Brexit One Year On: Political Chaos, Pounded Currency, & Pressured Consumers

It is exactly one year since the UK held the historic referendum vote on EU membership. As Deutsche Bank’s Jim Reid notes, whether you think that has passed quickly or not probably depends on if you’re a Sterling FX trader, in which case it’s more than likely been a long year. With today being the anniversary we thought we would see how assets have performed over the past year since the vote…
First and foremost the standout is the currency has been pounded with a huge decline for Sterling versus both the Dollar (-15%) and Euro (-13%). That massive move in the currency has helped to prop up local currency returns however and we’ve seen the FTSE 100 surge an impressive +22% (clearly boosted by big UK exporters) while GBP credit has returned between +8% and +15% and Gilts have returned +7%.

This post was published at Zero Hedge on Jun 23, 2017.

Draghi Doesn’t See ‘Bubbles’ – Let Me Show You Some

Mario Draghi has again missed an exceptional opportunity to adjust monetary policy. By ignoring the huge risks that are being created from the brutal inflation of financial assets, saying that ‘there are no signs of a bubble,’ the European Central Bank (ECB) remains adamantly focused on creating inflation by decree, denying the effects of technology, demography, and overcapacity.
‘No signs of bubble’? I’ll show you some of them myself.
The percentage of debt of major countries ‘bought’ by the ECB: Germany, 17%, France 14%, Italy 12%, and Spain 16%. In all cases, in 2016 and 2015 the ECB was the largest buyer of said countries’ net emissions. Ask yourself a question: On the day the ECB stops buying, which of you would buy peripheral or European bonds at these prices? Clearly, the first sign of a bubble is the absence of demand in the secondary that offsets the impact of the ECB. It indicates that the current price is simply unacceptable in an open market, even if the recovery is confirmed, especially because rates do not even reflect a minimum real return, being below inflation.

This post was published at Ludwig von Mises Institute on June 24, 2017.

The Real Healthcare Crisis: Retiring Seniors Need $500k To Cover Premiums Even With Obamacare

As Congress spends the next week and a half, if everything goes well, wrestling over how they can screw up healthcare in America even more, perhaps they should take notice of a new study from HealthView Services which highlights the fact that the real source of the healthcare crisis in this country is rising costs.
As Bloomberg notes, healthcare cost inflation is expected eclipse overall inflation and Social Security COLAs over the next decade.
U. S. retiree health-care costs are likely to increase at an average annual rate of 5.5 percent over the next decade. That’s nearly triple the 1.9 percent average annual inflation rate in the U. S. from 2012 to 2016 and more than double the projected cost-of-living adjustment (COLA) on Social Security benefits. The premiums on supplemental insurance, also known as Medigap, that many people buy to cover costs that Medicare doesn’t, such as co-payments; on Medicare Part B, which covers payments for doctors, tests, and other medical services; and on Part D, prescription drug coverage. Here’s how your Social Security benefits are likely to stack up against some of those costs.

This post was published at Zero Hedge on Jun 23, 2017.

Dear Market, I Think Janet Yellen Broke Up With You Last Week

Authored by Ben Hunt via Epsilon Theory blog,
Let’s review, shall we? Last fall, the Fed floated the trial balloon that they were thinking about ways to shrink their balance sheet. All very preliminary, of course, maybe years in the future. Then they started talking about doing this in 2018. Then they started talking about doing this maybe at the end of 2017. Two days ago, Yellen announced exactly how they intended to roll off trillions of dollars from the portfolio, and said that they would be starting ‘relatively soon’, which the market is taking to be September but could be as early as July.
Now what has happened in the real world to accelerate the Fed’s tightening agenda, and more to the point, a specific form of tightening that impacts markets more directly than any sort of interest rate hike? Did some sort of inflationary or stimulative fiscal policy emerge from the Trump-cleared DC swamp <sarc>? Umm … no. Was the real economy off to the races with sharp increases in CPI, consumer spending, and other measures of inflationary pressures? Umm … no. On the contrary, in fact.
Two things and two things only have changed in the real world since last fall. First, Donald Trump – a man every Fed Governor dislikes and mistrusts – is in the White House. Second, the job market has heated up to the point where it is – Yellen’s words – close to being unstable, and is – Yellen’s words – inevitably going to heat up still further.
What has happened (and apologies for the ten dollar words) is that the Fed’s reaction function has flipped 180 degrees since the Trump election. Today the Fed is looking for excuses to tighten monetary policy, not excuses to weaken. So long as the unemployment rate is on the cusp of ‘instability’, that’s the only thing that really matters to the Fed (for reasons discussed below). Every other data point, including a market sell-off or a flat yield curve or a bad CPI number – data points that used to be front and center in Fed thinking – is now in the backseat.

This post was published at Zero Hedge on Jun 23, 2017.


GOLD: $1256.20 UP $7.60
Silver: $16.63 up 8 cent(s)
Closing access prices:
Gold $1256.75
silver: $16.72

This post was published at Harvey Organ Blog on June 23, 2017.

Jim Rickards Exclusive: Dollar May Become ‘Local Currency of the U.S.’ Only

Mike Gleason: It is my great privilege to be joined now by James Rickards. Mr. Rickards is editor of Strategic Intelligence, a monthly newsletter, and Director of the James Rickards Project, an inquiry into the complex dynamics of geopolitics and global capital. He’s also the author of several bestselling books including The Death of Money, Currency Wars, The New Case for Gold, and now his latest book The Road to Ruin.
In addition to his achievements as a writer and author, Jim is also a portfolio manager, lawyer and renowned economic commentator having been interviewed by CNBC, the BBC, Bloomberg, Fox News and CNN just to name a few. And we’re also happy to have him back on the Money Metals Podcast.
Jim, thanks for coming on with us again today. We really appreciate your time. How are you?
Choose From 10-100oz Pure Silver Trusted Bullion Dealer – Buy Now! Jim Rickards: I’m fine, Mike. Thanks. Great to be with you. Thanks for having me.
Mike Gleason: Absolutely. Well first off, Jim, last week, the fed increased the fed funds rate by another quarter of a point as most of us expected, but during that meeting, we also heard Janet Yellen say she wants to normalize the Fed’s balance sheet, which means the Fed could be dumping about $50 billion in financial assets into the marketplace each month. Now you’ve been a longtime and outspoken critic of the fed and their policies over the years. So, what are your thoughts here, Jim? Do you believe they will actually follow through on this idea of selling off more than $4 trillion in bonds and other assets on the Fed’s books? And if so, what do you think the market reaction would be including the gold market?
Jim Rickards: Well, I do think they’re going to follow through. Of course, it’s important to understand the mechanics of the Fed. They’re actually not going to sell any bonds. But they are going to reduce their balance sheet by probably two to two and a half trillion. So just to go through the history and the math and the actual mechanics there, so prior to the financial crisis of 2008, the Fed’s balance sheet was about $800 billion. As a result of QE1, QE2, QE3, and everything else the fed has done in the meantime, they got that balance sheet up to $4.5 trillion. By the way, if the Fed were a hedge fund, they’d be leveraged 115 to one. They look a really bad hedge fund. But that’s how much the Fed is leveraged, they have about 40 billion of equity, versus 4.5 trillion of assets. Mostly U. S. government securities of various kinds. So, they’re leveraged well over 100 to one.

This post was published at GoldSilverWorlds on June 23, 2017.

Emerging Market Debt Risk Tumbles To 10-Year Lows, But…

A serial deadbeat (Argentina) got investors to buy 100-year bonds, Sri Lanka’s latest debt sale was oversubscribed by 10 times, tiny Belarus is poised to issue eurobonds, and even Papua New Guinea, the impoverished Pacific Island nation, is planning its overseas debut in the second half of the year.
But, as Bloomberg reports, that’s just a small sampling of the risks emerging-market investors have started taking, even as yields remain relatively thin.
But there’s more: defaulted notes from Mozambique are among the best performers in 2017. The Maldives, a tiny nation in the Indian Ocean, sold its first international bond earlier this month. And Ecuador, where the former president disparaged bondholders as ‘true monsters’ when he defaulted in 2008, had no trouble raising $3 billion.
Century bonds in EM are still rare, but have become more popular as global yields have collapsed…

This post was published at Zero Hedge on Jun 23, 2017.

Central Banks – Tiptoeing Toward the Exit

Frisky Fed Hike-o-Matic
We haven’t commented on central bank policy for a while, mainly because it threatened to become repetitive; there just didn’t seem anything new to say. Things have recently changed a bit though. A little over a week ago we received an email from Brian Dowd of Focus Economics, who asked if we would care to comment on the efforts by the Fed and the ECB to exit unconventional monetary policy and whether they could do so without triggering upheaval in the markets and the economy**, so we are taking this opportunity to do just that.
First of all, the FOMC appears to have decided it will no longer be deterred by short term weakness in economic data and continue to implement its rate hike plans anyway. As we have pointed out several times, these baby step hikes in the federal funds rate (modeled after Bernanke’s pre-crash rate hike campaign in 2004-2007) are in some sense atually meaningless.
That is mainly due to the fact that interbank lending of reserves is essentially dead, as banks continue to hold massive excess reserves as a result of QE. The FF rate is therefore no longer really a ‘monetary policy tool’, since the traditional method of keeping it on target by adding or draining reserves has become moot. The only way to keep the federal funds rate within the Fed’s target corridor (note they use a range these days instead of a precise target rate) is to pay interest on reserves (IOR).

This post was published at Acting-Man on June 24, 2017.

Saudi Reshuffle Could Completely Shake Up Oil Markets

Authored by Nick Cunningham via,
The power restructuring in Saudi Arabia this week led to the elevation of 31-year-old Mohammed bin Salman to crown prince, essentially ensuring that he will become the youngest king of Saudi Arabia in the not-too-distant future. The heir apparent has already been effectively running the country for the past few years, so the move was not entirely a shock. Nevertheless, the effects on the oil market could be profound.
The new crown prince is known to be a bit unpredictable. In the early phase of the oil price meltdown, he said that prices did not matter. But the plunge below $30 per barrel in early 2016 seemed to have changed the calculus. Last year Saudi Arabia became the principle driver behind a return to ‘market management,’ that is restraining output to stabilize prices.
With the OPEC production cuts – which have had to be extended from six to 15 months – still proving to be insufficient at balancing the market, it is not entirely impossible that the crown prince might reverse course yet again at some point and return to a ‘market share’ strategy. Or he could decide to deepen the cuts, an idea floated a few days ago by the Iranian oil minister. For now though, higher prices are surely to be the goal, particularly with the IPO of Saudi Aramco not far off. Either way, after Mohammed bin Salman and King Salman ousted former oil minister Ali al-Naimi last year, they have tighter control over the kingdom’s oil policy.

This post was published at Zero Hedge on Jun 23, 2017.

Market Talk- June 23, 2017

Most core markets finished a quiet week with limited volatility and little change. The Nikkei closed small down while the JPY set a similar trend, eventually finishing mid 111’s. A lot of the talk and discussions have been around the Hang Seng and the Chinese markets. Having just included 222 of the core Shanghai this has tended to dominate much of the moves and anticipation. Authorities have additional work ahead of them but this week will reflect a key point for when potentially the second largest market in the world opened its doors. Regulators will be keen to show the world the market is also ready for the move so expect stricter conditions ahead for local financial institutions as they move to centre stage. The Shanghai again continued its positive move closing +0.35% on the day. SENSEX saw a rare pullback closing off -0.5%.

This post was published at Armstrong Economics on Jun 23, 2017.

The Incredible Shrinking Relative Float Of Treasury Bonds

Via Global Macro Monitor blog,
Lots of hand wringing these days about the flattening yield curve. We still maintain our position that the signal from the bond market is significantly distorted due to the global central bank intervention (QE) into the bond markets. See here and here.
Most of what is happening with the U. S. yield curve is technical. Sure, traders can get a wild hair up their arse, believing the economy is slowing and try and game duration by punting in the cash or futures markets. Given the small relative float of the U. S. Treasury bond market, however, it doesn’t take much buying to move yields. In the words of economists, the supply curve of outstanding Treasuries is very inelastic.
This is illustrated in the following chart. The combined market cap of just Apple and Amazon at today’s close is larger than the entire the float of outstanding Treasury notes and bonds that mature from 2027-2027. We define float (US$1.16 trillion) as total Treasury securities (2027-2047) outstanding (US$1.73 trillion) less Fed holdings (US$575 billion).

This post was published at Zero Hedge on Jun 23, 2017.

US Oil Rig Count Rises For 23rd Straight Week But High Costs Drive Investors Out Of The Permian

The number of oil rigs in America has now risen for 23 straight weeks (and 50 of the last 52 weeks), up 11 to 758 in the last week – the highest since April 2015.
“It’s becoming bearish mania,” said Phil Flynn, senior market analyst at Price Futures Group Inc. in Chicago. “If we keep going down, we’re not going to be adding rigs in a few months, we’re not going to be adding production”
And we suspect, given the lagged reaction to prices, that inflection point in rig counts is close..

This post was published at Zero Hedge on Jun 23, 2017.

Stock Futures Fell This Morning as the Senate Debates Healthcare

This is a syndicated repost courtesy of Money Morning – We Make Investing Profitable. To view original, click here. Reposted with permission.
The Dow Jones news today features banks passing a Fed stress test and the Senate debating a new healthcare bill to replace Obamacare. Dow Jones futures are down 27 points this morning while crude oil prices stay near yearly lows.
Here are the numbers from Thursday for the Dow, S&P 500, and Nasdaq:
Index Previous Close Point Change Percentage Change Dow Jones 21,397.29 -12.74 -0.06% S&P 500 2,434.50 -1.11 -0.05% Nasdaq 6,236.69 +2.73 +0.04

This post was published at Wall Street Examiner by Garrett Baldwin ‘ June 23, 2017.

RBC: The Next Pain Trade Is Coming In 1-3 Months

With everyone suddenly back on the deflation (or un-reflation, or disinflation) bandwagon, is it possible that the crowd will once again be caught wrongfooted? According to RCB’s Charlie McElligott the answer, not surprisingly, is yes and in his latest market note, the cross-asset strategist says ignore the noise coming out of the Fed and focus on China instead. He explains why below:
I Further build the case for a tactical factor-reversal trade (1-3 month scope), where on account of a number of ‘higher rates’ macro catalysts and quant seasonality trends, I see scope for ‘Value’ and ‘Size’ to reverse their recent underperformance relative to ‘Anti-Beta,’ ‘Growth’ and ‘Momentum.’
The latest data-point strengthening my view on the trade is the positive impact that the past few weeks of PBoC liquidity injections are likely to have on the industrial metals complex, which in turn will further feed through to ‘inflation expectations’ as a POSITIVE driver, capable of arresting the recent breakdown there. This in turn would act as a catalyst for higher rates which can ultimately inflect popular ‘slow-flation’ trade positioning.

This post was published at Zero Hedge on Jun 23, 2017.

New Home Sales Rise 2.87% in May (To 1995 Levels), Median Home Prices Decline 3%

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.
After a bad showing in April, new home sales rebounded in May and rose 2.87% to 619K units SAAR.

New home sales in The West rose 28.57%.
While new home sales (white line) rose in May (to 1995 levels), the median price per square foot is considerably above the peak of the housing bubble.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ June 23, 2017.

When Will the Stock Market Crash Again?

This is a syndicated repost courtesy of Money Morning. To view original, click here. Reposted with permission.
The Dow has rocketed 153% higher over the last eight years, making this bull market the second longest in history. But all bull markets end, and with this one nearing record length it’s time to consider whether it will end in a stock market crash.
While this current bull market has brought triple-digit growth over the last eight years, the Trump rally kicked it into overdrive. The Dow has surged 17% since Election Day, pushing the Dow to a record-breaking run of all-time highs. The Dow’s jump from a record 20,000 points to a new record of 21,000 points was its fastest 1,000-point gain in history.

This post was published at Wall Street Examiner by Money Morning News Team ‘ June 23, 2017.

JPMorgan’s Head Quant Doubles Down On His “Market Turmoil” Forecast: Here’s Why

After getting virtually every market inflection point in 2015, and early 2016, so far 2017 has not been Marko Kolanovic’s year, whose increasingly more bearish forecasts have so far been foiled repeatedly by the market, and the same systematic traders that he periodically warns about. As a reminder, his most recent warning came last week, when he cautioned that even a modest rebound in VIX could lead to dramatic losses for vol sellers. As a reminder, here is the punchline from his latest note:
Days like May 17th and similar events “bring substantial risk for short volatility strategies. Given the low starting point of the VIX, these strategies are at risk of catastrophic losses. For some strategies, this would happen if the VIX increases from ~10 to only ~20 (not far from the historical average level for VIX). While historically such an increase never happened, we think that this time may be different and sudden increases of that magnitude are possible. One scenario would be of e.g. VIX increasing from ~10 to ~15, followed by a collapse in liquidity given the market’s knowledge that certain structures need to cover short positions. So in light of a market that refuses to post even the smallest of drawdowns (we are not sure if the words “selling”, “correction” or “crash” have been made illegal yet), has Kolanovic thrown in the towel and declared smooth seas ahead? To the contrary: in a note released late last night, he echoes warnings made recently by both Citi and BofA, and predicts that receding monetary accommodation from ECB and BOJ will likely lead to “market turmoil, and a rise in volatility and tail risks” and just in case there is some confusion, he reiterates what he said last week, namely that the “key risk of option selling programs is market crash risk.”

This post was published at Zero Hedge on Jun 23, 2017.