Yet Another Theory of the Fed? Uggh!

The world hardly needs another theory of the Fed, especially so soon after its Jackson Hole symposium. But we have a theory, too, and who knows, ours could be as close to the bulls-eye as any of the others. Plus, our theory is easy to explain – it rests on the simple premise that decision makers worry mostly about their reputations. We’ll propose that reputational risks are the primary drivers of central bank policies, and then we’ll use that belief to predict a major policy shift.
Why are reputations so important? Cynics might say they determine how much central bankers get paid once they leave the FOMC. Ben Bernanke, for example, wouldn’t collect $250,000 speaking fees and plush consulting contracts if he hadn’t bolstered his reputation during the Global Financial Crisis. And that’s not all – the crisis also lifted Bernanke’s power and importance beyond what it would have otherwise been. By landing in the Fed chair at an opportune time, he profited immensely.
Check out Fed Models Facing Technological Disruption
But our theory doesn’t depend on that particular type of cynicism. We doubt that personal greed drives the Fed’s policy decisions. Whether they intend to cash their golden tickets or not (we’ll take the over on ‘intend to’), we view FOMC members as highly regarded folks who’d like to remain that way. They’ve reached a foothold at their profession’s highest mountain’s uppermost peak, from where the only direction is down. And remember – they didn’t arrive safely at their foothold by accident. If the president taps you for FOMC duty and sends you before Congress for approval, you’re already adept at protecting your reputation. You’ll probably do ‘whatever it takes’ to steer clear of any reputational damage that could arise in the future.

This post was published at FinancialSense on 09/07/2017.

See no evil, speak no evil…

The Jackson Hole speeches of Janet Yellen and Mario Draghi last week were notable for the omission of any comment about the burning issues of the day: …where do the Fed and the ECB respectively think America and the Eurozone are in the central bank induced credit cycle, and therefore, what are the Fed and the ECB going to do with interest rates? And why is it still appropriate for the ECB to be injecting raw money into the Eurozone banks to the tune of $60bn per month, if the great financial crisis is over?i
Instead, they stuck firmly to their topics, the Jackson Hole theme for 2017 being Fostering a dynamic global economy. Both central bankers told us how good they have been at controlling events since the last financial crisis. Ms Yellen majored on regulation, bolstering her earlier-expressed belief that financial crises are now unlikely to happen again, because American banks are properly regulated and capitalised.

This post was published at GoldMoney on August 31, 2017.

Want to Grow the Economy? Stop Listening to Clueless Economists

The great investor and writer Andy Kessler frequently points out that the failure rate among Silicon Valley start-ups is 90 percent. Every member of the economics profession would be wise to memorize the previous figure, and repeat it daily. If so, economists might come closer to understanding why they’re mystified by what they deem slow economic growth. And mystified they are. So much so that they’ve apparently given up.
According to New York Times reporter Binyamin Appelbaum, the theme that emerged from the Kansas City Fed’s Jackson Hole confab is that economists have ceased offering growth proposals. Appelbaum indicates that they’re playing defense now; floating ideas to allegedly ensure things don’t get worse. Having tried everything since 2008 (more on this in a bit), they’ve given up arguing about what they plainly don’t understand, or recognize. It almost renders the credentialed sympathetic in some weird, pathetic way.
And it’s encouraging. While the role of central banks (the Federal Reserve is the world’s #1 employer of economists) in the economy is vastly overstated either way, it’s good to see a routinely incorrect profession realize that it is nearly always incorrect. The first step to healing is recognition of the problem, or something like that.
While central bankers plainly don’t understand what drives economic growth, they need to realize that what they do has little to do with growth as is. Lest they or readers forget, central banks project their always overstated and rapidly shrinking economic influence through antiquated banks; banks arguably the least dynamic sources of credit in the world, and surely the least dynamic in the U. S. Going back to the Silicon Valley stat that begins this piece, does any sane person think banks have anything to do with the finance that drives this hotbed of innovation? This is a short way of saying that even if central bank economists actually had a clue, their doings would have little relevance to the economic sectors that actually power growth.

This post was published at Ludwig von Mises Institute on August 31, 2017.

All Eyes On August Payrolls, As Global Stocks Rise In Bullish September Start; Yuan Surge Continues

With payrolls looming (our full preview is here), carbon-based traders around the globe are leery of putting on any major trades and so the overnight session has been rather dull, dominated by the now traditional overnight algo-mediated levitation, which means the VIX is lower and S&P futures are once again modest higher as European and Asian shares continue their ascent.
‘A decent payrolls number today would be the icing on the cake in a week that has seen some positive signs that the U. S. economy may be in better shape than was previously thought prior to Jackson Hole,’ analyst Michael Hewson at CMC Markets writes in note. ‘Annual hourly wage growth is currently 2.5%, a little on the weak side for an economy supposedly at full employment, so a strong number here could increase the odds of another rate rise this year, most likely in December.’
While we have penned a longer preview of today’s jobs report, the only chart that may matter for today’s payrolls print, expected at 180K, is the following from Morgan Stanley, which predicted the July print to the dot, and which anticipates a big miss in the August jobs number, at 136K vs the 180K expected (see full preview here).

This post was published at Zero Hedge on Sep 1, 2017.

Euro Tumbles, Bunds Spike On Report ECB “Growing Worried” About Strong Currency

It’s time to start worrying about currency wars again.
Moments ago, with the EURUSD trading just shy of 1.19 and having risen above the “red line in the sand for corporate profits” 1.20 mark earlier in the week, the ECB again used its favorite trial balloon news service, Reuters, to suggest that not only is Draghi not in any rush to announce tapering (or tightening) of the European central bank’s QE and/or NIRP (something last week’s Jackson Hole confirmed all too well), but that with a growing number of ECB policymakers worried about the strong Euro, there is an increasing chance of a “more gradual exit” from asset purchases, Reuters reported:
EURO CONCERNS INCREASE CHANCE OF DELAY IN QE DECISION, OR A MORE GRADUAL EXIT FROM ASSET PURCHASES: RTRS STRONG EURO IS WORRYING A GROWING NUMBER OF ECB POLICYMAKERS: RTRS Some more details from Reuters:

This post was published at Zero Hedge on Aug 31, 2017.

The Path to Economic Growth Is An Absence of Economists

The great investor and writer Andy Kessler frequently points out that the failure rate among Silicon Valley start-ups is 90 percent. Every member of the economics profession would be wise to memorize the previous figure, and repeat it daily. If so, economists might come closer to understanding why they’re mystified by what they deem slow economic growth. And mystified they are. So much so that they’ve apparently given up.
According to New York Times reporter Binyamin Appelbaum, the theme that emerged from the Kansas City Fed’s Jackson Hole confab is that economists have ceased offering growth proposals. Appelbaum indicates that they’re playing defense now; floating ideas to allegedly ensure things don’t get worse. Having tried everything since 2008 (more on this in a bit), they’ve given up arguing about what they plainly don’t understand, or recognize. It almost renders the credentialed sympathetic in some weird, pathetic way.
And it’s encouraging. While the role of central banks (the Federal Reserve is the world’s #1 employer of economists) in the economy is vastly overstated either way, it’s good to see a routinely incorrect profession realize that it is nearly always incorrect. The first step to healing is recognition of the problem, or something like that.

This post was published at Ludwig von Mises Institute on September 1, 2017.

Wall Street Journal Lashes Out At “Our Political Central Bankers”

While the concept of ‘independence’ among the unelected central bank cognoscenti is as cute as the tooth fairy or santa claus, it is nevertheless defended by those on high as sacrosanct to our very democracy. That is until The Wall Street Journal’s editorial board finally had enough of Fed officials joining the ‘resistance’ against financial reform…
Via WSJ,
Janet Yellen didn’t run for President, but you wouldn’t know it from her policy dmarche Friday at the Federal Reserve’s annual Jackson Hole retreat. The Fed Chair unleashed a defense of post-crisis financial regulation that shows how political the world’s central bankers have become.
‘Already, for some, memories of this experience may be fading – memories of just how costly the financial crisis was and of why certain steps were taken in response,’ Ms. Yellen said.

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

Bill Blain: “North Korea Is Waving A Red Flag In The Bull’s Face. What Will Donald Do?”

Mint – Blain’s Morning Porridge – August 23rd 2017
‘Out on the road today, I saw a deadhead stick on a Cadillac.. A little voice inside my head said, ‘Don’t look back. You can never look back.”
Interesting start to the last week of summer: a nasty dose of considered North Korean provocation, disbelief at what Hurricane Harvey is doing to Texas, handbags betwixt UK and EU on ‘negotiating seriously’ over Brexit, and all these before we even get a whiff of this week’s EU data and US payrolls on Friday. I won’t even bother about Jackson Hole last week – yawn – we’ll talk about Central banks come September.
The market reaction to the latest North Korean missile flight tells us everything we need to know: Risk Off. Equities wobble, gold up, bond yields down and gold higher. Markets understand the reality: the Trump Jump is now well and truly over – Treasury yields are right back down there, the dollar is down 10%, stock markets have gone short, yet the US populace. But if there was a snap election tomorrow….. Don’t even think about it..

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

Gold Surges 2.6% After Jackson Hole and N. Korean Missile

– Gold surges as N. Korea fires ballistic missile over Japan
– Safe haven buying sees gold break out to 10-month high after Jackson Hole and rising North Korea risk of attack on Guam
– South Korea’s air force dropped eight MK 84 bombs near Seoul; simulating the destruction of North Korea’s leadership
– Gold rises from $1,291 to $1,325; Silver surges 3.2% from $17.05 to $17.60
– Volatility as seen in VIX surges as stocks fall; FTSE -1.1%
– Yen rises in short term but no safe haven in long term with gold haven risen 9.8% per annum in JPY (see chart)
– Gold was moving higher after Jackson Hole and had broken through crucial $1,300/oz level
– Asian geopolitical risk allied to U. S. political instability increasing safe haven bid
– $20 trillion U. S. debt ceiling storm looms
Editor: Mark O’Byrne
This morning the price of gold has rallied to its highest point since the Trump’s election. North Korea’s firing of a missile over Northern Japan which landed in waters off Hokkaido in the Pacific, has sharply escalated tensions in the Korean peninsula and in Asia.
This latest move by Kim Jong Un was intended to show that an attack on Guam is possible at any time, according to North Korea’s Mun-hwan.

This post was published at Gold Core on August 29, 2017.

Are You Prepared for These Potentially Disruptive Economic Storms?

Here in San Antonio, grocery stores were packed with families stocking up on water and canned food in preparation for Hurricane Harvey, which has devastated Houston and coastal Texas towns. I hope everyone who lives in its path took the necessary precautions to stay safe and dry – this storm was definitely one to tell your grandkids about one day.
Similarly, I hope investors took steps to prepare for some potentially disruptive economic storms, including this past weekend’s central bank symposium in Jackson Hole, Wyoming, and the possibility of a contentious battle in Congress next month over the budget and debt ceiling.
As you’re probably aware, central bankers from all over the globe visited Jackson Hole this past weekend to discuss monetary policy, specifically the Federal Reserve’s unwinding of its $4.5 trillion balance sheet and the European Central Bank’s (ECB) ongoing quantitative easing (QE) program. Janet Yellen gave what might be her last speech as head of the Federal Reserve.
As I told Daniela Cambone on last week’s Gold Game Film, there are some gold conspiracy theorists out there who believe the yellow metal gets knocked down every year before the annual summit so the government can look good. I wouldn’t exactly put money on that trade, but you can see there’s some evidence to support the claim. In most years going back to 2010, the metal did fall in the days leading up to the summit. Gold prices fell most sharply around this time in 2011 before rocketing back up to its all-time high of more than $1,900 an ounce.

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

Fed Chairs & Credit Bubbles

New York | Fed Chair Janet Yellen’s defense of the benefits of regulation last week in Jackson Hole probably killed her chances for reappointment, but the more pressing reason to see Yellen return to the private sector is visible in the US real estate market. Chair Yellen and her colleagues have created large bubbles in many assets classes from residential homes to commercial real estate to construction lending. As in the 2000s, this latest bout of asset price inflation will not end well for banks or investors.
In this issue, The Institutional Risk Analyst looks at the most recent bank portfolio data from the Federal Deposit Insurance Corp for Q2 2017 to see what it says about asset prices and inflation. For some quarters now, the credit statistics for the $16 trillion asset banking system has been too good to be true, in some cases suggesting that credit events have no cost. The last time that this circumstances existed was the mid-2000s, when several large mortgage banks were reporting a negative cost – that is, a profit – from default events.
The same real estate market dynamic that allows growing numbers of Americans to take cash out of their homes is depressing the cost of loan defaults to half century lows. Even faced with this rather striking situation, our faithful public servants on the Federal Open Market Committee can actually stand up in public and say that inflation is too low. The skews in the credit world are so large that some banks are actually earning a profit on recoveries after a loan balance is repaid in full.

This post was published at Wall Street Examiner on August 28, 2017.

The average American had a bigger savings account… in 1997!

Quite literally as a I write these words to you, the heads of the world’s largest central banks are packing their bags and heading home after a three-day symposium in Jackson Hole, Wyoming.
Central bankers aren’t exactly mega-celebrities, so their conferences don’t make international news outside of financial circles.
But if people understood what was at stake, they’d probably pay more attention.
Central bankers wield totalitarian authority over their nations’ interest rates.
Setting interest rates means they have direct influence over the price of money. In other words, they influence the price of EVERYTHING –
How much you pay for your mortgage. The price of your home. How cheap (or expensive) it is for a business to borrow money for expansion… which directly affects how many people they hire.
Their influence over rates helps determine how much interest the government pays each year on its debts, which ultimately impacts tax rates and other spending programs.
It’s extraordinary power.

This post was published at Sovereign Man on August 28, 2017.

SWOT Analysis: Gold Reacts to Jackson Hole

Strengths
The best performing precious metal for the week was gold, closely followed by silver, up in tandem 0.56 percent and 0.47 percent, respectively, after a see-saw week in price action for the metals. Prices have been choppy over the last seven trading sessions but have held onto recent gains. As reported by ZeroHedge, the price of gold started moving up on Friday after Dallas Federal Reserve Bank President Robert Kaplan spoke on Bloomberg TV. Kaplan, who shared his thoughts ahead of Janet Yellen’s speech, said that a market correction wouldn’t necessarily hurt the economy, but instead could be healthy. The dollar also headed lower Friday after Yellen’s speech that left the possibility of a rate hike up to interpretation. Some investors have been pulling money from ETFs betting on gold, but hedge funds are flocking to gold, reports the Financial Times. According to the article, buying of gold futures contracts by hedge funds and other speculators has surged a record $19 billion or 474 tonnes over the past month. Analysts say this movement is spurred by concern over ‘lofty equity market valuations and geopolitical tensions.’ Just prior to Yellen’s speech on Friday, futures contracts representing 2 million ounces of gold crossed hands, keeping the trend alive.

This post was published at GoldSeek on 28 August 2017.

Hurricane Harvey Dominates the Stock Market News Today

Damage from Harvey leads the DJIA news today as the storm shuttered oil and natural gas production refineries and pushed gasoline futures to two-year highs. Dow Jones futures are flat – up just 20 points before trading – as the nation’s fourth-largest city is submerged under flood water.
The Dow Jones news today will also focus on the results from the Fed’s Jackson Hole summit last week, updates on Uber’s new CEO, and major earnings reports…
Here are the numbers from Friday for the Dow, S&P 500, and Nasdaq:

This post was published at Wall Street Examiner on August 28, 2017.

Global Stock Markets Weaker; Euro Currency Hits 2.5-Year High

(Kitco News) – World stock markets were mostly lower to start the trading week. Traders and investors were disappointed that last week’s Jackson Hole, Wyoming central bankers meeting did not offer any new guidance on the monetary policies of the world’s major central banks. U. K. markets are closed Monday for a holiday. U. S. stock indexes are pointed toward weaker openings when the New York day session begins.
Gold prices are higher and have pushed above the key $1,300.00 level in overnight trading. A slumping U. S. dollar index is supporting the gold market bulls.

This post was published at Wall Street Examiner on August 28, 2017.