The Fed has fought so hard to convince investors that the economy can cope with hikes and balance-sheet reduction that it may have boxed itself into a corner. It can’t retreat from its policy path without seriously undermining its credibility.

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

Precious Metals: Patience Is Golden

Without growth in Western gold ETF holdings, the ‘decent but not spectacular’ demand from China and India is not strong enough to move the gold price higher. Please click here now. The SPDR (GLD-nyse) fund gold holdings currently sit at about 843 tonnes. There has been very little change in the total tonnage for several months. That’s neutral for the gold price. Governments don’t like their citizens to own much gold. Restrictions they impose (like India’s import duty as a recent example) dampen demand enough so that the price rises very slowly most of the time. Economic growth in China and India are increasing demand (the love trade) and mine supply is contracting, but the process is essentially ‘Chindian water torture’ for investors who want to see the price skyrocket like it did in the late 1970s. Investors that want ‘big action’ in the gold price need to wait patiently for the US business cycle to peak. For the price of gold to really sizzle, the business cycle needs to have aninflationary peak. That hasn’t happened since the 1970s. Many gold price analysts have used overlap charts that suggest the gold market now is akin to the 1976-1978 period. I look at fundamentals first, and charts second. From an inflationary standpoint, the US economy looks more akin to the late 1960s than the late 1970s. The winds of inflation are beginning to blow, but they won’t become a hurricane for some time. Having said that, I’ve noted that the St. Louis Fed has calculated that the QE program would have sent the US inflation rate above 30% if money velocity had been at normal levels.

This post was published at GoldSeek on 14 November 2017.

Gresham’s Law meets its Minsky Moment

There’s a reason that the Fed pursues these actions and it’s not a conspiracy theory. When unlimited cash hits a limited supply of assets, whether paper or hard, this inflationary deluge boosts taxable asset values by 100-1000%, fattening the coffers of the tax collectors.
While it’s no secret that the Fed, along all global Central Banks, are supporting their respective financial systems by capping interest rates with ‘QE’ (also known as ‘money printing’), the yield on the 10-yr Treasury has risen 36 basis points in two months from 2.04% in September to 2.40% currently. There have not been any Fed rate hikes during that time period. The yield on the 2-yr Treasury has jumped from 1.26% in early September to 1.66% currently. A 40 basis point jump, 32% increase, in rates in two months.
This is not due to a ‘reversal’ in QE. Why? Because through this past Thursday, the Fed’s balance sheet has increased in size by over $7 billion since the Fed ‘threatened’ to unwind QE starting in October. The bond market is sniffing hints of an acceleration in the general price level of goods and services, aka ‘inflation.’

This post was published at Investment Research Dynamics on November 12, 2017.

The World’s Biggest Bubbles

We recently discussed (see here) Alberto Gallo’s (portfolio manager of Algebris Macro Credit Fund) shot at the $64,000 (more like trillion) question in his report ‘The Central Bank Bubble: How Will It Burst?’.
As we said at the time, one of our favourite parts of the report was ‘The Money Tree’ infographic which explains how QE has benefited a plethora of investment strategies and created the bubble to end all bubbles.
Having outlined four scenarios which could prick the central bank bubble, Gallo has done some further work in which he identifies what he thinks are the fourteen largest bubbles in the world today. Helpfully, he also ranks them. From the Financial Sense website.
Many economists believe that it’s impossible to recognize bubbles before they pop. However, Alberto Gallo of Algebris Investments has compiled a list of the largest potential bubbles around the world today, ranked by degree of risk based on size, duration, percent appreciation, valuations, and the types of irrational behavior driving them higher. Financial Sense spoke with him…to discuss his research, the areas he believes are highest at risk, and how he’s approaching the current investment environment… Right now, the risk is high in a variety of assets around the world. ‘We’re in a world where most assets are overvalued,’ Gallo said, which means ‘in a world where almost everything looks like a bubble, the definition of a bubble has to be changed.’

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

7/11/17: To Fine Gael or not: Employment Stats and Labour Force

Recently, Fine Gael party PR machine promoted as a core economic policy achievement since 2011 election the dramatic reduction in Ireland’s unemployment rate. And in fact, they are correct to both, highlight the strong performance of the Irish economy in this area and take (some) credit for it. The FG-led governments of the recent years have been quite positive in terms of their policies supporting (or at least not hampering) jobs creation by the MNCs. Of course, they deserve no accolades for jobs creation by the SMEs (which were effectively turned into cash cows for local and central governments in the absence of any government power over taxing MNCs), nor do they deserve any credit for the significant help in creating MNCs’ jobs that Ireland got from abroad.
Now, to briefly explain what I mean by it: several key external factors helped stimulate MNCs-led new jobs creation in Ireland. Let me name a few.
ECB. By unleashing a massive QE campaign, Mario Draghi effectively underwritten solvency of the Irish State overnight. Which means that Dublin could continue avoiding collecting taxes due from the MNCs. And better, Mr Draghi’s policies also created a massive carry trade pipeline for MNCs converting earnings into corporate debt in Euro area markets. The combined effect of the QE has been a boom in ‘investment’ into Ireland, and with it, a boom of jobs. OECD. That’s right, by initiating the BEPS corporation tax reform process, the arch-nemesis of Irish tax optimisers turned out to be their arch blesser. OECD devised a system of taxation that at least partially, and at least in theory, assesses tax burdens due on individual corporations in relation physical tangible activities these corporations carry out in each OECD country. Tangible physical activity can involve physical capital investment (hence U. S. MNCs rapidly swallowing up new and old buildings in Ireland, that’s right – a new tax offset), an intangible Intellectual Property ‘capital’ (yep, all hail the Glorious Knowledge Development Box), and… err… employment (that is why Facebook et al are rushing to shift more young Spaniards and Portuguese, French and Dutch, Ukrainians and Italians, Poles and Swedes… into Dublin, despite the fact they have no where to live in the city).

This post was published at True Economics on Tuesday, November 7, 2017.

The Central Bank Bubble: How Will It Burst?

Alberto Gallo of Algebris Investments steps up to take his shot at the $64,000 (more like trillion) question in a report published this week’The Central Bank Bubble: How Will It Burst?’
Gallo manages the Algebris Macro Credit Fund described as ‘an unconstrained strategy investing across global bond and credit markets, and with lead responsibility for Macro Strategies’ on the company’s website.
Gallo sets the scene as follows.
Most investors are still playing the game, and in the same direction. We estimate there are currently around $11tn in negative-yielding bonds and over $2tn in strategies that explicitly or implicitly depend on stable volatility and asset correlations. If low interest rates and QE have been the lever pushing up prices of dividend and coupon-paying assets, central banks are the fulcrum.

This post was published at Zero Hedge on Nov 6, 2017.

The Fed Actually Begins its QE Unwind

But what’s happening with mortgage-backed securities? Thursday afternoon, the Fed released its weekly balance sheet for the week ending November 1. This completes the first month of the QE unwind, or ‘balance sheet normalization,’ as the Fed calls it. But curious things are happening on the Fed’s balance sheet.
On September 20, the Fed announced that the QE unwind would begin October 1, at the pace announced at its June 14 meeting. This would shrink the Fed’s balance sheet by $10 billion a month for each of the first three months. The shrinkage would then accelerate every three months. A year from now, the shrinkage would reach $50 billion a month – a rate of $600 billion a year – and continue at that pace. This would gradually destroy some of the trillions that had been created out of nothing during QE.

This post was published at Wolf Street on Nov 2, 2017.

Germany Also Engages in Political Prosecution

The Alternative for Germany party (AfD) in Germany has asked the Federal Government to file a lawsuit against all decisions of European Central Bank (ECB) regarding the purchase of government bonds and corporate bonds as well as derivatives since 2015. They are petitioning to file in the European Court of Justice asserting that the policies of the European Treaties and by the Federal Constitutional Court were being violated.
Effectively, the ECB ‘stimulus’ policy (QE) has completely failed and instead has become a life-support system subsidizing the debt of Eurozone member states. Even reducing the amount bought per month is an attempt to see if the marketplace takes up the debt. But the Eurozone governments never cut back spending or reformed. They never had to. The QE program was merely targeting to support the government – not the average person in the economy.

This post was published at Armstrong Economics on Nov 2, 2017.

QE’s Untold Story: A Chart That Fed Correspondents Need to Investigate

We’ve produced some research over the years that we’d love to see the powers-that-be react to, but none more so than our look at financial flows during the QE programs.
By netting all lending by banks and broker-dealers and then comparing it to the Fed’s lending, we stumbled upon a chart that seemed to show exactly what QE does or doesn’t do. But ‘doesn’t,’ not ‘does,’ was the story, and it couldn’t have been clearer. Or shown a more stimulating pattern. To geeks like us, our Excel click on ‘Insert, Line’ was like stepping from a shady trail to a sunny vista.
Here’s the updated chart, which we dubbed the ‘argyle effect’ and looks even sharper than it did when we first produced it in 2014:

This post was published at FinancialSense on 11/01/2017.

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.

Gold Prices Slip in Big Week for Central-Bank Policy, Trump Campaign Managers Arrested

Gold prices inched lower on Monday morning in London ahead of a busy week for central bank policy meetings, plus Donald Trump’s pick for the next head of the US Federal Reserve writes Steffen Grosshauser at BullionVault.
After the European Central Bank slowed its QE stimulus growth last week, the Bank of Japan will announce its latest policy on Tuesday, followed by the Fed on Wednesday and the Bank of England on Thursday.
No change to the US and Japanese benchmark rates is expected, but the UK is set to raise rates from the current all-time low of 0.25% according to consensus forecasts.
“Gold continues to face strong headwinds from US economic growth, an equity rally boosted by tax reform and a potentially more hawkish Fed,” says the latest weekly note from Japanese conglomerate Mitsubishi’s Jonathan Butler.
“President Trump is said to favor existing governor Jerome Powell, widely seen as a relatively dovish continuity candidate. [But] the surprise outcome would be the announcement of Prof. John Taylor…[and] likely see a rally in Treasury yields and the Dollar, and damage gold.”
The largest gold-backed ETF trust fund vehicle, the SPDR Gold Trust (NYSEArca:GLD), saw outflows of 2.4-tonnes last Friday after being unchanged at 853.1 tonnes for eight days.

This post was published at FinancialSense on 10/30/2017.

It’s Time To Challenge What You Think You ‘Know’ About The Stock Market

I know I am not the traditional author you come across on most financial sites. Most others will provide you with traditional notions of the stock market based upon rationalities. So, many authors will suggest that we ‘cannot separate public policy and geopolitics from the markets,’ they will focus on ‘market valuations,’ they will claim that ‘fundamentals do not support this rally,’ and will provide you with many, many other reasons as to why they have continually believed that this rally would never happen.
Yet, they have been left on the sidelines, scratching their heads for the last year and a half, as the US equity markets have rallied over 45% since February 2016.
I mean, think about all the reasons they have put before you over the last year and a half regarding the imminent risks facing the stock market, which they have lead you to believe will stop the market in its tracks. I have listed them before, and I think it is worthwhile listing them again:
Brexit – NOPE
Frexit – NOPE
Grexit – NOPE
Italian referendum – NOPE
Rise in interest rates – NOPE
Cessation of QE – NOPE
Terrorist attacks – NOPE
Crimea – NOPE
Trump – NOPE
Market not trading on fundamentals – NOPE
Low volatility – NOPE
Record high margin debt – NOPE
Hindenburg omens – NOPE
Syrian missile attack – NOPE
North Korea – NOPE
Record hurricane damage in Houston, Florida, and Puerto Rico – NOPE
Spanish referendum – NOPE
Las Vegas attack – NOPE
And, each month, the list continues to grow.

This post was published at GoldSeek on Monday, 30 October 2017.

Technical Scoop – Weekend Update Oct 29

Can stock markets fly? Or is it really different this time? As we outlined last week, in celebration of the 30th anniversary of the 1987 October stock market crash, stock markets, it appears, can fly or soar as you may wish to call it. Just when you think the stock market couldn’t go any higher it does. Last week we noted the Dow Jones Industrials (DJI) had soared 30% since the US election on November 4, 2016. When compared with other stock market blow-offs such as the ‘Roaring Twenties,’ the dot.com bubble of the 1990s, or the Tokyo Nikkei Dow (TKN) of the 1980s it was a rather puny performance, so far.
A more appropriate start point might actually be the February 11, 2016 low. That low came following six months of stock market gyrations mostly to the downside because of the ending of quantitative easing (QE). The DJI only fell about 15% during that time but it was the steepest correction since the 2011 EU/Greece crisis and only the second time the DJI fell more than 10% since the financial crisis of 2007 – 2009. The DJI fell 6% during the Brexit mini-panic and was down just over 4% into the November election. Pullbacks since then have been even shallower. So, given no correction over 10% maybe we should be looking at this blow-off as having started with the February 2016 low.
Since then the DJI is up just under 52% over a period of 624 days. We noted last week the average of six blow-offs we examined had seen gains of 176% over a period of 658 days. Based on this we are doing well time-wise but not so well on the gains. The longest period seen for a blow-off was about 1,050 days. There is no denying the stock market could rise further and longer than many expect.

This post was published at GoldSeek on 29 October 2017.

Quantitative Easing Lives on in the EU

Central bank quantitative easing is a little like a zombie. It dies – but it never really dies.
There’s been a lot of focus on the Federal Reserve raising interest rates and unwinding its balance sheet. Sometimes it’s easy to forget the Fed isn’t the only game in town. While most people consider QE dead and buried in the US, it remains alive and kicking in other parts of the world.
Yesterday, the European Central Bank (ECB) announced it would extend its bond-buying program deep into 2018, continuing the flow of easy money into the European Union. ECB President Mario Draghi said the central bank would cut its bond purchases in half beginning in January, a faint hint at eventual normalization. But the central bank president left the door open to backtracking.
Draghi said the EU’s economy is improving, but still needs support.
Domestic price pressures are still muted overall and the economic outlook and the path of inflation remain conditional on continued support from monetary policy. Therefore, an ample degree of monetary stimulus remains necessary.’

This post was published at Schiffgold on OCTOBER 27, 2017.

The $2 Trillion Hole: “In 2019, Central Bank Liquidity Finally Turns Negative”

In all the euphoria over yesterday’s “dovish taper” by the ECB, markets appear to have forgotten one thing: the great Central Bank liquidity tide, which generated over $2 trillion in central bank purchasing power in 2017 alone – and which as Bank of America said last month is the only reason why stocks are at record highs, is now on its way out.
This was a point first made by Deutsche Bank’s Alan Ruskin two weeks ago, who looked at the collapse in global vol, and concluded that “as we look at what could shake the panoply of low vol forces, it is the thaw in Central Bank policy as they retreat from emergency measures that is potentially most intriguing/worrying. We are likely to be nearing a low point for major market bond and equity vol, and if the catalyst is policy it will likely come from positive volatility QE ‘flow effect’ being more powerful than the vol depressant ‘stock effect’. To twist a phrase from another well know Chicago economist: Vol may not always and everywhere be a monetary phenomena – but this is the first place to look for economic catalysts over the coming year.”
He showed this great receding tide of liquidity in the following chart projecting central bank “flows” over the next two years, and which showed that “by the end of next year, the combined expansion of all the major Central Bank balance sheets will have collapsed from a 12 month growth rate of $2 trillion per annum to zero.”

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

Fed/ECB Strangle Stock Bull

This epic central-bank-easing-driven global stock bull is starting to be strangled by the very central banks that fueled it. This week the European Central Bank made a landmark decision to drastically slash its quantitative easing next year. That follows the Fed’s new quantitative-tightening campaign just getting underway this month. With CBs aggressively curtailing easy-money liquidity, this stock bull is in serious trouble.
The US flagship S&P 500 broad-market stock index (SPX) has powered an incredible 280.6% higher over the past 8.6 years, making for the third-largest and second-longest bull market in US history! The resulting popular euphoria, a strong feeling of happiness and confidence, is extraordinary. So investors brazenly shrugged off the Fed’s September 20th QT and the ECB’s October 26th QE-tapering announcements.
That’s a grave mistake. Extreme central-bank easing unlike anything witnessed before in history is why this stock bull grew to such grotesque monstrous proportions. Without QE, it would have withered and died years ago. Central banks conjured literally trillions of new dollars and euros out of thin air, and used that new money to buy assets. This vast quantitative easing inarguably levitated the world stock markets.
QE greatly boosted stocks in two key ways. Most of it was bond buying, which forced interest rates to deep artificial lows nearing and even under zero at times. This bullied traditional bond investors looking for yield income into dividend-paying stocks. The record-low interest rates fueled by QE were also used to justify extremely-expensive stock prices. QE aggressively forced legions of investors to buy stocks high.

This post was published at ZEAL LLC on October 27, 2017.


GOLD: $1269.00 down $8.80
Silver: $16.80 DOWN 15 cents
Closing access prices:
Gold $1267.90
silver: $16.80
PREMIUM FIRST FIX: $10.53(premiums getting larger)
Premium of Shanghai 2nd fix/NY:$10.03 PREMIUMS GETTING LARGER)
LONDON FIRST GOLD FIX: 5:30 am est $1278.20
For comex gold:
For silver:
140,000 OZ/
Total number of notices filed so far this month: 1057 for 5,285,000 oz
Bitcoin: $5834 bid /$58544 offer UP $155.00 (MORNING)
BITCOIN CLOSING;$5833 BID:5853. OFFER up $155.00

This post was published at Harvey Organ Blog on October 26, 2017.

The Bond Market Calls Draghi’s Bluff. What’s Next?

ECB President Mario Draghi is now walking back QE.
This is not a surprise to our readers. I’ve been forecasting this exact development, (as well as the Euro’s spike to 120) since August 2016 (by the way, the Euro was at 109 back then and everyone thought it would soon reach parity with the $USD as it collapsed). Still, why is Draghi doing this?
Because the bond market was in revolt, with yields beginning to rise. Rising yields= falling bond prices. Falling bond prices over time= bear market in bonds. Bear market in bonds = SYSTEMIC reset.
We explain all of this in our bestselling book The Everything Bubble: The End Game For Central Bank Policy. If you’ve yet to pick up a copy, grab one now. You’ll immediately know more about how the financial system works (as well as what’s to come) than anyone else in your social circle.
The bottomline is as follows…

This post was published at GoldSeek on 26 October 2017.

Ray Dalio Warns Of “Significant” Bond Market Risk

Casting his vote in the ongoing debate of which is a bigger bubble, bonds or stocks, Bridgewater’s billionaire founder Ray Dalio, who has continued his whirlwind of media appearances in recent years, said that he sees a “significant amount of risk in the bond market” envisioning a growing risk to stability as the U. S. moves toward a bigger deficit and the Federal Reserve unwinds its balance sheet. He is, of course, referring to this projection by the CBO of the US debt over the next 30 years which, sadly, remains quite unsustainable especially in a rising rate environment and in which central banks no longer monetize deficits (which is precisely why the Fed will promptly resume QE after a brief cool off period).

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