The Broken State Fallacy – “No, Hurricanes Are Not Good For The Economy”

Yes, GDP may get a temporary boost from rebuilding, but there’s nothing positive about destruction
Once the immediate danger of a natural disaster subsides, and the loss of life, property damage, cost of rebuilding, and degree of insurance coverage can be assessed, attention generally turns to the economic effect. How will Hurricane Harvey affect the nation’s gross domestic product?
You will no doubt hear assertions that the rebuilding effort will provide a boost to contractors, manufacturers and GDP in general. But before these claims turn into predictable nonsense about all the good that comes from natural disasters, I thought it might be useful to provide some context for these sorts of events.
The destruction wrought by a hurricane and flooding qualifies as a negative supply shock. Normal production and distribution channels are destroyed or disrupted. Producers have to find less-efficient (i.e. more expensive) ways to transport their goods. The net effect is lost output and income, and higher prices.

This post was published at Zero Hedge on Aug 29, 2017.

Gold Stocks Portfolio Fuel

SPDR fund tonnage (GLD-NYSE) has recaptured the 800 ton mark, and rose to 814 yesterday. This is happening as a steady wave of institutional money managers embrace gold as an important portfolio component. It’s also occurring as Indian dealers begin buying for Diwali. The result of this overall ramp-up in demand is a beautiful surge higher in the gold price! Please click here now. Double-click to enlarge this important gold chart. I call this my ‘Road To $1392’ chart. When the price of an asset arrives at major resistance in a huge chart pattern, a real upside breakout and sustained move higher can only occur if market fundamentals are aligned with the technical set-up. The good news is that for gold, this appears to be the case. Please click here now. Double-click to enlarge this monthly gold chart. The $1377 – $1392 price range is the resistance zone of a huge inverse head and shoulders bottom pattern. It is the neckline of the pattern. Note the tremendous rise in volume that is occurring as gold makes a beeline to that neckline. The Indian gold market has completed its restructuring, and Western money managers are lining up to add gold to their portfolios. The managers are not just making a one-time purchase. They are adding gold as a percentage allocation. That allocation seems to be averaging around 5%. As the funds gather new assets, they buy more gold to maintain that 5% allocation. Asian fund managers typically give gold an even higher allocation to gold in their funds than Western managers. As China and India become the main economic empires, Western money managers will tend to play ‘follow the Chindian leader’. That means the current Western money manager allocation to gold that is about 5% could easily rise to 10% or 15% in the coming years. Clearly, all liquidity flow lights for gold…are green!

This post was published at GoldSeek on 29 August 2017.

Case-Shiller Home Price Index Rises 5.65% YoY (Wage Growth Only 2.37% YoY), Seattle Highest at 13.4% While Washington DC Lowest at 3.1%

This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
The S&P CoreLogic Case-Shiller U. S. National Home Price NSA Index, covering all nine U. S. census divisions, reported a 5.8% annual gain in June, up from 5.7% the previous month. The 10-City Composite posted a 4.9% annual increase, down from 5.0% the previous month. The 20-City Composite reported a 5.7% year-over-year gain, the same as the previous month.
Seattle, Portland, and Dallas reported the highest year-over-year gains among the 20 cities. In June, Seattle led the way with a 13.4% year-over-year price increase, followed by Portland with 8.2%, and Dallas with a 7.7% increase. Nine cities reported greater price increases in the year ending June 2017 versus the year ending May 2017.
Once again, the Case-Shiller 20 Metro home price index is rising over twice as fast (2x) as wage growth for the majority of the US population.

This post was published at Wall Street Examiner by Anthony B Sanders ‘ August 29, 2017.

The Last Time This Few Americans Thought Stocks Would Drop, They Crashed

According to the latest Conference Board survey, 80% of Americans surveyed believe that stock prices will not be lower in the next 12 months. The last time the nation was so convinced of the market’s ‘permanently high plateau’ was in the fall of 2007, as the S&P topped…
Only 20% of Americans believe stocks will fall in the next 12 months – that is the lowest number since mid-2017

What happened next was not pretty (oh and in 1999/2000…)
And don’t forget that speculators have never been more net long Dow futures…

This post was published at Zero Hedge on Aug 29, 2017.

Alert: Gold Breaks Out to New 2017 High

Gold’s naysayers and doubters came out in full force earlier this summer as sentiment reached its nadir. The mid-year pullback in prices did, too.
There can be no doubt about it now – gold has broken out of its summer doldrums. On Monday, the yellow metal finally broke through the longstanding $1,300/oz resistance zone to make a new high for the year at $1,316.

Assuming the breakout holds, the next upside target is $1,375/oz, the high point for 2016.
There are plenty of bullish factors behind gold’s recent upside momentum to continue pushing prices higher in the days and weeks ahead. The gold mining stocks are starting to show relative strength again. And the U. S. Dollar Index appears to have begun another new down leg this week, falling Monday to a two-and-a-half-year low.

This post was published at GoldSeek on Tuesday, 29 August 2017.

Precious Metals Supply-Demand Report

Fundamental Developments
The price of gold dropped two bucks, and silver two cents. However, it was a pretty wild ride around the time when some information came out from our monetary masters at their annual boondoggle at Jackson Hole. We will show some charts of Friday’s intraday action, below.
As always, the question is which moves are driven by fundamentals, and which by speculation? We will show graphs of the basis, the true measure of the fundamentals.

This post was published at Acting-Man on August 29, 2017.

Florida Professor Suggests Texans Deserve Hurricane Harvey For Supporting Trump

A University of Tampa professor recently suggested that Texans deserve the fallout from Hurricane Harvey because of their support for Donald Trump in the 2016 election.
As Campus Reform reports, Professor Ken Storey wrote…
‘I don’t believe in instant Karma but this kinda feels like it for Texas, Hopefully this will help them realize the GOP doesn’t care about them.’

This post was published at Zero Hedge on Aug 29, 2017.

Debt Ceiling Part II

Bullets on the debt-ceiling charade:
1. No one expects the US to default. So why has the credit default swap (CDS) on the US risen in price? Answer: Bond market agents want to add a little insurance just in case American politics deliver a negative surprise.
2. The short end of the US Treasury curve is distorted by the charade. Market agents seek Treasury bills that mature beyond the October crunch date, so they can avoid a whipsaw.
3. US Treasury normal year-end cash balance is expected to be $350 – $400 billion. That is what it was in the previous year. Debt-ceiling politics are likely to take September cash under $100 billion and falling.
4. October is the crunch month. Will Treasury miss the October debt-service payment? No.
5. Will 50 million Social Security checks be delayed? No.
6. At the last minute, Congress will come up with temporary extensions to avoid a default. All the political statements and posturing are just that and nothing more.

This post was published at FinancialSense on 08/29/2017.

Bank of America; “This Could Get Ugly, We Think”

Instead of finding new and creative ways of BTFD, overnight the BofA credit team did something so few finance professionals bother with these days: they looked at fundamental data to reach a conclusion that is independent of how much AAPL stock the SNB will have to buy to send the Dow Jones green. Specifically, the bank looked at the liquidity situation in the bond market (specifically the IG space), and found that while for the time being there is little to worry about, once the central bank put melts away, that’s when the real test will take place. And, as BofA puts it bluntly, “this could get ugly, we think.”
As the bank’s credit strategist Hans Mikkelsen explains, high grade corporate bond trading has doubled over the post-crisis years (Figure 1). However, as the size of the market tripled that means the overall market has become less liquid due to a number of post-crisis changes, including financial regulation and most prominently the Volcker Rule, but also less leverage in the system. For example, while annual trading volumes in the HG corporate bond market were 135% of the size of the market back in 2006, that same tracking statistic is only 86% for 2017 (figure 2).

This post was published at Zero Hedge on Aug 29, 2017.

‘Stock Market?’ What Stock ‘Market?’

‘There are no markets, only interventions’ – Chris Powell, Treasurer and Director of GATA
To refer to the trading of stocks as a ‘market’ is not only an insult to any dictionary in the world that carries the definition of ‘market,’ but it’s an insult the to intelligence of anyone who understands what a market is and the role that a market plays in a free economic system. By the way, without free markets you can’t have a free democratic political system.
The U. S. stock is rigged beyond definition. By this I mean that interference with the stock market by the Federal Reserve in conjunction with the U. S. Government via the Treasury’s Working Group on Financial Markets – collectively, the ‘Plunge Protection Team’ – via ‘quantitative easing’ and the Exchange Stabilization Fund has destroyed the natural price discovery mechanism that is the hallmark of a free market. Capitalism does not work without free markets.
Currently a geopolitically belligerent country is launching ICBM missiles over a G-7 country (Japan). In response to this belligerence, the even more geopolitically belligerent U. S. is testing nuclear bombs in Nevada. The world has not been closer to the use of nuclear weapons since Truman used them on Japan. The stock markets globally should be in free-fall if the price discovery mechanism was functioning properly.

This post was published at Investment Research Dynamics on August 29, 2017.

Home Prices In 80% Of US Cities Grow Twice Faster Than Wages… And Then There’s Seattle

According to the latest BLS data, average hourly wages for all US workers rose 2.5% relative to the previous year, well below the Fed’s “target” of 3.5-4.5%, as countless economists are unable to explain how 4.3% unemployment, and “no slack” in the economy fails to boost wage growth. Another problem with tepid wage growth, in addition to crush the Fed’s credibility, is that it keeps a lid on how much general price levels can rise by. With record debt, it has been the Fed’s imperative to boost inflation at any cost (or rather at a cost of $4.5 trillion) to inflate away the debt overhang, however weak wages have made this impossible.
Well, not really. Because a quick look at US housing shows that while wages may be growing at roughly 2.5%, according to the latest Case Shiller data, every single metro area in the US saw home prices grow at a higher rate, while 16 of 20 major U. S. cities experienced home price growth of 5% or higher: double the average wage growth, and something which even the NAR has been complaining about with its chief economist Larry Yun warning that as the disconnect between prices and wages become wider, homes become increasingly unaffordable.
And while this should not come as a surprise, one look at the chart below suggests that something strange is taking place in Seattle, which has either become “Vancouver South” when it comes to Chinese hot money laundering, or there is an unprecedented mini housing bubble in the hipster capital of the world.

This post was published at Zero Hedge on Aug 29, 2017.

Total G-3 Central Bank Control

There’s a lot of amazement and wonder at how the “stock market” can be up today with the devastating news out of Texas and the latest North Korean missile launch. Longtime readers of TFMR know exactly how this market levitation is accomplished so this post is designed as a public service in order to better educate and inform everyone else.
Let’s just keep it simple…
In 2017…and, actually, since 2008…the “markets” don’t actually exist. Oh sure, there are trades and prices but in terms of what the markets were 20 years ago?…those days are long gone. Instead, what we have now is total HFT domination. Over 90% of all volume on the NYSE and NASDAQ is now done through HFT machines that swap positions back and forth. This is common knowledge and if you and I know this, then you can be assured that The Fed, The ECB and the BoJ (known henceforth as the G-3) know this, too.
To that end, since the G-3 are dedicated to market stability and the wealth effect, these central banks clearly seek to influence the direction of the equity markets by influencing the two key drivers of the HFT machines. And what are these drivers? The currency pair of USDJPY and the volatility index known as the VIX. Simply stated, if your wish is to drive “the stock market” higher, all you need to do is buy the USDJPY while at the same time selling the VIX. It truly is that simple.

This post was published at GoldSeek on Tuesday, 29 August 2017.

Insurance Companies Could Face Staggering $500 Billion Loss During A Crisis-Like Downturn

Here’s one more example of how central banks’ global coordinated monetary stimulus in the wake of the financial crisis has increased systemic risk in the US: According to an analysis conducted by BlackRock, insurers are more vulnerable to a market downturn now than they were ten years ago.
The reason? Ultralow interest rates have forced insurers to venture into markets with higher yielding assets, forcing them to stomach more risk along the way. Whereas insurers once tended to adhere to only the safest types of fixed-income products – typically highly rated government and corporate debt – they’re increasingly buying exposure to risky high yield and EM products, along with illiquid private equity funds, to try and boost their earnings back to pre-crisis levels.
These products carry a potentially higher reward for insurers, but heightened risks are also omnipresent. In a downturn similar to the 2008 crisis, BlackRock estimates that US insurers’ holdings would drop by 11% – even more than they did during the crisis. Such a drop would be tantamount to $500 billion in losses.
‘The world’s largest money manager mined regulatory filings of more than 500 insurance companies and modeled their portfolios in a similar downturn. Their stockpiles – underpinning obligations to policyholders across the nation – would drop by 11 percent on average, according to its calculations. That’s significantly steeper, BlackRock estimates, than the group’s ‘mark-to-market’ losses during the depths of the crisis.

This post was published at Zero Hedge on Aug 29, 2017.

“As If It Never Happened” – Stocks, Bonds, Dollar & Gold Erase Almost All Sign Of Korea’s Missile Madness

Don’t worry America – biblical floods and a world on the verge of global thermonuclear war are no reason to be fearful…
As soon as the US equity market opened, the panic protection team went into action. Gold and Bonds have erased all their gains as the dollar and stock recover all their overnight losses…

This post was published at Zero Hedge on Aug 29, 2017.