Are Bonds Really On The Run? Why One Trader Is Skeptical

Yesterday we observed the biggest 2-day steepening in the 2s30s yield curve since the Trump election, following a confluence of events which we discussed in this post, and which resulted in a generous payday for at least one rates trader.
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So has the long-awaited moment of a long-end selloff arrived? Or, as SocGen’s FX strategist, Kit Juckes, put it, are “Bonds on the run?” Maybe not so fast, especially since much of the recent increase in yields has been for breakevens. Here are his thoughts.
Bonds on the Run?
The Tax Bill is still moving towards the Oval Office, and even critics concede that it boosts
growth a bit (more from the corporate tax cut than from the income tax cuts). While the
relationship between growth, economic slack and inflation remains as much a mystery as how
Father Christmas gets down the chimney, an uptick in breakeven inflation and in 10-year Note
yields isn’t shocking. The more breakevens rise, the less real yields rise, the less this affects the
dollar, unless or until it triggers a wholesale rethink on where Fed Funds are headed. So far, the
market remains convinced the destination is 2-point something. Bearish bond bets may make
sense, but FX conclusions are messier. We like short yen trades for now, but as with any carrybased
FX trades, it feels a bit like picking up pennies in front of a present-loaded sleigh…

This post was published at Zero Hedge on Dec 20, 2017.

Un-Merry Christmas: The Perverse Incentives to Over-Consume and Over-Spend

Isn’t it obvious that if we set out to design the most perverse, toxic and doomed system possible, we’d end up with the Keynesian Cargo Cult’s insane permanent growth/Landfill Economy?
Few topics are off-limits nowadays: the personal and private are now splashed everywhere for all to see. One topic is still taboo: the holiday’s perverse incentives to over-consume and over-spend, lest our economy implode. This topic is taboo because it strikes at the very heart of our socio-economic system, which is fundamentally based on permanent growth, the faster the better, as if unlimited expansion on a finite planet is not just possible, but desirable. In the current Mode of Production, the solution to every social and economic ill is to “grow our way out of it.” The solution to unemployment: jump-start growth by expanding consumption, spending and borrowing. The solution to stagnant wages: jump-start growth. The solution to declining profits: jump-start growth. The solution to government deficit spending: jump-start growth.

This post was published at Charles Hugh Smith on TUESDAY, DECEMBER 19, 2017.

The United States Lifted Own Ban On Funding Research To Engineer Deadly Viruses In A Lab

The US government may now fund research that looks into engineering a virus to be more deadly and transmittable after lifting a ban they previously placed on themselves.
According to Science Alert, the moratorium, which was imposed three years ago, froze funding for what’s called ‘gain of function’ research: controversial experiments seeking to alter pathogens and make them even more dangerous. Now, the money is back on the table, giving those trials the green light once more.
The director of the National Institutes of Health (NIH), Francis S. Collins, announced the lifting of the moratorium on Tuesday. Collins said ‘gain of function’ or GOF research with viruses like influenza, MERS, and SARS could help us ‘identify, understand, and develop strategies and effective countermeasures against rapidly evolving pathogens that pose a threat to public health.’
But not everyone thinks this is a good idea. In fact, most are concerned. It isn’t that this research wasn’t being conducted before, there’s a good chance it was. But once the federal government shows interest in something of this magnitude, it’s time to worry. Some are concerned that the new flow of funding heightens the risk that unseen breeds of deadly engineered pathogens could escape lab containment, which would then make their way to the public, or into the wrong people’s (the government’s) hands.

This post was published at shtfplan on December 20th, 2017.

Margin Debt, Backed by Enron-Dj -Vu Steinhoff Shares, Hits BofA, Citi, HSBC, Goldman, BNP

‘Shadow margin’ is a hot business for brokers. Now they’re licking their wounds. When the bankers of Christo Wiese, the former chairman and largest shareholder of Steinhoff International Holdings – a global retail empire that includes the Mattress Firm and Sleepy’s in the US – went to work on December 6 in the epic nothing-can-go-wrong calm of the rising stock markets, they suddenly discovered that much of their collateral for a 1.6-billion margin loan they’d made to Wiese had just evaporated.
Citigroup, HSBC, Goldman Sachs, and Nomura had extended Wiese this ‘securities-based loan’ in September 2016. His investment vehicles pledged 628 million of his Steinhoff shares as collateral, at the time worth 3.2 billion. He wanted this money so he could participate in a Steinhoff share sale in conjunction with the acquisition of Mattress Firm and Poundland, essentially borrowing against his Steinhoff shares to buy more Steinhoff shares.
This loan forms part of the $21 billion of debt associated with Steinhoff that global banks are exposed to.
But that December 6, the shares of Steinhoff plunged 64% to 1.07 on the Frankfurt stock exchange after the company announced the departure of the CEO and unspecified ‘accounting irregularities requiring further investigation.’

This post was published at Wolf Street on Dec 19, 2017.

Did the Economic Confidence Model Pick the Trump Tax Reform?

It is very interesting how the 2017.9 (Nov 24/25) turning point on the Economic Confidence Model has marked a most astonishing political event. The House passed their version of the Trump Tax Reform on Thursday, November 16th, 2017 just 8 days before the ECM target. Then on November 29th, 2017, the Senate passed a procedural vote on the Trump Tax Reform bill that allowed debate to begin on the measure with a final vote which came on Saturday, December 2nd, 2017, which was 8 days after the ECM turning point making it the dead center between the two votes.

This post was published at Armstrong Economics on Dec 20, 2017.

In Dramatic Reversal, China Gives Up On Deleveraging Pledge

Last week, when looking at the latest Chinese credit data, we made two troubling observations: first, China’s economic growth was slowing across a number of key data points despite massive new credit injected into the economy over the past year. Second, that the formerly massive credit impulse – which was responsible for pushing the global economy and markets out of the early 2016 rut – was no more, and that overall system credit growth slowed to 14.4% yoy from 14.9% the prior month, which was the slowest total credit growth in the past 27 months.
While there were some nuances, such as where in China’s economy was credit being overstimulated (household) and where it was stifled (shadow banking), the bottom line as we showed in one chart is that absent a significant burst in credit creation, or credit impulse, China’s real estate prices – the backbone of the entire economy and its “wealth effect” – was lookingat a hard landing.

This post was published at Zero Hedge on Dec 19, 2017.

What China Can Learn from America’s Great Depression

When Murray Rothbard’s America’s Great Depression first appeared in print in 1963, the economics profession was still completely dominated by the Keynesian Revolution that began in the 1930s. Rothbard, instead, employed the ‘Austrian’ approach to money and the business cycle to explain the causes for the Great Depression, and to analyze the misguided and counterproductive policies that were followed in the early 1930s, which, in fact, only intensified and prolonged the economic downturn.
To many of the economists in the early 1960s, Rothbard’s ‘Austrian’ approach seemed out-of-step with the then generally accepted textbook, macroeconomic approach that focused on a highly ‘aggregate’ analysis of economic changes and fluctuations on general output and employment as a whole. There was also the widely held presumption that governments could easily maintain economy-wide growth and stability through the use of a variety of monetary and fiscal policy tools.
Mises, Hayek and the Austrian Theory of Money and the Business Cycle However, in the early and middle years of the 1930s, the Austrian explanation of the Great Depression was at the forefront of the theoretical and policy debates of the time. Ludwig von Mises (1881 – 1973), first developed this ‘Austrian’ theory of the causes of inflations and depressions in his book, The Theory of Money and Credit(1912; 2nd revised ed., 1924) and then in his monograph, Monetary Stabilization and Cyclical Policy (1928).
But its international recognition and role in the business cycle debates and controversies in the 1930s were particularly due to Friedrich A. Hayek’s (1899 – 1992) version of the theory as presented in his works, Prices and Production (1932) Monetary Theory and the Trade Cycle (1933), and Profits, Interest and Investment (1939). A professor of economics at the London School of Economics throughout the 1930s and 1940s, Hayek was, at the time, considered by many to be the main competitor against John Maynard Keynes’s ‘New Economics’ that emerged out of Keynes’s 1936 book, The General Theory of Employment, Interest and Money.

This post was published at Ludwig von Mises Institute on 12/19/2017.