How Does It All End? Part II

Low Rates Forever
Nothing much is happening in the money world. The press reports that traders are hanging loose, wondering what dumb thing the Fed will do next. Rumor has it that it may decide to raise rates in September, or maybe November… or maybe not at all.
So far, the Fed has hiked the FF rate just once, by 25 basis points. That hardly matters though, since the Fed maintains its balance sheet at the bloated level reached after three QE operations. Banks are holding large excess reserves as a result, and the federal funds market is therefore a mere shadow of its former self. The FF rate has no practical significance anymore – the effect of rate hikes is mainly psychological, due to the feedback loop between credit markets and the Fed’s policy stance. It cannot influence the activities of banks that no longer need to borrow reserves in order to expand credit. In short, although Fed policy is relatively ‘tight’ compared to that of other major central banks at the moment, it remains extremely loose considered on its own – click to enlarge.
It hardly matters. The Fed has created an unnatural, hothouse economy. Neither banks, nor business, nor investors fear a frost. None suffers drought or flood.
The feds have worked so hard, for so long, to protect them from the real, outside world. Now, they can only survive in the strange world where light, water, and temperature are all controlled and they can get the Miracle-Gro of money at the lowest rates in 5,000 years.
Open the doors? Turn off the water? No chance. The Fed will never, ever return to normal market-discovered interest rates – at least, not willingly. There are too many precious orchids in that hothouse.

This post was published at Acting-Man on August 31, 2016.

Gold and Silver Market Morning: Aug-31-2016 — Gold and silver slipping but sitting on strong support above $1,300!

Gold Today -Gold closed in New York at $1,310.90 on Tuesday after Monday’s close at $1,323.20. London opened at $1,313.
– The $: was stronger at $1.1136 from $1.1172 yesterday.
– The dollar index was stronger at 96.11 from 95.76 yesterday.
– The Yen was weaker at 103.24 from yesterday’s 102.37 against the dollar.
– The Yuan was slightly stronger at 6.6787 from 6.6800 yesterday.
– The Pound Sterling was stronger at $1.3102 from yesterday’s $1.3072.
Yuan Gold Fix
Shanghai was stronger than New York yesterday, then London walked the middle road opening at $1,313. The dollar is again strong today, but the Yuan was slightly stronger still. We are aware of the care with which the People’s Bank of China is handling the exchange rate so as to not appear to be purposely devaluing against the dollar, with only a month to go before the Yuan is home and dry as part of the S. D. R.
The dollar continues to strengthen.
LBMA price setting: The LBMA gold price setting on Wednesday was at$1,314.45. On Tuesday it was at set at $1,318.85.
The gold price in the euro was set on Wednesday at 1,180.04 down onTuesday’s 1,180.71.

This post was published at GoldSeek on 31 August 2016.

The Truth Emerges: EIA Admits It “Overestimated” Crude, Gasoline Demand In The First Half By 16%

One of the recurring peculiarities of oil complex data as reported by the EIA was how, during a time of an unprecedented crude glut by OPEC and pronounced economic weakness in the US, was overall US demand of various petrochemical products as strong as the DOE reported on a weekly basis. To be sure, the alleged increase in demand was one of the major catalysts that prompted rising oil prices together with relentless jawboning by OPEC members about a “production freeze” that would never materialize, in turn spurring not one but two record short squeeze across the commodity complex.
We now know the answer.
In a note released moments ago by the EIA, whose bias to keeping prices as high as possible is no secret, admitted that “over the first six months of 2016, EIA weekly estimates underestimated total crude oil, petroleum, and biofuel exports by an average of 16%, compared with final data published in the PSM.”

This post was published at Zero Hedge on Aug 31, 2016.

The Housing Bubble Is Popping

The Seasonally Adjusted Annualized Rate (SAAR) economic numbers are now manipulated beyond the definitional meaning of the word ‘absurd.’ This is especially true with the housing market and auto sales reports. – Investment Research Dynamics
Today the NAR released its ‘pending home sales’ index. On a ‘seasonally adjusted annualized rate’ basis, it showed 1.3% gain over June. June’s original report was revised lower from .8% to -.2%. Mathematically, this downward revision enabled the National Association of Realtors to report a gain from June to July. Keep in mind this is on a ‘seasonally adjusted’ and ‘annualized rate’ basis.
Now for the real story – at least as real as the reliability of the NAR’s data sampling techniques. In the same report the NAR shows the ‘not seasonal adjusted’ numbers. (click on image to enlarge) On a year over year basis for July, pending home sales weredown 2.2%. They were down 13% from June. This is significant for two reasons. Using a year to year comparison for July removes seasonality and it removes the ‘seasonal adjustments.’ Just as important, if you look at historical data for existing home sales by month, ‘seasonality’ between June and July is non-existent – i.e. in some years June sales exceed July and in other years July exceeds June.
The not seasonally adjusted data series is much more reflective of the real trend in the housing market that has developed this summer than is the manipulated SAAR number vomited by the NAR’s data manipulators. The 13% from June to July should shock the hell out of housing market perma-bulls.

This post was published at Investment Research Dynamics on August 31, 2016.

Oil Plunges Under $45 – Near Saudi-Short-Squeeze-Lows

After the biggest short squeeze in history – thanks to a well-placed and entirely useless Saudi statement about OPEC freeze discussions – oil prices have slipped notably – now back below $45 once again…
As we said before – the short-squeeze ammo has run out – and record gluts, record production, and slumping demand realities are biting.

This post was published at Zero Hedge on Aug 31, 2016.

Global Supply Chains Paralyzed After World’s 7th Largest Container Shipper Files Bankruptcy, Assets Frozen

After years of relentless decline in the Baltic Dry index…

… today the largest casualty finally emerged on Wednesday when South Korea’s Hanjin Shipping, the country’s largest shipping firm and the world’s seventh-biggest container carrier, filed for court receivership after losing the support of its banks, leaving its assets frozen as ports from China to Spain denied access to its vessels.

This post was published at Zero Hedge on Aug 31, 2016.

This Is The “Bubbly” Chart That Keeps The Fed’s Rosengren Up At Night

If St. Louis Fed’s James Bullard is the Fed’s hawk who infamously flipped to uberdove several months ago, than Boston Fed’s Eric Rosengren has become his mirror image: a former dove who has become increasingly hawkish, and who is warning that keeping rates low for long is “not without risks.” Yet, in a speech overnight at the Shanghai Advanced Institute of Finance, Beijing, China titled “Observations on Financial Stability Concerns for Monetary Policymakers“, Rosengren voiced the same concerns about a building asset bubble as Bullard did last Friday just before Yellen’s speech, when he said that “I think we are on the high side of fairly valued, I could see the process getting away from us, maybe tech stocks, maybe others.”
Rosengren started off cautiously with a warning that Fed’s mandated goals – stable prices and maximum sustainable employment – are likely to be achieved relatively soon, and ‘keeping interest rates low for a long time is not without risks.’ As a result, important questions confront monetary policymakers in the United States, including when and how quickly to continue normalizing interest rates.
He then took his warnings up a notch, warning that central banks must think about attaining their mandates ‘not only at the current time, but also through time’, weighing the benefits of low interest rates now against the potential costs in the future of possibly spurring instability.

This post was published at Zero Hedge on Aug 31, 2016.

Crude Tumbles After Big Crude, Distillates Build

Having extended yesterday’s losses on the back of API’s unexpectedly large distillates inventory build, DOE data confirmed an even bigger crude inventory build ( 2.276mm vs ~1.3mm build exp.), which contrary to seasonal patterns was the second build in a row, and 5 builds in the past 6 weeks. Gasoline drew down less than API reported and Distillates built considerably more than expected ( 1.5mm vs 275k exp). While production slipped lower by 0.7%, crude prices tumbled on the inventory news, back down to $45.50.
Crude 942k ( 1.5mm exp) Cushing -620k Gasoline -1.6mm (-1.25mm exp) Distillates 3mm ( 275k exp)

This post was published at Zero Hedge on Aug 31, 2016.

Marxist Bubbles and Taleb’s Turkey: It’s Going to Be an Awkward Thanksgiving

Over a third and growing quickly. That’s the share of the market that’s now comprised of blind sheep passive indexers.
That much passive money is nothing to sneeze at. Call me old-fashioned, but I was originally led to believe that the function and role of markets in a capitalist society can direct capital to its most productive end – you know, Smith’s ‘Invisible Hands’ and the productivity/profit link and all that jazz.
So what happens when instead of being deployed by thinking profit-driven investors… a growing portion of a nation’s savings is invested with the same diligence generally utilized by a co-worker choosing donuts for his office mates: ‘Umm…yeah, I’ll take two dozen of whatever you got?’
That’s the question research firm Sanford C. Bernstein asked in a recent piece comparing the current passive investing craze to a lesser form of Marxism – it being appropriately titled ‘The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism.’
The report notes the different types of capital allocation models societies can choose, saying (bolding is mine):
Active investment decisions form a crucial part of the capital allocation process in an economy and as such there is a clear and distinct social worth in their aggregate action. A possible alternative is a Marxist economy where the capital allocation is planned, such a system is perfectly viable but just less effective. However, a supposedly capitalist economy with no active investment – where passive management is the only capital allocation process – is, in our opinion, worse than either of these alternatives, hence our assertion in the title of this note.

This post was published at FinancialSense on 08/31/2016.

Keynes: The Crackpot Economist of ZIRP

John Maynard Keynes was a crackpot. So are his followers. All of them.
I can hear the shocked response. “But, Dr. North, you’re not supposed to say such things. It’s not polite. It shows a lack of etiquette. People who say such things are themselves dismissed as crackpots.” To which I respond: “Dismissed by whom?”
Here is my view: “Crackpot is as crackpot does.”
Also: “Crackpot was as crackpot wrote.”
Here is a passage from Keynes’ General Theory of Employment, Interest, and Money (Macmillan, 1936). This book has remained in print in the original edition ever since.
You are about to enter into Keynes’ verbally garbled world. It was a mental world of sheer crackpottery. It was a world in which free lunches provided by the state were promised to be only one generation away. This passage appears on pages 220-21.
Let us assume that steps are taken to ensure that the rate of interest is consistent with the rate of investment which corresponds to full employment. Let us assume, further, that State action enters in as a balancing factor to provide that the growth of capital equipment shall be such as to approach saturation point at a rate which does not put a disproportionate burden on the standard of life of the present generation. On such assumptions I should guess that a properly run community equipped with modern technical resources, of which the population is not increasing rapidly, ought to be able to bring down the marginal efficiency of capital in equilibrium approximately to zero within a single generation; so that we should attain the conditions of a quasi-stationary community where change and progress would result only from (p. 220) changes in technique, taste, population and institutions, with the products of capital selling at a price proportioned to the labor, etc., embodied in them on just the same principles as govern the prices of consumption-goods into which capital-changes enter in an insignificant degree.

This post was published at Gary North on August 31, 2016.

ADP Continues Weakening Trend As Goods-Producing Jobs Shrank… Again

The general trend of weakenig ADP job growth continues in August with a 177k print (in line with expectations). Goods-related jobs dropped 6k but Service-related roles rose 183k, but notably construction jobs fell 2k while zero new manufacturing jobs were created, even though some 19,200 “franchise workers” were added. The last two months have seen payrolls notably above ADP data, which if it happens once again will likely trigger The Fed. It is also worth pointing out that over the past five months the average ADP employment gain is 175K, which is the lowest since July 2013.
Initial Claims continues to diverge from other jobs data as ADP trends lower

This post was published at Zero Hedge on Aug 31, 2016.

Gold’s strong summer may be harbinger of things to come

We are now wrapping up one of the stronger summers in memory at USAGOLD and heading into the strongest time of year seasonally for gold and silver – September through February. Normally the summer months are the quiet part of the year, but 2016 has been an exception. The price of gold is up 9% since the beginning of June and silver over 18%. ETF gold inventories reached highs in July and August not seen since 2009, the year after the collapse of Lehman Brothers and the launch of the so-called credit crisis. Some see the stronger than usual summer showing for the precious metals markets as a harbinger of things to come.
Credit Suisse, for example, forecasts gold will be trading in the $1475 range in the fourth quarter of 2016, and see $1500 in the early part of 2017. Similarly, Deutsche Bank’s commodity desk believes gold should be trading now in the $1700 range based on the top four central banks’ aggregate balance sheet expansion – some 300% since 2005.
A large grouping of analysts compare stocks now with the market in the 2007-2008 time frame. The primary reason for the deja vu is that all the major indices once again appear to have been elevated in a Fed-induced price bubble. The list of famous names warning of a severe correction is long and grows by the day and with each new record high.
It includes:
Bill Gross (Janus Funds)
Carl Icahn (Icahn Enterprises)
Paul Singer (Elliiott Management)
Robert Schiller (Yale University)
Russ Kostereich (Black Rock)
Ray Dalio (Bridgewater Associates)
Jeff Gundlach (Doubleline Capital)
Jim Cramer (CNBC)
David Stockman (former Budget Director)
Stanley Druckenmiller (Duquesne Capital)
Jacob Rothschild (RIT Partners)
. . . . . just to name a few. Even presidential candidate Donald Trump has joined the chorus of naysayers warning of a financial bubble.

This post was published at GoldSeek on 31 August 2016.

Fed’s Fischer Sees Productivity Behind Slow U.S. Growth(?)

I frequently get a headache trying to understand Stanley Fischer’s speeches or interviews.
OK, US labor productivity is declining. But he is hoping the technological advances with fix the problem? Other than create even MORE unemployment?
‘We’re growing at around 2 percent, and the problem we face is that of productivity,’ Federal Reserve Vice Chairman Stanley Fischer said in an interview on Bloomberg Television Tuesday. Growth in workers’ output per hour has been restrained by factors including an aging labor force and weak corporate investment. The former Bank of Israel governor said he sees hope for a pickup eventually because ‘remarkable’ technological advances haven’t showed up in the data yet.

This post was published at Wall Street Examiner on August 30, 2016.

“The Fed Has Mastered Market Manipulation” – Bill Gross Explains Why He Is Not A “Broken Clock”

One day after Stanley Fischer provided a bizarre justification for why “negative rates seem to work”, saying that “clearly there are different responses to negative rates. If you’re a saver, they’re very difficult to deal with and to accept, although typically they go along with quite decent equity prices”, this morning in his latest monthly investment oulook, Bill Gross takes not only Fischer but the entire Fed to town, and piggybacking on the words of Kevin Warsh, says that “I and others however, have for several years now, suggested that the primary problem lies with zero/negative interest rates; that not only do they fail to provide an ‘easing cushion’ should recession come knocking at the door, but they destroy capitalism’s business models – those dependent on a yield curve spread or an interest rate that permits a legitimate return on saving, as opposed to an incentive for spending. They also keep zombie corporations alive and inhibit Schumpeter’s ‘creative destruction’ which many argue is the hallmark of capitalism. Capitalism, almost commonsensically, cannot function well at the zero bound or with a minus sign as a yield.”
He then directly attacks Yellen’s hypocricy, accusing her of not only creating the income inequality she is supposedly fighting against, but also of deferring “long-term pain for the benefit of short-term gain and the hopes that your ancient model renormalizes the economy over the next few years. It likely will not. Japan is the petri dish example for the past 15 years. Other developed market economies since Lehman/2009 are experiencing a similar fungus.”
And yet, for now the system hasn’t toppled which brings us to Gross’ tongue in cheek conclusion, which pokes fun of broken watches like himself…

This post was published at Zero Hedge on Aug 31, 2016.

Ted Butler Quote of the Day 08-31-16

Another standout feature of this week’s COT report on gold is the continued reduction in the short position of the 5 thru 8 largest shorts. This reconfirms the failure of one of the big gold shorts, as recently reported. In the COT report of July 12 (six weeks ago), the 5 thru 8 largest gold shorts held just over 100,000 contracts net short. On that date, the total commercial short position was not that much different from the current report and the raptors held nearly the exact number of shorts as they did in the new report. What changed dramatically was the holdings of the 4 largest shorts and the big 5 thru 8 shorts.

The big 5 thru 8 reduced their number of shorts by 30,000 net contracts, while the big 4 increased their short holdings by more than 23,000 net contracts. It is impossible to reconcile the data – raptors unchanged, big 4 up by 23,000 contracts and the big 5 thru 8 down by 30,000 contracts – and not conclude a big 5 thru 8 trader bit the dust and covered a short position of 20,000 contracts or more.

I remember thinking before any of this occurred (and maybe writing about) that if a big 8 short bit the dust, due to the financial pressure of being short in a $300 gold rally, that unless another big short took up the slack and increased its short position, prices would explode. Gold prices haven’t exploded (at least yet) and the only reason they haven’t is because of the massive increase in the big 4 concentrated short position. Not only do the data prove that, I’m serious in suggesting there can be no other explanation given the facts. Simply put, had the big 4 (JPMorgan) not added 23,000 new short contracts as one of the big 5 thru 8 covered, the price of gold would have climbed at least a hundred or two hundred dollars or more. Not to be argumentative, I welcome any alternative explanations for the dramatic juxtaposition in big 4 and big 5 thru 8 holdings.

A small excerpt from Ted Butler’s subscription letter on 27 August 2016.

  More precious metals news & information available at
Ed Steer’s Gold & Silver Digest.

Do Newly Built Skyscrapers Signal The Top Of The Stock Market?

Have you heard of the Burj Khalifa in Dubai?
It’s the tallest skyscraper in the world at 828m (2,717 ft), and it was completed in 2009. The price tag was a whopping $1.5 billion, making it one of the most expensive buildings of all time.
As Visual Capitalist’s Jeff Desjardin explains, for these bold projects to get the go ahead, global financial conditions have to be just right. Record-breaking skyscrapers can take multiple years to build, and things can change drastically from start to finish.
In this case, construction of the Burj Khalifa started in 2004. By the time it was completed, however, the financial markets were in ruins. Lehman had collapsed, and rescue efforts such as TARP and QE were in full force to try and stop the bleeding. Between October 2007 and March 2009, the Dow Jones Industrial Average lost 55% of value.
The crisis didn’t only bankrupt financial markets – it also took its toll on competing projects that aimed to unseat the Burj Khalifa as the world’s height record-holder. For example, One Dubai Tower A was supposed to be a whopping 1,008m (3,307 ft) tall – but it was shelved in March 2009 once it was clear that global financial conditions would not be improving any time soon.

This post was published at Zero Hedge on Aug 30, 2016.

Fake Rally: the Final Piece of the Trap

For 6 months; readers have been warned that the anemic advance in gold and silver prices over this period of time was/is a Fake Rally. The arguments in favor of this conclusion are almost too numerous to list.
a) Gold and silver are currently undervalued by roughly an order of magnitude, and in the case of silver, closer to two orders of magnitude. In any legitimate rally, the upward slope in prices would have been much, much steeper.
b) In a legitimate rally, silver always outperforms gold. Yet despite silver being undervalued versus goldby roughly an order of magnitude, the price of silver lagged the price of gold originally, and has barely kept pace throughout this sluggish ‘rally’.
c) For the first few months of this ‘rally’ we saw relentless hype from the mainstream media pumping gold – and only gold. Since then, the propaganda machine has reverted back to the same, anti-gold nonsense which we have seen for (in particular) the last 5 years: the Fed rules the gold market. In a real rally, metals prices would continue to advance irrespective of the same Serial Liars repeating the same lie they have been spewing for eight years – that the Federal Reserve is going to raise interest rates ‘soon.’
d) The motive for the crime: preparing for the Next Crash. The next premeditated take-down of our markets (and economies) has now been telegraphed, unequivocally, for several months. All we wait for is the trigger/detonation. Obviously the banking Crime Syndicate will not allow gold and silver to rally during this Crash. So metals prices have been marched slightly higher so that they can be slammed lower that much harder.

This post was published at BullionBullsCanada on 29 August 2016.

China Turmoil Looms As Traders Bet On Post-G-20 Yuan Tumble

Something is different this time. For the last few years, China has ‘ensured stability’ in the Yuan ahead of major geopolitical events – no matter what – only to let things slide back into turmoiling after. Ahead of this weekend’s G-20, however, and amid notably deteriorating fundamentals (and an increasingly hawkish-sounding Fed), China has let the Yuan tumble in the last week… and traders are piling into bets on post-G-20 weakness to continue.
As Bloomberg notes, history shows that the Chinese currency usually strengthens ahead of major political or economic events, such as President Xi Jinping’s state visits to the U. S. and the Boao Forum.

This post was published at Zero Hedge on Aug 31, 2016.

Futures Flat, Global Stocks Rise As Treasury Yields See Biggest Monthly Jump In Over A Year

The August market doldrums were on display on the last day of the month, where just two days ahead of the August payrolls report which the Fed is allegedly watching closely to decide whether to hike rates, S&P futures were fractionally lower on non-existent volume, while both Europe and Asia were modestly in the green; ten-year Treasury yields headed for the biggest monthly jump in more than a year while the dhe dollar gained for a sixth day against the yen in the longest winning streak since March. European stocks advanced for a second day, adding to a monthly gain as oil trimmed its advance in the best month since April.
In terms of notable movers, Deutsche Bank ( 3%) and Commerzbank ( 4%) stole the early session the headlines after Manager Magazin reported that that Deutsche Bank were mulling a merger (adding that s considerations were ‘only of a theoretical nature’ and at a very early stage), and while the CEO stated that he does not believe this is an option, shares shrugged this off and continued to lead the way higher in Europe.
CEO John Cryan said Germany’s largest lender is looking to shrink in size, when asked about a media report that it considered merging with rival Commerzbank AG.’Part of the work we’re doing is to make our bank a bit smaller, to make it a bit simpler,’ Cryan said at a conference in Frankfurt on Wednesday, when asked whether the German lender is looking for a merger partner. Deutsche Bank, which runs Europe’s largest investment bank, has lost about 42 percent in market value this year as Cryan struggles to shore up capital and reverse losses. As part of his restructuring plan introduced last year, the CEO announced thousands of jobs cuts, sold risky assets and suspended dividend payments. ‘A merger between the two is unlikely,’ said Chris Wheeler, a London-based analyst at Atlantic Equities. ‘There would be major competitive concerns. It would be looked upon by many people as negative news.’
The Asian session was uneventful with the most significant moves once again reserved for Japan where the Nikkei closed up 1%. Those gains have come after industrial production in Japan (0.0% mom vs. 0.8% expected) printed well below expectations and so keeping the pressure on the BoJ. The Yen was trading just shy 103.3 at last check following recent speculation that the BOJ may monetize foreign debt. The rest of Asia was more mixed. The Hang closed down 0.2%, the Shanghai Comp 0.4% and the ASX (-0.8%) was in the red.
The Bloomberg Dollar Spot Index is poised for its first monthly gain since May as prospects for higher U. S. borrowing costs widened the policy divergence with Europe and Japan, where central banks stand ready to add to unprecedented stimulus. A private report on jobs growth on Wednesday, ahead of Friday’s monthly payrolls, may provide insight on whether the economy is strong enough to withstand a rate increase as early as next month after Fed Vice Chairman Stanley Fischer said on Tuesday that any rate hike in September will be data dependent. “The dollar has been ‘supported by the recent, more hawkish comments from the Fed which have signaled that the Fed is moving closer to resuming rate hikes,’ said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. ‘The key will be the incoming economic data.’

This post was published at Zero Hedge on Aug 31, 2016.