The Fed’s Definition Of Price Stability Is Probably Different Than Yours

The Federal Reserve Act, as mandated by Congress, established a dual mandate to guide the Federal Reserve (Fed) in setting monetary policy. Price stability, one of the mandates, benefits economic growth as it allows investors, corporations, and consumers the ability to better predict future prices and therefore allocate investments and spending in a more optimal manner.
To consider why price stability is beneficial, consider an oil producer deciding whether or not to invest in a new well. To simplify the analysis, assume the producer only needs to consider three variables to properly evaluate the project: (A) investment costs (fixed/variable), (B) a reliable estimation of the amount of oil, and (C) the future price of oil. The expected return equation dictates that profits must be greater than costs (B x C must be greater than A) to forecast a profit on the investment. The company has some control over investment costs and the surveying methods to determine the success of the well, but they have little if any control over the future price of oil. Therefore, the more stable and predictable the future price of oil, the more comfort the producer can have in making its decision about a new well.

This post was published at Zero Hedge on Jul 4, 2017.

Buy Gold Stocks Now

1. The latest gold price action is a near-perfect reflection of the current market fundamentals.
2. Please click here now. Double-click to enlarge.
3. Gold has arrived at my $1220 – $1200 conservative investor buy zone.
4. The market is seasonally soft in the summer months, but two key price drivers are poised to create the next rally.
5. The first is the US jobs report. It’s scheduled for release on Friday at 8:30AM. Market participants are going to be looking at wage price inflation as much as they are looking at the total number of jobs created.
6. Gold has a rough general tendency to soften ahead of this report, and then rally strongly following its release.
7. The $1220 – $1200 support zone is an ideal price area for gold bugs to buy in anticipation of a post jobs report rally!
8. Please click here now. Double-click to enlarge this seasonal spot gold chart, courtesy of Dimitri Speck.
9. This chart should be used by all gold bugs as a key reference chart to understand gold’s seasonality.
10. In a nutshell, the summer is the best time to accumulate gold, and February is a great time to book some profits.
11. The current price softness is seasonally normal, and it’s exacerbated by the decision of bullion banks to halt imports into India.
12. They decided to halt imports until they got clarification about applying the new GST regime to the gold market. It appears that June imports were only about five tons.

This post was published at GoldSeek on 5 July 2017.

Carmageddon: Record Incentives And Financing Terms Fail To Stem The Auto Bleeding In June

GM's inventory has officially hit a 10-year high. 980,454 units in stock (a 105-day supply) as of June 30, the most since June 2007.
— Nick Bunkley (@nickbunkley) July 3, 2017

Yesterday we noted that auto investors celebrated the fact that, while auto sales were down massively year-over-year (to the tune of nearly 6% for the Detroit 3), June figures were ‘less bad’ than expected, so ‘good’. All of which sparked even more ‘irrational exuberance’ among OEM equity owners and sent Ford/GM shares soaring.
But, rather than focus on the headline numbers, perhaps those equity owners should spend a little more time analyzing the record incentives and deteriorating underwriting standards that have been required to generate those ‘less bad’ results.
Take, for example, incentive spending for the month of June. As Automotive News points out, overall industry incentive spending soared nearly 10% YoY with brands like Hyundai and Honda slashing 42% and 20%, respectively, to move their bloated dealer inventories.
ALG reports automakers spent an average of $3,550 per new vehicle sold in June, up 9.7 percent from a year ago. The average discount is expected to account for 10.8 percent of the average transaction price of vehicles sold last month — marking the 11th time in the past year that incentive spending has accounted for 10 percent or more of the sale price, according to industry forecasters.
Autodata Corp. says average incentive spending heading into June was up 15 percent to $3,516 per vehicle sold. Despite weakening demand for cars, incentive spending for light-duty truck increased 16 percent compared to 13 percent for light-duty passenger cars during the first five months of the year.

This post was published at Zero Hedge on Jul 4, 2017.

Ron Paul: “I Would Not Be Shocked” If Stocks Crash 25% In 3 Months

Precariously overstretched equity valuations and the purportedly ‘data dependent’ Federal Reserve’s insistence on raising interest rates could bring about the next market correction as soon as October, former Congressman Ron Paul said during a recent appearance on CNBC’s “Futures Now.”
The stock market’s fragility – exposed by a series of volatility events in recent months – suggests that the Fed should tread carefully. However, policy makers, it seems, are focused on bracing for the next crash, and have telegraphed to the market that they will continue to hike rates, even as they struggle for justification.
All of this suggests that stocks could be in for a hard landing as soon as this fall, Paul said.
“I think that it will have a negative effect but I’m not going to say where it’s going exactly. I would not be shocked if in October if its 25% lower than it is now.’

This post was published at Zero Hedge on Jul 4, 2017.

Meanwhile, Spotted Together At A Southampton Party…

While publicly polarizing average-joe America at every opportunity, it appears the ‘elites’ are having a blast ‘together’ behind the scenes…
As Politico reports…
OUT AND ABOUT IN THE HAMPTONS — Lally Weymouth held her annual summer party last night at her house in Southampton.
There was a long gold carpet entrance from where the parking was to a big tent next to her house. She served champagne, rare filet, fried chicken, cornbread, a big chocolate cake, ice cream and cookies decorated as American flags. Brother Don Graham did a big tribute to toast Lally (whose birthday is tomorrow) and shouted out Steven Spielberg’s upcoming film about how Ben Bradlee and Katharine Graham challenged the government for the right to publish the Pentagon Papers in 1971 (Tom Hanks is playing Bradlee and Meryl Streep is playing Graham). Don made a big deal that Spielberg was there and jokingly conceived a Spielberg movie about Lally and described the cast (some actors and some in the room).

This post was published at Zero Hedge on Jul 4, 2017.

Tricked on the Fourth of July

I do not celebrate the fourth of July. This goes back to a term paper I wrote in graduate school. It was on colonial taxation in the British North American colonies in 1775. Not counting local taxation, I discovered that the total burden of British imperial taxation was about 1% of national income. It may have been as high as 2.5% in the southern colonies.
In 2008, Alvin Rabushka’s book of almost 1,000 pages appeared: Taxation in Colonial America (Princeton University Press). In a review published in the Business History Review, the reviewer summarizes the book’s findings.
Rabushka’s most original and impressive contribution is his measurement of tax rates and tax burdens. However, his estimate of comparative trans-Atlantic tax burdens may be a bit of moving target. At one point, he concludes that, in the period from 1764 to 1775, “the nearly two million white colonists in America paid on the order of about 1 percent of the annual taxes levied on the roughly 8.5 million residents of Britain, or one twenty-fifth, in per capita terms, not taking into account the higher average income and consumption in the colonies” (p. 729). Later, he writes that, on the eve of the Revolution, “British tax burdens were ten or more times heavier than those in the colonies” (p. 867). Other scholars may want to refine his estimates, based on other archival sources, different treatment of technical issues such as the adjustment of intercolonial and trans-Atlantic comparisons for exchange rates, or new estimates of comparative income and wealth. Nonetheless, no one is likely to challenge his most important finding: the huge tax gap between the American periphery and the core of the British Empire.
The colonists had a sweet deal in 1775. Great Britain was the second freest nation on earth. Switzerland was probably the most free nation, but I would be hard-pressed to identify any other nation in 1775 that was ahead of Great Britain. And in Great Britain’s Empire, the colonists were by far the freest.

This post was published at Gary North on July 04, 2017.

SWOT Analysis: Gold Has Outperformed the Stock Market Since 2000

The best performing precious metal for the week was silver, with a fall of just 0.51 percent with platinum just behind that. Following wild price swings on heavy volume Monday and Tuesday in a suspected erroneous trade, gold traders and analysts remained bullish for a second week, reports Bloomberg. On Monday, 1.8 million ounces of the yellow metal were sold in a single minute and on Tuesday prices spiked in early European trading with about 815,000 ounces of gold bought in five minutes – a suspected reverse on the Monday fat finger trade. The euro has climbed to a 13-month high on speculation that Mario Draghi’s ECB is poised to reduce unprecedented monetary stimulus, writes Bloomberg News. This has allowed Europeans to pay the least this year to buy gold, the article continues, while comments from Fed Chair Janet Yellen this week did little to support the U. S. currency. HKEK and the Chinese Gold & Silver Exchange Society signed MoU on Thursday to consider cooperation on matters such as product promotion and storage vaults, according to a statement on the Hong Kong Exchanges & Clearing website. MoU signifies strategic partnership that aims to build a major gold and commodities trading center in Asia Pacific, said CGSE President Haywood Cheung in a statement, reports Bloomberg.

This post was published at GoldSeek on 3 July 2017.

Illinois Tax Rate Soars 32% After Senate Overrides Governor Veto

6:33 PM
Two days ago when we reported that the Illinois House had voted 72-45 to pass a 32% income tax hike (and a $36 billion spending plan), in an last ditch scramble to provide the state with its first budget in three years (or else suffer the first ever US downgrade to “Junk”), we said that “ultimately, the fate of Illinois’ credit rating is now in the hands of Rauner, and whether and how fast his imminent veto is overriden.”
We got the answer on Independence Day afternoon, when just around noon, first the Senate voted to approve the House tax hike and spending bill, then shortly after, Gov. Rauner – just as he warned he would – vetoed both the income tax increase and the budget bill and budget implementation bill….
I just vetoed Speaker Madigan's 32% permanent income tax increase.
— Bruce Rauner (@GovRauner) July 4, 2017

…. only to be himself overriden moments later by the Senate, as it took the drastic measure to end a record budget impasse.
The 36-18 vote in the Senate on the tax hike came after a very short debate, and two days after more than a dozen Republicans in the House broke ranks with Rauner to join Democrats to support the plan amid growing frustration.

This post was published at Zero Hedge on Jul 4, 2017.

The End of the Curse of Babel

A subscriber posted this last week.
I do not speak English. I use google translate for reading and communication. In the books and articles of Dr. G. North, I find the answers to the questions that interest me. I am very encouraged and taking forward-looking actions. I believe my work is an inheritance for my children.
brief paragraph is easily understood by someone who speaks English. It opens the world to speakers of multiple languages. This is going to increase the intellectual division of labor on a scale never before imagined.
I don’t know how long it is going to take, but there will come a time when we have real-time communications with each other, despite the fact we do not speak each other’s languages. This will be a tremendous benefit to intellectual productivity.
We already know that most of the value delivered online has to do with knowledge. Knowledge is the primary economic good that is available online. The great barrier today is the fact that we do not understand each other’s languages. But I think it is easy to predict that sometime over the next two decades, this barrier is going to be reduced to the point where only about 5% of the information is lost as a result of inefficient translation software. That last 5% will be difficult to overcome, but the 95% that will have been translated accurately will contain the most significant information.
We know that there is going to be a breakthrough in low-orbit satellite communications. Three companies are innovating in this area: Facebook, Amazon, and Google. One or more of these approaches is likely to work. Facebook recently ran a test of a high-flying drone that will be used to enable people in the Third World and Second World to hook up to Facebook free of charge. The story is here.
Because the most valuable asset as information, and because this cannot be blocked except by tyrannical governments, and it can be taxed by no one, we’re going to see an increase in international trade. There is no way to place a tariff or quota on a piece of information that is sent digitally. We know the rule: when the price falls, more is demanded. That is a fundamental law of economics. We are going to see this demonstrated across the world from this time on.

This post was published at Gary North on July 04, 2017.

French Market Regulator Sees “Brutal Repricing Of Assets”; Valuations, Volatility “Don’t Reflect Real Uncertainty”

High valuations and low volatility don’t reflect the level of economic growth nor the geopolitical uncertainty facing the market, the Autorit des Marchs Financiers says in a mid-year report on main risks to global markets. While stock markets have shown resiliency, the French regulator warns of the “systemic threat” fromn a “sharp market correction.”
As AMF continues… Equity market volatility therefore now appears to be decorrelated from political uncertainty indexes…

This post was published at Zero Hedge on Jul 4, 2017.

It’s Time to Privatize Our Stockpile of Crude Oil

The Trump Administration is reportedly considering plans to sell off about half of the Strategic Petroleum Reserve (SPR), which is the federal government’s nearly-700 million barrel stockpile of crude oil. Such a move would help ease the budget crunch (bringing in about $17 billion at current oil prices) but would also (partially) return the function of resource allocation back towards the private sector. If the government leaves prices alone, the market is the best mechanism for storing reserves and easing supply shocks.
What’s the Purpose of the SPR?
The SPR was formed in 1975 amidst the scares over the OPEC embargo and perceived ‘energy shortage.’ As part of its membership in the International Energy Agency (IEA), the US committed to maintain a 90-day stockpile of net petroleum imports. [1] The idea of the SPR is straightforward enough: The federal government will maintain a ‘strategic’ reserve of crude, so that Americans will not be as vulnerable to a major disruption in the world oil market.
However, just as we don’t ask the federal government to build cars or grow food, there is also no theoretical reason that it should be in charge of emergency stockpiles of oil. Nicolas Loris had a thorough analysis on privatizing the SPR back in 2015, but in this post I’ll hit the main points.
Here is the Energy Information Administration’s breakdown of US petroleum stocks as of May 26, 2017 (the latest available at this writing):

This post was published at Mises Canada on JULY 3, 2017.

Is America Still A Nation?

In the first line of the Declaration of Independence of July 4, 1776, Thomas Jefferson speaks of ‘one people.’ The Constitution, agreed upon by the Founding Fathers in Philadelphia in 1789, begins, ‘We the people…’
And who were these ‘people’?
In Federalist No. 2, John Jay writes of them as ‘one united people … descended from the same ancestors, speaking the same language, professing the same religion, attached to the same principles of government, very similar in their manners and customs…’
If such are the elements of nationhood and peoplehood, can we still speak of Americans as one nation and one people?
We no longer have the same ancestors. They are of every color and from every country. We do not speak one language, but rather English, Spanish and a host of others. We long ago ceased to profess the same religion. We are Evangelical Christians, mainstream Protestants, Catholics, Jews, Mormons, Muslims, Hindus and Buddhists, agnostics and atheists.
Federalist No. 2 celebrated our unity. Today’s elites proclaim that our diversity is our strength. But is this true or a tenet of trendy ideology?

This post was published at Zero Hedge on Jul 4, 2017.

Bi-Weekly Economic Review: Draghi Moves Markets

In my last update two weeks ago I commented on the continued weakness in the economic data. The economic surprises were overwhelmingly negative and our market based indicators confirmed that weakness. This week the surprises are not in the economic data but in the indicators. And surprising as well is the source of the outbreak of optimism in the bond market and the yield curve.
We’re growing at 2% or so and it is apparently going to take something big to move us off that number. Investors thought for a while that the new Trump administration would supply that something big in the form of tax cuts, regulatory reform and healthcare reform. All that has faded as the reality of governing in a deeply divided country bites into expectations for rapid change.
The Trump agenda was marked to market over the last few months and came up a bit shy. Bond yields fell, the yield curve flattened, gold rose and economically sensitive commodities fell. The dollar also fell as economic growth expectations equalized between the US and the rest of the world. And it appears more and more that the equalization is equal parts worse in the US and better everywhere else. The global economy is not supposed to be a zero sum game but it sure has looked that way in recent years.

This post was published at Wall Street Examiner on July 2, 2017.

Introduction to Part 3: Protecting the Auction

Christian Economics: Teacher’s Edition
Moses chose able men out of all Israel and made them heads over the people, chiefs of thousands, of hundreds, of fifties, and of tens. And they judged the people at all times. Any hard case they brought to Moses, but any small matter they decided themselves (Exodus 18:25 – 26). Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God. Therefore whoever resists the authorities resists what God has appointed, and those who resist will incur judgment. For rulers are not a terror to good conduct, but to bad. Would you have no fear of the one who is in authority? Then do what is good, and you will receive his approval, for he is God’s servant for your good. But if you do wrong, be afraid, for he does not bear the sword in vain. For he is the servant of God, an avenger who carries out God’s wrath on the wrongdoer. Therefore one must be in subjection, not only to avoid God’s wrath but also for the sake of conscience. For because of this you also pay taxes, for the authorities are ministers of God, attending to this very thing. Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed (Romans 13:1 – 7).
The Bible mandates civil government. It categorically denies the legitimacy of the idea of a society without civil government. Throughout the history of Christianity, all ecclesiastical traditions have asserted the legitimacy of the state. There are no exceptions.
Paul went so far as to mandate that churches pray for civil rulers. ‘First of all, then, I urge that supplications, prayers, intercessions, and thanksgivings be made for all people, for kings and all who are in high positions, that we may lead a peaceful and quiet life, godly and dignified in every way’ (I Timothy 2:1 – 2). If civil government were illegitimate, Paul would not have commanded such a thing. He did not say to pray for leaders of gangs or criminal syndicates.

This post was published at Gary North on July 04, 2017.

One Brit Explains Why He Loves July 4

‘And the rocket’s red glare, the bombs bursting in the air, gave proof through the night…’
I love July 4th.
From Bill Blain of Mint Partners
‘And the rocket’s red glare, the bombs bursting in the air, gave proof through the night…’
I love July 4th.
It’s the day we celebrate getting shot of these pesky, whiny, tax-dodging colonists we despatched to the New World all these years ago. Always complaining about something, and what they’ve done to the English language is just despicable… I do think telling them to reproduce and travel far was possibly the best thing King George ever did.
Subsequent history shows the wisdom of our decision. The British Empire now spans the entirety of this island perched at the unfashionable end of a dismal continent that doesn’t like us or our cuisine, while the Americans are cursed with being a global superpower.
It’s the day we celebrate getting shot of these pesky, whiny, tax-dodging colonists we despatched to the New World all these years ago. Always complaining about something, and what they’ve done to the English language is just despicable… I do think telling them to reproduce and travel far was possibly the best thing King George ever did.
Subsequent history shows the wisdom of our decision. The British Empire now spans the entirety of this island perched at the unfashionable end of a dismal continent that doesn’t like us or our cuisine, while the Americans are cursed with being a global superpower.

This post was published at Zero Hedge on Jul 4, 2017.

Citi’s Sentiment Indicator Crashes, And Four Other Things That Scare The Bank

In his latest note, Citi’s Jeremy Hale shows something troubling to all those, such as Bloomberg, who point to yesterday’s ISM manufacturing sentiment indicator (while ignoring the rapidly slowing PMI) as indication of more upside left in the economy: according to the Citi cross-asset strategist the bank’s NISI Index (news implied sentiment indicator, Figure 1), has plunged sharply into bearish territory in the latest print, to its lowest level in 18 months, since January 2016. According to Hale, as Trump ‘Optimism’ fades, there may have been too much “spirit” priced into the SPX. The latest print in NISI suggests renewed skew towards pessimistic sentiment and thus looking at past correlations to the NISI, Citi warns that the SPX may fall relative to trend for a period on this measure.
It’s not just the market’s fading euphoria that worries Citi: according to Hale there are 4 other things that worry the bank when it comes to equities, with valuations at the top.
Arguably already rich and perhaps increasingly reliant on earnings to do the ‘heavy lifting’ from here. Breaking down the P/E ratio to P vs. E illustrates how much the market has re-rerated significantly in the last couple of years (Figure 2). Even value stocks are expensive in the US. Additionally, estimates for the current ex-ante ERP are starkly below average historic excess equity returns of +4.7%. In order to even achieve this mean level of excess return, we’d need to see a nominal gdp growth rate of >5.25% (which would be above trend on a 5y, 10y and 30y basis). As such, this would require significant upwards revisions to Citi’s current growth outlook, at a time where Citi Economists say they are close to the cyclical peak in global growth and see increasing downside risks to their forecasts. Combined with undershooting inflation/ declining inflation expectations, this seems even more unrealistic and makes equities appear richer on this basis.

This post was published at Zero Hedge on Jul 4, 2017.

Chris Christie Signs Budget Bill, Ending New Jersey Government Shutdown

Today I signed my final balanced budget, delivering 2 full terms of unprecedented pension stability, fiscal responsibility & tax relief.
— Governor Christie (@GovChristie) July 4, 2017

After a three day state of emergency and government shutdown, on Tuesday morning New Jersey Gov. Chris Christie signed a compromise budget bill ending the state shutdown that became an embarrassment for the outgoing governor when he was photographed lounging on a beach that had been closed to the public for the holiday weekend. According to Reuters, Christie ended the state shutdown by signing a $34.7 billion budget measure that included a controversial provision reshaping the state’s largest health insurer, Horizon Blue Cross Blue Shield of New Jersey, which covers 3.8 million people in the state.
Christie said all state parks and beaches would be open on Tuesday for the Fourth of July holiday and state offices would be open as usual on Wednesday, and added that he was happy a resolution had been reached on the budget impasse, but saddened it came three days late.

This post was published at Zero Hedge on Jul 4, 2017.

Gartman: “The Time Has Come To Be Short Of Oil Once Again”

When we pointed out yesterday that “world-renowned commodity guru” Dennis Gartman remained bearish of oil, we quoted him as saying that “it has been our intention all along to await the opportunity to sell crude oil short on protracted rally and we are getting that rally as we write. We can be patient a while longer.” His patience lasted less than 24 hours, because one day later – as oil is on the cusp of extending its bullish run for a near record 9th consecutive day – Gartman this morning that “the time then has come to be short of crude oil once again.”
The section of note:
CRUDE OIL PRICES CONTINUE TO ADVANCE and have now risen for 8 or 9 days in a row, depending upon when one has marked the close. Going by the CME’s official closes, yesterday was the 8th day in row higher and the ‘bounce’ from the lows made two weeks ago amidst what was then panic liquidation has now taken the market to an almost equally over-bought, hyper-extended level to the upside. We have maintained that the ‘bounce’ would take crude back to The Box marking the 50-62% retracement in nearby WTI crude to somewhere between $47.00-$48.15 and for all intents that was satisfied yesterday when the high of $47.07. Note then the chart of nearby August WTI and note The Box.

This post was published at Zero Hedge on Jul 4, 2017.